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

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from              to              .
                               ------------    -------------

                        Commission File Number: 000-31139

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

             DELAWARE                                       94-3228496
      (State of incorporation)                           (I.R.S. Employer
                                                        Identification No.)

                             385 MOFFETT PARK DRIVE
                           SUNNYVALE, CALIFORNIA 94089
                    (Address of principal executive offices)

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



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



The number of shares outstanding of the registrant's common stock as of October
31, 2002 was 27,289,431.




<PAGE>

                                  RESONATE INC.
                                      INDEX
<TABLE>
<CAPTION>

                                                                                                 Page
                                                                                                 ----
<S>                                                                                              <C>
PART I:  FINANCIAL INFORMATION

   Item 1.  Financial Statements:

       Condensed Consolidated Balance Sheets as of September 30, 2002 and
         December 31, 2001....................................................................... 3

       Condensed Consolidated Statements of Operations for the three and nine
         month periods ended September 30, 2002 and 2001......................................... 4

       Condensed Consolidated Statements of Cash Flows for the nine month
         periods ended September 30, 2002 and September 30, 2001................................. 5

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

   Item 2.  Management's Discussion and Analysis of Financial Condition and Results of
        Operations...............................................................................10
        Risk Factors.............................................................................16

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

   Item 4.  Controls and Procedures..............................................................25

PART II:  OTHER INFORMATION

   Item 1.  Legal Proceedings....................................................................26

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

   Item 3.  Defaults Upon Senior Securities......................................................27

   Item 4.  Submission of Matters to a Vote of Security Holders..................................27

   Item 5.  Other Information....................................................................27

   Item 6. Exhibits and Reports on Form 8-K......................................................27

Signatures.......................................................................................28

Sarbanes-Oxley Section 302 Certifications........................................................29
</TABLE>



                                       2
<PAGE>

PART I:       FINANCIAL INFORMATION
ITEM 1:       FINANCIAL STATEMENTS

                                  RESONATE INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                         September 30,     December 31,
                                                             2002              2001
                                                          -----------      -----------
<S>                                                       <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                              $    31,977      $    30,349
   Short-term investments                                      35,831           51,998
   Accounts receivable, net                                     1,813            2,714
   Prepaid expenses and other current assets                    1,213              982
                                                          -----------      -----------
     Total current assets                                      70,834           86,043


Property and equipment, net                                     1,556            3,287
Other assets                                                      355              505
                                                          -----------      -----------

       Total assets                                       $    72,745      $    89,835
                                                          ===========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Debt, current                                          $     1,000      $     1,585
   Accounts payable                                               515            1,671
   Accrued liabilities                                          2,544            3,582
   Deferred revenue                                             3,173            3,866
   Capital lease obligation, current                               --              471
                                                          -----------      -----------
     Total current liabilities                                  7,232           11,175

Debt, long-term                                                    83              833
                                                          -----------      -----------
       Total liabilities                                        7,315           12,008
                                                          -----------      -----------

Stockholders' equity:
     Common stock                                                   3                3
     Additional paid-in capital                               182,598          184,942
     Notes receivable from stockholders                          (302)            (759)
     Unearned stock-based compensation                           (653)          (2,890)
     Accumulated deficit                                     (116,216)        (103,469)
                                                          -----------      -----------
       Total stockholders' equity                              65,430           77,827
                                                          -----------      -----------

       Total liabilities and stockholders' equity         $    72,745      $    89,835
                                                          ===========      ===========
</TABLE>

              The accompanying notes are an integral part of these
                  Condensed Consolidated Financial Statements.



                                       3
<PAGE>

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

                                                   Three Months Ended                Nine Months Ended
                                                      September 30,                    September 30,
                                               --------------------------       --------------------------
                                                   2002          2001               2002          2001
                                               -----------    -----------       ----------     -----------
<S>                                            <C>            <C>               <C>            <C>
Revenue:
   Product                                     $     1,219    $     2,032       $    4,570     $     5,515
   Services                                          1,278          1,695            4,190           4,949
                                               -----------    -----------       ----------     -----------
       Total revenue                                 2,497          3,727            8,760          10,464

Cost of revenue:
   Product                                              22             24               93             151
   Services (including stock-based
       compensation of $99, $103, $299
       and $402, respectively)                         609            803            1,970           2,975
                                               -----------    -----------       ----------     -----------
       Total cost of revenue                           631            827            2,063           3,126
                                               -----------    -----------       ----------     -----------

Gross profit                                         1,866          2,900            6,697           7,338

Operating expenses:
   Research and development (including
       stock-based compensation of $47,
       $166, $(97) and $289, respectively)           2,585          3,696            8,028          10,742
   Sales and marketing (including stock-based
       compensation of $80, $(61), $(21) and
       $(470), respectively)                         2,732          4,375            9,494          15,637
   General and administrative (including stock-
       based compensation of $(695), $216,
           $(666) and $(101), respectively)            440          1,921            2,770           6,182
                                               -----------    -----------       ----------     -----------
       Total operating expenses                      5,757          9,992           20,292          32,561
                                               -----------    -----------       ----------     -----------

