UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  FORM 10-KSB



(Mark  One)
     [X]  Annual report under Section 13 or 15(d) of the Securities Exchange Act
          of 1934 for the fiscal year ended January 2, 2005

     [ ]  Transition report under Section 13 or 15(d) of the Securities
          Exchange Act of 1934 for the transition period from ____ to______.


                        Commission file number: 000-49862

                             PROCERA NETWORKS, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)


                  Nevada                               33-0974674
       --------------------------------     ---------------------------------
       (State or other jurisdiction of      (IRS Employer Identification No.)
       incorporation  or  organization)


3175 South Winchester Boulevard, Campbell, California                  95008
----------------------------------------------------------             -----
     (Address of principal executive offices)                       (Zip Code)

Issuer's  telephone  Number  (408)  874-4675
                             ---------------

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
     --------    -------
The number of outstanding shares of the issuer's common stock, $0.001 par value
(the only class of voting stock), as of January 2, 2005 was 24,115,406.


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TABLE OF CONTENTS

                                     PART I

Item 1     Description of Business                                    3

Item 2     Description of Property                                    17

Item 3     Legal Proceedings                                          17

Item 4     Submission of Matters to a Vote of Security Holders        17

                                    PART II

Item 5     Market for Common Equity and Related Stockholder Matters   19

Item 6     Management's Discussion and Analysis or Plan of Operation  19

Item 7     Financial Statements                                       27

Item 8     Changes in and Disagreements with Accountants on           62
           Accounting and Financial Disclosures

Item 8A    Controls and Procedures                                    62

                                    PART III

Item 9     Directors and Executive Officers of the Registrant         63

Item 10    Executive Compensation                                     66

Item 11    Security Ownership of Certain Beneficial Owners and        67
           Management and Related Stockholder Matters

Item 12    Certain Relationships and Related Transactions.            68

Item 13    Exhibits and Reports on Form 8-K.                          69

Item 14    Principal Accountant Fees and Services.                    69

Signatures                                                            70

Index to Exhibits                                                     71

Certifications


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                                     PART I
                                     ------

     This  report  contains  forward-looking  statements  within  the meaning of
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). We have
based  these forward-looking statements largely on our current expectations  and
projections  about  future  events and financial trends affecting the  financial
condition  of  our  business.  These forward-looking statements are subject to a
number  of risks, uncertainties and assumptions, including, among  other things:

     -    general economic and business conditions, both nationally and in our
          markets,
     -    our history of losses,
     -    our expectations and estimates concerning future financial
          performance, financing plans and the impact of competition,
     -    our ability to implement our growth strategy,
     -    anticipated trends in our business,
     -    advances in technologies, and
     -    other risk factors set forth under "Risk Factors" in this prospectus.

     In  addition,  in  this  report,  we  use  words  such  as  "anticipates,"
"believes,"  "plans," "expects," "future," "intends," and similar expressions to
identify  forward-looking  statements.

     Procera  Networks,  Inc.  ("Procera"  or  the  "Company")  undertakes  no
obligation  to update publicly or revise any forward-looking statements, whether
as  a  result  of  new information, future events or otherwise after the date of
this  annual  report.  In  light  of  these  risks  and  uncertainties,  the
forward-looking events and circumstances discussed in this annual report may not
occur  and  actual  results  could  differ  materially from those anticipated or
implied  in  the  forward-looking  statements.


ITEM  1.     DESCRIPTION OF BUSINESS

HISTORY.

     Procera  was formed as a result of a merger and plan of reorganization (the
"Merger")  between Zowcom, Inc. ("Zowcom") and Procera Networks, Inc. ("PNI"), a
Delaware  corporation  incorporated  on  May  1, 2002.  On October 16, 2003, PNI
merged into Zowcom in a stock-for-stock transaction.  As a result of the Merger,
Zowcom  continued  as  the  surviving  corporation,  assumed  the operations and
business plan of PNI, the stockholders of PNI became stockholders of Zowcom, and
Zowcom  changed  its name to Procera Networks, Inc. ("Procera" or the "Company")
(trading symbol OTC: BB: PRNW.OB).  Zowcom was incorporated on July 11, 2001 and
provided customized websites and web-based planning services.  It generated less
than  $10,000  in  revenues  per  year.

INTRODUCTION

     Headquartered  in  Campbell,  CA,  Procera  develops  intelligent  network
appliances  that provide a non-intrusive, wire-speed network overlay to protect,
control  and  optimize internal IP-based networks.  Procera's OptimIP(TM) family
of  network  appliances  enables  businesses  of  every  size and type to regain
control  over  their  internal  networks.

     Because the Network is the core of the business, companies must:

     -    Ensure application efficiency and quality of service (QoS)
     -    Eliminate network misuse and bandwidth abuse, and
     -    Enforce corporate policies and regulatory compliance.

     The Procera OptimIP(TM) product family includes a range of scalable network
appliances  that  provide  a  comprehensive  suite  of software applications for
secure  content  management,  network  optimization,  advanced  policy-based


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compliance  and selective surveillance.  OptimIP(TM) appliances are designed for
quick  installation,  ease  of  management  through  policy-based  control,  and
seamless  integration  with  existing  network  infrastructures  and  equipment.
Procera  products  empower  organizations  to  maximize  productivity  through
intelligent  control  of  the  application  network infrastructure at a far more
selective  and  granular  level than what is possible using conventional network
security  systems.

     Procera  OptimIP(TM)  products  are  based  on  Procera's  IP-Return(TM)
Architecture,  which  enables  wire-speed, deep-packet processing and inspection
for  quality  of service, prioritization, optimization, bandwidth management and
business-driven  control  from  the user to the application to the network.  For
today's  businesses,  information  is  the lifeblood, web applications provide a
vital yet often-abused window to the world, and network security and performance
are  essential  business  assets.  Where  in  past  times,  the  network was the
computer,  today  the  network  is  the  business.  Procera's OptimIP appliances
provide  the  "intelligence inside networks" that is essential to today's highly
functional,  compliance-driven  and  risk-averse  organizations.

THE GROWING CHALLENGES OF INTERNAL SECURITY, COMPLIANCE AND PERORMANCE

     Today,  the  lion's  share  of  the  cost  of  IT infrastructure comes from
day-to-day  systems  operations. Yet, many businesses and their IT organizations
lack  control  over  their  internal  networks.  The costs of bandwidth, network
management,  lost  productivity,  and  network misuse and abuse far outweigh the
initial  costs  of  the  application  and  networking infrastructure. In today's
cost-sensitive  IT  environments, businesses need to control costs but have been
compelled to over-provision their networks to ensure the performance, efficiency
and  availability  of  mission-critical  applications.  In  addition,  they have
lacked  visibility  into  how real-time network loads, misuse, and even outright
abuse  degrade  application  performance  and  result  in  significant  lost
productivity.  Following  are  some of the foremost problems that companies face
in  today's  network-enabled  business  environments:

     -    Compliance  with  government  regulatory  requirements  and  corporate
          policies  requires archiving and retention of business communications.
          A  network-driven compliance strategy can keep executives out of legal
          jeopardy while ensuring storage systems are not filled with junk data.
     -    Network  misuse  and  abuse  causes  significant  costs  from  lost
          productivity and lost business.
     -    Companies  may  be  liable  for  non-business and inappropriate use of
          network resources such as peer-to-peer music downloading, pornography,
          etc.  Controlling  or  eliminating  non-business  usage  has  become a
          business imperative.
     -    Most  business  networks  are  secured  from  the  outside in, leaving
          corporate  LANs,  WANs  and  WLANs relatively open to attacks from the
          inside  and  insider  misuse.  Additional  network security behind the
          firewall  is  required  to  control  insider  fraud  as  well  as  the
          introduction of viruses, worms and other network-borne abuse.
     -    LAN/WAN  speeds  are  mis-matched:  WAN-width  is  more expensive than
          LAN-width,  so many companies have implemented WAN-facing optimization
          schemes.  However, real-world network performance is largely dependent
          on  the  latency  and  congestion  of  the  underlying  LAN/WLAN
          infrastructure.
     -    IP-based  networks  are  being  deployed  as  converged topologies for
          data,  streaming,  video  and  mission-critical business applications.
          Delay-sensitive  and time-constrained applications such as VOIP (voice
          over IP), audio/video streaming media, etc. require high bandwidth and
          consistent  performance.  Meanwhile, the performance and response time
          of  transactional ERP, database and Citrix applications are subject to
          network  congestion  and bottlenecks. Network optimization systems are
          required  to  intelligently  optimize,  accelerate  and  control these
          converged networks.
     -    The  cost  and  management  complexity  of network solutions to enable
          compliance, control content, provide security and optimize performance
          are increasing. Integrated solutions are required instead of disparate
          products.


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     As  a  result  of these problems, many business applications do not perform
efficiently,  consistently  or  reliably  over IP-based networks without massive
over-provisioning  or  performance-degrading  contention and latency. Procera is
committed  to  empowering  businesses  to  align  their  business  policies with
computing  resources  to ensure that applications achieve needed performance and
availability  levels  at  the  lowest  possible  cost.

INDUSTRY BACKGROUND

     With the rapid proliferation of information and the explosive growth of the
Internet,  the  need for smarter, wire-speed networking appliances has increased
dramatically  over  the  past  several  years.  Another "revolutionary" industry
changing  phenomenon has been the advent, and daunting tasks required for public
corporations  to  manage, and meet Sarbanes-Oxley compliance.   Corporations are
faced  with  an  ever  increasing  need  to  protect  the network from potential
malicious  external,  and  more importantly, internal security threats which can
compromise  the  integrity  of  the  financial  reporting.

     Additionally,  in  today's  work  environment  the  internet  has enabled a
significant  amount  of  computer  network  usage  completely  unrelated  to the
business  of the employer.   The misuse and abuse of the corporate network asset
is  rampant  and  poses  significant  legal  liabilities as employees play video
games,  download  music,  buy  and  sell  stocks,  visit  gambling  websites  &
pornography,  check  their  personal  e-mail  and  use their employer's computer
network for many other purposes unrelated to their employment or the business of
their  employer.  The  combination  of these factors has driven the need for new
levels  of intelligence 'inside' the network to eliminate, control or secure the
content  being  passed  through  the  corporate  network.

    This  market  opportunity  was  the  reason  Procera developed its 'Insider'
intelligent  network  appliances  to help corporations enforce controls over web
enabled  applications and content including, Instant Messaging Blocking, Webmail
Blocking,  Peer-to-Peer  Downloading,  and  Inappropriate  Website  viewing.

THE PROCERA NETWORKS SOLUTION

     Procera's  intelligent network appliance solutions combine wire-speed, port
based networking hardware, which can be deployed in either a "core" or an "edge"
network topography, with Procera's patent pending software modules, available in
a  range  of  configurations  for usage control, internal protection, archiving,
compliance  and application acceleration.  The OptimIP(TM) 2402 "edge appliance"
sustains up to 8.4 Gbps of throughput, while the OptimIP(TM) 12012 gigabit "core
appliance",  which was released in the fourth quarter of 2004, provides up to 24
Gbps  of  throughput.  The  value proposition for the OptimIP(TM) appliances are
really  driven  out  of  Procera's  three  software  modules  that  are  sold in
conjunction  with  the  OptimIP(TM)  2402  and  the  OptimIP(TM)  12012.  The
OptimIP(TM)  Application  Accelerator,  OptimIP(TM)  Network  Protector  and the
OptimIP(TM)  Compliance  Executive  feature sets are each described below.   All
appliances  are  managed  through an intuitive graphical user interface that can
implement  and  match  companies'  corporate  content and security policies into
their  network.

PROCERA'S PRODUCTS

OPTIMIP(TM) APPLICATION ACCELERATOR

     The OptimIP(TM) Application Accelerator works with WAN network optimization
and  bandwidth-management  systems  enabling  IT  groups to transparently manage
overall  quality  of  service,  bandwidth,  and  application  prioritization  to
maximize  the  ROI  of  existing  corporate  and  campus  networks.

     The  OptimIP(TM)  Application  Accelerator supercharges any existing 10/100
Mbit  Ethernet  network  to  perform  like  Gigabit  Ethernet  which  provides
significant  cost  savings  to organizations. The OptimIP(TM) solution maximizes
the  efficiency  of converged network topologies to enable multiple applications
with  different  performance  characteristics  to  work  efficiently  and
interdependently.  This  also  ensures  internal  networks  perform  at  maximum
efficiency  all while minimizing


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latency  and  congestion using existing bandwidth and equipment. Delay-sensitive
and  time-constrained applications such as VoIP and multimedia streaming require
timely  delivery  and  consistent  network  services.  Additionally,  ERP,  CRM,
database,  Citrix, and other business applications are particularly sensitive to
network  congestion and thus dependent on the effective allocation of bandwidth.
The  OptimIP(TM)  Application  Accelerator  ensures  that  business-critical
applications  receive appropriate network priority, while less important network
traffic can be rate limited in order to streamline internal networks for maximum
efficiency for every user, application and network.

OPTIMIP(TM) NETWORK PROTECTOR

     The  OptimIP(TM)  Network  Protector  restricts  the  misuse  of  personal
applications,  controls  network  bandwidth  abuse,  and  ensures  that
mission-critical  applications,  such as VoIP, Citrix, database and ERP systems,
execute  consistently  and  reliably  with  highest  possible  performance.

     Procera's  new  OptimIP(TM)  Network Protector can process up to 24 Gbps of
sustained  throughput  at network speeds without introducing latency and provide
guaranteed  service  levels  for  VoIP,  streaming  media  and business-critical
applications,  such  as  ERP/MRP,  database  and  other  transaction-intensive
applications  --  all  using  existing  bandwidth,  LAN  topologies  and network
equipment.

     Procera's  OptimIP(TM)  Network  Protector  provides  LAN/WAN  bandwidth
management  through  rate  limiting,  with granular flow control down to 64 Kbit
increments,  eight  priority  queues,  and  managed  bandwidth  for latency- and
congestion-sensitive  applications,  quality  of service compatible with 802.1p,
TOS,  and  DiffServ  QoS  topologies,  and  per-port  and per-flow expert policy
control  --  all  easily  configurable  from  a  graphical  dashboard.

OPTIMIP(TM) COMPLIANCE EXECUTIVE

     The  OptimIP(TM)  Compliance  Executive  includes  the functionality of the
OptimIP  Application  Accelerator  and  the Network Protector and adds selective
surveillance,  data  retention  and  archiving  to  facilitate  meeting  the new
regulatory  and  governmental compliance regulations. The OptimIP(TM) Compliance
Executive  allows  corporations  to:

     -    Archive  business  data  and  communications  for  compliance  with
          government regulations and business policies
     -    Implement  selective  and  cloaked  surveillance  of  potential
          internal  fraud  or  other  breaches  of corporate policies and retain
          critical information required for evidence and prosecution.

     Procera's  OptimIP  Compliance  Executive  is  a  powerful  appliance  that
provides  network  administrators with the ability to define high-level policies
for  traffic  mirroring  to  network analyzers, log servers, Intrusion Detection
Systems,  etc.  Businesses  can  record  everything employees do online with the
OptimIP(TM)  Compliance  Executive,  including  Websites  visited,  emails,  and
instant  messages.  Policies  define  which traffic to forward to the designated
monitor  port.  The  OptimIP  filters  traffic  at  wire-speed, so no latency is
introduced  and policies operate transparently to applications and users.  Using
the  intuitive  graphical  user  interface  for  Procera's  OptimIP  Compliance
Executive,  even  a  non-technical administrator can define policies down to the
packet,  user,  or  application  level  to  provide  a new level of security and
compliance.

APPLICATIONS OF PROCERA'S TECHNOLOGY

     Procera's  core  technology  of wire-speed information processing, based on
the  contents  of  the  data  packets,  can  be used as the foundation of myriad
solutions  -  e.g.,  IT  security,  network  performance  management,  capacity
planning,  storage  archiving,  hierarchical storage management, network traffic
shaping,  etc.  Presently,  Procera  focuses  on  three major application areas:
application  bandwidth  management  over  networks,  network security inside the
enterprise,  and  archiving  of  business  communications  for  compliance.


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     As  network utilization consumed by non-business applications (for example,
music  downloads  or Internet surfing) continue to grow, performance of business
critical  applications  is  seriously impacted. Procera's technology assists the
performance of business critical applications using a variety of approaches like
band  width  reservation, rate limiting, prioritization, etc. depending upon the
needs  and  objectives  of  the  enterprises.

     With  the  Internet, enterprise networks have become vulnerable not only to
the  security  threats from the outside world, but also from the "trusted" users
within  the  enterprise.  Many  cases of the security attacks originate from the
employees  in  most  companies. Unfortunately, traditional security systems like
Firewall,  IDS,  IPS,  etc.,  which  were  designed  to  provide protection from
security  attacks  coming  from  outside, are not suitable to provide protection
from  inside threats. Procera's appliance provides protection through wire-speed
inspection  of  the unique byte signatures of applications - a novel approach to
security  that  is not provided by any port based traditional security system in
the  world.

     E-mail  and  message  archiving  is a specific storage application that has
quickly  emerged as a critical need. In addition to conventional e-mail traffic,
instant  messages  (IMs),  SMS/MMS  cellular text messages, and wireless e-mail,
e-mail  and  message  archiving  need  to  be monitored and properly indexed and
archived  for  compliance  with the regulations like HIPAA, Sarbanes Oxley, etc.
Our  technology  provides  a  scalable,  high  performance IM archiving solution
that  can  be installed in both wire-line and wirelessLANs  and  WANs,  as  well
as  in  cellular  telephone  networks. Furthermore, our technology  enables  the
control,  monitoring,  and archiving of any message type regardless of source or
transport  method.  Current e-mail archiving solutions are typically  limited to
standard  e-mail  traffic  passing through a company's e-mail server, and cannot
effectively  archive  other  types  of  messages.

DISTRIBUTION METHODS

     Procera currently markets and sells its products through a channel of world
wide  distributors,  value added resellers (VARs), and system integrators (SIs).
In  early  2005,  the Company hired and deployed an initial group of US domestic
regional  sales  managers  and  international  territory  sales  managers.  Each
manager  is  responsible  for  recruiting and developing a channel in his or her
individual  region  or territory. That channel will consist of a mix of regional
distributors,  VARs  and  SIs.  The sales managers are responsible for choosing,
recruiting, training and motivating channel partners in their individual regions
or  territories.  This  market  penetration  strategy  will  be  augmented  by a
concerted  and  concentrated  OEM  partner  strategy.  Procera  recognizes  the
difficulty  of  attacking  the  large  entrenched  competitors  in  the  network
infrastructure  equipment  and router/switch market. While Procera positions its
product  line as a group of non-invasive network overlay appliances that deliver
new  and meaningful network management capabilities, Procera will pursue some of
these  existing  networking  infrastructure  equipment  incumbents  as  its  OEM
partners.  Procera's  product will enable these OEM customers and their channels
to  offer their customers the new Procera enabled capabilities and functionality
in  network  security,  control  and  optimization,  without  jeopardizing  the
deployment  of  any  of  their  current  equipment,  or  end  user  customer
relationships.

     Procera  has  already  begun  signing  and training a significant number of
channel  partners  in  all  six  domestic  regions  and  selected  international
territories,  and  is  in  preliminary  discussions  with  a few selected OEM's.

COMPETITION

     Procera's  products and technology cut across several networking, security,
and  bandwidth  management  market  segments,  including Linux-based servers and
networking  hardware  devices  that  control how, when and where voice, data and
video  are  transmitted  and received.  Procera's intelligent network appliances
are  used  to manage network content such as security (disallowing certain types
of  traffic),  rate  limiting,  QoS  (prioritizing  traffic)  and  surveillance


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(monitoring  and  archiving of email and instant messaging).  However, Procera's
management  believes  that  no  current  competitor  provides  a hardware-based,
application  signature based identification that performs all of these solutions
entirely  at  wire-speed.

     While  the  OptimIP(TM)  network  appliances  do  compete  with  the  major
networking,  routing  and  switching  brand leaders such as Cisco Systems, Inc.,
Foundry  Networks  and  Extreme  Networks,  Inc., Procera's core technology also
intersects  many  of  the  firewall,  bandwidth  management,  and  web  content
surfing/blocking  companies like ServGate, Packeteer and Surf Control to control
and  manage  how  data  flows  through  the  network.  The  OptimIP(TM)  network
appliances provides the functionality of most of these single point solutions at
a  fraction  of  the purchase cost while also significantly reducing the overall
cost  of  ownership  due  to  ease  of use of Procera's intuitive graphical user
interface,  network  deployment,  management  and maintenance.  OptimIP(TM) wire
speed,  network  appliances are designed as cost effective alternatives to these
costly,  server-based  products.  Procera's  advantage  is that its products are
able  to intelligently process the data flowing in and out of the network across
all  ports  at  wire-speed  which  the server based product are unable to handle
without  significantly  slowing  down  the  network.

     Procera's  market  positioning is strengthened by a combination of factors.
Firstly,  unlike  most of its competition in the firewall, bandwidth management,
and  web  content  control  space  which are almost all WAN facing, Linux server
based  and  can only process data at a maximum rate of 1Gbps, Procera appliances
can  deliver  20  times  more  throughput at one-third the price against most of
these  competitors  -  all  in  a  single  port-based appliance. The servers and
proxies  sold by Procera's competitors require major network overhauls to direct
the  traffic  through  these single point solutions which require all data to be
taken  off  the  network,  inspected,  and  then  routed back into the LAN, thus
causing  the  network to degenerate as a result of having only 1 port and 1 Gbps
maximum  throughput  capacity.  Procera's  policy  generation engine is hardware
embedded,  coupled  with  24  10/100  ports  on  the  OptimIP(TM)  2402  and  12
10/100/1000 ports on the OptimIP(TM)  12012, thus facilitating the capability of
delivering  deep  packet  inspection,  and  multi-port  intelligence  at  true
wire-speed,  without  causing  network  degradation.

MANUFACTURING

     Procera  utilizes  a  hybrid  manufacturing  model that provides tremendous
flexibility and control while offering quick turn around for prototype and small
production  lots  through  contract  manufacturing  companies located in the San
Francisco  Bay  Area.  This  local  capability  also  offers  Procera quick turn
response  capability  to  any custom requirements that are often required by OEM
customers  and some foreign market opportunities.  Procera utilizes two turn key
off  shore manufacturing companies located in the People's Republic of China and
the  Republic  of  Singapore.  These operations are fully ISO 9001 certified and
have  a history or producing very high quality products of a similar complexity.
Procea  has  received  100%  tested  product  from  both  manufacturers  and has
established gold standard models.  By having two suppliers, located in different
parts  of  the  Pacific  Rim,  Procera  has  protection  from any potential work
stoppage  or  localized  political situation that might arise.  Procera also has
the  proven  capacity  to  address  rapid  expansion  of  its  business.  These
manufacturers  are  known  for  their  quality  and competitiveness and have the
proven  capital  resources  to  sustain  and  grow  their businesses as might be
required.

INTELLECTUAL PROPERTY

     Procera  designed  and  developed the industry's first hardware engine that
can  process  network  data  based  on  inspection  of  IP  packet  contents  at
wire-speed.  A  patent  application was filed in May 2002 with the US Patent and
Trademark  Office  covering  the intellectual property (design, architecture and
algorithms)  of core technology. A second patent application was filed in August
2002  to  cover  further details and applications of our core technology and the
underlying  design  and  algorithms.  Procera's  management  believes that these
patent  claims  provide  a  very  rich  combination  of  design  and  algorithms


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fundamental to future solutions in the areas of IT security, network performance
management,  capacity  planning,  storage processing and archiving, and security
surveillance, such as policy based time triggered actions (TTA) based on network
content,  application  prioritization  based  on unique byte signatures, tagging
packets  with  bytes  for  smart  processing.

     Procera currently requires all employees to sign confidentiality agreements
as well as proprietary information and inventions agreements. All the design and
architecture  work  is  done  at  its headquarters in Campbell, CA, and only low
level  protocol  testing  is  outsourced to India to take advantage of low labor
costs.

EMPLOYEES

     As  of  January  2,  2005,  Procera  employed  24  people, of which 11 were
employed  in  engineering,  5  in operations, 3 in sales and marketing, and 5 in
management  and  administration.  None  of  Procera's employees are members of a
labor  union.  Management  believes  that relations with its employees are good.

RISK FACTORS
------------

     Any  of  the  following  risks  could materially adversely affect Procera's
business,  financial  condition,  or  operating  results.


     PROCERA  IS  AN EARLY STAGE COMPANY AND THE PRODUCT OF A RECENT MERGER, AND
HAVE  A  LIMITED OPERATING HISTORY ON WHICH TO EVALUATE ITS POTENTIAL FOR FUTURE
SUCCESS.

     Procera  was  formed  as  a  result  of a merger of two separate companies,
Procera  Networks,  Inc.,  a  Delaware  corporation  ("PNI") and Zowcom, Inc., a
Nevada corporation ("Zowcom"), in October 2003, and to date have only one fiscal
year  of  combined  operations.  In  addition,  both  Zowcom  and PNI had only a
limited  operating  history  prior to the merger.  Therefore, Procera has only a
limited  operating  history  upon  which  you  can  evaluate  its  business  and
prospects,  and  it  has  yet  to develop sufficient experience regarding actual
revenues  to  be  received  from  its  combined  operations.

     Procera  has  only  recently  launched  many  of  the products and services
described  herein  and  therefore  is a start-up company.  You must consider the
risks  and  uncertainties frequently encountered by early stage companies in new
and  rapidly evolving  markets.  If  Procera is unsuccessful in addressing these
risks  and  uncertainties,  its'  business,  results of operations and financial
condition  will  be  materially  and  adversely  affected.


     PROCERA EXPECTS LOSSES FOR THE FORSEEABLE FUTURE.

     For  the year ended January 2, 2005, Procera had net losses from operations
of  $6,363,169.  Procera  will  continue to incur losses from operations for the
foreseeable  future.  These  losses  will result primarily from costs related to
product  development and substantial sales and marketing expenses.  In addition,
Procera  plans  to invest heavily in marketing and promotion, to hire additional
employees,  and  to  enhance  its  network  content and management technologies.
Procera's  management  believes  these  expenditures  are necessary to build and
maintain  hardware  and  software  technology  and  to penetrate the markets for
Procera's  products.  If  Procera's  revenue growth is slower than anticipate or
its'  operating  expenses  exceed expectations, its losses will be significantly
greater.  It  may  never  achieve  profitability.