Loss from operations                                (3,891)        (7,092)         (13,595)        (25,223)
   Interest and other income                           375            976            1,305           3,597
   Interest and other expenses                        (210)          (220)            (457)           (588)
                                               ------------   ------------      -----------    ------------
Net loss                                       $    (3,726)   $    (6,336)      $  (12,747)    $   (22,214)
                                               ============   ============      ===========    ============

Net loss per share:
   Basic and diluted                           $     (0.14)   $     (0.23)      $    (0.47)    $     (0.82)
                                               ============   ============       ==========     ===========
   Weighted average shares                          27,154         27,120           27,054          27,103
                                               ============   ============       ==========     ===========
</TABLE>


              The accompanying notes are an integral part of these
                  Condensed Consolidated Financial Statements.



                                       4
<PAGE>


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

                                                                                Nine Months Ended
                                                                                  September 30,
                                                                           --------------------------
                                                                               2002           2001
                                                                           -----------    -----------
<S>                                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                              $   (12,747)    $  (22,214)
     Adjustments to reconcile net loss to net cash used in
        operating activities:
         Depreciation and amortization                                           2,050          1,987
         Provision for doubtful accounts                                            13            324
         Loss on sale of property and equipment                                     60             --
         Stock-based compensation                                                 (485)           120
         Amortization of stock options issued for services                           8            107
         Warrant related non-cash interest expense                                  --             93
         Compensation expense relating to acceleration of options                   --            522
         Changes in assets and liabilities:
              Accounts receivable                                                  888          3,508
              Prepaid expenses and other current assets                           (231)           224
              Other assets                                                         150           (287)
              Accounts payable                                                  (1,156)           (58)
              Accrued liabilities                                               (1,038)          (931)
              Deferred revenue                                                    (693)          (962)
                                                                           ------------   ------------

              Net cash used in operating activities                            (13,181)       (17,567)
                                                                           ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment                                           (416)          (557)
     Proceeds from sale of property and equipment                                   39             --
     Purchase of investments                                                   (53,265)       (68,255)
     Proceeds from maturities and sales of investments                          69,357         67,326
                                                                           -----------    ------------

              Net cash used in investing activities                             15,715         (1,486)
                                                                           -----------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayments of long-term debt                                               (1,335)        (2,205)
     Repayments of capital lease obligations                                      (471)          (932)
     Payments for stock repurchases                                                 --           (118)
     Proceeds from payments of notes receivable                                    457             --
     Proceeds from issuance of common stock upon exercise
       of stock options and employee stock purchase plan                           443          1,607
                                                                           ------------   ------------

              Net cash used in financing activities                               (906)        (1,648)
                                                                           ------------   ------------

Net increase (decrease) in cash and cash equivalents                             1,628        (20,701)

Cash and cash equivalents at beginning of period                                30,349         76,053
                                                                           -----------    -----------

Cash and cash equivalents at end of period                                 $    31,977    $    55,352
                                                                           ===========    ===========
</TABLE>


              The accompanying notes are an integral part of these
                  Condensed Consolidated Financial Statements.



                                       5
<PAGE>

                                  RESONATE INC.
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 1.  BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In our opinion, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (all of which are
normal and recurring in nature) necessary to present fairly our financial
position, results of operations and cash flows of Resonate Inc. and our
subsidiaries. The results of operations for the interim periods presented are
not necessarily indicative of the results that may be expected for any future
interim periods or for the full year. These condensed consolidated financial
statements and notes thereto should be read in conjunction with the financial
statements and the notes to the financial statements contained in our Annual
Report on Form 10-K filed with the Securities and Exchange Commission.

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     USE OF ESTIMATES

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

     REVENUE RECOGNITION

     We derive revenue from licenses of our software and delivery of related
services, which include maintenance fees and professional services. Revenue is
recognized when there is persuasive evidence of an arrangement for a fixed and
determinable fee that is probable of collection and when delivery has occurred.
We generally recognize revenue under the residual method as prescribed by
AICPA's Statement of Position No. 97-2 "Software Revenue Recognition" and
Statement of Position No. 98-9 "Modification of SOP No. 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" whereby revenue is allocated
to each undelivered element based upon the fair value of each element when sold
separately and the residual amount is then allocated to the delivered element.
The fair value of maintenance service is determined by the renewal rate stated
in the license agreement or, if not stated, the renewal rates generally charged
to customers on similar transactions.

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

     For arrangements with extended payment terms (i.e., greater than 60 days),
revenue is recognized at the earlier of when the payment becomes due and payable
or when the cash is received.

     We also derive revenue from providing access to our products for a
specified period of time. Revenue is recognized on such arrangements as the
license fees become due and payable. Prepaid amounts are recorded as deferred
revenue and are recognized as revenue over the term of the arrangement. Revenue
recognized under such arrangements for the three months and nine months ended
September 30, 2002 and 2001 was not significant.



                                       6
<PAGE>

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

     CASH, CASH EQUIVALENTS AND INVESTMENTS

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

     CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject us to a concentration of
credit risk consist of cash equivalents, short-term investments and accounts
receivable. We limit our exposure to credit loss by placing our cash, cash
equivalents and short-term investments with major financial institutions. Our
accounts receivable are derived from revenue earned from customers located
primarily in the U.S., and to a lesser extent, Canada, Europe and Asia. We
perform ongoing credit evaluations of our customers' financial condition and,
generally, require no collateral from our customers. We maintain an allowance
for doubtful accounts receivable based upon the expected collectibility of
accounts receivable.

     Two customers accounted for 17% and 13% of our total recognized revenue
during the three months ended September 30, 2002 and one customer accounted for
15% of our total revenue during the three months ended September 30, 2001. No
customer accounted for more than 10% of our total revenue during the nine months
ended September 30, 2002 and 2001.

     At September 30, 2002, one customer accounted for 13% of total accounts
receivable. At December 31, 2001, two customers accounted for 11% and 17% of
total accounts receivable.

     NET LOSS PER SHARE

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

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



                                       7
<PAGE>
<TABLE>
<CAPTION>
                                                                Three Months Ended           Nine Months Ended
                                                                   September 30,               September 30,
                                                              -----------------------     -----------------------
                                                                 2002         2001           2002          2001
                                                              ----------   ----------     ----------    ---------
<S>                                                           <C>          <C>            <C>           <C>
Net loss                                                      $  (3,726)   $  (6,336)     $ (12,747)    $(22,214)

     Basic and diluted:
     Weighted average shares                                     27,243       27,472         27,143       27,455
     Weighted average common stock subject to repurchase            (89)        (352)           (89)        (352)
                                                              ----------   ----------     ----------    ---------
     Shares used in computing basic and diluted net loss per
           share attributable to common stockholders             27,154       27,120         27,054       27,103
                                                              ---------    ---------      ---------     --------

     Basic and diluted net loss per share attributable to
          common stockholders                                 $  (0.14)    $  (0.23)      $  (0.47)     $ (0.82)
                                                              =========    =========      =========     ========
</TABLE>

     The following table sets forth the weighted average potential shares of
common stock that are not included in the basic and diluted net loss per share
available to common stockholders calculation above because to do so would be
antidilutive (in thousands):
<TABLE>
<CAPTION>
                                                                Three Months Ended           Nine Months Ended
                                                                   September 30,               September 30,
                                                              -----------------------     -----------------------
                                                                 2002         2001           2002          2001
                                                              ----------   ----------     ----------    ---------
<S>                                                           <C>          <C>            <C>           <C>
     Weighted average effect of common stock equivalents:
     Employee stock options                                       3,184        1,938          3,484        2,553
     Common Stock subject to repurchase agreements                   89          352             89          352
                                                              ---------    ---------      ---------     --------
                                                                  3,273        2,290          3,573        2,905
                                                              =========    =========      =========     ========
</TABLE>
         SEGMENT INFORMATION

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

     The following table sets forth our revenue by geographic area for the
periods indicated (in thousands):
<TABLE>
<CAPTION>
                                                                Three Months Ended           Nine Months Ended
                                                                   September 30,               September 30,
                                                              -----------------------     -----------------------
                                                                 2002         2001           2002          2001
                                                              ----------   ----------     ----------    ---------
<S>                                                           <C>          <C>            <C>           <C>

     North America                                            $   2,288    $   3,465      $   8,235     $  9,496
     Europe and Asia Pacific                                        209          262            525          968
                                                              ---------    ---------      ---------     --------
                                                              $   2,497    $   3,727      $   8,760     $ 10,464
                                                              =========    =========      =========     ========
</TABLE>
         RECLASSIFICATION

     Certain reclassifications have been made to prior period financial
statements to conform to the current year presentation with no effect on
previously reported net loss or accumulated deficit.

         RECENT ACCOUNTING PRONOUNCEMENTS

     During April 2002, the Financial Accounting Standards Board, or FASB,
issued Emerging Issues Task Force Issue No. 01-14, or EITF 01-14, Income
Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses




                                       8
<PAGE>

Incurred. EITF 01-14 provisions require companies to characterize reimbursements
received for out-of-pocket expenses as revenue in the statement of operations.
We have historically accounted for such reimbursements as a reduction to the
cost of service revenue in our financial statements to offset the related costs
incurred. The provisions of this EITF are required to be applied to fiscal years
beginning after December 15, 2001, although early adoption is permitted. The
adoption of the EITF in the third quarter of 2002 did not have a material impact
on our financial statements.