     PROCERA MAY NEED FURTHER CAPITAL.

     Based  on  current  reserves  and  anticipated  cash  flow from operations,
Procera  currently  anticipates  that  the available funds will be sufficient to
meet  its  anticipated  needs  for  working  capital,  capital  expenditures and
business  expansion  through  June  2005.  Thereafter,  it  will  need  to raise
additional  funds.  If  any of its assumptions is incorrect, Procera may need to


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raise  capital  before  the  end  of  June 2005.  If additional funds are raised
through  the  issuance  of equity or convertible debt securities, the percentage
ownership  of  its  stockholders  will  be  reduced, stockholders may experience
additional  dilution  and  such  securities  may  have  rights,  preferences and
privileges  senior to those of our common stock.  There can be no assurance that
additional  financing will be available on terms favorable to Procera or at all.
If adequate funds are not available on acceptable terms, Procera may not be able
to  fund  expansion,  take advantage of unanticipated acquisition opportunities,
develop  or  enhance  services  or products or respond to competitive pressures.
Such  inability could have a material adverse effect on its business, results of
operations  and  financial  condition.

     HOLDERS OF PROCERA'S COMMON STOCK MAY BE DILUTED IN THE FUTURE.

     Procera is authorized to issue up to 50,000,000 shares of common stock.  To
the  extent of such authorization, its Board of Directors will have the ability,
without seeking stockholder approval, to issue additional shares of common stock
in  the  future  for  such  consideration as its Board of Directors may consider
sufficient.  The  issuance  of additional common stock in the future will reduce
the  proportionate  ownership  and  voting  power  of  its  common stock held by
existing  stockholders.  At  January  2,  2005,  there were 24,115,406 shares of
common  stock  outstanding,  common  stock  subscriptions  for 5,762,500 shares,
warrants to purchase 8,808,160 shares of common stock, stock options to purchase
3,173,000  shares  of  common  stock,  and  rights to purchase 325,000 shares of
common  stock.

     On  January  28,  2005,  Procera  filed  a Registration Statement under the
Securities  Act  of  1933  with  the  Securities and Exchange      Commission to
register  17,878,031  shares of common stock in connection with      the private
placement  of  common  stock  in  December 2004, and the Registration Statements
filed  by the Company on Form SB-2 declared effective on April 26, 2004 and June
30,  2004  by  the  Securities  and  Exchange  Commission.

     COMPETITION FOR EXPERIENCED PERSONNEL IS INTENSE AND PROCERA'S INABILITY TO
ATTRACT  AND  RETAIN  QUALIFIED  PERSONNEL  COULD  SIGNIFICANTLY  INTERRUPT  ITS
BUSINESS  OPERATIONS.

     Procera's  future  success  will  depend,  to  a significant extent, on the
ability  of  its  management  to operate effectively, both individually and as a
group  subsequent  to  its recent merger.  Given its early stage of development,
Procera is dependent on its ability to attract, retain and motivate high caliber
key  personnel.  Procera  has  recently  expanded  its  sales  force,  and it is
actively searching for systems engineers, research and development engineers and
sales  and  marketing  personnel,  all  of  whom  are  in short supply.  Procera
currently  has a small indirect channel partner and end-user service and support
organization and will need to increase its staff to support new indirect channel
partners  and  end  users  and  the expanding needs of existing indirect channel
partners  and  end  users.  Additionally,  Procera  relies  on qualified systems
engineers  and  service  and  support  personnel  to provide pre- and post-sales
technical  support  for  its  products.  Competition for qualified  personnel in
the  networking  industry,  including systems  engineers, sales and  service and
support  personnel,  is intense, and Procera may not be successful in attracting
and  retaining  such  personnel.  There  may be only a limited number of persons
with  the  requisite  skills  to  serve in these key positions and it may become
increasingly  difficult to hire such persons.  Procera's business will suffer if
it  encounters  delays  in  hiring  these  additional  personnel.

     Procera's  performance is substantially dependent on the continued services
and  on  the  performance  of  its  executive  officers and other key employees,
particularly Douglas J. Glader, its Chief Executive Officer, and Anil Sahai, its
Chief  Technical  Officer.  The  loss  of  the  services of any of its executive
officers  or  key  employees  could  materially  and  adversely affect Procera's
business.  Additionally,  Procera  believes  it will need to attract, retain and
motivate  talented  management  and  other  highly  skilled  employees  to  be
successful.  It may be unable to retain our key employees or attract, assimilate
and  retain  other  highly  qualified  employees  in the future. Competitors and
others  have  in  the  past, and may in the future, attempt to recruit Procera's


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<PAGE>
employees.  Procera  does  not  have  employment  contracts  with  any  of  its
personnel.  Procera  currently  does  not  have  key  person insurance in place.

     PROCERA  MAY  BE  UNABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES IN ITS
MARKET  SECTOR  WHO  ARE  SUBSTANTIALLY  LARGER  AND  MORE  ESTABLISHED AND HAVE
SIGNIFICANTLY  GREATER  RESOURCES.

     Procera  competes  in a new, rapidly evolving and highly competitive sector
of  the  networking  technology  market.  It  expects competition to persist and
intensify  in  the  future  from  a  number  of  different  sources.  Increased
competition  could  result  in  reduced  prices  and gross margins for Procera's
products and could require increased spending by it on research and development,
sales  and  marketing  and  customer support, any of which could have a negative
financial  impact  on  its business.  Procera competes with Cisco Systems, Inc.,
Packeteer,  Inc.,  Foundry Networks, Inc. and Extreme Networks, Inc., which sell
products  incorporating  competing  technologies.  Procera  also  competes  with
several  small  private  companies  that  utilize  competing  technologies  to
provide  bandwidth management.  In addition, its products and technology compete
for  information  technology  budget  allocations  with  products  that  offer
monitoring  capabilities,  such as probes and related software.  Lastly, Procera
faces  indirect  competition  from  companies that offer enterprises and service
providers  increased  bandwidth  and  infrastructure  upgrades that increase the
capacity  of  their  networks,  which may lessen or delay the need for bandwidth
management  solutions.

     Many  of Procera's competitors are substantially larger than it is and have
significantly  greater  financial, sales and marketing, technical, manufacturing
and  other  resources  and  more  established  distribution  channels.  These
competitors  may be able to respond more rapidly to new or emerging technologies
and  changes  in  customer  requirements  or  devote  greater  resources  to the
development,  promotion  and  sale  of  their  products  than  it  can.  Procera
has  encountered, and expect to encounter, customers who are extremely confident
in and committed to the product offerings of its competitors.  Furthermore, some
of  its  competitors  may  make  strategic acquisitions or establish cooperative
relationships  among  themselves or with third parties to increase their ability
to  rapidly  gain  market  share  by  addressing  the  needs  of its prospective
customers.  These  competitors  may  enter  Procera's existing or future markets
with  solutions  that  may  be  less  expensive,  provide  higher performance or
additional  features  or  be  introduced  earlier than its solutions.  Given the
market  opportunity  in  the bandwidth management solutions market, Procera also
expects  that other companies may enter our market with alternative products and
technologies,  which could reduce the sales or market acceptance of its products
and  services,  perpetuate  intense  price  competition  or  make  its  products
obsolete.  If any technology that is competing with Procera's is or becomes more
reliable,  higher  performing,  less  expensive or has other advantages over our
technology,  then the demand for its products and services would decrease, which
would  harm  its  business.

     THE PROCERA FAMILY OF PRODUCTS IS CURRENTLY ITS ONLY SUITE OF PRODUCTS, AND
ALL  OF  ITS  CURRENT  REVENUES  AND  A SIGNIFICANT PORTION OF ITS FUTURE GROWTH
DEPENDS  ON  THEIR  COMMERCIAL  SUCCESS.

     All  of  Procera's current revenues and a significant portion of its future
growth depend on the commercial success of its family of products, which are the
only  products  that  it currently offers. If its target customers do not widely
adopt,  purchase  and  successfully  deploy  the  Procera  switching  family  of
products,  its  revenues  will  not  grow  significantly.

     THE  MARKET  IN  WHICH  PROCERA  COMPETES IS SUBJECT TO RAPID TECHNOLOGICAL
PROGRESS  AND TO COMPETE IT MUST CONTINUALLY INTRODUCE NEW PRODUCTS THAT ACHIEVE
BROAD  MARKET  ACCEPTANCE.

     The  network  equipment  market  is  characterized  by  rapid technological
progress,  frequent  new product introductions, changes in customer requirements
and  evolving  industry  standards.  If Procera does not regularly introduce new
products  in  this  dynamic environment, its product lines will become obsolete.
Developments  in  routers  and  routing software could also significantly reduce


                                       11
<PAGE>
demand  for  its  products.  Alternative  technologies  could achieve widespread
market  acceptance  and  displace  the technology on which Procera has based its
product architecture.  Procera cannot assure you that its technological approach
will  achieve broad market acceptance or that other technologies or devices will
not  supplant  its  own  products  and  technology.

     IF  THE  BANDWIDTH  MANAGEMENT  SOLUTIONS  MARKET  FAILS TO GROW, PROCERA'S
BUSINESS  WILL  FAIL.

     The  market  for  bandwidth  management  solutions  is in an early stage of
development  and  its  success  is  not  guaranteed.  Therefore,  Procera cannot
accurately  assess  the  size  of the market, the products needed to address the
market,  the  optimal distribution strategy, or the competitive environment that
will  develop.  In  order  for it to be successful, its potential customers must
recognize the value of more sophisticated bandwidth management solutions, decide
to  invest  in the management of their networks and the performance of important
business  software  applications  and,  in particular, adopt Procera's bandwidth
management  solutions.  The  growth of the bandwidth management solutions market
also depends upon a number of factors, including the availability of inexpensive
bandwidth,  especially  in  international  markets,  and the growth of wide area
networks.

     FUTURE  PERFORMANCE  WILL  DEPEND ON THE INTRODUCTION AND ACCEPTANCE OF NEW
PRODUCTS.

     Procera's  future  performance  will  also  depend  on  the  successful
development,  introduction  and  market  acceptance of new and enhanced products
that  address  customer  requirements in a timely and cost-effective manner.  In
the  past, Procera has experienced delays in product development and such delays
may  occur  in  the  future.  The  introduction of new and enhanced products may
cause  Procera's  customers  to  defer  or  cancel orders for existing products.

     INTRODUCTION  OF  PROCERA'S  NEW  PRODUCTS  MAY  CAUSE  CUSTOMERS  TO DEFER
PURCHASES  OF  ITS  EXISTING  PRODUCTS  WHICH  COULD  HARM ITS OPERATING RESULTS

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

     IF  PROCERA  IS  UNABLE TO EFFECTIVELY MANAGE ITS GROWTH, IT MAY EXPERIENCE
OPERATING  INEFFICIENCIES  AND  HAVE DIFFICULTY MEETING DEMAND FOR ITS PRODUCTS.

     Procera  has  rapidly  and  significantly  expanded  its  operations  and
anticipate  that  further  significant  expansion  will  be  required to address
potential  growth in its customer base and market opportunities.  This expansion
could  place  a significant strain on Procera's management, products and support
operations,  sales and marketing personnel and other resources, which could harm
its  business.

     In  the  future, Procera may experience difficulties meeting the demand for
its  products  and  services.  The  installation  and  use of Procera's products
requires  training.  If  it  is  unable  to provide training and support for its
products,  the  implementation  process will be longer and customer satisfaction
may  be  lower.  In  addition,  Procera's  management  team  may  not be able to
achieve  the rapid execution necessary to fully exploit the market for Procera's
products  and  services.  Procera cannot assure you that its systems, procedures
or  controls  will  be  adequate  to  support  the  anticipated  growth  in  its
operations.

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


                                       12
<PAGE>
     PROCERA'S  LIMITED  ABILITY TO PROTECT ITS INTELLECTUAL PROPERTY AND DEFEND
AGAINST  CLAIMS  MAY  ADVERSELY  AFFECT  ITS  ABILITY  TO  COMPETE.

     Procera  relies  on a combination of patent, copyright, trademark and trade
secret  laws and restrictions on disclosure to protect its intellectual property
rights.  However,  it  cannot  assure  you  that  the  actions it has taken will
adequately  protect  its intellectual property rights or that other parties will
not  independently develop similar or competing products that do not infringe on
its  patents.  Procera  enters  into  confidentiality or license agreements with
its  employees,  consultants  and corporate partners, and controls access to and
distribution  of  its software, documentation and other proprietary information.
Despite  Procera's  efforts  to  protect  its  proprietary  rights, unauthorized
parties  may  attempt to copy or otherwise misappropriate or use its products or
technology.

     Procera's  industry  is characterized by the existence of a large number of
patents  and  frequent  claims and related litigation regarding patent and other
intellectual  property  rights.  If Procera is found to infringe the proprietary
rights  of others, or if it otherwise settles such claims, it could be compelled
to  pay  damages  or royalties and either obtain a license to those intellectual
property  rights or alter its products so that they no longer infringe upon such
proprietary rights.  Any license could be very expensive to obtain or may not be
available  at  all.  Similarly,  changing  its  products  or  processes to avoid
infringing  the  rights  of  others  may  be  costly or impractical.  Litigation
resulting  from  claims  that we are infringing the proprietary rights of others
could result in substantial costs and a diversion of resources, and could have a
material  adverse  effect  on  its  business, financial condition and results of
operations.

     PROCERA'S DEPENDENCE ON CONTRACT MANUFACTURERS FOR SUBSTANTIALLY ALL OF ITS
MANUFACTURING  REQUIREMENTS  COULD  HARM  ITS  OPERATING  RESULTS.

     If  the  demand  for Procera's products grows, it will need to increase its
material  purchases,  contract  manufacturing  capacity,  and  internal test and
quality  functions.  Any  disruptions  in  product flow could limit its revenue,
adversely  affect  its  competitive  position  and  reputation,  and  result  in
additional  costs or cancellation of orders under agreements with its customers.

     Procera  relies  on  independent  contractors  to manufacture its products.
Procera  does  not  have  long-term  contracts  with any of these manufacturers.
Delays  in  product  shipments  from  contract  manufacturers  are  not unusual.
Similar  or  other  problems  may arise in the future, such as inferior quality,
insufficient  quantity  of  products,  or  the interruption or discontinuance of
operations  of a manufacturer, any of which could have a material adverse effect
on  Procera's  business  and  operating  results.

     Procera  does  not  know  whether  it  will effectively manage its contract
manufacturers  or that these manufacturers will meet its future requirements for
timely delivery of products of sufficient quality and quantity.  Procera intends
to  transition  the  manufacture  of  some  of  its  products  from one contract
manufacturer  to  another.  Procera  also  intends  to  regularly  introduce new
products  and  product enhancements, which will require that it rapidly achieves
volume  production  by  coordinating its efforts with those of its suppliers and
contract  manufacturers.  The  inability  of Procera's contract manufacturers to
provide it with adequate supplies of high-quality products or a reduction in the
number  of  contract  manufacturers  may cause a delay in its ability to fulfill
orders and may have a material adverse effect on its business, operating results
and  financial  condition.

     As  part of Procera's cost-reduction efforts, it will need to realize lower
per  unit  product  costs  from  its  contract  manufacturers by means of volume
efficiencies  and  the  utilization  of  manufacturing  sites  in  lower-cost
geographies.  However,  Procera  cannot  be  certain  when  or  if  such  price
reductions  will  occur.  The  failure  to  obtain  such  price reductions would
adversely  affect  Procera's  gross  margins  and  operating  results.


                                       13
<PAGE>
     IF  PROCERA'S  PRODUCTS  CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, IT
COULD  INCUR  SIGNIFICANT  UNEXPECTED  EXPENSES  AND  LOSE  SALES.

     Network  products frequently contain undetected software or hardware errors
when  new  products  or  new  versions or updates of existing products are first
released  to  the marketplace.  In the past, Procera has experienced such errors
in connection with new products and product upgrades.  Procera expects that such
errors  or  component  failures will be found from time to time in the future in
new  or  existing products, including the components incorporated therein, after
the  commencement  of  commercial  shipments. These problems may have a material
adverse effect on Procera's business by causing it to incur significant warranty
and  repair costs, diverting the attention of its engineering personnel from new
product  development  efforts,  delaying  the recognition of revenue and causing
significant  customer  relations problems.  Further, if Procera's product is not
accepted  by  customers  due  to  defects, and such returns exceed the amount it
accrued  for  defect  returns  based on its historical experience, its operating
results  would  be  adversely  affected.

     Procera's  products  must  successfully  interface with products from other
vendors.  As  a  result,  when  problems  occur  in a computer or communications
network,  it  may  be  difficult to identify the sources of these problems.  The
occurrence  of  hardware and software errors, whether or not caused by Procera's
products, could result in the delay or loss of market acceptance of its products
and  any  necessary  revisions  may cause it to incur significant expenses.  The
occurrence  of  any such problems would likely have a material adverse effect on
Procera's  business,  operating  results  and  financial  condition.

     PROCERA  EXPECTS  THE  AVERAGE  SELLING PRICES OF ITS PRODUCTS TO DECREASE,
WHICH  MAY  REDUCE  GROSS  MARGIN  OR  REVENUE.

     The  network  equipment  industry  has  traditionally  experienced  a rapid
erosion  of  average  selling  prices  due  to  a  number  of factors, including
competitive pricing pressures, promotional pricing, technological progress and a
slowdown  in  the economy that has resulted in excess inventory and lower prices
as companies attempt to liquidate this inventory. We anticipate that the average
selling  prices  of  its  products  will  decrease  in the future in response to
competitive pricing pressures, excess inventories, increased sales discounts and
new  product  introductions  by  it  or its competitors.  Procera may experience
substantial  decreases  in  future  operating  results due to the erosion of its
average  selling  prices.  Competitive  pressures  are expected to increase as a
result  of the industry slowdown that began at the end of 2000, coupled with the
slow  recovery  of  the  broader  economy.

     SOME  OF  PROCERA'S  CUSTOMERS  MAY  NOT  HAVE THE RESOURCES TO PAY FOR ITS
PRODUCTS  AS  A  RESULT  OF  THE  CURRENT  ECONOMIC  ENVIRONMENT.

     In  the  current  economic  environment,  some  of  Procera's customers are
forecasting  that  their  revenue  for  the foreseeable future will generally be
lower than originally anticipated.  Some of these customers are experiencing, or
are  likely  to experience, serious cash flow problems and, as a result, find it
increasingly  difficult  to  obtain  financing,  if  at  all.  If  some of these
customers  are  not  successful  in  generating  sufficient  revenue or securing
alternate  financing  arrangements,  they  may  not be able to pay, or may delay
payment  for,  the  amounts  that  they  owe Procera.  Furthermore, they may not
order as many products from Procera as forecast, or cancel orders entirely.  The
inability  of  some  of Procera's potential customers to pay it for its products
may  adversely  affect  its cash flow, the timing of its revenue recognition and
the  amount  of  revenue,  which  may  cause  its  stock  price  to  decline.

     LEGISLATIVE  ACTIONS,  HIGHER  INSURANCE COSTS AND POTENTIAL NEW ACCOUNTING
PRONOUNCEMENTS  ARE  LIKELY  TO  IMPACT  PROCERA'S FUTURE FINANCIAL POSITION AND
RESULTS  OF  OPERATIONS.

     Recent  regulatory  changes,  including the Sarbanes-Oxley Act of 2002, and
future  accounting pronouncements and regulatory changes, will have an impact on
Procera's  future  financial  position and results of operations.  These changes
and  proposed  legislative  initiatives are likely to increase Procera's general


                                       14
<PAGE>
and  administrative  costs.  In  addition,  insurance  costs,  including health,
workers'  compensation and directors and officers' insurance premiums, have been
dramatically  increasing  and  likely to continue to increase in the future as a
result  of  high claims rates over the past year.  Further, proposed initiatives
could  result  in  changes  in accounting rules, including legislative and other
proposals  to account for employee stock options as an expense.  These and other
potential  changes  could materially increase the expenses Procera reports under
generally  accepted  accounting  principles,  and adversely affect its operating
results.

     PROCERA'S PRODUCTS MUST COMPLY WITH EVOLVING INDUSTRY STANDARDS AND COMPLEX
GOVERNMENT  REGULATIONS  OR  ELSE ITS PRODUCTS MAY NOT BE WIDELY ACCEPTED, WHICH
MAY  PREVENT  IT  FROM  GROWING  ITS  NET  REVENUE  OR  ACHIEVING PROFITABILITY.

     The  market  for network equipment products is characterized by the need to
support  industry  standards  as  different standards emerge, evolve and achieve
acceptance.  Procera  will  not  be competitive unless it continually introduces
new  products  and  product enhancements that meet these emerging standards.  In
the  past,  Procera  has  introduced  new products that were not compatible with
certain  technological  standards,  and  in  the  future  it  may not be able to
effectively  address the compatibility and interoperability issues that arise as
a  result  of  technological  changes and evolving industry standards. Procera's
products  must  comply with various United States federal government regulations
and  standards  defined  by  agencies  such  as  the  Federal  Communications
Commission,  in addition to standards established by governmental authorities in
various  foreign  countries  and  recommendations  of  the  International
Telecommunication  Union.  If  Procera does not comply with existing or evolving
industry  standards  or  if  it  fails  to  obtain  timely  domestic  or foreign
regulatory  approvals  or  certificates it will not be able to sell its products
where  these  standards  or  regulations  apply,  which  may  prevent  it  from
sustaining  its  net  revenue  or  achieving  profitability.

     FAILURE TO SUCCESSFULLY EXPAND PROCERA'S SALES AND SUPPORT TEAMS OR EDUCATE
THEM  ABOUT  TECHNOLOGIES  AND  PROCERA'S  PRODUCT  FAMILIES MAY HARM PROCWERA'S
OPERATING  RESULTS.

     The  sale  of  Procera's  products and services requires a concerted effort
that  is  frequently  targeted at several levels within a prospective customer's
organization.  Procera may not be able to increase net revenue unless it expands
its sales and support teams in order to address all of the customer requirements
necessary  to  sell  its  products.

     Procera  cannot  assure  you that it will be able to successfully integrate
employees  into its company or to educate current and future employees in regard
to  rapidly  evolving technologies and its product families.  A failure to do so
may  hurt  Procera's  revenue  growth  and  operating  results.

     PROCERA  MUST  CONTINUE  TO  DEVELOP  AND  INCREASE THE PRODUCTIVITY OF ITS
INDIRECT DISTRIBUTION CHANNELS TO INCREASE NET REVENUE AND IMPROVE ITS OPERATING
RESULTS.

     Procera's  distribution  strategy  focuses  primarily  on  developing  and
increasing  the  productivity  of  its  indirect  distribution  channels through
resellers  and  distributors.  If  Procera  fails  to  develop  and  cultivate
relationships  with  significant  resellers,  or  if  these  resellers  are  not
successful  in their sales efforts, sales of Procera's products may decrease and
its  operating  results  could  suffer.  Many  of  Procera's resellers also sell
products  from  other  vendors  that  compete  with Procera's products.  Procera
cannot  assure you that it will be able to enter into additional reseller and/or
distribution  agreements  or  that  it  will  be able to successfully manage its
product  sales  channels.  Procera's  failure to do any of these could limit its
ability  to  grow  or sustain revenue.  In addition, Procera's operating results
will likely fluctuate significantly depending on the timing and amount of orders
from  its  resellers.  Procera  cannot  assure  you  that  its  resellers and/or
distributors  will  continue  to  market  or  sell  its  products effectively or
continue  to  devote the resources necessary to provide it with effective sales,
marketing  and  technical  support.


                                       15
<PAGE>
     PROCERA'S  HEADQUARTERS  ARE LOCATED IN NORTHERN CALIFORNIA WHERE DISASTERS
MAY  OCCUR  THAT  COULD  DISRUPT  ITS  OPERATIONS  AND  HARM  ITS  BUSINESS.

     Procera's  corporate headquarters are located in Silicon Valley in Northern
California.  Historically,  this region has been vulnerable to natural disasters
and  other  risks,  such as earthquakes, which at times have disrupted the local
economy  and  posed  physical  risks to Procera and its manufacturers' property.

     In  addition,  terrorist acts or acts of war targeted at the United States,
and  specifically  Silicon  Valley, could cause damage or disruption to Procera,
its  employees, facilities, partners, suppliers, distributors and resellers, and
customers,  which  could  have  a  material adverse effect on its operations and
financial  results.  Procera  currently  does  not have redundant, multiple site
capacity in the event of a natural disaster or catastrophic event.  In the event
of  such  an  occurrence,  Procera's  business  would  suffer.

     ACQUISITIONS  MAY  DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON PROCERA'S
BUSINESS.

     Procera  may  acquire  or  make  investments  in  complementary businesses,
products,  services  or  technologies on an opportunistic basis when it believes
they  will  assist  it  in  carrying  out  its business strategy. Growth through
acquisitions  has  been  a successful strategy used by other network control and
management  technology  companies.  Procera  does  not  have  any  present
understanding, nor is it having any discussions relating to any such acquisition
or  investment.  If  Procera  buys  a  company, then it could have difficulty in
assimilating  that  company's  personnel  and  operations.  In addition, the key
personnel  of  the  acquired  company  may  decide  not to work for Procera.  An
acquisition  could  distract Procera's management and employees and increase its
expenses.  Furthermore,  Procera  may  have  to  incur  debt  or  issue  equity
securities  to  pay  for any future acquisitions, the issuance of which could be
dilutive  to  its  existing  shareholders.

     ANTI-TAKEOVER PROVISIONS AND PROCERA'S RIGHT TO ISSUE PREFERRED STOCK COULD
MAKE  A  THIRD-PARTY  ACQUISITION  OF  IT  DIFFICULT.

     Procera a Nevada corporation.  Anti-takeover provisions of Nevada law could
make  it more difficult for a third party to acquire control of Procera, even if
such change in control would be beneficial to stockholders.  Procera's  articles
of  incorporation  provide that its Board of Directors may issue preferred stock
without  stockholder  approval.  The  issuance  of preferred stock could make it
more difficult for a third party to acquire Procera.  All of the foregoing could
adversely  affect  prevailing  market  prices  for  Procera's  common  stock.

     PROCERA'S  COMMON  STOCK  PRICE  IS  LIKELY  TO  BE  HIGHLY  VOLATILE.

     The  market price of Procera's common stock is likely to be highly volatile
as  the  stock  market  in  general,  and the market for small cap and micro cap
technology companies in particular, has been highly volatile.  Investors may not
be  able  to  resell their shares of Procera's common stock following periods of
volatility  because  of  the  market's  adverse reaction to volatility.  Procera
cannot  assure  you that its stock will trade at the same levels of other stocks
in  its industry or that industry stocks, in general, will sustain their current
market  prices.  Factors  that  could  cause  such volatility may include, among
other  things:

   - actual or anticipated fluctuations in Procera's quarterly operating
     results;
   - announcements of technological innovations;
   - changes in financial estimates by securities analysts;
   - conditions or trends in the network control and management industry;
   - changes in the market valuations of other such industry related companies;
     and
   - the acceptance of market makers and institutional investors of Procera
     and its stock.


                                       16
<PAGE>
     In  addition,  Procera's stock is currently traded on the NASD O-T-C Market
and  it  is  uncertain that it will be able to successfully apply for listing on
the American  Stock Exchange or the NASDAQ National Market or SmallCap market in
the  foreseeable  future  due to the trading  price for its Common Stock, market
capitalization,  its  working  capital and revenue history.  Failure to list its
shares  on  the American Stock Exchange or the National or SmallCap Markets will
impair  the  liquidity  for  Procera's  common  stock.

     SHARES  ELIGIBLE  FOR  FUTURE  SALE  BY  PROCERA'S CURRENT STOCKHOLDERS MAY
ADVERSELY  AFFECT  ITS  STOCK  PRICE.

     To date, Procera has had a very limited trading volume in its common stock.
Procera  filed  a registration statement on January 28, 2005 with the Securities
and  Exchange  Commission covering the resale by certain selling stockholders of
an  aggregate  of  17,878,031  shares  of  Procera's  common  stock.  Sales  of
substantial  amounts  of common stock, including shares issued upon the exercise
of  outstanding  options  and warrants, under Securities and Exchange Commission
Rule  144  or  otherwise  could  adversely affect the prevailing market price of
Procera's  common  stock  and could impair Procera's ability to raise capital at
that time through the sale of its securities.  See "Market For Common Equity and
Related  Stockholder  Matters".

     ADDITIONAL SHARES HELD BY EXISTING STOCKHOLDERS MAY BE SOLD INTO THE PUBLIC
MARKET IN THE FUTURE, WHICH MAY CAUSE PROCERA'S STOCK PRICE TO DECLINE.

     Sales  of  a substantial number of shares of common stock after the date of
this  report  could  adversely affect the market price of Procera's common stock
and  could  impair  its  ability to raise capital through the sale of additional
equity  securities.  As  of  January  2,  2005, Procera had 24,115,406 shares of
common  stock  outstanding.

ITEM  2.     DESCRIPTION OF PROPERTY

     Procera's  headquarters  is  located  at  3175  South Winchester Boulevard,
Campbell, California, 95008.  Procera has a month to month lease and the rent is
$8,832  per  month  for 6,032 square feet.  Procera believes that its facilities
are  adequate for its needs and that additional suitable space will be available
on  acceptable  terms  as  required.


ITEM  3.     LEGAL PROCEEDINGS

     None.


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

     At  Procera's  Annual Meeting of Stockholders held on October 12, 2004, the
following  individuals were elected to the Board of Directors to serve until the
next  Annual  Meeting  of  Stockholders:

<TABLE>
<CAPTION>
                   Shares Voted For  Shares Voted Against  Shares Abstaining  Shares No Vote  Total Shares
                   ----------------  --------------------  -----------------  --------------  ------------
<S>                <C>               <C>                   <C>                <C>             <C>
Douglas J. Glader        17,609,503                     0                  0           6,575    17,616,078
Scott McClendon          17,609,503                     0                  0           6,575    17,616,078
Tom Saponas              17,609,503                     0                  0           6,575    17,616,078
Tom Williams             17,609,503                     0                  0           6,575    17,616,078
</TABLE>


                                       17
<PAGE>
     The  following  proposals were also approved at Procera's Annual Meeting of
Stockholders:
<TABLE>
<CAPTION>
                                                              SHARES
                                                SHARES VOTED   VOTED     SHARES    SHARES NO    TOTAL
                                                    FOR       AGAINST  ABSTAINING    VOTE       SHARES
                                                -----------  --------  ----------  ---------  ----------
<S>                                             <C>           <C>      <C>         <C>        <C>
Approve the ratification of the appointment of    17,609,503        0           0      6,575  17,616,078
Burr, Pilger & Mayer LLP as the Company's
independent accountants for the fiscal year
ending January 2, 2005

Approve the ratification of the 2004 Procera      12,361,906  588,500      25,000  4,640,672  17,616,078
Networks Stock Option Plan
</TABLE>


                                     PART II
                                     -------

ITEM  5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON EQUITY

     Procera's common stock is quoted on the OTC Bulletin Board under the symbol
"PRNW".  Procera's  common stock has been traded on the OTC Bulletin Board since
June  24,  2003.  Prior  to  that  date, Procera's common stock was not actively
traded  in  the  public  market.  For the periods indicated, the following table
sets  forth  the  high and low bid prices per share of common stock as stated in
the Over the Counter Bulletin Board Quarterly Trade and Quote Summary Report for
the  year ended January 2, 2005.  These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual  transactions.
                                                           HIGH BID   LOW BID
                                                           ---------  --------
First Quarter 2004                                         $    3.74  $   2.10
Second Quarter 2004                                        $    3.20  $   1.58
Third Quarter 2004                                         $    1.83  $   1.26
Fourth Quarter 2004                                        $    2.09  $   0.49

     On  January  2,  2005,  the  closing price of Procera's common stock on the
OTCBB  was  $1.86.

HOLDERS

     As  of  January 2, 2005, Procera had approximately 93 holders of its common
stock.  The  number  of  record  holders  was  determined  from  the  records of
Procera's  transfer agent and does not include beneficial owners of common stock
whose  shares  are  held  in the names of various security brokers, dealers, and
registered  clearing  agencies.  The transfer agent of Procera's common stock is
Pacific  Stock  Transfer  Company,  500  East  Warm Springs Road, Suite 240, Las
Vegas,  Nevada  89119.

DIVIDEND POLICY

     Procera  has not declared or paid any cash dividends on its common stock or
other  securities  and  does  not  anticipate  paying  any cash dividends in the
foreseeable  future.  Any  future determination to pay cash dividends will be at
the  discretion  of  the Board of Directors and will be dependent upon Procera's
financial condition, results of operations, capital requirements, and such other
factors  as  the  Board  of  Directors  deem  relevant.

RECENT SALES OF UNREGISTERED SECURITIES

     From December 29, 2003 to the date of this annual report, Procera have sold
the  following  unregistered  securities.


                                       18
<PAGE>
     In  January  2004,  a warrant holder exercised a warrant to purchase 50,000
shares  of  the  Company's  restricted  common  stock  at  $0.075  per  share.

     On  April  22,  2004,  Procera  completed  the  acquisition  of 100% of the
outstanding  stock  of EZ2, Inc. ("EZ2"), a development stage company located in
Saratoga,  California,  for  35,000  shares  of  the Company's restricted common
stock  valued  at  $71,750. EZ2 was co-founded by Dr. Anil Sahai who we hired as
our  Chief  Technology  officer  on  May 24, 2004.  EZ2 designed and developed a
switching  platform  for  extensible  mark-up  language ("XML") and web services
based  applications.  XML  is  a  computer language or mechanism that identifies
structured  information  in a data  format, such as a document, graph, equation,
or  e-commerce  transaction.  Structured  information  contains  both  content
(for  example,  words or pictures) and some indication of what role that content
plays  (for  example,  a heading, footnote, caption, or table). Procera plans to
develop  products  for the XML market by taking advantage of the core technology
of  the  EZ-2-XML  platform to perform as a wire-speed packet processing engine.

     On April 26, 2004, the registration statement filed with the Securities and
Exchange  Commission  covering  the  shares  issued in the December 2003 private
placement  is  declared  effective  by  the  Securities and Exchange Commission.
Certain investors exercised the special warrants to purchase 1,086,250 shares of
the  Company's  restricted  common  stock  at  $2.00  per  share.

     In May 2004, a warrant holder exercised a warrant to purchase 26,000 shares
of  the  Company's  restricted  common  stock  at  $0.075  per  share.

     In May 2004, Procera completed a private placement of 250,000 shares of the
Company's  restricted  common stock for $2.00 per share and warrants to purchase
250,000  shares  of  common stock with Linden Growth Partners ("Linden Growth").
The  warrants  are  exercisable,  in  whole or in part, for $2.00 per share, and
expire  June  30,  2006.  Linden Growth completed a subscription agreement and a
warrant  agreement,  and  represented  to  the Company that they were accredited
investors  purchasing  the  shares  for  their  own  account. Linden Growth also
received  registration  rights  with  respect to the 250,000 shares sold and the
250,000  shares to be issued pursuant to the warrants, and Procera has satisfied
its  obligations.

     On  May  20,  2004,  Procera  completed the acquisition of the intellectual
property  of  Ezyte,  Inc.  ("Ezyte"),  a  development  stage company located in
Saratoga, California, for 65,000 shares of the Company's restricted common stock
valued at $106,600. Ezyte was co-founded by  Dr. Anil Sahai who Procera hired as
its  Chief Technology officer on May 24, 2004.  Ezyte developed high performance
algorithms  and  architectures for storage systems like redundant array of disks
("RAID"),  storage  area  network  ("SAN"),  remote copy, disaster recovery, and
cache  servers.  Procera  plans  to  use  Ezyte's  technology  to  expedite  new
offerings  for  storage  applications  and  content  filtering.

     In  June  2004,  Procera  issued  20,000 shares of the Company's restricted
common  stock at $0.001 per share to a consultant as compensation for consulting
services  in  connection  with  private  placement  of  common  stock.

     In  October  2004, Procera issued 11,000 shares of the Company's restricted
common  stock  at  $0.92 per share to a marketing consultant as compensation for
consulting  services  in  connection  with  marketing  and  communications.

ITEM  6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

OVERVIEW.

     Headquartered  in  Campbell,  CA,  Procera Networks, Inc. ("Procera" or the
"Company") develops intelligent network appliances that provide a non-intrusive,


                                       19
<PAGE>
wire-speed  network  overlay  to protect, control and optimize internal IP-based
networks.  Procera's OptimIP(TM) family of network appliances enables businesses
of  every  size  and  type  to  regain  control  over  their  internal networks.

     Procera  was formed as a result of a merger and plan of reorganization (the
"Merger")  between Zowcom, Inc. ("Zowcom") and Procera Networks, Inc. ("PNI"), a
Delaware  corporation  incorporated  on  May  1, 2002.  On October 16, 2003, PNI
merged into Zowcom in a stock-for-stock transaction.  As a result of the Merger,
Zowcom  continued  as  the  surviving  corporation,  assumed  the operations and
business plan of PNI, the stockholders of PNI became stockholders of Zowcom, and
Zowcom  changed  its name to Procera Networks, Inc. ("Procera" or the "Company")
(trading symbol OTC: BB: PRNW.OB).  Zowcom was incorporated on July 11, 2001 and
provided customized websites and web-based planning services.  It generated less
than  $10,000  in  revenues  per  year.

     You should read this discussion in conjunction with the selected historical
financial  information  and  the financial statements and related notes included
elsewhere in this report.

     Financial  information  for the period from May 1, 2002 (date of inception)
to  December 31, 2002 is the historical financial information of PNI.  Financial
information  for  the  year  ended December 28, 2003 is the historical financial
information  of  PNI  and  Zowcom  combined.  Financial information for the year
ended  January  2,  2005  is  the  historical  financial information of Procera.

RESULTS  OF  OPERATIONS  FOR  THE  YEAR ENDED JANUARY 2, 2005 AND THE YEAR ENDED
DECEMBER  28,  2003

Revenues
--------

     From  the  date  of  its  inception on May 1, 2002 through January 2, 2005,
Procera has operated as a development stage company, devoting all of its efforts
and  resources  to  developing  and  testing  new  products  and  preparing  for
introduction  of  its  products into the market place.  Accordingly, Procera has
generated insignificant revenues from actual sales of its products during fiscal
years  ended  December  28,  2003  and  January  2,  2005,  respectively.

     During the fiscal year ended December 28, 2003, Procera recognized revenues
of $32,085 from sales of 14 of its MLS-XP product at an average selling price of
$2,292.  During  the  fiscal  year  ended  January  2,  2005, Procera recognized
revenues  of  $97,611  from: (a) sales of 28 of its MLS-XP product at an average
selling  price  of $2,234; (b) sales of 3 of its new and improved 12012 product,
which  it  introduced in the fourth quarter of 2004, at an average selling price
of  $3,700; (c) sales of third party products totaling of $12,783; and (d) sales
of product accessories totaling $11,176.  Procera is optimistic that significant
revenues  will  be  realized  from  sales  of its new 12012 product during 2005.

Cost of Sales
-------------

     Cost  of  sales of $61,872 and $160,383 reported for the fiscal years ended
December  28, 2003 and January 2, 2005 include: (a) the direct cost of materials
for  products  sold;  and  (b)  charges  to  write-down  the  value of Procera's
inventories.  Procera  follows  the  accounting policy of valuing inventories at
the  lower  of cost or market.  Because on January 2, 2005, there were no orders
for  the  purchase  of  its  MLS-XP  product for six months following that date,
Procera  considered  the  market  value of this product to be zero and wrote-off
$124,494  of its inventory cost.  This reduction in valuation, however, does not
mean  that  the  product in question is defective or non-salable.  The inventory
amount  of  $126,413,  reported  on  the  Balance  Sheet  as of January 2, 2005,
represents  primarily  the inventory value of Procera's new 12012 products as of
that  date.  During  the  fiscal  year  ended  December  28, 2003, inventory was
written-down  by  $46,400  to  recognize the reduction in inventory cost Procera
achieved  by  switching  the  manufacture  of  its MLS-XP product to an offshore
contract  manufacturer.

     Because  volume  sales  were  not  achieved,  all  fixed  and  variable
manufacturing  overhead  costs  for  these periods were expensed and reported as


                                       20
<PAGE>
engineering  operating  expenses.  When volume sales are achieved, reported cost
of sales will include applied manufacturing overhead, in addition to direct cost
of  materials sold.  Charges for inventory write-downs are not expected to occur
on  a  regular  basis.

Gross Profit and Negative Margins:
----------------------------------

     Gross  profits  reported  for  the  fiscal  years ended January 2, 2005 and
December  28,  2003  were  ($62,772)  and  ($29,787),  respectively.  Excluding
inventory  write-downs,  margins  for the fiscal years ended January 2, 2005 and
December  28,  2003  were 63% and 52%, respectively. These gross margins are not
representative  of  gross  margins  expected  for sales of Procera's products in
volume,  when fixed and variable manufacturing costs will be expensed as part of
cost of sales rather than as operating expenses.  On the other hand, charges for
inventory  write-downs, which reduced reported gross profit for the fiscal years
ended  January  2,  2005  and  December  28,  2003  by  $124,494  and  $46,400,
respectively,  are  not  expected  to  occur  on  a  regular  basis.

<TABLE>
<CAPTION>
                                                         Fiscal Year Ended
                                                -----------------------------------
                                                    January 2,        December 28,
                                                       2005               2003
                                                -------------------  --------------
<S>                                             <C>                  <C>
Revenues                                        $           97,611   $      32,085
Cost of sales
 Direct material cost                                       35,889          15,472
 Inventory write-downs                                     124,494          46,400
                                                -------------------  --------------
Total cost of sales                                        160,383          61,872
                                                -------------------  --------------
Gross Profit                                    $          (62,772)  $     (29,787)
                                                ===================  ==============

Gross margin                                                   -64%            -93%
Gross margin (excluding inventory write-downs)                  63%             52%
</TABLE>

Operating Expenses
------------------

     Operating  expenses  for  the  fiscal  year  ended  January 2, 2005 totaled
$6,285,048  as  compared  to  $2,868,368  incurred  during the fiscal year ended
December  28,  2003.  These  expenses  increased  by $3,416,680 during 2004 as a
result  of  the  following:

(a) Expenses associated with 53rd reporting week                $   51,000
(b) Increase in headcount and pay periods during 2004            1,400,000
(c) Increase in employee stock based compensation                  984,000
(d) Increase in use of outside services                            485,000
(e) Increase in administrative expenses                            403,000
(f) Increase in sales and marketing expenses                       205,000
(g) Increase in equipment expenses                                 156,000
(h) Increase in audit, legal, and tax services                      40,000
(i) Decrease in engineering prototype expenses and facilities     (308,000)
    expenses
                                                                -----------
          Net increase in operating expenses                    $3,416,000
                                                                ===========

     (a)  Procera  maintains  its  financial  records and reporting periods on a
52-53  week basis and the fiscal year ended January 2, 2005 represents a 53-week
fiscal year, compared with 52 weeks for the fiscal year ended December 28, 2003.
This extra week increased operating expenses by approximately $51,000 during the
fiscal  year  ended  January  2,  2005.

     (b)  In  2004,  24 employees were paid normal salaries and benefits for the
entire  year.  Whereas,  in  2003:  (a)  22  employees  were  paid  minimum wage
salaries of $2,340 per month for the first 3 months of the year; (b) the Company
was closed and paid no salaries for the months of April and May 2003; and (c) 14
employees  were  paid 80% of normal salaries and benefits for the final 7 months
of  2003.  The  net  result  of  the  foregoing  circumstances  caused personnel
expenses  to  increase  by approximately $1,400,000 during the fiscal year ended
January  2,  2005.


                                       21
<PAGE>
     (c)  Employee  stock  based compensation expense increased by approximately
$984,000 during the fiscal year ended January 2, 2005 as a result of the Company
granting  2,410,000  shares  of  stock options at option prices which were below
market  prices  on  the  dates  of  grant.  The  amount  of such compensation is
determined  by multiplying the difference between the market price per share and
the  option  price per share times the total number of option shares granted and
amortizing  the  product  over  the  vesting  period  of  the  options.

     (d)  Outside  service  expenses  increased  by  approximately $485,000 as a
result of:  (a) expensing $264,000 of market value of warrants which the Company
issued  to  investor relations consultants as compensation for services rendered
to  the  Company;  and  (b)  an  increase in research and development consulting
services  expense of $221,000, relating to hardware and software design services
for  the  new  products  introduced to the market in the fourth quarter of 2004.

     (e)  Administrative  expenses increased approximately $403,000, as a result
of:  (a)  12  months  amortization  of directors and officers insurance premiums
during 2004, compared with 3 months of amortization during 2003, adding $119,000
to  the  increase;  (b)  amortization  of  $178,000  of the cost of intellectual
property acquired in April and May 2004; (c) an increase of $56,000 in state and
local  business  and  sales  tax  expenses;  and  (d) an increase of $50,000 for
telephone,  office  supplies,  postage  &  freight  expenses.

     (f)  Sales  and  marketing  expenses  increased approximately $205,000 as a
result of Procera's efforts in launching of our its products and installation of
beta  products  at  customer  sites  for  testing and evaluation.  This increase
consisted  of:  (i)increased spending on sales and marketing consulting services
of  $120,000;  (ii)  an increase of $56,000 for travel & entertainment expenses;
and  (iii)  an  increase of $28,000 in expenses for evaluation units provided to
potential  customers  for  testing  and  evaluation.

     (g)  Equipment expenses increased by approximately $156,000 as a result of:
(i)  $80,000  for annual software license and maintenance fees; (ii) $42,000 for
increased  depreciation expenses for equipment acquired in the Fall of 2003; and
(iii)  $34,000  for  renting  of new test equipment during the fiscal year ended
January  2,  2005.

     (h)  Legal and audit services expenses increased approximately $40,000 as a
result  of Procera's filing two SB-2 Registration Statements with the Securities
and Exchange Commission relating to its private placement financing transactions
which  closed  in  December  2003  and  May  2004.

     (i)  The  increases  in  operating  expenses set forth above were partially
offset  by  a  decrease  in  engineering  prototypes  expenses  of approximately
$295,000,  and  lower  facilities expenses of approximately $13,000. During 2004
Procera  subleased new office space in Campbell, California for lower facilities
expenses  of  $6,832  for  the  first  seven months and $8,832 for the last five
months  of 2004, compared to expenses of $22,775 per month for January, February
and  March  2003, no expenses for April and May 2003, and expenses of $5,500 for
the  last  seven  months  of  2003.

Interest and Other Expense
--------------------------

     The  amount of $21,725 reported as other expense for the year ended January
2,  2005  represents  a 1% penalty paid in May 2004 to shareholders who invested
$2,172,500 in Procera's common stock in December 2003.  In accordance with terms
of  the stock subscription agreements executed by Procera in connection with its
private  placement  investment  transactions  in December 2003, a 1% penalty was
levied  on gross proceeds received by Procera because the registration statement
filed by Procera on January 8, 2004 was not declared effective by the Securities
and  Exchange  Commission  on  or  before April 9, 2004 (90 days from the filing
date).  The  registration  statement  was  declared effective on April 26, 2004.
There  is  no  interest  expense  incurred  for  the  fiscal  year  of  2004.

     Interest  expense of $344,599 for the year ended December 28, 2003 included
a  charge of $138,940 for the fair market value of a warrant which was issued to
a  lender during 2003.  Interest expense associated with this warrant included a


                                       22
<PAGE>
charge  of  $69,470  for a beneficial conversion feature embedded in the related
unsecured  convertible  promissory  note.  The  additional  interest  expense of
$205,659  related  to the increase in outstanding loan principal from $1,080,000
on January 1, 2003 to $1,355,000 on July 31, 2003.  No interest was paid in cash
during  2003.  As of July 31, 2003, all outstanding loan principal of $1,355,000
and  accrued interest of $258,833 was converted, at the option of all respective
lenders,  into  3,227,666  shares  of  Procera's  restricted  common  stock.

     Procera has no loans outstanding as of January 2, 2005.

Net Loss
--------

     Procera incurred a net loss of $6,363,169 for the fiscal year ended January
2, 2005, compared to a net loss of $3,242,188 for the fiscal year ended December
28,  2003.  During  its  continuing  development  phase,  Procera  has sustained
operating  losses  and  it  expects  such losses to continue through most of the
fiscal  year of 2005.  Since Procera introduced new and improved versions of its
hardware  platform  products  during  the  fourth  quarter  of  2004  and  it is
optimistic  that it will generate revenues from selling of these new products in
2005.

Liquidity and Capital Resources
-------------------------------

     From its date of inception (May 1, 2002) through December 31, 2002, Procera
obtained  the  majority  of  its cash resources from the issuance of convertible
notes  payable,  totaling  $1,080,000.  The remainder of its cash resources came
from  sales  of  $175,368,  and  the  sale  of stock to its founders for $8,115.

     During  the first four months of 2003, Procera obtained cash resources from
additional  convertible  loans,  totaling  $275,000.

     In  May  2003,  the outstanding amount of unpaid salary of $560,194 owed to
former  employees  was  converted  into 1,120,388 shares of Procera's restricted
common  stock.

     In  June  2003,  Procera completed a private placement of 808,000 shares of
PNI  restricted  common stock at $0.50 per share and issued warrants to purchase
404,000  shares  of  restricted  common  stock  at a purchase price of $0.75 per
share,  raising  an  aggregate  of  $404,000 in gross proceeds. The warrants are
exercisable  immediately  and  expire  in  June  2008.

     In  July  2003,  the  outstanding principal amount of the convertible notes
payable  of  $1,355,000  and  accrued  interest  and  loan fees of $258,833 were
converted  into  3,227,666  shares  of Procera's restricted common stock using a
conversion  rate  of  $0.50 per share.  In addition, 361,893 shares of Procera's
restricted common stock were issued to note holders in accordance with the terms
of  their  agreements.

     In  August  2003,  Procera  completed a private placement sale of 1,695,000
shares  of  its restricted common stock at $1.00 per share, raising an aggregate
of  $1,695,000  in  gross  proceeds.

     In October 2003, Procera issued an unsecured convertible promissory note in
the  amount  of $500,000 to an investor, and a warrant to purchase 31,250 shares
of  its  restricted common stock with an exercise price of $2.00 per share.  The
warrant  is  exercisable  immediately  and expires in October 2006.  In December
2003,  the  outstanding  principal  amount  of  the convertible note payable and
accrued  interest  of  $5,918  were  converted  into 252,959 shares of Procera's
restricted  common  stock,  using  a  conversion  rate  of  $2.00  per  share.

     In  December  2003,  Procera  completed  a  brokered private placement (the
"Placement")  of  2,172,500  shares  of common stock.  Procera raised a total of
$4,345,000  in  the  Placement,  receiving $2,172,500 in gross proceeds from the
sale  of  1,086,250  shares  of  common stock at $2.00 per share, and $2,172,500
from  the  sale  of  1,086,250  shares  of  common  stock  to  certain  existing
stockholders  pursuant  to  the  execution  of  special  warrants  in  May 2004.


                                       23
<PAGE>
     On May 24, 2004, Procera completed a private placement transaction with one
of  its  shareholders, who purchased 250,000 shares of Procera's common stock at
$2.00  per  share, providing Procera with additional gross proceeds of $500,000.

     In December 2004, Procera completed a private placement of 5,762,500 shares
of  restricted  common  stock  to 23 institutional and accredited investors (the
"December 2004 Investors") at a price of $0.80 per share, providing Procera with
gross  proceeds  of  $4,610,000.  In  connection  with  this  private placement,
Procera  granted  warrants  to  purchase an aggregate of 1,728,750 shares of its
common  stock at a per share exercise price of $1.25 and warrants to purchase an
aggregate  of 1,728,750 shares of its common stock at a per share exercise price
of  $1.37.  The  warrants  are exercisable, in whole or in part, for three years
following  the effectiveness of the registration statement that Procera filed in
January 2005.  The Seidler Companies and PacificWave Capital served as placement
agents  for  the  transaction.  The agents received a total of $228,125 in cash,
warrants to purchase 346,409 shares of Procera's common stock, and 17,473 shares
of  Procera's  common  stock  as  compensation  to  their  services.