NOTE 3.   LITIGATION

     On September 12, 2000, we filed a complaint for patent infringement against
Alteon Web Systems, Inc. in the United States District Court, Northern District
of California for permanent injunctive relief and damages. We believe Alteon
infringes United States Letters Patent No. 5,774,660, titled "World-Wide Web
Server With Delayed Resource-Binding For Resource-Based Load Balancing On A
Distributed Resource Multi-Node Network," which was issued to us on June 30,
1998. Alteon served its answer to our complaint in October 2000, in which Alteon
denied our allegations and counterclaimed that our patent is invalid. In October
2000, Alteon was acquired by Nortel Networks Corporation. In November 2001, the
Court issued a claim construction ruling that we believe prevents us from
prevailing in the case. In December 2001, we entered into a stipulated judgment
of non-infringement and, in January 2002, filed a notice of appeal. The appeal
is currently pending.

     In December 2001, a putative securities class action lawsuit was filed in
the United States District Court for the Southern District of New York against
us, certain investment bank underwriters for our initial public offering
("IPO"), and various of our officers and directors. The lawsuit, captioned In re
Resonate Inc. Initial Public Offering Securities Litigation, Civil Action No.
01-CV-11245, generally alleges undisclosed and improper practices by the
underwriters concerning the allocation of our IPO shares, in violation of
federal securities laws, and seeks unspecified damages on behalf of persons who
purchased our stock during the period from August 2, 2000 to December 6, 2000.
The Court has appointed a lead plaintiff in this litigation. On April 19, 2002,
plaintiffs filed an amended complaint. Other actions have been filed making
similar allegations regarding the IPOs of more than 300 other companies. All of
these have been coordinated for pretrial purposes as In re Initial Public
Offering Securities Litigation, Civil Action No. 21-MC-92. Defendants in these
cases have filed omnibus motions to dismiss on common pleading issues. Oral
argument on the omnibus motions to dismiss are scheduled for October 29, 2002.
Our officers and directors have been dismissed without prejudice in this
litigation. We believe we have meritorious defenses to the claims against us and
will defend ourselves vigorously.

     In January 2002, we received a Demand for Arbitration from the individual
who transferred the domain name "resonate.com" to the Company in 1998. The
Demand for Arbitration alleges, among other things, that we breached our
obligations pursuant to our agreement with the individual by providing her with
"restricted stock" rather than stock that was not encumbered with any
restrictions. As a consequence, this individual alleges that she was unable to
sell her Resonate stock when it was trading at its highest price, and that she
is entitled to damages or, alternatively, to the return of her domain name and
additional payments by us for our prior use of the domain name. This dispute is
currently pending before the American Arbitration Association and a hearing date
has been set for January 2003. Although there can be no assurances that we will
prevail in the arbitration, we believe that we have meritorious defenses to the
claims asserted against us in the Demand for Arbitration and intend to defend
this action vigorously.

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




                                       9
<PAGE>

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

     The discussion in this quarterly report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties. The statements
contained in this report that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding our expectations, beliefs, intentions or
strategies regarding the future. These forward-looking statements are typically
denoted in this report by the phrases "anticipates," "believes," "expects,"
"plans," and similar phrases. All forward-looking statements included in this
report are based on information available to us on the date hereof, and we
assume no obligation to update any such forward-looking statements. Our actual
results could differ materially from those described in our forward-looking
statements. Factors that could cause or contribute to such differences are
discussed in this item under the heading "Risk Factors" on page 16 of this
report and the risks discussed in our other Securities and Exchange Commission
filings.

     The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our condensed
consolidated financial statements and the notes thereto included under Item 1
beginning on page 3 of this report, the section entitled "Risk Factors" on page
16 in this report and our Annual Report on Form 10-K filed on March 28, 2002
with the Securities and Exchange Commission.

OVERVIEW

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

     Resonate was founded in July 1995 and began substantive operations in April
1996. From April 1996 through the first quarter of 1997, we primarily engaged in
research activities, developing our products and building our business
infrastructure. We began shipping our first software product, Resonate Central
Dispatch, and first generated revenue from software license fees and
implementation and consulting fees, in the first quarter of 1997. We released
our Resonate Global Dispatch software product in the first quarter of 1998 and
our Commander software product in the third quarter of 1999. In the fourth
quarter of 2001, we released our Resonate Commander Solutions.

     We market and sell our software products through our direct sales force and
indirect channels. Our indirect channels consist of server systems vendors,
independent software vendors, value-added resellers, and system integrators. Our
current relationships with these system integrators typically are structured as
non-exclusive co-marketing and resale arrangements. In addition, we have entered
into a limited number of reseller arrangements in which our products are
embedded in the reseller's products, for which we receive a royalty from the
reseller. We derived revenue of $47,000 from these reseller arrangements for the
three months ended September 30, 2002 compared to $265,000 for the three months
ended September 30, 2001. We derived revenue of $206,000 from these reseller
arrangements for the nine months ended September 30, 2002 compared to $897,000
for the nine months ended September 30, 2001. The decreases are primarily
attributable to having fewer arrangements with these system integrators and
resellers.