     Procera's  balance of cash and cash equivalents of $4,147,930 at January 2,
2005 represents the remaining net proceeds from the sales of common stock during
the  fourth  quarter  of  fiscal  2004.  Procera  projects  that  cash  and cash
equivalents  on  hand  at  January  2,  2005  will  be sufficient to support its
operations  growth  through  June 2005, without relying on incoming revenue from
sales  to customers.  Procera expects that additional funds, from customer sales
or  equity  financing,  will need to be generated or located in order to sustain
its  operations  through  December  2005  and  thereafter.

Material Commitments of Capital
-------------------------------

     Procera  uses  third-party  contract manufacturers to assemble and test its
products.  In  order  to  reduce manufacturing lead-times and ensure an adequate
supply  of  inventories,  Procera's  agreements with some of these manufacturers
allow  them to procure long lead-time component inventory on its behalf based on
a rolling production forecast provided by Procera.  Procera may be contractually
obligated  to  purchase  long  lead-time component inventory procured by certain
manufacturers  in  accordance  with  its forecasts.  In addition, Procera issues
purchase  orders  to its third-party manufacturers that may not be cancelable at
any  time.  As  of  January  2,  2005, Procera had approximately $92,253 of open
non-cancelable  purchase  orders  with its third-party manufacturers compared to
$170,371  of  open  non-cancelable  purchase  orders  as  of  December 28, 2003.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Procera's  financial  statements  have  been  prepared  in  accordance with
accounting  principles  generally  accepted in the United States of America. The
preparation  of  these financial statements requires Procera to make significant
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses  and  related  disclosure  of  contingent  assets  and
liabilities.  Procera evaluates estimates, including those related to bad debts,
inventories  and income taxes, on an ongoing basis.  Procera bases its estimates
on  historical  experience and on various other assumptions that are believed to
be  reasonable  under the circumstances, the results of which form the basis for
making  judgments  about  the carrying values of assets and liabilities that are
not  readily  apparent from other sources.  Actual results may differ from these
estimates  under  different  assumptions  or  conditions.

     Procera  believes the following critical accounting policies, among others,
involve  the more significant judgments and estimates used in the preparation of
its  financial  statements:

REVENUE
-------

     Procera recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 104, "Revenue Recognition in Financial Statements" (SAB 104). Under SAB 104,
revenue  is  recognized  when  the  title  and  risk  of loss have passed to the
customer,  there is persuasive evidence of an arrangement, delivery has occurred
or  services  have  been  rendered, the sales price is fixed or determinable and


                                       24
<PAGE>
collectibility  is  reasonably assured.  Procera recognizes revenue from product
sales  upon  shipment to the customer provided no significant obligations remain
and  collection  of the receivable is probable.  Upon shipment, Procera provides
for  estimated  product  returns  and  discounts.

     At  the time product revenue is recognized, Procera estimates the amount of
warranty  costs  to  be  incurred  and  record  the amount as a cost of revenue.
Procera's  standard warranty period extends 12 months from the date of sale, and
its  estimate  of  the  amount  necessary  to  settle  warranty  claims is based
primarily  on  its past experience with repair costs related to warranty claims.
Although  Procera  believes  its  estimate  is adequate and that the judgment it
applies  is  appropriate, actual warranty costs could differ materially from its
estimate.  If  actual  warranty  costs  are  greater  than  initially estimated,
Procera's cost of revenues could increase in the future. Procera also provides a
provision  for  estimated  customer  returns  at  the  time  product  revenue is
recognized.  Its provision is based primarily on actual historical sales returns
and  its  return  policies. Procera's resellers generally do not have a right of
return, and its contracts with original equipment manufacturers only provide for
rights  of  return in the event Procera's products do not meet specifications or
there  is  an  epidemic failure, as defined in the contracts. If historical data
used  by  Procera  to  calculate  estimated  sales  returns  do  not  reasonably
approximate  future  returns,  revenue  in future periods could be affected. For
accounting  arrangements  that  have multiple revenue generating activities, the
Company  recognized revenue from product shipments at the time of shipment under
the  terms  of  SAB  104.

ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------

     Procera  maintains  an  allowance  for  doubtful accounts for estimated bad
debts.  If  the  financial  condition  of  its  customers  were  to deteriorate,
resulting  in  an  impairment  of  their  ability  to  make payments, additional
allowances  might  be  required.

INVENTORIES
-----------

     Inventories  are  recorded  at  the  lower of cost or market on a first-in,
first-out basis.  On an ongoing basis, Procera reviews for estimated obsolete or
excess  inventories  and  write  down  its  inventories  to  their estimated net
realizable value based upon its projections of future product demand and product
lifecycle  and  product  development  plans.  These write downs are reflected in
Procera's  cost  of  revenue.  Actual  product  demand may differ from Procera's
projections,  in  which case it may have understated or overstated the provision
for  excess  and obsolete inventory, which would have an impact on its operating
results.

WARRANTY RESERVE
----------------

     Procera  generally  warrants  its  products  for a specific period of time,
usually  one year, against material defects.  Procera provides for the estimated
future  costs  of  warranty  obligations in costs of goods sold when the related
revenue  is  recognized.  The  accrued  warranty  costs represent Procera's best
estimate  at the time of sale of the total costs that it will incur to repair or
replace  product  parts,  which  fail  while still under warranty. The amount of
accrued  estimated warranty costs is primarily based on historical experience as
to  product  failures  as  well  as  current information on repair costs. Actual
warranty  costs  could  differ from the estimate amounts.  On a quarterly basis,
Procera  reviews  the  accrued  balances and update the historical warranty cost
trends.  If  Procera  were  required  to  accrue additional warranty cost in the
future,  it  would  negatively  affect  operating  results.

DEFERRED TAX VALUATION ALLOWANCE
--------------------------------

     The  carrying value of Procera's deferred tax assets are dependent upon its
ability  to  generate  sufficient  future  taxable  income  in  certain  tax
jurisdictions.  Should  Procera  determines that it would not be able to realize
all  or  part  of  our  deferred  tax assets in the future, an adjustment to the


                                       25
<PAGE>
deferred  tax assets would be charged to income in the period such determination
was  made.  Currently,  Procera's  deferred  tax  assets  are  fully  reserved.


                                       26
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS

                             PROCERA NETWORKS, INC.
                        (a development stage enterprise)



                                    Contents

                                                                         Page
                                                                         ----

Report of Independent Registered Public Accounting Firm                  28

Audited Financial Statements:

     Balance Sheet                                                       29

     Statements of Operations                                            30

     Statements of Stockholders' Equity (Deficit)                        31 - 32

     Statements of Cash Flows                                            33

     Notes to Financial Statements                                       34 - 61


                                       27
<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders
of Procera Networks, Inc.


We  have  audited  the  accompanying  balance sheet of Procera Networks, Inc. (a
development  stage  enterprise) as of January 2, 2005 and the related statements
of  operations,  stockholders'  equity (deficit), and cash flows for each of the
years  in the two year period ended January 2, 2005, and for the period from May
1,  2002 (date of inception) to January 2, 2005.  These financial statements are
the  responsibility  of  the  Company's  management.  Our  responsibility  is to
express  an  opinion  on  these  financial  statements  based  on  our  audits.

We  conducted  our audits in accordance with the standards of the Public Company
Oversight  Board  (United  States).  Those  standards  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.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

In  our  opinion,  the financial statements referred to above present fairly, in
all  material  respects,  the financial position of Procera Networks, Inc. as of
January  2,  2005, and the results of its operations and its cash flows for each
of  the  years  in the two year period ended January 2, 2005, and for the period
from  May  1,  2002  (date  of inception) to January 2, 2005, in conformity with
accounting  principles  generally  accepted  in  the  United  States of America.

The  accompanying  financial  statements  have  been  prepared  assuming Procera
Networks, Inc. will continue as a going concern. As more fully described in Note
2,  the  Company has incurred net losses since its inception and has experienced
severe  liquidity  problems.  These conditions raise substantial doubt about the
Company's  ability  to continue as a going concern. Management's plans in regard
to  these matters are also described in Note 2.  The financial statements do not
include  any adjustments that might result from the outcome of this uncertainty.


/s/ Burr, Pilger & Mayer LLP

Palo  Alto, California
February 1, 2005


                                       28
<PAGE>
<TABLE>
<CAPTION>
                                  PROCERA NETWORKS, INC.
                             (a development stage enterprise)

                                       BALANCE SHEET

                                     January 2, 2005

                                          ASSETS
<S>                                                                            <C>
Current assets:
     Cash and cash equivalents                                                 $  4,147,930
     Accounts receivable, net                                                        31,605
     Inventories, net                                                               126,413
     Prepaid expenses                                                               222,038
                                                                               -------------
              Total current assets                                                4,527,986

Property and equipment, net                                                          44,170
Other assets                                                                         80,615
                                                                               -------------
              Total assets                                                     $  4,652,771
                                                                               =============

                              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                          $     69,124
     Accrued liabilities                                                            476,243
                                                                               -------------
              Total current liabilities                                             545,367
                                                                               -------------

Stockholders' equity:
     Preferred stock, $0.001 par value; 5,000,000 shares authorized;
        none issued and outstanding at January 2, 2005                                    -
     Common stock, $0.001 par value, 50,000,000 shares authorized; 24,115,406
        shares issued and outstanding at January 2, 2005                             24,115
     Common stock subscriptions                                                   4,324,375
     Additional paid-in-capital                                                  10,873,355
     Deficit accumulated during the development stage                           (11,114,441)
                                                                               -------------
              Total stockholders' equity                                          4,107,404
                                                                               -------------
              Total liabilities and stockholders' equity                       $  4,652,771
                                                                               =============
</TABLE>

                     The accompanying notes are an integral
                       part of these financial statements


                                       29
<PAGE>
<TABLE>
<CAPTION>
                                          PROCERA NETWORKS, INC.
                                     (a development stage enterprise)

                                         STATEMENTS OF OPERATIONS


                                                                                     Cumulative
                                                                                    Period from
                                                   Twelve Months Ended              May 1, 2002
                                         ------------------------------------   (Date of Inception)
                                            January 2,           December 28.            to
                                               2005                  2003         January 2, 2005
                                         ---------------------  --------------  --------------------
<S>                                      <C>                    <C>             <C>
Sales                                    $             97,611   $      32,085   $           305,064

Cost of sales                                         160,383          61,872               312,130
                                         ---------------------  --------------  --------------------

     Gross profit                                     (62,772)        (29,787)               (7,066)
                                         ---------------------  --------------  --------------------


Operating expenses:

  Engineering                                       2,156,998       1,376,012             4,087,555

  Sales and marketing                                 900,952         340,912             1,566,102

  General and administrative                        3,227,098       1,151,444             5,017,207
                                         ---------------------  --------------  --------------------

     Total operating expenses                       6,285,048       2,868,368            10,670,864
                                         ---------------------  --------------  --------------------


     Loss from operations                          (6,347,820)     (2,898,155)          (10,677,930)


Interest and other income                               6,376             566                18,738

Interest and other expense                            (21,725)       (344,599)             (455,249)
                                         ---------------------  --------------  --------------------

     Net loss                           $         (6,363,169)  $  (3,242,188)  $       (11,114,441)
                                        =====================  ==============  ====================


     Net loss per share - basic
     and diluted                        $              (0.27)  $       (0.30)
                                        =====================  ==============


     Shares used in computing net loss
     per share-basic and diluted                  23,592,522      10,700,244
                                        =====================  ==============
</TABLE>

                        The accompanying notes are an integral
                          part of these financial statements


                                       30
<PAGE>
                                   PROCERA NETWORKS, INC.
                              (a development stage enterprise)

                        STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

               Period From May 1, 2002 (date of inception) to January 2, 2005

<TABLE>
<CAPTION>
                                                                   ADDITIONAL
                                               COMMON STOCK          PAID-IN       COMMON STOCK SUBSCRIPTION
                                          -----------------------  ------------  -----------------------------
                                            SHARES       AMOUNT      CAPITAL        SHARES          AMOUNT
                                          ----------   ----------  ------------  ------------   --------------
<S>                                       <C>          <C>         <C>           <C>            <C>
  Issuance of common
    stock to founders
    at $0.001 per share from
    May - October 2002                     8,115,000   $    8,115  $         -              -   $           -
                                          -----------  ----------  ------------  -------------  --------------
  Common stock subscription
    issued in connection
    with advisory agreement at
    $0.001 per share in May 2002                                                    1,200,000            1,200
  Common stock subscription
    issued in connection
    with convertible notes payable
    at $0.001 and $0.01
    per share from June - December 2002                                               190,360            1,004

  Net loss                                -----------  ----------  ------------  -------------  --------------

Balances, December 31 , 2002               8,115,000        8,115            -      1,390,360            2,204

  Issuance of common stock
    to founders
    at $0.001 per share from
    January - August 2003                  3,750,000        3,750                 (1,200,000)          (1,200)
  Issuance of common stock
    to former employees for
    conversion of unpaid salary
    at $0.01 per share in May 2003         1,120,388        1,120       10,084
  Issuance of common stock
    for cash at $0.50 per
    share in June 2003, less
    issuance costs of $7,500                 808,000          808      395,692
  Issuance of common stock
    for cash at $0.001 per
    share upon exercise of
    warrants in June 2003                    500,000          500
  Issuance of common stock
    upon conversion of
    notes payable at $0.50
    per share in July 2003                 3,227,666        3,228    1,610,605
  Issuance of common
    stock to noteholders
    at $0.001 - $0.50 per share
    in January - July 2003                   361,893          362       28,915       (190,360)         (1,004)
  Issuance of common stock
    for services provided
    at $0.50 per share in
    July 2003                                 40,000           40       19,960
  Issuance of common stock
    for cash at $1.00 per
    share in August  2003, less
    issuance costs of $5,500               1,695,000        1,695    1,687,805
  Issuance of common stock
    in connection with
    merger with Zowcom
    at $0.001 in October 2003              1,610,000        1,610      (1,610)
  Issuance of common stock
    for cash at $0.001 per
    share upon exercise of
    warrants in November 2003                  5,000            5
  Issuance of common stock
    upon conversion of
    notes payable at $2.00
    per share in December 2003               252,959          253      505,665
  Issuance of common stock
    for cash at $2.00 per
    share in December 2003, less
    issuance costs of $299,109             1,086,250        1,086    1,872,305
  Fair value of common stock
    warrants issued to non-employees                                   324,852
  Issuance of unsecured convertible
    promissory note with
          Beneficial conversion feature                                 69,470
  Stock based employee compensation                                     84,688

  Net loss                                -----------  ----------  ------------  -------------  --------------

Balances, December 28, 2003               22,572,156       22,572    6,608,431              -               -

  Issuance of common stock
    for cash at $0.075 per
    share upon exercise of
    warrants in January 2004                  50,000           50        3,700
  Additional stock issuance costs                                      (2,104)
  Issuance of common stock
    to purchase EZ2, Inc.
    at $2.05 per share in
    April 2004                                35,000           35       71,715
  Issuance of common stock
    for cash at $2.00 per share
    upon exercise of special
    warrants in April & May 2004,
    less issuance cost of $172,054         1,086,250        1,086    1,999,360
  Issuance of common stock for
    cash at $2.00 per share in May 2004      250,000          250      499,750
  Issuance of common stock
    for cash at $0.075 per share
    upon exercise of
    warrants in May 2004                      26,000           26        1,924
  Issuance of common stock
    to purchase intellectual property of
    Ezyte, Inc. at $1.64
    per share in May 2004                     65,000           65      106,535
  Issuance of common stock
    in connection with
    private placement at
    $0.001 in June 2004                       20,000           20         (20)
  Issuance of common stock
    for services provided
    at $0.92 per share
    in October 2004                           11,000           11       10,109
  Common stock subscription
    issued in connection
    with private placement of
    common stocks at $0.80 per
    share in December 2004, less
    issuance costs of $285,625                                       5,762,500                       4,324,375
    Fair value of common stock
    warrants issued to non-employees                                   505,340
  Stock based employee compensation                                  1,068,615

  Net loss                                -----------  ----------  ------------  -------------  --------------

Balances, January 2, 2005                 24,115,406   $   24,115  $10,873,355      5,762,500   $   4,324,375
                                          ===========  ==========  ============  =============  ==============
</TABLE>

                        The accompanying notes are an integral
                          part of these financial statements


                                       31
<PAGE>
<TABLE>
<CAPTION>
                                             PROCERA NETWORKS, INC.
                                        (a development stage enterprise)

                             STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

                         PERIOD FROM MAY 1, 2002 (DATE OF INCEPTION) TO JANUARY 2, 2005


                                                                                     DEFICIT
                                                                                    ACCUMULATED
                                                                      RECEIVABLE     DURING THE        TOTAL
                                                                         FOR        DEVELOPMENT     STOCKHOLDERS'
                                                                        STOCK          STAGE       EQUITY(DEFICIT)
                                                                    -------------  -------------  ----------------
<S>                                                                 <C>            <C>            <C>
  ISSUANCE OF COMMON STOCK TO FOUNDERS
    AT $0.001 PER SHARE FROM MAY - OCTOBER 2002                     $          -   $          -   $         8,115
  COMMON STOCK SUBSCRIPTION ISSUED IN CONNECTION
    WITH ADVISORY AGREEMENT AT $0.001 PER SHARE IN MAY 2002               (1,200)                               -
  COMMON STOCK SUBSCRIPTION ISSUED IN CONNECTION
    WITH CONVERTIBLE NOTES PAYABLE AT $0.001 AND $0.01
    PER SHARE FROM JUNE - DECEMBER 2002                                                                     1,004

  NET LOSS                                                                           (1,509,084)       (1,509,084)
                                                                    -------------  -------------  ----------------

BALANCES, DECEMBER 31 , 2002                                              (1,200)    (1,509,084)       (1,499,965)

  ISSUANCE OF COMMON STOCK TO FOUNDERS
    AT $0.001 PER SHARE FROM JANUARY - AUGUST 2003                         1,200                            3,750
  ISSUANCE OF COMMON STOCK TO FORMER EMPLOYEES FOR
    CONVERSION OF UNPAID SALARY AT $0.01 PER SHARE IN MAY 2003                                             11,204
  ISSUANCE OF COMMON STOCK FOR CASH AT $0.50 PER
    SHARE IN JUNE 2003, LESS ISSUANCE COSTS OF $7,500                                                     396,500
  ISSUANCE OF COMMON STOCK FOR CASH AT $0.001 PER
    SHARE UPON EXERCISE OF WARRANTS IN JUNE 2003                                                              500
  ISSUANCE OF COMMON STOCK UPON CONVERSION OF
    NOTES PAYABLE AT $0.50 PER SHARE IN JULY 2003                                                       1,613,833
  ISSUANCE OF COMMON STOCK TO NOTEHOLDERS
    AT $0.001 - $0.50 PER SHARE IN JANUARY - JULY 2003                                                     28,273
  ISSUANCE OF COMMON STOCK FOR SERVICES PROVIDED
    AT $0.50 PER SHARE IN JULY 2003                                                                        20,000
  ISSUANCE OF COMMON STOCK FOR CASH AT $1.00 PER
    SHARE IN AUGUST  2003, LESS ISSUANCE COSTS OF $5,500                                                1,689,500
  ISSUANCE OF COMMON STOCK IN CONNECTION WITH
    MERGER WITH ZOWCOM  AT $0.001 IN OCTOBER 2003                                                               -
  ISSUANCE OF COMMON STOCK FOR CASH AT $0.001 PER
    SHARE UPON EXERCISE OF WARRANTS IN NOVEMBER 2003                                                            5
  ISSUANCE OF COMMON STOCK UPON CONVERSION OF
    NOTES PAYABLE AT $2.00 PER SHARE IN DECEMBER 2003                                                     505,918
  ISSUANCE OF COMMON STOCK FOR CASH AT $2.00 PER
    SHARE IN DECEMBER 2003, LESS ISSUANCE COSTS OF $299,109                                             1,873,391
  FAIR VALUE OF COMMON STOCK WARRANTS ISSUED TO NON-EMPLOYEES                                             324,852
  ISSUANCE OF UNSECURED CONVERTIBLE PROMISSORY NOTE WITH
          BENEFICIAL CONVERSION FEATURE                                                                    69,470
  STOCK BASED EMPLOYEE COMPENSATION                                                                        84,688

  NET LOSS                                                                           (3,242,188)       (3,242,188)
                                                                    -------------  -------------  ----------------

BALANCES, DECEMBER 28, 2003                                                    -     (4,751,272)        1,879,731

  ISSUANCE OF COMMON STOCK FOR CASH AT $0.075 PER
    SHARE UPON EXERCISE OF WARRANTS IN JANUARY 2004                                                         3,750
  ADDITIONAL STOCK ISSUANCE COSTS                                                                          (2,104)
  ISSUANCE OF COMMON STOCK TO PURCHASE EZ2, INC.
    AT $2.05 PER SHARE IN APRIL 2004                                                                       71,750
  ISSUANCE OF COMMON STOCK FOR CASH AT $2.00 PER SHARE
    UPON EXERCISE OF SPECIAL WARRANTS IN APRIL & MAY 2004,
    LESS ISSUANCE COST OF $172,054                                                                      2,000,446
  ISSUANCE OF COMMON STOCK FOR CASH AT $2.00 PER SHARE IN MAY 2004                                        500,000
  ISSUANCE OF COMMON STOCK FOR CASH AT $0.075 PER SHARE
    UPON EXERCISE OF WARRANTS IN MAY 2004                                                                   1,950
  ISSUANCE OF COMMON STOCK TO PURCHASE INTELLECTUAL PROPERTY OF
    EZYTE, INC. AT $1.64 PER SHARE IN MAY 2004                                                            106,600
  ISSUANCE OF COMMON STOCK IN CONNECTION WITH
    PRIVATE PLACEMENT AT $0.001 IN JUNE 2004                                                                    -
  ISSUANCE OF COMMON STOCK FOR SERVICES PROVIDED
    AT $0.92 PER SHARE IN OCTOBER 2004                                                                     10,120
  COMMON STOCK SUBSCRIPTION ISSUED IN CONNECTION
    WITH PRIVATE PLACEMENT OF COMMON STOCKS AT $0.80 PER
    SHARE IN DECEMBER 2004, LESS ISSUANCE COSTS OF $285,625                                             4,324,375
  FAIR VALUE OF COMMON STOCK WARRANTS ISSUED TO NON-EMPLOYEES                                             505,340
  STOCK BASED EMPLOYEE COMPENSATION                                                                     1,068,615

  NET LOSS                                                                           (6,363,169)       (6,363,169)
                                                                    -------------  -------------  ----------------

BALANCES, JANUARY 2, 2005                                           $          -   $(11,114,441)  $     4,107,404
                                                                    =============  =============  ================
</TABLE>

                           The accompanying notes are an integral
                             part of these financial statements


                                       32
<PAGE>
<TABLE>
<CAPTION>
                                                          PROCERA NETWORKS, INC.
                                                     (a development stage enterprise)

                                                         STATEMENTS OF CASH FLOW


                                                                                                                 Cumulative
                                                                                                                 Period from
                                                                              Fiscal Year Ended                  May 1, 2002
                                                             ----------------------------------------------- (Date of Inception)
                                                                    January 2,              December 28,             to
                                                                       2005                     2003           January 2, 2005
                                                             -------------------------  --------------------  ------------------
<S>                                                          <C>                        <C>                   <C>
Cash flows from operating activities:
  Net loss                                                   $             (6,363,169)  $        (3,242,188)  $    (11,114,441)
  Adjustments to reconcile net loss to
    net cash used in operating activities:
  Gain on disposal of property and equipment                                        -                     -            (11,796)
  Common stock issued for service rendered                                     10,120                31,204             41,324
  Accrued interest on convertible notes payable                                     -               177,451            264,751
  Stock based compensation                                                  1,068,615                84,688          1,153,303
  Fair value of warrants issued to non-employee                               505,340               394,322            899,662
  Common stocks subscriptions issued in connection
     with convertible notes payable                                                 -                28,273             29,277
  Depreciation                                                                 62,850                21,241             85,288
  Amortization of intangibles                                                 178,350                     -            178,350
  Changes in assets and liabilities:
    Accounts receivable                                                       (31,605)               23,289            (31,605)
    Inventory                                                                 (31,810)               33,392            122,790
    Prepaid expenses and other assets                                        (109,178)             (163,534)          (302,653)
    Accounts payable                                                           37,520              (110,455)            69,124
    Accrued liabilities                                                        81,181               (41,670)           176,243
                                                             -------------------------  --------------------  ------------------
            Net cash used in operating activities                          (4,591,786)           (2,763,987)        (8,440,383)
                                                             -------------------------  --------------------  ------------------

Cash flows from investing activities:
    Purchase of property and equipment                                        (34,442)              (36,772)           (81,865)
    Proceeds from sale of property and equipment                                    -                     -             15,000
    Decrease (increase) in restricted cash                                     10,000               (10,000)                 -
                                                             -------------------------  --------------------  ------------------
            Net cash used in investing activities                             (24,442)              (46,772)           (66,865)
                                                             -------------------------  --------------------  ------------------

Cash flows from financing activities:
    Proceeds from issuance of common stock, net                             2,500,446             3,963,141          6,471,702
    Proceeds from common stock subscription, net                            4,324,375                     -          4,324,375
    Proceeds from exercise of warrants                                          3,596                   505              4,101
    Proceeds from convertible notes payable                                         -               775,000          1,855,000
                                                             -------------------------  --------------------  ------------------
            Net cash provided by financing activities                       6,828,417             4,738,646         12,655,178
                                                             -------------------------  --------------------  ------------------

Net increase in cash and cash equivalents                                   2,212,189             1,927,887          4,147,930

Cash and cash equivalents, beginning of period                              1,935,741                 7,854                  -
                                                             -------------------------  --------------------  ------------------

Cash and cash equivalents, end of period                     $              4,147,930   $         1,935,741   $      4,147,930
                                                             =========================  ====================  ==================

Supplemental cash flow information:
 Cash paid for income taxes                                  $                  3,656   $               800   $          4,456

Non cash investing and financing activities:
 Property and equipment acquired with accrued liabilities    $                      -   $                 -   $         32,040
 Transfer of inventory to property and equipment             $                      -   $                 -   $         18,757
 Inventory acquired with accrued liabilities                 $                      -   $                 -   $        267,960
 Issuance of common stock in exchange for convertible
 notes payable and accrued interest                          $                      -   $         2,119,751   $      2,119,751
 Issuance of common stock in connection with merger
 with Zowcom, Inc.                                           $                      -   $             1,610   $          1,610
 Issuance of common stock in connection with acquisition of
 intellectual property from Ezyte, Inc.                      $                106,600   $                 -   $        106,600
 Issuance of common stock in connection with acquisition of
 EZ2, Inc.                                                   $                 71,750   $                 -   $         71,750
 Issuance of common stock in connection with note payable    $                      -   $            28,273   $         30,477
 Issuance of common stock pursuant to common stock
 subscription agreements                                     $                      -   $            30,477   $         30,477
</TABLE>

                        The accompanying notes are an integral
                          part of these financial statements


                                       33
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS
                               ___________________


1.   FORMATION AND BUSINESS OF THE COMPANY

     Procera  Networks,  Inc.  ("Procera"  or  the  "Company"), formerly Zowcom,
     Inc.  ("Zowcom,")  was  incorporated in Nevada on July 11, 2001. On October
     16,  2003,  Procera  Networks,  Inc., a Delaware corporation ("PNI") merged
     into Zowcom, Inc. in a stock-for-stock transaction, as a result of a merger
     and plan of reorganization agreement (the "Merger") between Zowcom and PNI.
     Pursuant  to  the Merger, Zowcom assumed PNI's operations and business plan
     and changed its name to Procera Networks, Inc.

     Procera  Networks,  Inc.  is  a  development  stage  high technology device
     company  engaged  in  the  development  and marketing of wire-speed Layer 7
     network  solutions.  The  MLS  Layer  7  application  switch product family
     provides  wire-speed  switching,  routing,  content  control, flow metering
     (bandwidth  limiting),  packet shaping (quality of service prioritization),
     surveillance (monitoring/archiving of emails, instant messaging) for secure
     delivery  of  information  and  applications  across  wireless and wireline
     networks.  The  Company is in the development stage, devoting substantially
     all of its efforts to product development, raising financing and recruiting
     personnel.  The  Company  has  funded its operations substantially from the
     proceeds  from  notes  payable  and  issuance  of  common  stock.

     In  the  course  of  its  development activities, the Company has sustained
     operating  losses  and  expects  such  losses  to  continue  through  the
     foreseeable  future.  The  Company  will  finance  its operations primarily
     through  its  cash  and  cash  equivalents,  future  financing  and  future
     revenues. However, there can be no assurance that such efforts will succeed
     or that sufficient funds will be available.

     FISCAL YEAR

     The  Company  maintains  its  accounting  records  on  a  52-53 week fiscal
     year. The fiscal year ends on the last Sunday of December and, as a result,
     an  extra  week  is  added  every five or six years. Fiscal year 2004 ended
     January  2,  2005 has 53 weeks, whereas fiscal year 2003 ended December 28,
     2003 has 52 weeks instead.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     The  accompanying  financial  statements  have  been prepared in conformity
     with  accounting  principles  generally  accepted  in  the United States of
     America,  which contemplate continuation of the Company as a going concern.
     However,  at  January  2,  2005,  the Company has an accumulated deficit of
     $11,144,441  and  has  sustained  an  operating  cash  flow  deficiency  of
     $8,440,383  since inception. In addition, the Company had insufficient cash
     at  January  2,  2005  to fund its operations for the next fiscal year. The
     Company's  activities have been financed principally through borrowings and
     issuances of equity.

     The  Company  will  require  additional  financing  to  fund  ongoing
     operations.  Management  is  actively  pursuing  additional equity and debt
     financing  from both institutional and corporate investors. There can be no
     assurance  that  any  new  debt  or  equity financing could be successfully
     consummated.  These  factors  raise  substantial  doubt about the Company's
     ability  to  continue  as  a going concern. The financial statements do not
     include  any  adjustments relating to the recoverability and classification
     of  the recorded asset amounts or amounts and classification of liabilities
     that might result from the outcome of this uncertainty.


                                       34
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

     USE OF ESTIMATES

     The  preparation  of  financial  statements  in  conformity with accounting
     principles  generally  accepted  in  the  United States of America requires
     management  to  make  estimates  and assumptions that affect certain report
     amounts  and  disclosures.  Accordingly,  actual  results could differ from
     those estimates.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  carrying  amounts  of  certain  of the Company's financial instruments
     including cash and cash equivalents, prepaid expenses, accounts payable and
     accrued liabilities approximate fair value due to their short maturities.

     CONCENTRATION OF CREDIT RISK

     Financial  instruments  that  potentially  subject  the  Company  to  a
     concentration  of  credit  risk  consist  of  cash and cash equivalents and
     accounts  receivable. Cash and cash equivalents are deposited in demand and
     money  market  accounts  in one financial institution in the United States.
     Deposits  held  with  financial  institutions  may  exceed  the  amount  of
     insurance  provided  on  such deposits. The Company has not experienced any
     material losses on its deposits of cash and cash equivalents.

     ADVERTISING COSTS

     Advertising  costs  are  expenses  as  incurred.  Advertising expenses were
     not significant for the period ended January 2, 2005 and December 28, 2003.

     CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

     The  Company  considers  all  highly  liquid  investments  to mature within
     three  months  or  less to be cash equivalents. Restricted cash consists of
     certificates  of  deposit  held  with  financial institutions as a security
     deposit.

     ACCOUNTS RECEIVABLE

     Accounts  receivable  are  stated  at  net  realizable value. Customers are
     on  cash  on  delivery until credit approval. Uncollectible receivables are
     recorded  as  bad  debt  expense  when  all  efforts  to  collect have been
     exhausted and recoveries are posted as they are received.

     INVENTORY

     Inventory  is  stated  at  the  lower of cost or market. Cost is determined
     on  a  standard  cost basis which approximates actual cost on the first-in,
     first-out  ("FIFO")  method.  Lower  of  cost  or  market  is  evaluated by
     considering  obsolescence, excessive levels of inventory, deterioration and
     other  factors.  All  inventory  on  hand  at  January  2, 2005 were either
     finished goods or work-in-progress.


                                       35
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

     PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Depreciation is calculated using
     the  straight-line  method  over  the estimated useful lives of the assets,
     which  is  three years for computer, tooling, test and office equipment and
     two  years  for  software.  Leasehold  improvements are amortized using the
     straight-line  method  over the estimated useful lives of the assets or the
     term  of  the  lease,  whichever is shorter. Whenever assets are retired or
     otherwise  disposed  of,  the cost and related accumulated depreciation are
     removed  from the accounts, and any resulting gain or loss is recognized in
     income  for  the period. The cost of maintenance and repairs is expensed as
     incurred; significant improvements are capitalized.

     IMPAIRMENT OF LONG-LIVED ASSETS

     The  Company  evaluates  its  long-lived  assets for indicators of possible
     impairment by comparison of the carrying amounts to future net undiscounted
     cash  flows  expected to be generated by such assets when events or changes
     in  circumstances  indicate  the  carrying  amount  of  an asset may not be
     recoverable.  Should  an  impairment  exist,  the  impairment loss would be
     measured  based  on the excess carrying value of the asset over the asset's
     fair  value  or  discounted estimates of future cash flows. The Company has
     not identified any such impairment losses to date.

     STOCK BASED COMPENSATION

     The  Company  accounts  for  stock-based  employee  compensation  using the
     intrinsic  value  method  under Accounting Principles Board Opinion No. 25,
     "Accounting  for  Stock  Issued  to  Employees"  ("APB  25"),  and  related
     interpretations and complies with the disclosure provisions of Statement of
     Financial  Accounting  Standards  ("SFAS")  No.  148,  "Accounting  for
     Stock-Based  Compensation, Transition and Disclosure - an Amendment of FASB
     Statement  No. 123." The following table illustrates the effect on net loss
     and  net  loss  per  share  if  the  Company  had  applied  the fair market
     recognition  provisions  of  SFAS  No.  123,  "Accounting  for  Stock-Based
     Compensation," to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                              CUMULATIVE
                                                                             PERIOD FROM
                                                 FISCAL YEAR ENDED           MAY 1, 2002
                                        --------------------------------  (DATE OF INCEPTION)
                                           JANUARY 2,       DECEMBER 28,          TO
                                              2005              2003       JANUARY 2, 2005
                                       -------------------  -------------  ------------------
<S>                                    <C>                  <C>            <C>
Net loss as reported                          ($6,363,169)   ($3,242,188)     ($11,114,441)
Add: Stock-based employee
compensation expense
included in reported net loss,
net of related tax effects                      1,068,615         84,688         1,153,303
Deduct: Total stock-based
employee compensation
expense determined under fair
value based method for all
awards, net of related tax
effects                                          (969,854)       (84,688)       (1,054,542)
                                       -------------------  -------------  -----------------

Pro forma net loss                            ($6,264,408)   ($3,242,188)     ($11,015,680)
                                       ===================  =============  =================

Earnings per share basic and diluted:
As reported                                        ($0.27)        ($0.30)
Pro forma                                          ($0.27)        ($0.30)
</TABLE>


                                       36
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

     STOCK BASED COMPENSATION, CONTINUED

     The  fair  value  of  options  granted  was  estimated on the date of grant
     using  the  Black-Scholes  option  pricing  model  with  the  following
     weighted-average assumptions used for grants in 2004:


                                         2004
                                       -------
Weighted average risk-free rate          2.37%
Expected life (years)                    3.38
Volatility                             118.00%
Dividend yield                              -


     Stock  options  granted  to  non-employees  are accounted for in accordance
     with  SFAS  123  and  the  Emerging  Issues Task Force Consensus No. 96-18,
     "Accounting  for Equity Instruments That Are Issued to Other Than Employees
     for Acquiring, or in Conjunction with Selling Goods or Services," which are
     recorded  at  fair value of the consideration received or the fair value of
     the  equity investments issued and they vest over a performance period. The
     fair  value  of  such  options is determined using the Black-Scholes option
     pricing model.

     INCOME TAXES

     Income  taxes  are  recorded  under  the  liability  method,  under  which
     deferred  tax assets and liabilities are determined based on the difference
     between  the  financial  statement  and tax bases of assets and liabilities
     using enacted tax rates in effect for the year in which the differences are
     expected  to  affect  taxable  income. Valuation allowances are established
     when  necessary  to  reduce deferred tax assts to the amount expected to be
     realized.

     REVENUE RECOGNITION

     Revenue  is  recognized  when  a  purchase  order  has  been  received, the
     product  has  been  shipped,  the  sales price is fixed or determinable and
     collection of the resulting receivable is probable.

     The  products  from  which  Procera  expects  to derive material amounts of
     revenue are:
     (i) its Application Accelerator appliance product;
     (ii) its Network Protector appliance product; and
     (iii) its Compliance Executive appliance product.

     Each  of  these  products  may  be  sold mounted on either Procera's 8 Gbps
     hardware platform (2402) or Procera's 28 Gbps hardware platform (12012).

     Under  standard  terms,  Procera  provides  products  to  direct  customers
     under  payment  terms  of  net  30  days, with no right of return nor price
     protection  provisions.  Under  standard  terms,  Procera  provides initial
     products  to indirect customers (value-added resellers) under payment terms
     of  net  45 days, with the right to evaluate and return products in lieu of
     payment  at  the  end  of  45 days. Thereafter, under follow-on orders from
     value-added  resellers Procera provides products under payment terms of net
     30  days.  Any  terms  other  than those just described would be considered
     non-standard.


                                       37
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


2.   SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES,  CONTINUED


     REVENUE RECOGNITION, CONTINUED

     Products  sold  to  an  end-user  customer  have no rights of return, stock
     rotation  rights, nor price protection rights. Products sold to an end-user
     customer  may  be returned for full credit or modification if, upon receipt
     by  the customer, they do not satisfy the customer's expectations. Warranty
     liabilities  are  established  based  on  historical experience of customer
     returns.


     RESEARCH AND DEVELOPMENT

     Research and development costs are charged to operations as incurred.


     SHIPPING AND HANDLING COSTS

     The  Company  includes  shipping  and  handling  costs  associated  with
     inbound and outbound freight in costs of goods sold.


     PRODUCT DEVELOPMENT COSTS

     The  Company  accounts  for  internally-generated  software  development
     costs in accordance with SFAS No. 86, "Accounting for the Costs of Computer
     Software  to  be  Sold,  Leased  or  Otherwise Marketed." Capitalization of
     eligible  product  development  costs  begins  upon  the  establishment  of
     technological feasibility, which we have defined as completion of a working
     model.  Internally-generated  software related costs that were eligible for
     capitalization was approximately $75,000 of which approximately $26,000 has
     been amortized and charged to "Engineering" in the statements of operations
     for  the  year  ended  January  2,  2005. For year ended December 28, 2003,
     technical  feasibility  had  not  been  established  and  thus all products
     development  costs  of  $402,846  was  charged  to  "Engineering"  in  the
     statements of operations.


     COMPREHENSIVE INCOME

     The  Company  has  adopted  Statement  of  Financial  Accounting  Standards
     No.  130, "Reporting Comprehensive Income," which establishes standards for
     reporting  comprehensive  income  and  its  components  in  the  financial
     statements. To date, the Company's comprehensive income has equaled its net
     income.


     NET LOSS PER SHARE

     Basic  earnings  per  share  ("EPS")  is  computed  by dividing net loss by
     the  weighted  average  number of common shares outstanding for the period.
     Diluted  EPS  reflects  the potential dilution that could occur from common
     shares  issuable  through  stock  options,  warrants  and other convertible
     securities, if dilutive.


                                       38
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED


     NET LOSS PER SHARE, CONTINUED

     The  following  table  is  a  reconciliation  of  the  numerator (net loss)
     and  the  denominator  (number of shares) used in the basic and diluted EPS
     calculations  and  sets forth potential shares of common stock that are not
     included  in  the diluted net loss per share calculation as their effect is
     antidilutive:


                                                 Fiscal Year Ended
                                        -----------------------------------
                                            January 2,        December 28,
                                               2005               2003
                                        -------------------  --------------
Numerator - Basic and diluted           $       (6,363,169)  $  (3,242,188)
                                        ===================  ==============

Denominator - basic and diluted
Weighted average common shares
 outstanding                                    23,592,522      13,159,835
Weighted average unvested common
 shares subject to repurchase                            -      (2,459,591)
                                        -------------------  --------------

Total                                           23,592,522      10,700,244
                                        ===================  ==============

Net loss per share - basic and diluted  $            (0.27)  $       (0.30)
                                        ===================  ==============

Antidilutive securities:
   Common stock subscriptions                    5,762,500               -
   Options                                       3,173,000               -
   Warrants                                      8,808,160       3,444,588
   Rights to purchase common stock                 325,000         575,000



     RECENT ACCOUNTING PRONOUNCEMENTS

     In  April  2004,  the  Emerging  Issues  Task  Force  issued  Statement No.
     03-06,  (EITF  03-06),  Participating  Securities  and the Two-Class Method
     under  FASB  Statement  No. 128, Earnings Per Share. EITF 03-06 addresses a
     number  of  questions  regarding  the  computation of earnings per share by
     companies  that  have  issued  securities  other  than  common  stock  that
     contractually  entitle  the holder to participate in dividends and earnings
     of the company when, and if, it declares dividends on its common stock. The
     issue  also  provides  further guidance in applying the two-class method of
     calculating earnings per share, clarifying what constitutes a participating
     security  and  how  to apply the two-class method of computing earnings per
     share once it is determined that a security is participating, including how
     to  allocate  undistributed  earnings  to  such  a security. EITF 03-06 was
     effective  for  fiscal periods beginning after March 31, 2004. The adoption
     of  EITF  03-06  did not have a material effect on the Company's results of
     operations or financial position.


                                       39
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED


RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED

     In  December  2004,  the  FASB  issued  Statement  of  Financial Accounting
     Standards No. 123R ("SFAS 123R"), Share-Based Payment, an amendment of FASB
     Statements Nos. 123 and 95. SFAS 123R eliminates the ability to account for
     share-based  compensation  transactions using APB 25 and would require that
     such  transactions  be  accounted  for  using a fair-value-based method and
     recognized  as expenses in statement of operations. SFAS 123R requires that
     a  modified version of prospective application be used, which requires that
     the fair value of new awards granted after the effective date of SFAS 123R,
     plus  unvested  awards  at  the  date  of  adoption,  be  expensed over the
     applicable  vesting  period.  The provisions of SFAS 123R will be effective
     for  interim  or annual reporting periods beginning after December 15, 2005
     for  companies  that  file  as small business issuers. The adoption of SFAS
     123R  is  expected  to  have  a  material impact on the Company's financial
     position and results of operations.


3.   MERGER WITH ZOWCOM, INC.

     On  October  16,  2003,  Zowcom,  Inc.,  a  Nevada  corporation  and public
     shell ("Zowcom"), merged with Procera Networks, Inc. a Delaware corporation
     ("PNI")  (the "Merger") pursuant to an Agreement and Plan of Merger between
     Zowcom and PNI (the "Agreement").

     In  the  Merger,  Zowcom  issued  19,617,947  shares  of  its  restricted
     common  stock  and  warrants to purchase 1,479,000 shares of its restricted
     common  stock  to  the  stockholders  of  PNI in exchange for 100% of PNI's
     issued  and  outstanding  shares of common stock and warrants. In addition,
     Zowcom's  management,  which  held  6,000,000 shares of Zowcom's restricted
     common  stock,  tendered  all  of  their shares for redemption by Zowcom in
     exchange for $88,000.

     As  a  result  of  the  Merger,  Zowcom  continued  as  the  surviving
     corporation,  assumed  the  operations  and  business  plan  of  PNI,  the
     stockholders  of  PNI  became stockholders of Zowcom and Zowcom changed its
     name to Procera Networks, Inc. ("Procera").

     For  accounting  purposes,  the  merger  is  considered  a  capital
     transaction  rather  than  a business combination and a recapitalization of
     PNI  since  Zowcom has only a minor amount of net assets and no operations.
     The  transaction  was  valued  based  on the value of Zowcom's net tangible
     assets,  with no goodwill recognized. The net tangible asset value was zero
     as  Procera  did  not  receive  any  of  the  assets  or  assume any of the
     liabilities  of  Zowcom.  The  statement  of stockholder's equity (deficit)
     reflects  the issuance of 1,610,000 shares of common stock which represents
     the  outstanding shares of Zowcom's common stock at the time of the merger.
     The  historical financial statements prior to October 16, 2003 are those of
     PNI.


                                       40
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                              ___________________


3.   MERGER WITH ZOWCOM, INC., CONTINUED

     The  following  unaudited  pro  forma  summary is provided for illustrative
     purposes only and is not necessarily indicative of the consolidated results
     of  operations for future periods or that actually would have been realized
     had Zowcom and PNI been a consolidated entity during the periods presented.
     The  summary  combines  the  results of operations as if the merger between
     Zowcom  and  PNI  had  taken  place  as  of  the  beginning  of the periods
     presented.

                                                      2003          2002
                                                  ------------  ------------
SALES                                             $    32,085   $   177,413
NET LOSS                                          $(3,284,163)  $(1,590,276)
NET LOSS PER SHARE - BASIC AND DILUTED            $     (0.27)  $     (0.38)


4.   BALANCE SHEET DETAILS

     Accounts receivable consist of the following at January 2, 2005:


Accounts receivable                $    81,593
Less: allowance for bad debts          (49,988)
                                    ------------
   Accounts receivable, net         $    31,605
                                    ============


     Inventory consist of the following at January 2, 2005:


WIP inventory                            $    17,820
Finished goods inventory                     177,968
Consignment inventory                         31,842
Less: inventory reserve for obsolescence    (101,217)
                                         ------------
   Inventories, net                      $   126,413
                                         ============


Prepaid expenses consist of the following at January 2, 2005:


Prepaid insurance premiums     $     41,674
Prepaid software licenses            78,128
Prepaid maintenance                  26,960
Prepaid expenses                     75,276
                               ------------
   Total prepaid expenses      $    222,038
                               ============


                                       41
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________

4.   BALANCE SHEET DETAILS, CONTINUED

     Property and equipment consists of the following at January 2, 2005:


Tooling and test equipment         $    27,826
Office equipment                        33,898
Computer equipment                      49,742
Software                                15,905
Furniture and fixtures                   2,085
                                   ------------
     Total                             129,456
Less: accumulated depreciation         (85,286)
                                   ------------
      Property and equipment, net  $    44,170
                                   ============


     Other assets consist of the following at January 2, 2005:


Security deposit - HR and payroll services     $     50,615
Security deposit - Sales taxes collateral            30,000
                                               ------------
     Total other assets                        $     80,615
                                               ============


     Accrued liabilities consist of the following at January 2, 2005:


Payroll and related expenses         $    71,417
Accrued audit, tax & legal fees           84,285
Deferred revenue                           2,750
Accrued stock issuance cost              285,625
Contingent warranty liability              6,206
Other accrued expenses                    25,960
                                    ------------
     Total accrued liabilities       $   476,243
                                    ============


5.   ASSET  PURCHASES

     On  April  22,  2004,  the  Company  completed  the  acquisition of 100% of
     the  outstanding  stock  of  EZ2, Inc. ("EZ2"), a development stage company
     located  in  Saratoga,  California,  for  35,000  shares  of  the Company's
     restricted  common  stock  valued  at  $71,750.  EZ2 has been designing and
     developing  a  switching platform for XML (Extensible Mark-up Language) and
     Web  Services  based  applications.  XML is a mark-up language or mechanism
     that  identifies  structured  information  in  a  data  format,  such  as a
     document,  graph,  equation,  or  e-commerce  transaction.  Structured
     information contains both content (for example, words or pictures) and some
     indication  of  what  role  that  content  plays  (for  example, a heading,
     footnote, caption, or table). The Company plans to develop products for the
     XML  market  by  taking  advantage  of  the core technology of the EZ-2-XML
     platform  to  perform  as  a  wire-speed  packet  processing  engine.  The
     acquisition  has  been accounted for as an asset purchase since EZ2 did not
     meet  the  criteria  of  a  business  as  defined in Statement of Financial
     accounting  Standards  No.  141, Business Combinations, and Emerging Issues
     Task Force No. 98-3, Determining Whether a Nonmonetary Transaction Involves
     Receipt  of  Productive  Assets  of a Business. The purchase price has been
     allocated  to  purchased  technology  as EZ2 had no tangible assets and has
     been fully amortized as of January 2, 2005.


                                       42
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________

5.   ASSET  PURCHASES,  CONTINUED

     On  May  20,  2004,  the  Company  completed  the  acquisition  of  the
     intellectual  property  of  Ezyte,  Inc.  ("Ezyte"),  a  system performance
     management company located in Saratoga, California for 65,000 shares of the
     Company's  restricted  common  stock  valued  at  $106,600.  Ezyte  offered
     products and services for system performance management of packet switching
     networks,  high  performance  routers,  Internet  architecture,  wireless
     Internet  and  storage  systems.  Ezyte  has  developed  high  performance
     algorithms and architectures for storage systems like RAID (redundant array
     of  disks),  SAN  (storage  area  network), Remote Copy, Disaster Recovery,
     Cache Servers, etc. Procera plans to use Ezyte's technology to expedite new
     offerings  for  storage applications and content filtering. The acquisition
     has  been  accounted  for as an asset purchase since Ezyte did not meet the
     criteria  of  a  business  as  defined in Statement of Financial accounting
     Standards  No.  141,  Business Combinations, and Emerging Issues Task Force
     No. 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of
     Productive  Assets  of a Business. The purchase price has been allocated to
     purchased technology and has been fully amortized as of January 2, 2005.

6.   INTANGIBLE ASSETS, NET

Intangible  assets  consist  of  the  following  at  January  2,  2005:

<TABLE>
<CAPTION>
                                                   Gross                         Net
                                                Intangible    Accumulated    Intangible
                                                  Assets      Amortization     Assets
                                                -----------  --------------  -----------
<S>                                             <C>          <C>             <C>
Purchased technology acquired from EZ2, Inc.    $    71,750  $     (71,750)  $         -
Purchased technology acquired from Ezyte, Inc.      106,600       (106,600)            -
                                                -----------  --------------  -----------

Total intangible assets                         $   178,350  $    (178,350)  $         -
                                                ===========  ==============  ===========
</TABLE>

     Amortization  expense  for  those  intangible  assets  still required to be
     amortized  under  Statement  of  Financial  Accounting  Standards  No. 142,
     goodwill  and  Other  Intangible  Assets,  was $178,350 for the fiscal year
     ended January 2, 2005 and zero for fiscal year ended December 28, 2003.


7.   CONVERTIBLE NOTES PAYABLE

     In  May,  June,  July,  September  and  November  2002,  the Company issued
     $1,080,000 in convertible notes payable to certain investors. The principal
     amount of the convertible notes payable, together with interest at 0.5% per
     month is due and payable upon demand by the holders of the note on or after
     March 31, 2003. The outstanding principal and accrued interest of the notes
     are  convertible,  at  the  option  of the holders, into Series B preferred
     stock  at  the  purchase price paid for the Series B preferred stock at the
     first  closing.  The  Company  must  also  pay a monthly fee of 1.5% of the
     outstanding  principal amount of the note. Additionally, the holders of the
     notes  are  entitled to 2% of the outstanding principal amount of each note
     per  month  in  shares  of  the  Company's  common stock. For example, this
     provision  provides  for  two  shares of common stock to be earned for each
     $100 of principal outstanding each month. These notes are collateralized by
     a  senior  security  interest in all of the assets of the Company, held pro
     rata  with  the  other  outstanding  senior  secured  creditors  and solely
     subordinate  to  senior  bank  financing or senior secured financing from a
     corporate strategic partner of the Company.


                                       43
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________



7.   CONVERTIBLE NOTES PAYABLE, CONTINUED


     In  connection  with  the  convertible  notes  payable  issued  in November
     2002, the Company granted warrants to purchase common stock (Note 10).

     In  January  2003,  the  Company  issued  a convertible note payable in the
     amount  of  $25,000 to an investor. The principal amount of the convertible
     note  payable,  together with interest at 0.5% per month is due and payable
     upon  demand  by  the  holders  of the note on or after March 31, 2003. The
     outstanding  principal  and accrued interest of the note is convertible, at
     the  option  of  the  holder, into Series B preferred stock at the purchase
     price  paid  for  the  Series  B  preferred stock at the first closing. The
     Company  must  also  pay a monthly fee of 1.5% of the outstanding principal
     amount  of the note. Additionally, the holder of the note is entitled to 2%
     of  the outstanding principal amount of the note per month in shares of the
     Company's common stock.