CRITICAL ACCOUNTING POLICIES

     REVENUE RECOGNITION. We derive revenue from licenses of our software and
delivery of related services, which include maintenance fees and professional
services. Revenue is recognized when there is persuasive evidence of an
arrangement for a fixed and determinable fee that is probable of collection and
when delivery has occurred. We generally recognize revenue under the residual
method as prescribed by AICPA's Statement of Position No. 97-2 "Software Revenue
Recognition" and Statement of Position No. 98-9 "Modification of SOP No. 97-2
with Respect to Certain Transactions" whereby revenue is allocated to each
undelivered element based upon the fair value of each element when sold
separately and the residual amount is then allocated to the delivered element.




                                       10
<PAGE>

The fair value of maintenance service is determined by the renewal rate stated
in the license agreement or, if not stated, the renewal rates generally charged
to customers on similar transactions.

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

     For arrangements with extended payment terms (i.e., greater than 60 days),
revenue is recognized at the earlier of when the payment becomes due and payable
or when the cash is received.

     We also derive revenue from providing access to our products for a
specified period of time. Revenue is recognized on such arrangements as the
license fees become due and payable. Prepaid amounts are recorded as deferred
revenue and are recognized as revenue over the term of the arrangement. Revenue
recognized under such arrangements for the three months and nine months ended
September 30, 2002 and 2001 was not significant.

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

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

     Our management must make estimates of the uncollectibility of our accounts
receivable. Management specifically analyzes accounts receivable and analyzes
historical bad debts, customer creditworthiness, current economic trends and
changes in customer payment terms, if any, when evaluating the adequacy of the
allowance for doubtful accounts. Our accounts receivable balance at September
30, 2002 was $1.8 million, net of allowance for doubtful accounts of $400,000.

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




                                       11
<PAGE>

RESULTS OF OPERATIONS

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

                                                  Three Months Ended                  Nine Months Ended
                                                     September 30,                      September 30,
                                                 ----------------------             ----------------------
                                                   2002          2001                 2002          2001
                                                 --------     ---------             --------     ---------
<S>                                                  <C>           <C>                  <C>           <C>
Revenue:
   Product                                           48.8%         54.5%                52.2%         52.7%
   Services                                          51.2          45.5                 47.8          47.3
                                                 --------     ---------             --------     ---------
       Total revenue                                100.0         100.0                100.0         100.0
                                                 --------     ---------             --------     ---------
Cost of revenue:
   Product                                            0.9           0.6                  1.1           1.4
   Services                                          24.4          21.5                 22.5          28.4
                                                 --------     ---------             --------     ---------
       Total cost of revenue                         25.3          22.1                 23.6          29.8
                                                 --------     ---------             --------     ---------
Gross profit                                         74.7          77.9                 76.4          70.2
                                                 --------     ---------             --------     ---------
Operating expenses:
   Research and development                         103.5          99.2                 91.6         102.7
   Sales and marketing                              109.4         117.4                108.4         149.4
   General and administrative                        17.6          51.5                 31.6          59.1
                                                 --------     ---------             --------     ---------
       Total operating expenses                     230.5         268.1                231.6         311.2
                                                 --------     ---------             --------     ---------
Loss from operations                               (155.8)       (190.2)              (155.2)       (241.0)
Interest and other income                            15.0          26.2                 14.8          34.4
Interest and other expenses                          (8.4)         (5.9)                (5.2)         (5.6)
                                                 ---------      --------            ---------    ----------
Net loss                                           (149.2)%      (169.9)%             (145.6)%      (212.2)%
                                                 =========    ==========            =========    ==========
</TABLE>


REVENUE

     Our total revenue was $2.5 million for the three months ended September 30,
2002 and $3.7 million for the three months ended September 30, 2001. Our total
revenue was $8.8 million for the nine months ended September 30, 2002 and $10.5
million for the three months ended September 30, 2001. Total revenue was
comprised of sales of software products and solutions and related service fees
from implementation, consulting, training and support.

     The decrease in our revenue was primarily due to a slowdown in the global
economy, particularly in the technology sector, resulting in delays or
cancellations in anticipated sales to new and existing customers. The decrease
in our revenue was also attributed in part to our transition from selling
primarily traffic management products to selling solutions more focused on
active service level management. Since our active service level management
solutions are more expensive and provide a much wider range of functions than
traffic management products, the sales cycle has been longer as more senior
level participation from customers is generally required before a purchase is
made.

     Product revenue was $1.2 million, or 48.8% of total revenue, for the three
months ended September 30, 2002 and $2.0 million, or 54.5% of total revenue, for
the three months ended September 30, 2001. Services revenue was $1.3 million, or
51.2% of total revenue, for the three months ended September 30, 2002 and $1.7
million, or 45.5% of total revenue, for the three months ended September 30,
2001. Product revenue was $4.6 million, or 52.2% of total revenue, for the nine
months ended September 30, 2002 and $5.5 million, or 52.7% of total revenue, for
the nine months ended September 30, 2001. Services revenue was $4.2 million, or
47.8% of total revenue, for the nine months ended September 30, 2002 and $4.9
million, or 47.3% of total revenue, for the nine months ended September 30,
2001. Our revenue mix may vary from quarter to quarter depending primarily on
new sales of products and services to new and existing customers. Services




                                       12
<PAGE>

revenue declined primarily due to lower maintenance revenue since we have fewer
customers to date in 2002 than in 2001. We believe our revenue mix will consist
of 55-65% product revenue and 35-45% services revenue.

     SBC Online accounted for 17% and Deluxe Corporation accounted for 13% of
our total recognized revenue during the three months ended September 30, 2002.
One customer, Eastman Chemical, accounted for 15% of our total recognized
revenue during the three months ended September 30, 2002. No customer accounted
for more than 10% of our total revenue during the nine months ended September
30, 2002 and 2001.


COST OF REVENUE

     Cost of revenue was $532,000 for the three months ended September 30, 2002
and $725,000 for the three months ended September 30, 2001, excluding
stock-based compensation charges of $99,000 for the three months ended September
30, 2002 and $103,000 for the three months ended September 30, 2001. Cost of
revenue was $1.8 million for the nine months ended September 30, 2002 and $2.7
million for the nine months ended September 30, 2001, excluding stock-based
compensation charges of $299,000 for the nine months ended September 30, 2002
and $402,000 for the nine months ended September 30, 2001. The decrease in our
cost of revenue is primarily attributed to a decrease in our personnel-related
expenses for our professional services organization. Our professional services
headcount decreased from 14 at September 30, 2001 to 10 at September 30, 2002.
Our cost of product revenue includes expenses incurred to manufacture, package
and distribute software products and solutions and related documentation. Our
cost of services revenue includes salaries and related expenses for our
implementation, consulting support, and training organizations and an allocation
of facilities and communications expenses. We believe that our cost of revenue,
excluding stock-based compensation charges, will be 17-20% of total revenue for
the quarter ended December 31, 2002, as we expect our existing professional
services organization to continue to support new and existing customers while
continuing to monitor our spending closely. We expect cost of services revenue
as a percentage of services revenue to vary from period to period depending on
the mix of services we provide and the overall utilization rates of our
professional services staff.


OPERATING EXPENSES

     Research and Development

     Research and development expenses were $2.5 million for the three months
ended September 30, 2002 and $3.5 million for the three months ended September
30, 2001, excluding stock-based compensation charges of $47,000 for the three
months ended September 30, 2002 and $166,000 for the three months ended
September 30, 2001. Research and development expenses were $8.1 million for the
nine months ended September 30, 2002 and $10.5 million for the nine months ended
September 30, 2001, excluding stock-based compensation charges of $(97,000) for
the nine months ended September 30, 2002 and $289,000 for the nine months ended
September 30, 2001. Substantially all of the decrease in research and
development expenses was related to a decrease in the number of software
engineers and other technical staff as well as related consulting expenses and
other employee expenses, including recruiting fees. Research and development
personnel decreased from 73 at September 30, 2001 to 50 at September 30, 2002.
We believe that research and development expenses, in absolute dollars,
excluding stock-based compensation charges, will remain consistent in the
quarter ended December 31, 2002 relative to the levels of the quarter ended
September 30, 2002. We expect to continue to develop new products and product
enhancements with the investments we have made to date in the research and
development infrastructure while monitoring our spending closely. Research and
development expenses as a percentage of total revenue may fluctuate from period
to period.

     Sales and Marketing

     Sales and marketing expenses were $2.7 million for the three months ended
September 30, 2002 and $4.4 million for the three months ended September 30,
2001, excluding stock-based compensation charges of $80,000 for the three months




                                       13
<PAGE>

ended September 30, 2002 and $(61,000) for the three months ended September 30,
2001. Sales and marketing expenses were $9.5 million for the nine months ended
September 30, 2002 and $16.1 million for the nine months ended September 30,
2001, excluding stock-based compensation charges of $(21,000) for the nine
months ended September 30, 2002 and $(470,000) for the nine months ended
September 30, 2001. The decrease in sales and marketing expenses is attributed
primarily to a decrease in sales and marketing personnel. Sales and marketing
personnel decreased from 69 at September 30, 2001 to 39 at September 30, 2002.
Personnel related expenses such as salaries, recruiting fees, facilities
expenses, travel and entertainment, phone charges and marketing programs
represented approximately 81% of the decrease in sales and marketing expenses
from the nine months ended September 30, 2001 to the nine months ended September
30, 2002. We believe that sales and marketing expenses, in absolute dollars,
excluding stock-based compensation charges, will increase in the quarter ended
December 31, 2002 from the levels of the quarter ended September 30, 2002 as
commission expenses are seasonally higher and tradeshow activities increase. We
expect to continue to focus our sales and marketing efforts on increasing market
penetration into the enterprise directly and through partnerships while
monitoring our spending closely. Sales and marketing expenses may fluctuate as a
percentage of total revenue from period to period.