     The  note  is  collateralized  by  a senior security interest in all of the
     assets  of  the  Company,  held  pro rata with the other outstanding senior
     secured creditors and solely subordinate to senior bank financing or senior
     secured financing from a corporate strategic partner of the Company.

     In  April  2003,  the  Company  issued  a  convertible  note payable in the
     amount  of $250,000 to an investor. The principal amount of the convertible
     note  payable,  together with interest at 0.5% per month is due and payable
     on  or after March 31, 2004. The outstanding principal and accrued interest
     of  the  note  is  convertible,  at the option of the holder, into Series B
     preferred stock at the purchase price paid for the Series B preferred stock
     at  the  first  closing.  The  note  is collateralized by a senior security
     interest  in all of the assets of the Company, held pro rata with the other
     outstanding  senior secured creditors and solely subordinate to senior bank
     financing or senior secured financing from a corporate strategic partner of
     the Company.

     In  July  2003,  the  outstanding  principal  amount  of  the  convertible
     notes  payable of $1,355,000 and accrued interest and loan fees of $258,833
     was converted into 3,227,666 shares of common stock using a conversion rate
     of  $0.50  per  share.  Additionally,  the Company issued 361,893 shares of
     common stock to the note holders in accordance with the agreements.


                                       44
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


7.   CONVERTIBLE NOTES PAYABLE, CONTINUED

     In  October  2003,  the  Company  issued  an  unsecured  convertible
     promissory  note  in  the  amount of $500,000 to an investor. The principal
     amount  of  the  convertible note payable, together with interest at 8% per
     annum,  was  originally  due and payable on April 22, 2004. The outstanding
     principal and accrued interest of the note is convertible, at the option of
     the  holder,  into common stock at a conversion rate of $2.00 per share. In
     connection  with  the  unsecured  convertible  promissory note, the Company
     granted  warrants  to  purchase  common  stock  (Note  10). The Company has
     accounted  for  a  beneficial  conversion feature embedded in the unsecured
     convertible  promissory  note in accordance with the provisions of Emerging
     Issues  Task  Force  No.  00-27,  Application  of Issue No. 98-5 to Certain
     Convertible  Instruments.  The  beneficial conversion feature, amounting to
     $69,470,  represents  an additional interest yield on the debt which may be
     converted  at  any  time  at  the  option  of the holder into common stock.
     Accordingly,  the  beneficial  conversion  feature  has been recorded as an
     immediate  charge  to  interest expense in October 2003. In determining the
     amount  of  the  beneficial conversion feature, the Company first allocated
     the  gross  proceeds from the unsecured convertible promissory note and the
     warrants  based on their relative fair values; resulting in $430,530 of the
     proceeds  assigned to the unsecured convertible promissory note and $69,470
     assigned  to  the  warrants.  The warrants were valued at the issuance date
     using  the  Black Scholes option pricing model. Interest expense of $69,470
     relating  to  the  discount  on  the  unsecured convertible promissory note
     associated  with  the  warrants was recognized as interest expense over the
     period that the unsecured convertible promissory note was outstanding.

     In  December  2003,  the  outstanding  principal  amount  of  the unsecured
     convertible  note  payable  of  $500,000 and accrued interest of $5,918 was
     converted into 252,959 shares of common stock at $2.00 per share.

     At  January  2,  2005,  the  Company  has  no long-term or convertible debt
     outstanding.

8.   COMMITMENTS AND CONTINGENCIES

     In  June  2003,  the  Company  entered  into  a six month agreement for the
     sublease  of  3,200  square  feet  of  space for $1.00 per square foot plus
     $2,300  in  monthly  common area expenses and a one time deposit of $3,200.
     Upon  expiration,  the  sublease will renew monthly, therefore there are no
     future  minimum  payments  under  this  lease. In January 2004, the Company
     reached  an agreement with the sub landlord to sublease an additional 1,332
     square  feet of space for $1.00 per square foot. The monthly rent increased
     to  $4,532  plus  $2,300 in monthly common area expenses. In July 2004, the
     Company  subleased  an  additional 1,000 square feet of space for $1.00 per
     square  foot  from  the  sub landlord. The monthly rent increased to $5,532
     plus  $2,800  in  monthly  common  area expenses. Rent expense for the year
     ended  January  2,  2005,  the  year  ended  December  28, 2003 and for the
     cumulative  period  from May 1, 2002 (date of inception) to January 2, 2005
     was $61,297, $83,476, and $246,773, respectively.


                                       45
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


9.   GUARANTEES

     INDEMNIFICATION AGREEMENTS

     The  Company  enters  into  standard  indemnification  arrangements  in our
     ordinary  course  of  business. Pursuant to these arrangements, the Company
     indemnifies,  holds  harmless,  and  agrees  to  reimburse  the indemnified
     parties for losses suffered or incurred by the indemnified party, generally
     our  business partners or customers, in connection with any U.S. patent, or
     any  copyright  or  other  intellectual  property infringement claim by any
     third party with respect to our products. The term of these indemnification
     agreements  is  generally  perpetual  anytime  after  the  execution of the
     agreement.  The  maximum  potential  amount  of future payments the Company
     could  be required to make under these agreements is unlimited. The Company
     has  never  incurred  costs  to defend lawsuits or settle claims related to
     these  indemnification  agreements.  As  a result, the Company believes the
     estimated  fair  value  of  these  agreements  is  minimal.

     The  Company  has  entered  into  indemnification  agreements  with  its
     directors  and  officers  that  may  require  the Company: to indemnify its
     directors  and  officers  against  liabilities  that may arise by reason of
     their  status  or  service as directors or officers, other than liabilities
     arising  from  willful  misconduct  of  a culpable nature; to advance their
     expenses  incurred  as  a result of any proceeding against them as to which
     they could be indemnified; and to obtain directors' and officers' insurance
     if available on reasonable terms, which the Company currently has in place.

     PRODUCT WARRANTY

     The  Company  warrants  its  products  for  a  specific  period  of  time,
     generally twelve months, against material defects. The Company provides for
     the  estimated  future  costs of warranty obligations in cost of sales when
     the  related  revenue  is recognized. The accrued warranty costs represents
     the  best  estimate at the time of sale of the total costs that the Company
     expects to incur to repair or replace product parts, which fail while still
     under  warranty.  The  amount  of  accrued  estimated  warranty  costs  are
     primarily  based on historical experience as to product failures as well as
     current  information  on repair costs. The Company periodically reviews the
     accrued  balances  and  updates  the  historical  warranty cost trends. The
     following  table  reflects  the  change  in  the Company's warranty accrual
     during the year ended January 2, 2005:

Warranty accrual, December 28, 2003             $   3,564
   Charged to cost of sales                         5,653
   Actual warranty expenditures                    (3,011)
                                                ----------
   Warranty accrual, January 2, 2005            $   6,206
                                                ==========


10.  STOCKHOLDERS' EQUITY (DEFICIT)

     COMMON STOCK

     During  2002,  the  Company  issued  8,115,000  shares  of its common stock
     to founders and certain employees for cash under stock purchase agreements,
     some  of  which  contain  repurchase  provisions.  During 2003, the Company
     issued  3,750,000  shares  of  its  common  stock  to  certain  directors,
     consultants  and  employees  under stock purchase agreements, some of which
     contain  repurchase  provisions.  These  shares are generally released from
     repurchase provisions ratably over three years.


                                       46
<PAGE>
                                PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

     COMMON STOCK, CONTINUED

     In connection with the termination and rehiring of employees all restricted
     shares were vested.

     In  June  2003, the Company completed a private placement of 808,000 shares
     of  the Company's common stock at $0.50 per share. The Company received net
     proceeds  of  $396,500 after deducting the offering expenses. In connection
     with the private placement, the Company granted warrants to purchase common
     stock  (Note 10 - Warrants).

     In  July  2003,  the  Company  issued  40,000  shares  of common stock to a
     professional  advisor  for services rendered. The Company recorded a charge
     of  $20,000 for the estimated fair value of the common stock on the date of
     issuance.

     In  August  2003,  the  Company  completed a private placement of 1,695,000
     shares  of  the  Company's  common  stock  at  $1.00 per share. The Company
     received net proceeds of $1,689,500 after deducting the offering expenses.

     In  December  2003,  the  Company  completed  a  brokered private placement
     of  1,086,250  shares of the Company's common stock at $2.00 per share. The
     Company  received  net  proceeds of $1,873,391 after deducting the offering
     expenses.  In  connection  with  the private placement, the Company granted
     warrants  and special warrants to purchase common stock (Note 10 - Warrants
     and Special Warrants).

     On  April  26,  2004,  the  registration  statement  filed  with  the
     Securities  and  Exchange  Commission  covering  the  shares  issued in the
     December 2003 private placement is declared effective by the Securities and
     Exchange  Commission.  Certain  investors exercised the special warrants to
     purchase  1,086,250  shares of common stock at $2.00 per share. The Company
     received  net proceeds of $2,000,446 after deducting the offering expenses.
     In  connection  with  the exercise of Special Warrants, the Company granted
     warrants to purchase common stock (Note 10 - Warrants).

     In  May  2004,  the  Company  completed  a  private  placement  of  250,000
     shares  of  common stock for $2.00 per share. The Company received proceeds
     of  $500,000. In connection with the private placement, the Company granted
     warrants to purchase common stock (Note 10 - Warrants).


     COMMON STOCK SUBSCRIPTIONS

     In  connection  with  the  convertible  notes payable (Note 7), the Company
     agreed  to  issue 190,360 shares of common stock in 2002 and 171,533 shares
     of  common  stock  in  2003  to  the  holders of the notes. The Company has
     recorded the earned shares as a common stock subscription which resulted in
     a  charge to interest expense of $1,004 in 2002 and $28,273 in 2003. In May
     2002,  the  Company  entered into an advisory agreement with a director and
     agreed to issue 1,200,000 shares of common stock at $0.001 per share.

     In  August  and  September  2003,  the  Company issued 1,200,000 shares and
     361,893  shares  of  common  stock  in  satisfaction  of  the  common stock
     subscriptions, respectively.


                                       47
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

     COMMON STOCK SUBSCRIPTIONS, CONTINUED

     In  December  2004,  23  institutional  and  accredited  investors  (the
     "December  2004  Investors"), each signed a Subscription Agreement, applied
     to  purchase a total of 5,762,500 shares of the Company's restricted common
     stock  for  $0.80 per share for a total of $4,324,375, net of issuance cost
     of  $285,625.  Under  the  Subscription  Agreements,  the  Company  granted
     warrants to purchase common stock (Note 10 - Warrants) .

     WARRANTS

     In  November  2002,  the  Company  issued  warrants  to purchase 50,000 and
     20,000  shares  of common stock with an exercise price of $0.075 per share,
     respectively,  in  connection  with the convertible notes payable (Note 7).
     The  warrants  are exercisable immediately and expire in November 2007. The
     fair  value  of  warrants calculated using the Black-Scholes option pricing
     model  was  not considered material, and accordingly, no value was ascribed
     to them for financial reporting purposes.

     In  December  2002,  the  Company  issued  warrants  to  purchase  100,000
     shares and 75,000 shares of common stock to two advisory board members with
     an  exercise  price  of $0.075 per share. The vesting terms of the warrants
     are  based  on  completion of service on the advisory board over a two year
     period,  with  the initial vesting occurring upon signing of the agreement.
     The  warrants  expire in December 2007. One of the agreements was signed in
     2002  and  the  other  in  2003.  The  fair  value  of the warrants will be
     calculated  quarterly  using the Black-Scholes option pricing model and the
     Company  will  record  quarterly  charges  over  the  vesting period of the
     warrants.  For the year ended January 2, 2005, the Company recorded charges
     of  $(8,840)  and  $(386)  relating  to  these warrants. For the year ended
     December  28,  2003,  the Company recorded charges of $135,975 and $104,340
     relating  to  these  warrants.  The  fair  value  of  the  warrants was not
     considered  material  in  2002, and accordingly, the Company did not record
     any charges relating to these warrants in 2002.

     In  December  2002,  the  Company  issued  warrants  to  purchase  400,000
     shares  of  common  stock  for  advisory services with an exercise price of
     $0.01  per  share. The vesting terms of the warrant are based on completion
     of  advisory  services and the attainment of certain milestones relating to
     OEM  customers. The warrants expire in June 2004 unless the advisor has not
     exercised  his  vested  warrant  then  the advisor shall have an additional
     three  years to exercise the vested warrants. At December 28, 2003, 200,000
     of  the  warrants  have  vested  in  connection with advisory services. The
     Company  calculated  the  fair  value  of  the  vested  warrants  using the
     Black-Scholes option pricing model and recorded a charge of $1,075 relating
     to  this  warrant.  The  warrant  will  be  revalued as it vests and future
     charges will be recorded based on the amount of the warrant that vests.

     In  June  and  July  2003,  the Company issued warrants to purchase 770,000
     shares and 6,000 shares of common stock with exercise prices between $0.001
     and  $0.075  per  share  to placement agents in connection with the private
     placement  of  common  stock  in  June  2003.  The warrants are exercisable
     immediately  and  expire  in June and July 2008. The fair value of warrants
     calculated  using  the  Black-Scholes option pricing model was $319,083 and
     has  been recorded as additional issuance costs of the transaction. In June
     2003,  warrants  to  purchase 500,000 shares of common stock were exercised
     for  $500.  In December 2003, warrants to purchase 250,000 shares of common
     stock were cancelled.


                                       48
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

     WARRANTS, CONTINUED

     In  June  2003,  the  Company  issued warrants to purchase 50,000 shares of
     common  stock  with an exercise price of $0.50 per share to a legal firm in
     connection  with their engagement to provide legal services to the Company.
     The  warrants are exercisable immediately and expire in June 2008. The fair
     value  of  the  warrants  calculated using the Black-Scholes option pricing
     model  was  $13,992  and  was  recognized  as  legal fees in the year ended
     December 28, 2003.

     In  June  2003,  the  Company issued warrants to purchase 404,000 shares of
     common stock with an exercise price of $0.75 per share to certain investors
     in  connection  with  the  private placement in June 2003. The warrants are
     exercisable  immediately  and  expire  in  June 2008. The fair value of the
     warrants  calculated  using  the  Black-Scholes  option  pricing  model was
     $93,663.  Since  the  warrants related to capital raising activities, there
     was no charge recorded in the financial statements for these warrants.

     In  October  2003,  the  Company  issued  warrants to purchase 6,125 shares
     of  common  stock for advisory services with an exercise price of $2.00 per
     share. The warrants are exercisable immediately and expire in October 2006.
     The  fair  value  of  warrants  calculated  using  the Black-Scholes option
     pricing  model  was  $27,232  and  has been recorded as additional issuance
     costs of the transaction.

     In  October  2003,  the  Company  issued warrants to purchase 31,250 shares
     of  common  stock  with  an exercise price of $2.00 per share in connection
     with  the  unsecured  convertible  notes payable (Note 5). The warrants are
     exercisable immediately and expire in June 2006. The fair value of warrants
     calculated using the Black-Scholes option pricing model was $69,470 and was
     recorded  as  a discount on the debt and amortized to interest expense over
     the life of the debt. During the year ended December 28, 2003, $138,940 was
     charged to interest expense.

     In December 2003, the Company issued warrants to purchase 109,713 shares of
     common  stock  with  an  exercise price of $2.00 per share to the placement
     agents  in  connection  with  the  private  placement in December 2003. The
     warrants are exercisable immediately and expire one year following the date
     on  which  the  registration  statement  for  the  shares has been declared
     effective  by  the  Securities  and  Exchange Commission. The fair value of
     warrants  calculated  using  the  Black-Scholes  option  pricing  model was
     $207,553  and  has  been  recorded  as  additional  issuance  costs  of the
     transaction.

     In  December 2003, the Company issued warrants to purchase 2,172,500 shares
     of  common  stock  with  an  exercise  price  of $2.00 per share to certain
     investors  in  connection  with the private placement in December 2003. The
     warrants are exercisable immediately and expire one year following the date
     on  which  the  registration  statement  for  the  shares has been declared
     effective  by  the  Securities  and  Exchange Commission. The fair value of
     warrants  calculated  using  the  Black-Scholes  option  pricing  model was
     $4,109,900. Since the warrants related to capital raising activities, there
     was no charge recorded in the financial statements for these warrants.


                                       49
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

     WARRANTS, CONTINUED

     On  April  22,  2004,  the  Company  issued  warrants  to  purchase  15,000
     shares  of  the  Company's  restricted common stock at a price of $2.05 per
     share  to  an  independent contractor as additional compensation to perform
     sales and marketing services. The warrants were 50% exercisable on July 15,
     2004  and  the  remaining  50% will be exercisable on January 15, 2005. The
     warrants  expire  on  January  22,  2007. The fair value of vested warrants
     calculated using the Black-Scholes option pricing model was $16,219 and has
     been  recorded as expense for consulting service for the year ended January
     2, 2005.

     In  May  2004,  the  Company  issued warrants to purchase 250,000 shares of
     common stock with an exercise price of $2.00 per share to certain investors
     in  connection  with  the  private  placement in May 2004. The warrants are
     exercisable  immediately  and  expire  on  June 30, 2006. The fair value of
     warrants  calculated  using  the  Black-Scholes  option  pricing  model was
     $82,171.  Since  the  warrants related to capital raising activities, there
     was no charge recorded in the financial statements for these warrants.

     In  May  2004,  the  Company  issued  warrants to purchase 1,086,250 shares
     of  common  stock  with  an  exercise  price  of $2.00 per share to certain
     investors  in connection with the exercise of Special Warrants in May 2004.
     The  warrants are exercisable immediately and expire one year following the
     date  on  which the registration statement for the shares has been declared
     effective  by  the  Securities  and  Exchange Commission. The fair value of
     warrants  calculated  using  the  Black-Scholes  option  pricing  model was
     $539,691.  Since  the warrants related to capital raising activities, there
     was no charge recorded in the financial statements for these warrants.

     In  May  2004,  the  Company  issued warrants to purchase 110,663 shares of
     common  stock  with  an  exercise price of $2.00 per share to the placement
     agents in connection with the exercise of Special Warrants in May 2004. The
     warrants are exercisable immediately and expire one year following the date
     on  which  the  registration  statement  for  the  shares has been declared
     effective  by  the  Securities  and  Exchange Commission. The fair value of
     warrants  calculated  using  the  Black-Scholes  option  pricing  model was
     $55,516  and  has  been  recorded  as  additional  issuance  costs  of  the
     transaction.

     On  August  27,  2004,  the  Company  issued  warrants  to purchase 400,000
     shares  of  the  Company's  restricted common stock at a price of $1.40 per
     share  to  a  financial  communication  firm,  as  compensation  to perform
     marketing  and  promotional  services.  The warrants are exercisable in one
     third  increment,  the  initial 33% were exercisable on August 2, 2004, the
     second 33% were exercisable on November 2, 2004, and the remaining warrants
     will  be  exercisable on February 2, 2005. The warrants expire on August 2,
     2006.  The fair value of warrants calculated using the Black-Scholes option
     pricing model was $253,144 and has been recorded as consulting expenses for
     the year ended January 2, 2005.

     On  August  27,  2004,  the  Company  issued  warrants  to purchase 100,000
     shares  of  the  Company's  restricted common stock at a price of $1.56 per
     share  to  a  consulting  firm,  as  compensation  to perform marketing and
     promotional  services.  The warrants are exercisable immediately and expire
     on  August  12,  2007.  The  fair  value  of  warrants calculated using the
     Black-Scholes  option  pricing  model  was $76,094 and has been recorded as
     consulting expenses for the year ended January 2, 2005.


                                       50
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

     WARRANTS, CONTINUED

     On  August  27,  2004,  the  Company  issued  warrants  to  purchase 60,000
     shares  of  the  Company's  restricted common stock at a price of $1.60 per
     share  to  consulting firm, as additional compensation to perform marketing
     and  promotional  services. The warrants vest over a five-month period with
     the initial 50% occurring in September 2004, 25% in October 2004 and 25% in
     December  2004.  The  warrants  expire on August 4, 2006. The fair value of
     warrants  calculated  using  the  Black-Scholes  option  pricing  model was
     $54,026  and  has  been  recorded as consulting expenses for the year ended
     January 2, 2005.

     On  August  27,  2004,  the  Company  issued  the following warrants: (a) a
     warrant to purchase 300,000 shares of the Company's restricted common stock
     at  a  price of $1.50 per share, with a net exercise option, exercisable on
     or  before  September  1, 2006; (b) a warrant to purchase 200,000 shares of
     the  Company's  restricted  common  stock  at  a  price of $2.50 per share,
     exercisable  on  or before September 1, 2005; and (c) a warrant to purchase
     200,000 shares of the Company's restricted common stock at a price of $3.00
     per share, exercisable on or before September 1, 2005 to a consulting firm,
     as compensation to perform marketing and promotional services over a twelve
     month period. The fair value of warrants calculated using the Black-Scholes
     option  pricing  model  was  $132,207  and  has been recorded as consulting
     expenses for the year ended January 2, 2005.

     In  December  2004,  the  Company  issued  warrants  to  purchase 1,728,750
     shares  of  the  common  stock  at  a per share exercise price of $1.25 and
     warrants  to  purchase  1,728,750 shares of the common stock at a per share
     exercise price of $1.37 to certain investors in connection with the private
     placement  in  December  2004. The warrants are exercisable immediately and
     expire  three  years following the date on which the registration statement
     for  the  shares has been declared effective by the Securities and Exchange
     Commission.  The  fair value of warrants calculated using the Black-Scholes
     option  pricing model was $4,873,580. Since the warrants related to capital
     raising  activities,  there  was  no  charge  recorded  in  the  financial
     statements for these warrants.

     In  December  2004,  the  Company  issued  warrants  to  purchase  173,206
     shares  of  common  stock  with  an  exercise  price of $1.25 per share and
     warrants  to purchase 173,203 shares of common stock with an exercise price
     of  $1.37  per share to the placement agents in connection with the private
     placement  in  December  2004. The warrants are exercisable immediately and
     expire  three  years following the date on which the registration statement
     for  the  shares has been declared effective by the Securities and Exchange
     Commission.  The  fair value of warrants calculated using the Black-Scholes
     option  pricing  model  was  $488,287  and  has been recorded as additional
     issuance costs of the transaction.

     At  January  2,  2005,  warrants  to  purchase  8,808,160  shares of common
     stock are outstanding.


                                       51
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

     WARRANTS, CONTINUED

     The following table sets forth the key terms of these warrants:
<TABLE>
<CAPTION>
                                                                        WEIGHTED
                                                                         AVERAGE          REASONS FOR
DATE OF  UNDERLYING     SHARES            VESTING OF      EXPIRATION    EXERCISE           GRANT OF
 GRANT   SECURITY       GRANTED             GRANT            DATE         PRICE            WARRANTS
-------  ------------  ---------        --------------  --------------  ---------  -------------------------
<S>      <C>           <C>        <C>   <C>             <C>             <C>        <C>
11/2002  Common stock     20,000   (1)  Immediate       11/2007         $   0.075  Raising capital
                                        Over 2 year
12/2002  Common stock    175,000   (2)  service period  12/2007         $   0.075  Board services
12/2002  Common stock    400,000   (3)  Milestones      01/2005         $   0.010  Customer base
06/2003  Common stock    404,000   (4)  Immediate       06/2008         $   0.720  Raising capital
06/2003  Common stock     50,000   (5)  Immediate       06/2008         $   0.500  Legal services
10/2003  Common stock      6,125   (6)  Immediate       10/2006         $   2.000  Raising capital
10/2003  Common stock     31,250   (7)  Immediate       06/2006         $   2.000  Raising capital
                                                        1 year after
                                                        effective date
12/2003  Common stock  1,195,963   (8)  Immediate       of SB-2         $   2.000  Raising capital
                                        Over 9 months                              Consulting
04/2004  Common stock     15,000   (9)  period          01/2007         $   2.050  services
                                                        1 year after
                                                        effective date
05/2004  Common stock  1,196,913  (10)  Immediate       Of SB-2         $   2.000  Raising capital
                                                        2 years after
                                                        effective date
05/2004  Common stock    250,000  (11)  Immediate       of SB-2         $   2.000  Raising capital
                                                                                   Investor/Public
                                        Over 6 months                              Relations
08/2004  Common stock    400,000  (12)  period          08/2006         $   1.400  services
                                                                                   Investor/Public
                                        Over 5 months                              Relations
08/2004  Common stock     60,000  (13)  period          08/2006         $   1.600  services
                                                                                   Investor/Public
                                                                                   Relations
08/2004  Common stock    100,000  (14)  Immediate       08/2007         $   1.560  services
                                                                                   Investor/Public
                                                                                   Relations
08/2004  Common stock    300,000  (15)  Immediate       09/2006         $   1.500  services
                                                                                   Investor/Public
                                                                                   Relations
08/2004  Common stock    200,000  (16)  Immediate       09/2005         $   2.500  services
                                                                                   Investor/Public
                                                                                   Relations
08/2004  Common stock    200,000  (17)  Immediate       09/2005         $   3.000  services
                                                        3 years after
                                                        effective date
12/2004  Common stock  1,901,956  (18)  Immediate       of S-3          $   1.250  Raising capital
                                                        3 years after
                                                        effective date
12/2004  Common stock  1,901,953  (19)  Immediate       of S-3          $   1.370  Raising capital
                       ---------
                       8,808,160                                        $   1.484
                       =========
</TABLE>

(1)  The  fair  value of the warrants granted was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:  (i) current stock price of $0.01 per share; (ii) exercise price of
$0.075 per share; (iii) expected life of five years; (iv) volatility of 65%; (v)
risk-free  rate  of  3.05%;  and  (vi)  annual  dividend  of  0%.


                                       52
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

     WARRANTS, CONTINUED

     (2)  The  fair  value  of  the  warrants  granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $3.05 per share;
     (ii) exercise price of $0.075 per share; (iii) expected life of five years;
     (iv)  volatility  of  65%;  (v)  risk-free  rate  of 3.03%; and (vi) annual
     dividend of 0%.

     (3)  The  fair  value  of  the  warrants  granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $0.01 per share;
     (ii)  exercise  price  of  $0.01 per share; (iii) expected life of four and
     half  years;  (iv) volatility of 65%; (v) risk-free rate of 2.70%; and (vi)
     annual dividend of 0%.

     (4)  The  fair  value  of  the  warrants  granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  i)  current stock price of $0.50 per share;
     (ii)  exercise price of $0.75 per share; (iii) expected life of five years;
     (iv)  volatility  of  65%;  (v)  risk-free  rate  of 2.28%; and (vi) annual
     dividend of 0%.

     (5)  The  fair  value  of  the  warrants  granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $0.50 per share;
     (ii)  exercise price of $0.50 per share; (iii) expected life of five years;
     (iv)  volatility  of  65%;  (v)  risk-free  rate  of 2.35%; and (vi) annual
     dividend of 0%.

     (6)  The  fair  value  of  the  warrants  granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $6.05 per share;
     (ii) exercise price of $2.00 per share; (iii) expected life of three years;
     (iv)  volatility  of  65%;  (v)  risk-free  rate  of 2.35%; and (vi) annual
     dividend of 0%.

     (7)  The  fair  value  of  the  warrants  granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $2.00 per share;
     (ii) exercise price of $2.00 per share; (iii) expected life of three years;
     (iv)  volatility  of  65%;  (v)  risk-free  rate  of 2.35%; and (vi) annual
     dividend of 0%.

     (8)  The  fair  value  of  the  warrants  granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $3.70 per share;
     (ii)  exercise  price  of $2.00 per share; (iii) expected life of one year;
     (iv)  volatility  of  65%;  (v)  risk-free  rate  of 2.35%; and (vi) annual
     dividend of 0%.

     (9)  The  fair  value  of  the  warrants  granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.64 per share;
     (ii) exercise price of $2.05 per share; (iii) expected life of three years;
     (iv)  volatility  of  92%;  (v)  risk-free  rate  of 2.37%; and (vi) annual
     dividend of 0%.


                                       53
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

     WARRANTS, CONTINUED

     (10)  The  fair  value  of  the  warrants granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.95 per share;
     (ii)  exercise  price  of $2.00 per share; (iii) expected life of one year;
     (iv)  volatility  of  65%;  (v)  risk-free  rate  of 2.33%; and (vi) annual
     dividend of 0%.

     (11)  The  fair  value  of  the  warrants granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.66 per share;
     (ii)  exercise  price  of $2.00 per share; (iii) expected life of one year;
     (iv)  volatility  of  65%;  (v)  risk-free  rate  of 2.59%; and (vi) annual
     dividend of 0%.

     (12)  The  fair  value  of  the  warrants granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.63 per share;
     (ii)  exercise  price of $1.40 per share; (iii) expected life of two years;
     (iv)  volatility  of  103%;  (v)  risk-free  rate of 2.78%; and (vi) annual
     dividend of 0%.

     (13)  The  fair  value  of  the  warrants granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.63 per share;
     (ii)  exercise  price of $1.60 per share; (iii) expected life of two years;
     (iv)  volatility  of  103%;  (v)  risk-free  rate of 2.78%; and (vi) annual
     dividend of 0%.

     (14)  The  fair  value  of  the  warrants granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.40 per share;
     (ii) exercise price of $1.56 per share; (iii) expected life of three years;
     (iv)  volatility  of  87%;  (v)  risk-free  rate  of 2.85%; and (vi) annual
     dividend of 0%.

     (15)  The  fair  value  of  the  warrants granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.40 per share;
     (ii)  exercise  price of $1.50 per share; (iii) expected life of two years;
     (iv)  volatility  of  87%;  (v)  risk-free  rate  of 2.48%; and (vi) annual
     dividend of 0%.

     (16)  The  fair  value  of  the  warrants granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.40 per share;
     (ii)  exercise  price  of $2.50 per share; (iii) expected life of one year;
     (iv)  volatility  of  87%;  (v)  risk-free  rate  of 2.03%; and (vi) annual
     dividend of 0%.

     (17)  The  fair  value  of  the  warrants granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.40 per share;
     (ii)  exercise  price  of $3.00 per share; (iii) expected life of one year;
     (iv)  volatility  of  87%;  (v)  risk-free  rate  of 2.03%; and (vi) annual
     dividend of 0%.


                                       54
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

     WARRANTS, CONTINUED

     (18)  The  fair  value  of  the  warrants granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.86 per share;
     (ii) exercise price of $1.25 per share; (iii) expected life of three years;
     (iv)  volatility  of  118%;  (v)  risk-free  rate of 3.25%; and (vi) annual
     dividend of 0%.

     (19)  The  fair  value  of  the  warrants granted was estimated on the date
     of  grant  using  the Black-Scholes option pricing model with the following
     weighted-average  assumptions:  (i) current stock price of $1.86 per share;
     (ii) exercise price of $1.37 per share; (iii) expected life of three years;
     (iv)  volatility  of  118%;  (v)  risk-free  rate of 3.25%; and (vi) annual
     dividend of 0%.

     SPECIAL WARRANTS

     In  December  2003,  the  Company  issued  special  warrants  to  purchase
     1,086,250  shares of common stock with an exercise price of $2.00 per share
     to  certain  investors  in  connection with the private placement of common
     stock  in  December  2003.  The  special  warrants  will  be  automatically
     exercised  immediately  upon  the  declaration  of the effectiveness of the
     Company's  registration  statement  filed  with the Securities and Exchange
     Commission  covering  the  shares  issued  in  the  December  2003  private
     placement.  The  special warrants shall terminate if the effective date for
     the registration statement occurs after June 6, 2004.

     On  April  26,  2004,  the  registration  statement  filed  with  the
     Securities  and  Exchange  Commission  covering  the  shares  issued in the
     December 2003 private placement is declared effective by the Securities and
     Exchange  Commission.  Certain  investors exercised the special warrants to
     purchase  1,086,250  shares of common stock at $2.00 per share. The Company
     received  net proceeds of $2,000,446 after deducting the offering expenses.
     In  connection  with  the exercise of Special Warrants, the Company granted
     warrants to purchase common stock (Note 10 - Warrants).

     At January 2, 2005, there is no special warrants outstanding.

     RIGHT TO PURCHASE COMMON STOCK

     In  July,  August  and  September  2003,  the  Company granted the right to
     purchase  250,000  shares,  175,000 shares and 150,000 shares with exercise
     prices  of $0.075, $0.10 and $0.25 per share, respectively, to employees in
     connection  with  employment  agreements. The rights vest over a three year
     period  and  expire  in  July,  August and September 2006. The Company will
     record  stock compensation expense for the excess of the deemed fair market
     value  over  the  exercise  price at the date of issuance. The compensation
     expense  is  being  recognized over the vesting period of three years using
     the  straight line method. For the years ended January 2, 2005 and December
     28,  2003, the Company recorded stock compensation expense of 1,068,615 and
     $84,688, respectively.

     In  September  2004,  one  employee  terminated  his  employment  with  the
     Company  and  119,800  shares  of  unvested rights to purchase common stock
     expired.  In  November 2004, sixty days after the termination of employment
     for this employee, 130,200 shares of vested rights to purchase common stock
     expired.


                                       55
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED


     RIGHT TO PURCHASE COMMON STOCK, CONTINUED

     Stock  compensation  to  be  recorded  in future periods will be $67,500 in
     2005  and  $41,719  in 2006. The amount of stock compensation expense to be
     recorded  in  future periods could decrease if the stock purchase rights do
     not fully vest.

     At  January  2,  2005,  there  are  325,000  shares  of the above rights to
     purchase common stock outstanding.


     TRANSACTIONS WITH EMPLOYEES

     Due  to  the  Company's  cash  position  and  lack  of  ability  to  obtain
     additional  financing,  the  Company  was  forced  to  terminate all of its
     employees  on  March 31, 2003. In April 2003, the Company rehired its chief
     executive officer and its chief financial officer to restart its operations
     and to continue to search for financing or a possible merger transaction.

     In  April 2003, the Company reached agreement with its former employees and
     executed  Settlement  and  Release  Agreements whereby the former employees
     gave  up  their right to their accrued unpaid salary in exchange for common
     stock  of  the  Company equal to two times their accrued salary with a fair
     value  of  $0.01  per share. For example, for each dollar of accrued salary
     the  employee  earned,  they  received 2 shares of common stock with a fair
     value of $0.01 per share. In July 2003, the Company issued 1,120,388 shares
     of  its  common  stock  to former employees for their unpaid accrued salary
     through  March  2003.  The value of the common stock issued was $11,204. In
     addition, all shares of restricted common stock were vested upon rehire.


     STOCK OPTION PLANS

     Under  the  Company's  2003  Stock  Option  Plan  and its 2004 Stock Option
     Plan  (the "Option Plans"), 5,000,000 shares of Common Stock are authorized
     for  issuance  to  employees,  officers,  consultants, and directors of the
     Company.  Stock  options  are  granted  at fair market value on the date of
     grant  with  terms  up  to  ten years. Under the terms of the Option Plans,
     16.7%  of the stock options granted to employees will vest six months after
     the  date  of  employment, and the remaining stock options will continue to
     vest  ratably  over the remainder of the three-year vesting period. Certain
     grants  of  options  to  employees  after  the  initial grant of options to
     employees  vest over three years. Certain grants to member of the Company's
     Board  of  Directors  in  compensation  for  their services vest over their
     current term of office of one year.


                                       56
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


10.  STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED

     STOCK OPTION PLANS, CONTINUED

     The following table summarizes stock option activity:

<TABLE>
<CAPTION>
                                                  Options Outstanding
                                             ------------------------------
                                                                  Weighted
                                  Shares                           Average
                                 Available         Number         Exercise
                                 for Grant        of Shares         Price
                                -----------  -------------------  ---------
<S>                             <C>          <C>                  <C>
  Balance at December 31, 2002           -                     -          -
    Authorized                   2,500,000                     -          -
    Granted                              -                     -          -
    Exercised                            -                     -          -
    Canceled                             -                     -          -

  Balance at December 28, 2003   2,500,000                     -          -
                                -----------  -------------------
    Authorized                   2,500,000                     -          -
    Granted                     (3,173,000)            3,173,000  $    1.41
    Exercised                            -                     -          -
    Canceled                             -                     -          -

                                -----------  -------------------
  Balance at January 2, 2005     1,827,000             3,173,000  $    1.41
                                ===========  ===================
</TABLE>

     The  following  table  summarizes  outstanding  and  exercisable options at
     January 2, 2005:

<TABLE>
<CAPTION>
                                Options Outstanding                     Options Exercisable
                   -------------------------------------------------  ----------------------
                                            Weighted
                                             Average        Weighted                Weighted
                       Number of            Remaining        Average    Number of    Average
                        Options              Life in        Exercise     Options    Exercise
Exercise Prices       Outstanding             Years           Price    Exercisable    Price
----------------  -------------------  ------------------  ----------  ----------  ---------
<S>               <C>                  <C>                  <C>        <C>          <C>
0.92 to $1.00                675,000                 9.78  $    0.89       37,224  $    0.92
1.01 to $2.00              2,403,000                 9.50  $    1.50    1,269,750  $    1.50
2.01 to $3.00                 35,000                 9.30  $    2.05        7,778  $    2.05
3.01 to $4.00                 60,000                 9.18  $    3.35       60,000  $    3.35

                  ------------------                                    ---------
0.92 to $4.00              3,173,000                 9.54  $    1.41    1,374,752  $    1.57
                  ==================                                    =========
</TABLE>

     During  fiscal  year  ended  January  2,  2005, the Company granted options
     with a weighted-average fair value of approximately $1.97 per share.


                                       57
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________

11.  INCOME TAXES

     There  is  no  provision  for  income  taxes  because  the  Company  has
     incurred  operating  losses.  Deferred  income  taxes  reflect  the net tax
     effects  of  net  operating  loss  and  tax credit carryovers and temporary
     differences  between  the  carrying  amounts  of assets and liabilities for
     financial  reporting purposes and the amounts used for income tax purposes.
     Significant components of the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                 FISCAL YEAR ENDED
                                           ----------------------------
                                            JANUARY 2,    DECEMBER 28,
                                               2005           2003
                                           ------------  --------------
<S>                                        <C>           <C>
DEFERRED TAX ASSETS:
   FEDERAL AND STATE NET OPERATING LOSSES  $ 3,449,120   $   1,678,595
   RESEARCH CREDITS                            382,803         145,315
   NON-DEDUCTIBLE ACCRUED EXPENSES             976,895         247,798
   OTHER                                             -               -
                                           ------------  --------------
      TOTAL DEFERRED TAX ASSETS              4,808,818       2,071,708

VALUATION ALLOWANCE                         (4,808,818)     (2,071,708)
                                           ------------  --------------
      NET DEFERRED TAX ASSETS              $         -   $           -
                                           ============  ==============
</TABLE>

     As  of  January  2,  2005,  the  Company  had  net  operating  loss
     carryforwards  for  federal income tax purposes of approximately $8,730,289
     which  expires  beginning in the year 2020. The Company also has California
     net  operating  loss carryforwards of approximately $8,247,373 which expire
     beginning  in  the  year  2012. The Company also has federal and California
     research  and development tax credits of $186,825 and $195,978. The federal
     research  credits  will begin to expire in the year 2021 and the California
     research credits have no expiration date.

     The  change  in  the  valuation  allowance was a net increase of $2,737,110
     and  $1,549,000  for  the year ended January 2, 2005 and December 28, 2003,
     respectively.

     Utilization  of  the  Company's  net  operating  loss  may  be  subject  to
     substantial  annual  limitation  due  to  the  ownership change limitations
     provided by the Internal Revenue Code and similar state provisions. Such an
     annual  limitation could result in the expiration of the net operating loss
     before utilization.

12.  RELATED PARTY TRANSACTIONS

     On  May  1,  2002,  the  Company entered into an Advisory Agreement with an
     individual,  a  partner  in  a  company,  located  in  Cupertino,  CA.  The
     individual  was  also  serving  as  a  Director  on  the Company's Board of
     Directors.  The  initial  term  of  the  Agreement  was May 1, 2002 through
     October  31, 2002 and was subsequently extended for a period of six months,
     as was provided for in the Agreement, through April 30, 2003.


                                       58
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


12.  RELATED PARTY TRANSACTIONS, CONTINUED

     In  his  capacity  as  Advisor,  the  individual  agreed  to  provide  the
     Company with the following advisory services:

     -    Advisory  services  related  to  the  structure  of  financings by the
          Company, including the initial funding;
     -    Introductions  to  potential  individual, corporate, and institutional
          investors.
     -    Introductions to investment banking and private equity firms;
     -    Introductions  and  advice  related  to  the  recruitment  of  Board
          members and advisory board members;
     -    Introductions  and  advice  related  to  the  Company's  engagement of
          accounting and law firms as the CEO shall direct from time to time;
     -    Advice  in  the  preparation  of  a  Form  S-1  and  other  documents
          required for an initial public offering of the Company;
     -    Advice  related  to  a  merger  of the Company with an existing public
          company, if such transaction is sought by the CEO; and
     -    Such  other  matters  as  may  be  required  from  time-to-time by the
          President/CEO  with the consent of Advisor, provided that such consent
          shall not be unreasonably withheld.

     As  part  of  his  compensation  for  Advisory  Services rendered under the
     Agreement, the Advisor was permitted to purchase from the Company 1,200,000
     founder's common shares at a price of $.001 per share which was deemed fair
     value  of  the  stock at the time the agreement was executed. The number of
     shares  granted  were  determined  based  on  the  nature of services being
     provided.  In  August  2003,  the  individual  exercised  the  common stock
     subscription  to  purchase  1,200,000  shares of common stock at $0.001 per
     share.  Additionally, the individual held a convertible note payable in the
     amount  of  $150,000,  which  is  included in the convertible notes payable
     amount  of $1,355,000 that was converted into the Company's common stock in
     July 2003.

     In  May  2003,  the  Company  entered into an advisory agreement with Cagan
     McAfee  Capital Partners, LLC ("CMCP") to assist in a $5,000,000 financing.
     One  of the owners of CMCP is a director of the Company. In connection with
     the advisory agreement, the Company agreed to sell CMCP 2,000,000 shares of
     its common stock at $0.001 per share, which was purchased in August 2003 by
     CMCP.  This  amount was recorded as part of common stock issued to founders
     for $2,000 and charged to miscellaneous expense.

     In  August  2003,  the  Company  entered  into an Assignment and Assumption
     Agreement  with  Douglas  J.  Glader,  the  Company's  president  and chief
     executive  officer,  whereby  Douglas  J.  Glader  assigned  his  option to
     purchase  certain  tangible  property, finished goods inventory, furniture,
     capital equipment and intellectual property rights from Digi International,
     Inc. ("Digi") to the Company with the consent of Digi (Note 13).


                                       59
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________


13.  TRANSACTIONS WITH DIGI INTERNATIONAL, INC.

     In May 2002, the Company entered into a Purchase and License Agreement with
     Digi  whereby  the  Company  desired  to  acquire  or license all of Digi's
     tangible and intangible assets, intellectual property and personal property
     related to the business of layer 2 through layer 7 switches in exchange for
     issuing  shares  of  the  Company's  stock, representing 19.9% of the fully
     diluted  capitalization  of  the Company, to Digi. The Agreement was set to
     close  on  July 31, 2002 but was amended to close on March 31, 2003. As the
     Company  did  not  have an equity financing, no shares were issued to Digi.
     However,  the  Company  did  have  full  use  of  the  related  assets  and
     intellectual  property.

     In  May  2002,  the Company entered into a Distribution Agreement with Digi
     whereby  the  Company became the exclusive, worldwide distributor of Digi's
     product,  as  defined.

     In  March  2003,  Digi  and  Douglas  J.  Glader entered into an Option and
     License  Agreement  whereby  Digi  terminated  its  Purchase  and  License
     Agreement  with  the  Company  and  granted  Douglas J. Glader the right to
     purchase  the  right,  title  and  interest  in the tangible and intangible
     assets, intellectual property and personal property related to the business
     which  was previously covered by the Purchase Agreement between the Company
     and  Digi  for  $300,000.

     In  August  2003,  the  Company  entered  into an Assignment and Assumption
     Agreement  with  Douglas  J.  Glader whereby Douglas J. Glader assigned his
     option  to  purchase  certain  tangible property, finished goods inventory,
     furniture,  capital equipment and intellectual property rights from Digi to
     the  Company  with  the  consent  of  Digi.

     In  September 2003, the Company exercised the option and paid Digi $300,000
     for  the  rights,  title  and  interest  in  the  assets  described  in the
     Assignment  and  Assumption Agreement. The $300,000 purchase price included
     $267,960  of  inventory  and  $32,040  of  fixed  assets.

14.  SEGMENT INFORMATION

     The  Company  operates  in  one  segment,  using  one  measure  of
     profitability  to  manage its business. Revenues for geographic regions are
     based  upon  the customer's location. The following is a summary of revenue
     by geographical region:

<TABLE>
<CAPTION>
                         Year Ended
               -------------------------------    Cumulative Period
                                                  from May 1, 2002
               January 2,      December 28,     (date of inception)
                  2005             2003          to January 2, 2005
               -----------  ------------------  --------------------
<S>            <C>          <C>                 <C>
United States  $    87,463  $           14,494  $            252,432
Australia              280                   -                16,180
Asia                     -               4,446                13,439
Europe               2,273               7,200                 9,473
Canada               6,795                   -                 6,795
Middle East            800               5,945                 6,745
               -----------  ------------------  --------------------
     Total     $    97,611  $           32,085  $            305,064
               ===========  ==================  ====================
</TABLE>


                                       60
<PAGE>
                             PROCERA NETWORKS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                               ___________________

14.  SEGMENT INFORMATION, CONTINUED

     All of the Company's long-lived assets are located in the United States.

     The  Company's  accounts  receivable  are  derived from revenue earned from
     customers located in the United States, Australia, Asia, Europe, Canada and
     the Middle East. The Company performs ongoing credit evaluations of certain
     customers'  financial condition and, generally, requires no collateral from
     its  customers.  For  the  year  ended  January  2,  2005,  three customers
     accounted  for  29%,  18%,  and 12% of revenues, respectively. For the year
     ended  December  28,  2003, five customers accounted for 22%, 19%, 17%, 14%
     and 13% of revenues, respectively.

15.  SUBSEQUENT EVENTS

     On  January  28,  2005,  the  Company  filed a Registration Statement under
     the  Securities  Act  of  1933 on Form S-3 with the Securities and Exchange
     Commission to register 17,878,031 shares of common stock in connection with
     the  private  placement  of  common  stock  in  December  2004,  and  the
     Registration  Statements  filed  by  the  Company  on  Form  SB-2  declared
     effective  on  April  26,  2004  and  June  30,  2004 by the Securities and
     Exchange Commission.


                                       61
<PAGE>

ITEM  8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE


     Effective  on  October  24, 2003, as a result of the Merger between Zowcom,
Inc.  and  Procera  Networks,  Inc.,  Lesley, Thomas, Schwarz & Postma, Inc. was
dismissed  as  the  principal  accountant  engaged  to  audit Zowcom's financial
statements.  Lesley,  Thomas,  Schwarz  &  Postma,  Inc.  performed the audit of
Zowcom's  financial  statements for the fiscal years ended December 31, 2001 and
2002.  During  this  period  and  the  subsequent  interim period prior to their
dismissal,  there  were  no disagreements with Lesley, Thomas, Schwarz & Postma,
Inc.  on  any matter of accounting principles or practices, financial  statement
disclosure  or  auditing scope or procedure, which disagreements if not resolved
to  the satisfaction of Lesley, Thomas, Schwarz & Postma, Inc. would have caused
them to make reference to this subject matter of the disagreements in connection
with  their  report,  nor  were  there  any  "reportable events" as such term is
defined  in  Item  304(a)(1)(iv)  of  Regulation  S-B,  promulgated  under  the
Securities  Exchange  Act  of  1934,  as  amended  ("Regulation  S-B").

     The  audit  reports  of Lesley, Thomas, Schwarz & Postma, Inc. for Zowcom's
fiscal  years  ended  December  31,  2001  and  2002  did not contain an adverse
opinion,  or  a  disclaimer  of  opinion, or qualification or modification as to
uncertainty,  audit  scope,  or  accounting  principles.

     Zowcom  requested Lesley, Thomas, Schwarz & Postma, Inc. to furnish it with
a  letter addressed to the Securities and Exchange Commission stating whether it
agrees  with  the  statements  made  above  by  us. A copy of such letter, dated
October 24, 2003, has been filed with the SEC.

     Effective October 24, 2003, Procera engaged Burr, Pilger & Mayer LLP, whose
address  is  Two Palo Alto Square, Suite 250, 3000 El Camino Real, Palo Alto, CA
94306  to audit our financial statements. During our most recent fiscal year and
the subsequent period prior to such appointment, we have not consulted the newly
engaged  accountant  regarding  the  application  of  accounting principles to a
specified transaction or the type of audit opinion that might be rendered on our
financial  statements,  nor  on  any  matter  that  was  either the subject of a
disagreement  or  a  reportable  event.

     Procera's  Board  of Directors approved the change in accountants described
herein.


ITEM  8A.     CONTROLS AND PROCEDURES

     (a) Evaluation of Disclosure Controls and Procedures.
         ------------------------------------------------

     Procera's  chief  executive  officer  and  chief  financial  officer, after
evaluating  its  disclosure controls and procedures (as defined in the rules and
regulation  of  the  Securities  and  Exchange  Commission  under the Securities
Exchange Act of 1934 (the "Exchange Act") as of the end of the period covered by
this  Annual  Report  on  Form  10-KSB,  have  concluded  that  as of such date,
Procera's  disclosure  controls  and  procedures  were  effective to ensure that
information it is required to disclose in reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported within the time
periods  specified  in  Securities  and  Exchange  Commission  rules  and forms.

     (b) Changes in Internal Control Over Financial Reporting.
         ----------------------------------------------------

     During  the period covered by this Annual Report on Form 10-KSB, there were
no significant changes in Procera's internal control over financial reporting or
in  other  factors  that  have  materially affected, or are reasonably likely to
materially  affect,  Procera's  internal  control  over  financial  reporting.


                                       62
<PAGE>
                                    PART III
                                    --------

ITEM  9.     DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL
             PERSONS; COMPLIANCE  WITH  SECTION  16(A)  OF  THE  EXCHANGE
             ACT.

     The  following  table  sets  forth  certain information regarding Procera's
directors,  executive  officers and certain key employees as of January 2, 2005:

NAME               AGE                      POSITION
--------------------------------------------------------------------------
Douglas J. Glader   60  President, Chief Executive Officer and a Director
Anil Sahai, PhD     44  Executive Vice President and CTO
Jay R. Zerfoss      70  Chief Financial Officer and Secretary
Gary J. Johnson     60  Senior Vice President of Sales and Marketing
Magnus Hansen       58  Vice President of Engineering
John McQuade        57  Director of Operations and Support
Scott McClendon     64  Director
Thomas Saponas      55  Director
Thomas Williams     65  Director


     DOUGLAS  J.  GLADER has served as President and Chief Executive Officer and
as  a  member of Board of Directors since the October 2003 merger.  He served as
President  and  Chief  Executive  Officer of PNI since founding PNI in May 2002.
Prior  to  founding  PNI,  Mr.  Glader  served  from  1996 to 2002 in key senior
executive  positions  at  Digi  International,  Inc.,  including  Executive Vice
President,  Chief  Operating  Officer,  Senior  Vice  President  of  Worldwide
Manufacturing  and  Operations,  and General Manager of Milan Technology, Digi's
LAN  products  division.  Mr.  Glader  has  more  than 27 years of experience in
general  management  with  firms  such  as  Memorex, Measurex Corporation, Altus
Corporation  and Direct Incorporated, all located in the San Francisco Bay Area.
In  addition to co-founding Greyhawk Systems, Inc., a manufacturer of electronic
imaging  hardware  and software, Mr. Glader has managed manufacturing operations
in Belgium, Ireland, Mexico and the Pacific Rim.  Mr. Glader serves on the board
of  directors  of  Uromedica,  a  privately held company in Plymouth, Minnesota.