     General and Administrative

     General and administrative expenses were $1.1 million for the three months
ended September 30, 2002 and $1.7 million for the three months ended September
30, 2001, excluding stock-based compensation charges of $(695,000) for the three
months ended September 30, 2002 and $216,000 for the three months ended
September 30, 2001. General and administrative expenses were $3.4 million for
the nine months ended September 30, 2002 and $6.3 million for the nine months
ended September 30, 2001, excluding stock-based compensation charges of
$(666,000) for the nine months ended September 30, 2002 and $(101,000) for the
nine months ended September 30, 2001. The decreases in general and
administrative expenses are primarily attributable to higher costs relating to
the transition of our chief executive officer in February 2001, higher bad debt
expenses incurred during the three and nine months ended September 30, 2001,
reduced accounting and legal fees incurred during the three and nine month
periods ended September 30, 2002 and an overall reduction in general and
administrative personnel. General and administrative personnel decreased from 29
at September 30, 2001 to 19 at September 30, 2002. We believe that general and
administrative expenses, in absolute dollars, excluding stock-based compensation
charges, will be consistent in the quarter ended December 31, 2002 relative to
the levels of the quarter ended September 30, 2002 or slightly higher. General
and administrative expenses may fluctuate as a percentage of total revenue from
period to period.

     Stock-Based Compensation

     Stock-based compensation consisted of amortization of unearned stock-based
compensation in connection with certain stock option grants to employees at
exercise prices below the deemed fair market value of our common stock. Of the
total unearned stock-based compensation, $(469,000) was amortized in the three
months ended September 30, 2002 compared to $424,000 amortized in the three
months ended September 30, 2001 and $(484,000) was amortized in the nine months
ended September 30, 2002 compared to $120,000 amortized in the nine months ended
September 30, 2001. The fluctuations are attributed primarily to options
cancelled in connection with terminated employees. The remaining unearned
stock-based compensation is expected to be amortized as follows: $231,000 in the
remaining three months of 2002, $416,000 in 2003 and $6,000 in 2004.


INTEREST AND OTHER INCOME

     For the three months ended September 30, 2002, we had interest and other
income of approximately $375,000 compared to $1.0 million for the three months
ended September 30, 2001. For the nine months ended September 30, 2002, we had
interest and other income of approximately $1.3 million compared to $3.6 million
for the nine months ended September 30, 2001. The decrease in interest and other




                                       14
<PAGE>

income resulted from a lower interest rate environment and lower average cash
and investment balances compared to 2001.


INTEREST AND OTHER EXPENSES

     For the three months ended September 30, 2002, we had interest and other
expenses of approximately $210,000 compared to $220,000 for the three months
ended September 30, 2001. For the nine months ended September 30, 2002, we had
interest and other expenses of approximately $457,000 compared to $588,000 for
the nine months ended September 30, 2001. The decrease in interest and other
expenses is attributed to paying down of our outstanding debt, as well as paying
off of our capital lease obligations in 2002. Interest and other expenses
consist primarily of interest incurred on our outstanding debt and capital lease
obligations.


LIQUIDITY AND CAPITAL RESOURCES

     We funded our operations through September 30, 2002 primarily with proceeds
from previous private placements and public offering of equity securities and to
a lesser extent, through revenue, subordinated debt and lines of credit. As of
September 30, 2002, our principal sources of liquidity included $67.8 million of
cash, cash equivalents and investments.

     Net cash used in operating activities during the nine months ended
September 30, 2002 was $13.2 million and was primarily attributable to a net
loss of $12.7 million. Cash provided by operating activities resulted from a
decrease in accounts receivable of $887,000, decrease in other assets of
$150,000 and add backs for non-cash items including depreciation and
amortization of $2.1 million, provision for doubtful accounts of $13,000 and
loss on sale of property and equipment of $60,000. Cash provided by operating
activities was offset by an increase in prepaid expenses and other assets of
$231,000 and decreases in accounts payable of $1.2 million, accrued liabilities
of $1.0 million and deferred revenue of $693,000. The decreases in accounts
payable and accrued liabilities were attributed primarily to cost-cutting
efforts and reduced headcount. The decreases in accounts receivable and deferred
revenue were attributed primarily to lower than expected sales generated during
the quarter ended September 30, 2002.

     Net cash provided by investing activities during the nine months ended
September 30, 2002 was $15.7 million and resulted primarily from the sale of
property and equipment of $39,000 and the sale and maturities of short-term
investments of $69.4 million, offset by purchases of $53.3 million in
investments and purchases of property and equipment of $416,000. The increase in
net cash provided by investing activities resulted primarily from the increased
conversion of short-term investments to cash used to support our operations.