     ANIL  SAHAI  has served as Chief Technology Officer since March 2004.  From
1990  until  1994, Dr. Sahai was a core member of the engineering team at Amdahl
which  architected  one  of  the  first  Redundant  Array  of Independent Drives
("RAID")  products for mainframes using Small Computer System Interface ("SCSI")
drives  and  Enterprise  Systems Connection ("ESCON") channels.  From 1997 until
1999  at  Compaq Corporation Dr. Sahai managed the team that was responsible for
the  performance  architecture  of  NT servers and SAN line of products based on
Servernet  technologies.  In  June  2000,  Dr.  Sahai  founded Ezyte, Inc. whose
intellectual  property he sold to Procera in May 2004.  He has a PhD in computer
science  with specialization in packet switching architecture from University of
California,  Santa Cruz, and a Masters from Sloan at MIT, with specialization in
new  product  development  and international corporate strategies. Dr. Sahai has
published  technical  papers in many journals, and presented seminars at various
conferences, tradeshows and universities all over the world in the areas of high
performance  packet  switching,  storage  architecture,  wireless  Internet
architectures,  system  performance  modeling,  and  international  corporate
strategies.

     JAY  R.  ZERFOSS  has served as Chief Financial Officer and Secretary since
the October 2003 merger.  He served as the Chief Financial Officer and Secretary
of  PNI  from May 2002 to October 2003.  Mr. Zerfoss is an accomplished CPA with
extensive  experience  as  a  Controller,  Treasurer,  Director of Finance, Vice
President of Finance and Administration, and CFO for a variety of organizations.
His  areas of expertise include start-up high technology manufacturing companies
with  national  and  global  concerns,  rendering  board of directors reporting,
financial  statement  preparation,  cash  management  reporting,  planning  and
budgeting,  policies  and  internal  controls,  attorney,  auditor,  and banking


                                       63
<PAGE>
relationships.  Prior  to  joining  PNI,  Mr. Zerfoss was Director of Finance at
InnoWave  Broadband  Inc.  From January 1998 until November 2001.  From November
2001  until  May  2002,  Mr.  Zerfoss  was  an independent financial consultant.

     GARY  J.  JOHNSON  has served as Senior Vice President of Sales & Marketing
since  October  2004.  Mr.  Johnson  has  more  than  25  years experience as an
executive  in  the  Silicon  Valley  high  technology  industry.  He is a highly
respected  senior  executive,  who  has  held  positions  as  CEO and president,
executive  vice  president  of sales and marketing, vice president of operations
and  numerous  other  senior  management  roles.  Prior  to joining Procera, Mr.
Johnson  was  CEO  at Force Field, Inc.  From November 1999 until June 2001,  he
served  as  president and CEO of Berkeley Software Design, Inc. (BSDi), where he
pioneered  the  Internet  server  category,  built the company with 1000 percent
revenue  growth,  orchestrated  the  acquisition of two companies leading to the
acquisition  of  BSDi  by Wind River Systems Inc. From December 1996 to November
1999,  he  served  as  President  of  Click  Software Inc. an enterprise service
scheduling  software  provider,  where  he  developed  their  presence  in North
America,  developed  relationships  with numerous OEM and channel partners, grew
the  customer base with dozens of significant enterprise accounts and positioned
the  firm  to  raise  over $50 million in its NASDAQ IPO.  Mr. Johnson also held
various  senior  sales  management  positions  at SCO (The Santa Cruz Operation,
Inc.)  now  (Caldera/SCO),  Convergent  Technologies,  now  (Unisys), and Tandem
Computers, now (Compaq/HP). He was also employed by Fairchild Semiconductor, and
Measurex  Corporation early in his career. Mr. Johnson holds a Bachelor's Degree
in  Business  Administration  from  Michigan  State  University.

     MAGNUS HANSEN has served as Vice President of Engineering since the October
2003 merger.  He served as Vice President of Engineering of PNI from May 2002 to
October  2003.  Mr.  Hansen  is a senior executive with extensive experience  in
software,  optical,  electrical,  and  mechanical  engineering.  His  management
experience includes more than 27 years leading development and design teams at a
variety  of organizations in the Silicon Valley area.  Prior to joining PNI, Mr.
Hansen  was  Director of Technology at Milan Technology from June 1996 until May
2002.

     JOHN  A. MCQUADE has served as Director of Operations and Support since the
October  2003  merger.  He  served as Director of Operations and Support for PNI
from  May  2002 to October 2003. Mr. McQuade is a senior executive with 25 years
of  high-tech  operations,  quality  and technical support experience, including
expatriate  positions  in  Asia  and  Europe.  He worked with Digi from November
1992  to  May  2002 as the Director of Customer Service and Technical Support in
Sunnyvale  on  the  General  Manager's  staff.

     SCOTT MCCLENDON has served as a member of Board of Directors since March 1,
2004.  He  is currently a member of the Audit Committee. Mr. McClendon served as
the  President  and  Chief  Executive Officer of Overland Storage, Inc. (NASDAQ:
OVRL)  from  October  1991 to March 2001, when he was named Chairman, and was an
officer  and  employee  until  June  2001.  He  was  employed by Hewlett-Packard
Company,  a  global  manufacturer  of  computing, communications and measurement
products  and  services,  for over 32 years in various positions in engineering,
manufacturing, sales and marketing. He last served as the General Manager of the
San Diego Technical Graphics Division and Site Manager of Hewlett-Packard in San
Diego,  California.  Mr. McClendon is a director of SpaceDev, Inc., an aerospace
development  company.  Mr.  McClendon  has  a  BSEE  and  MSEE  from  Stanford
University.

     THOMAS  SAPONAS has served as a member of Board of Directors since April 1,
2004.  Mr.  Saponas  served  as  the  Senior Vice President and Chief Technology
Officer  of  Agilent  Technologies,  Inc.  (NYSE:  A)  from August 1999 until he
retired  in  October  2003.  Prior to being named Chief Technology Officer, from
June  1998  to April 1999, Mr. Saponas was Vice President and General Manager of
Hewlett-Packard's Electronic Instruments Group. Mr. Saponas has held a number of
positions  since  the  time  he  joined  Hewlett-Packard.  Mr. Saponas served as
General  Manager  of the Lake Stevens Division from August 1997 to June 1998 and
General  Manager  of  the  Colorado  Springs Division from August 1989 to August
1997. In 1986, he was a White House Fellow in Washington, D.C. Mr. Saponas has a
BSEE/CS  (Electrical  Engineering  and  Computer  Science)  and an MSEE from the


                                       64
<PAGE>
University  of  Colorado.  Mr. Saponas is a director of nGimat, a nanotechnology
company.  He also serves on the Visiting Committee on Advanced Technology at the
National  Institute  of  Standards  and  Technology

     THOMAS  H.  WILLIAMS has served as a member of Board of Directors since the
October  2003  merger.  He  is currently a member of the Audit Committee and the
Compensation Committee.  He served as a Director of PNI from May 2002 to October
2003.  Mr.  Williams  has  20  years'  experience  as CFO and General Counsel in
start-up  and  medium-sized  venture  capital-backed  technology companies.  Mr.
Williams'  early  years were spent with IBM and Shell Oil Company in engineering
and  legal  positions.  In  1971,  Mr.  Williams  joined  the management team of
Measurex  Corp., a process control start-up, responsible for engineering project
budgeting  and patent matters as the company grew from $4 million to $50 million
in  revenues.  In  1976,  Mr.  Williams and two partners took over management of
Altus  Corporation,  guided  the  company  through bankruptcy and raised venture
capital.  From  1984  though  1993, Mr. Williams was CFO and General Counsel for
Greyhawk  Systems, an innovator in high-resolution electronic imaging, which was
sold  in  1993.  From  1993 to 1997, Mr. Williams was in the private practice of
law.  In  1997  he  was  appointed  as  CFO  of  IC  WORKS,  Inc.,  a  venture
capital-backed  semiconductor  company, on an interim basis to guide a financial
turnaround.  Within  six months, the company was brought from near bankruptcy to
a  cash positive position, which allowed the company to be sold in 1998 for more
than  $100  million.  Since  1999,  Mr.  Williams  has been CFO at Bandwidth9, a
company  developing  tunable lasers for the fiber optics industry.  Mr. Williams
holds  a  B.S.  degree  in  electrical  engineering,  and  a law degree from the
University  of  Minnesota  and  a  M.B.A.  from  the University of California at
Berkeley.  He  is  a  member of the California, New York (inactive), Federal and
Patent  bars.

     Procera's  executive  officers  are elected by the Board of Directors on an
annual  basis and serve at  the discretion of the Board of Directors, subject to
the terms of any employment agreements with us, until their successors have been
duly elected and qualified or until their earlier resignation or removal.  There
are  no  family  relationships  between  any  directors  and executive officers.

BOARD COMMITTEES

     Procera  currently  has two committees of its Board of Directors: the Audit
Committee  and  the  Compensation  Committee.

     The  Audit Committee reviews, acts on and reports to the Board of Directors
regarding  various  auditing  and accounting matters, including the selection of
our  independent auditors, the monitoring of the rotation of the partners of the
independent  auditors,  the review of our financial statements, the scope of the
annual  audits,  fees  to  be  paid  to  the  auditors,  the  performance of our
independent  auditors  and  our  accounting  practices.  There are currently two
members of the Audit Committee, Mr. McClendon and Williams.

     The  Compensation  Committee  determines  the  salaries  and  incentive
compensation  of  our officers and provides recommendations for the salaries and
incentive  compensation of our other employees.  The Compensation Committee also
administers  our  stock  option  plan.  There  is  currently  one  member of the
Compensation  Committee, Mr. Williams.  Mr. Glader, our Chief Executive Officer,
participated  in  deliberations  of  the  Board  of  Directors  relating  to his
compensation.

AUDIT COMMITTEE FINANCIAL EXPERT

     Procera's  Board of Directors has determined that it does not have an audit
committee financial expert serving on its audit committee.  Under the applicable
Securities and Exchange Commission standard, an audit committee financial expert
means  a  person  who  has  the  following  attributes:

-    An  understanding of generally accepted accounting principles and financial
     statements;
-    The  ability  to  assess  the  general  application  of  such principles in
     connection  with  the  accounting  for  estimates,  accruals  and reserves;


                                       65
<PAGE>
-    Experience   preparing,   auditing,   analyzing  or  evaluating   financial
     statements  that  present  a  breadth and level of complexity of accounting
     issues  that  are  generally  comparable  to  the breadth and complexity of
     issues  that  can  reasonably  be expected to be raised by the registrant's
     financial  statements,  or  experience  actively  supervising  one  or more
     persons  engaged  in  such  activities;
-    An  understanding  of  internal  controls  and  procedures  for  financial
     reporting;  and
-    An understanding of audit committee functions.

    Procera  is  seeking,  but  has  not  yet found, a qualified audit committee
financial  expert.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16(a)of the Exchange Act requires Procera's officers and directors,
and  persons  who  own more than 10% of the its common stock, to file reports of
ownership  and  changes  of  ownership of such securities with the United States
Securities  and  Exchange  Commission.  Based  on  a  review of the its records,
Procera's  management  believes that its officers, directors and holders of more
than  10%  of  its common stock complied with all applicable filing requirements
during  the  2004  fiscal  year.

CODE OF ETHICS

     Procera  does  not have a code of ethics. The Board of Directors intends to
discuss  the  preparation  and adoption of a Code of Ethics at its next meeting.
Due  to the recent completion of the merger between PNI and Zowcom, the Board of
Directors  had  decided  to  postpone the adoption of a code of ethics until the
Company  was  able  to  focus  its  business  plan  and  develop  a  greater
infrastructure.  Once  Procera  has  adopted  a  code  of  ethics  a copy may be
obtained  by  sending  a  written  request  to  the  Company.

DIRECTORS' COMPENSATION

     Directors  who  are  also  Procera's  employees  receive  no  additional
compensation  for  serving  on  the  Board.  Procera  reimburses  non-employee
Directors  for  all  travel  and  other  expenses  incurred  in  connection with
attending meetings of the Board of Directors.  Procera's Directors who are  also
employees  may  participate  in  other incentive plans described under "Item 10.
Executive  Compensation."

ITEM  10.     EXECUTIVE COMPENSATION

     The  following  table  sets  forth  all compensation paid in respect of the
individuals  who  served,  during  the  year ended January 2, 2005, as Procera's
Chief  Executive  Officer  and the next five mostly highly compensated executive
officers  of  the  Company  (collectively the "NAMED  EXECUTIVE OFFICERS") whose
total  salary  and  bonus  was in excess of $100,000 per annum. Except as listed
below,  there are no bonuses, other annual compensation, restricted stock awards
or  stock  options/SARS  or  any  other compensation paid to executive officers.

<TABLE>
<CAPTION>
                                                       ANNUAL COMPENSATION
                                  ------------------------------------------------------------
                                                                                OTHER ANNUAL
NAME AND PRINCIPAL POSITION         YEAR         SALARY ($)        BONUS ($)  COMPENSATION ($)
(a)                                 (b)              (c)              (d)           (e)
----------------------------------------------------------------------------------------------
<S>                               <C>       <C>                    <C>        <C>
Douglas J. Glader,                2004 (1)  $             332,264          0                 0
CEO                                  2003   $             222,203          0                 0

Anil Sahai                           2004   $             143,308          0                 0
Executive V.P. & CTO                 2003   $                   0          0                 0

Jay Zerfoss,                         2004   $             140,000          0                 0
V.P. of Finance and CFO              2003   $              94,746          0                 0

Magnus Hansen,                       2004   $             135,000          0                 0
V.P., Engineering                    2003   $              58,157          0                 0

Gary Johnson                         2004   $              25,385          0                 0
Sr. V.P. of Sales and Marketing      2003   $                   0          0                 0

John McQuade,                        2004   $             110,000          0                 0
Director, Operations                 2003   $              63,735          0                 0
</TABLE>


                                       66
<PAGE>
(1)  Mr.  Glader's  employment  letter  provides  that  he will receive his then
current  base  salary  for  an  additional  18  months  in  the event that he is
terminated  without  cause.  There  are  no  other  severance  provisions.

ITEM  11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT AND RELATED STOCKHOLDER  MATTERS

     The  following  table  sets  forth certain information known to the Company
with  respect  to  the beneficial ownership of its common stock as of January 2,
2005  and;  (i) all persons who are known to the Company to be beneficial owners
of  five percent or more of the common shares; (ii) each of Procera's directors,
(iii) the Named Executive Officers; and (iv) all current directors and executive
officers  as  a  group.

                                                         PERCENT OF CLASS
NAME AND ADDRESS OF                 SHARES BENEFICIALLY    BENEFICIALLY
BENEFICIAL OWNER                           OWNED               OWNED
---------------------------------------------------------------------------
Douglas Glader (1)                            4,268,754              17.7%

Anil Sahai (2)                                1,315,970               5.5%

Magnus Hansen                                   670,000               2.8%

Jay Zerfoss                                     680,318               2.8%

John A. McQuade                                 600,000               2.5%

Gary Johnson (3)                                  7,500                 *

Thomas Williams (4)                             116,000               0.5%

Scott McClendon (5)                              28,000                 *

Thomas Saponas (6)                               21,000                 *

Eric McAfee (7)                               1,669,380               6.9%

Clyde Berg (8)                                1,653,380               6.9%

All officers and directors                    7,707,542                32%
as a group (nine persons)

*  Indicates  less  than  1%
(1)  Shares  beneficially owned by Douglas Glader include 4,148,970 shares owned
directly,  and  119,784 shares owned by  Eric Glader, the son of Douglas Glader.
(2)  Shares  beneficially  owned  by  Anil  Sahai  include  options  to purchase
1,230,000  shares  of  Procera's  common  stock  at  $1.50  per  share  that are
exercisable  in whole  or  in  part  within  60  days of January 2, 2005, 20,970
shares  issued  in  Procera's  acquisition  of  EZ2, and 65,000 shares issued to
Ezyte,  Inc.,  which  is  100%  owned  by  Anil  Sahai.
(3)  Shares beneficially owned by Gary Johnson include options to purchase 7,500
shares  of  Procera's  common  stock  at $2.05 per share that are exercisable in
whole  or  in  part  within  60  days  of  January  2,  2005.
(4) Shares beneficially owned by Thomas H. Williams include 100,000 shares owned
directly,  and  options  to  purchase 16,000 shares of Procera's common stock at
$3.35  per  share  that  are  exercisable  in whole or in part within 60 days of
January  2,  2005.


                                       67
<PAGE>
(5)  Shares  beneficially  owned  by Scott McClendon include options to purchase
28,000  shares of Procera's common stock at $3.35 per share that are exercisable
in  whole  or  in  part  within  60  days  of  January  2,  2005.
(6)  Shares  beneficially  owned  by  Thomas Saponas include options to purchase
21,000  shares of Procera's common stock at $1.70 per share that are exercisable
in  whole  or  in  part  within  60  days  of  January  2,  2005.
(7)  Eric  McAfee  resigned  as a director on July 15, 2004. Shares beneficially
owned by Eric McAfee include 832,500 shares owned directly, 100,000 shares owned
by Mr. McAfee's children, 720,880 shares owned by Berg McAfee Companies of which
Eric  McAfee  is a 50% owner, and options to purchase 16,000 shares of Procera's
common  stock at $3.35 per share that are exercisable in whole or in part within
60 days of January 2, 2005.
(8)  Shares  beneficially  owned  by  Clyde  Berg  include  932,500 shares owned
directly,  and 720,880 shares owned by Berg McAfee Companies of which Clyde Berg
is  a  50%  owner.

     Beneficial  ownership  is  determined  in  accordance with the rules of the
Securities  and Exchange Commission and includes voting or investment power with
respect to the securities. Common shares subject to options or warrants that are
currently  exercisable  or  exercisable  within  60  days of January 2, 2005 are
deemed  to  be  outstanding  and to be beneficially owned by the person or group
holding  such  options  or  warrants for the purpose of computing the percentage
ownership  of  such  person  or group but are not treated as outstanding for the
purpose  of  computing  the  percentage  ownership  of  any  other  person  or
group.  Unless  otherwise  indicated,  the  address  for each of the individuals
listed  in the table is  care  of  Procera Networks, Inc., 3175 South Winchester
Boulevard, Campbell, California  95008.  Unless otherwise indicated by footnote,
the  persons named in the  table have sole voting and sole investment power with
respect  to  all common shares  shown  as  beneficially  owned  by them, subject
to  applicable  community  property  laws. Percentage of beneficial ownership is
based  on  24,115,406  shares  of  our common stock outstanding as of January 2,
2005.

ITEM  12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Cagan  McAfee  Capital  Partners  ("CMCP")  received  rights  to  purchase
2,000,000  shares  of Procera's common stock for its services as a finder in the
December  2003  private  placement.  CMCP  exercised  the  rights  and purchased
2,000,000  shares  of  Procera's  restricted common stock at $0.001 per share in
August  2003.  Eric  McAfee, a part-owner of CMCP, served on the Company's Board
of  Directors  during  that  time.

     Douglas  J.  Glader  has an employment agreement with the Company discussed
elsewhere  in  this  annual  report  and  included  as  exhibits  hereto.

     In  August  2003,  Douglas  J.  Glader  and  the  Company  entered  into an
Assignment  and  Assumption Agreement discussed elsewhere in this annual report.

     Procera  believes that all of the transactions set forth above were made on
terms  no  less  favorable  to  the  Company  than could have been obtained from
unaffiliated  third  parties.  Procera intends that all future transactions with
affiliated  persons  be  approved  by  a  majority  of  the  Board of Directors,
including  a  majority of the independent and disinterested outside directors on
the  Board  of  Directors, and be on terms no less favorable to it than could be
obtained  from  unaffiliated  third  parties.


                                       68
<PAGE>
ITEM  13.     EXHIBITS AND REPORTS ON FORM 8-K

(A)  EXHIBITS

-------------------------------------------------------------------------------
 2.1*  Agreement and Plan of Merger included in our Preliminary Proxy Statement
on Schedule 14A filed on August 25, 2003 and incorporated herein by reference.
-------------------------------------------------------------------------------
 3.1*  Articles of Incorporation included as Exhibit 3.1 to our form SB-2 filed
on February 11, 2002 and incorporated herein by reference.
-------------------------------------------------------------------------------
 3.2*  Bylaws included as Exhibit 3.2 to our form SB-2 filed on February 11,
2002 and incorporated herein by reference.
-------------------------------------------------------------------------------
 4.1*  Subscription Agreement with Linden Growth Parners (File No. 333-111787)
-------------------------------------------------------------------------------
 4.2*  Form of Special Warrant Agreement (File No. 333-111787)
-------------------------------------------------------------------------------
 4.3*  Registration Rights Agreement (File No. 333-111787)
-------------------------------------------------------------------------------
 4.4*  Warrant Agreement with Linden Growth Partners (File No. 333-111787)
-------------------------------------------------------------------------------
 4.5*  Form of Warrant Agreement (File No. 333-111787)
-------------------------------------------------------------------------------
10.1*  2003 Stock Option Plan
-------------------------------------------------------------------------------
10.2*  Sublease Agreement
-------------------------------------------------------------------------------
10.3*  Employee Offer Letter for Douglas J. Glader
-------------------------------------------------------------------------------
10.4*  2004 Stock Option Plan
-------------------------------------------------------------------------------
10.5*  Form of Subscription Agreement (File No. 000-49862)
-------------------------------------------------------------------------------
10.6*  Form of Warrant ($1.37 per share) (File No. 000-49862)
-------------------------------------------------------------------------------
10.7*  Form of Registration Rights Agreement (File No. 000-49862)
-------------------------------------------------------------------------------
10.8*  Form of Warrant ($1.25 per share) (File No. 000-49862)
-------------------------------------------------------------------------------
31.1  Certification of Chairman and Chief Executive Officer Pursuant to Section
302  of  the  Sarbanes-Oxley  Act  of  2002  (18  U.S.C. Sec. 1350) (transmitted
herewith).
-------------------------------------------------------------------------------
31.2  Certification of Vice Chairman and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec. 1350) (transmitted
herewith).
-------------------------------------------------------------------------------
32.1  Written Statement of Chairman and Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
(transmitted herewith).
-------------------------------------------------------------------------------
32.2  Written Statement of Vice Chairman and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
(transmitted herewith).
-------------------------------------------------------------------------------
99.1*  Letter to Shareholders dated August 17, 2004 (File No. 000-49862)
-------------------------------------------------------------------------------

*     Previously filed.

(B)  REPORTS ON FORM 8-K

     None.


ITEM  14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES

Below  is the aggregate amount of fees billed for professional services rendered
by Procera's principal accountants with respect to the Company's last two fiscal
years:

<TABLE>
<CAPTION>
                      2004     2003
                    --------  -------
<S>                 <C>       <C>
AUDIT FEES          $ 70,380  $44,795
AUDIT-RELATED FEES    40,965   36,315
TAX FEES                   -        -
ALL OTHER FEES             -        -
                    --------  -------

   TOTAL            $111,345  $81,110
                    ========  =======
</TABLE>

All of the professional services rendered by Procera's principal accountants for
the  audit  of the Company's annual financial statements and review of financial
statements included in its Form 10-QSB or services that are normally provided by
the  accountant  in  connection  with  statutory  and  regulatory  filings  or
engagements  for  last  two  fiscal  years were approved by the Audit Committee.


                                       69
<PAGE>
SIGNATURES

     In  accordance with section 13 and 15 (d) of the Securities Exchange Act of
1934,  the  registrant has duly caused this report to be signed on its behalf by
the  undersigned,  thereunto  duly  authorized.


Procera Networks, Inc.



/s/ Douglas J. Glader
------------------------------
Douglas J. Glader
President and CEO/Director
March 31, 2005


                                       70
<PAGE>
     In  accordance with the Securities Exchange Act of 1934, this Annual Report
on  Form  10-KSB 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/ Douglas J. Glader    President, Chief Executive Officer  March 31, 2005
-----------------------  and Director
Douglas J. Glader

/s/ Jay R. Zerfoss       Chief Financial Officer and Chief   March 31, 2005
-----------------------  Accounting Officer
Jay Zerfoss

/s/ Thomas Saponas       Director                            March 31, 2005
-----------------------
Thomas Saponas

/s/ Thomas Williams      Director                            March 31, 2005
-----------------------
Thomas Williams

/s/ Scott McClendon      Director                            March 31, 2005
-----------------------
Scott McClendon

EXHIBIT INDEX

--------------------------------------------------------------------------------
 2.1*  Agreement and Plan of Merger included in our Preliminary Proxy Statement
on Schedule 14A filed on August 25, 2003 and incorporated herein by reference.
--------------------------------------------------------------------------------
 3.1*  Articles of Incorporation included as Exhibit 3.1 to our form SB-2 filed
on February 11, 2002 and incorporated herein by reference.
--------------------------------------------------------------------------------
 3.2*  Bylaws included as Exhibit 3.2 to our form SB-2 filed on February 11,
2002 and incorporated herein by reference.
--------------------------------------------------------------------------------
 4.1*  Subscription Agreement with Linden Growth Partners (File No. 333-111787)
--------------------------------------------------------------------------------
 4.2*  Form of Special Warrant Agreement (File No. 333-111787)
--------------------------------------------------------------------------------
 4.3*  Registration Rights Agreement (File No. 333-111787)
--------------------------------------------------------------------------------
 4.4*  Warrant Agreement with Linden Growth Partners (File No. 333-111787)
--------------------------------------------------------------------------------
 4.5*  Form of Warrant Agreement (File No. 333-111787)
--------------------------------------------------------------------------------
10.1*  2003 Stock Option Plan
--------------------------------------------------------------------------------
10.2*  Sublease Agreement
--------------------------------------------------------------------------------
10.3*  Employee Offer Letter for Douglas J. Glader
--------------------------------------------------------------------------------
10.4*  2004 Stock Option Plan
--------------------------------------------------------------------------------
10.5*  Form of Subscription Agreement (File No. 000-49862)
--------------------------------------------------------------------------------
10.6*  Form of Warrant ($1.37 per share) (File No. 000-49862)
--------------------------------------------------------------------------------
10.7*  Form of Registration Rights Agreement (File No. 000-49862)
--------------------------------------------------------------------------------
10.8*  Form of Warrant ($1.25 per share) (File No. 000-49862)
--------------------------------------------------------------------------------

31.1  Certification of Chairman and Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec. 1350)
(transmitted herewith).
--------------------------------------------------------------------------------
31.2  Certification of Vice Chairman and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec. 1350) (transmitted
herewith).
--------------------------------------------------------------------------------
32.1  Written Statement of Chairman and Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
(transmitted herewith).
--------------------------------------------------------------------------------
32.2  Written Statement of Vice Chairman and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
(transmitted herewith).
--------------------------------------------------------------------------------
99.1*  Letter to Shareholders dated August 17, 2004 (File No. 000-49862)
--------------------------------------------------------------------------------

*     Previously  filed.


                                       71
<PAGE>