     Net cash used in financing activities totaled $906,000 resulting from
repayments of debt and capital lease obligations of $1.8 million, offset by
proceeds from the issuance of common stock in connection with the exercise of
stock options and purchase of common stock through our employee stock purchase
plan of $443,000 and payment of notes receivable of $457,000.

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


         RECENT ACCOUNTING PRONOUNCEMENTS

     During April 2002, the FASB issued EITF 01-14, Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred.
EITF 01-14 provisions require companies to characterize reimbursements received
for out-of-pocket expenses as revenue in the statement of operations. We have
historically accounted for such reimbursements as a reduction to the cost of
service revenue in our financial statements to offset the related costs
incurred. The provisions of this EITF are required to be applied to fiscal years




                                       15
<PAGE>

beginning after December 15, 2001, although early adoption is permitted. The
adoption of the EITF in the third quarter of 2002 did not have a material impact
on our financial statements.


RISK FACTORS

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

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

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

     We will need to generate significant additional revenue to achieve and
maintain profitability in the future. Moreover, failure to achieve and sustain
significant increases in our quarterly net sales could cause us to further
reduce our operating expenses, which would adversely impact our ability to
operate and grow our business.

OUR REVENUES MAY BE HARMED IF GENERAL ECONOMIC CONDITIONS CONTINUE TO WORSEN OR
DO NOT IMPROVE.

     Our revenues are dependent on the health of the economy and the growth of
our customers and potential future customers. If the growth of the economy
remains stagnant or declines, our customers may continue to reduce their
spending on the active service level management solutions we offer or defer
purchases of our products and solutions until general economic conditions
improve. If that happens, our revenues could suffer and our stock price may
decline. Further, if global economic conditions worsen, we may experience a
material adverse impact on our business, operating results and financial
condition.

     Our software products, solutions and services are designed for customers
that use the Internet and Internet-based technologies to conduct business. Many
companies that may require our solutions are continuing to experience a general
slowdown in business and are re-evaluating the cost of using the Internet and
Internet-based technologies to conduct business as well as the necessity to make
significant capital investments for their infrastructures. Economic slowdowns
may also adversely affect the ability of some of our customers to fulfill their
payment obligations to us in a timely manner. To the extent we are required to
write off additional accounts receivable, sales cycles lengthen or customers
cancel orders, our results of operations will be harmed.

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

     Our future success depends on widespread commercial acceptance of our
products and solutions. The market for active service level management solutions
is relatively new and rapidly evolving. If we are unable to educate our
potential customers, and the market in general, about the advantages of our
software-based active service level management solutions over their existing
system and network management products, our ability to sell our products and
solutions will be severely limited. Rather than utilizing comprehensive active
service level management solutions, most corporations manage their applications
and services by adding servers and interconnecting a variety of single function
management tools. In addition, our competitors offer a wide variety of products




                                       16
<PAGE>

that purport to serve the needs addressed by our products and solutions. Our
ability to increase revenue in the future depends on the extent to which our
potential customers recognize the value of our integrated active service level
management solutions. The acceptance of our products and services may also be
hindered by:

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

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

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

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

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

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

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

 - Timely completion and introduction of new product designs and features

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

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

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

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

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

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



                                       17
<PAGE>

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

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

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

 - Acceptance of our Resonate Commander Solutions

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

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

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

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

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

     A delay in anticipated sales beyond the end of a particular quarter may
harm our results of operations for that quarter. We have experienced this type
of delay in the past. Furthermore, we base our decisions regarding our operating
expenses on anticipated revenue trends. Consequently, if revenue levels fall
below our expectations and the expectations of public market analysts and
investors, we may suffer unexpected losses because only a small portion of our
expenses varies with our revenue.

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

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

     We cannot assure you that corporate enterprises, which typically operate in
complicated information technology environments, will widely adopt active
service level management solutions to facilitate their system management needs.
Our ability to grow our business will depend upon the extent to which corporate
enterprises adopt active service level management solutions. Moreover, if
corporate enterprises require significantly different product features from
active service level management solutions, whether as a result of choosing to
outsource some or all of their applications to application service providers or
otherwise, we will be required to enhance or modify our products and solutions.




                                       18
<PAGE>

As a result, we could incur delays in introducing enhanced or modified versions
of our products and solutions, delays in capturing enterprise customers and
significant expenses. Any of these alternatives will limit our ability to grow
our business and could result in higher net losses.

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

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

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

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

     Alternative methods of delivering the capabilities of our software products
and solutions have been developed by our competitors. Such methods may
substantially erode the price which we can charge for our products and
solutions. These alternative methods may include bundling these capabilities
through a subscription model, among other possible methods. Some of our
competitors currently offer some capabilities of our software products and
solutions through a subscription model.

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

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

     Our markets are new, rapidly evolving and highly competitive, and we expect
competition to persist and intensify in the future. Although our Resonate
Commander Solutions has features and capabilities that no individual competitor
offers, principal competitors are the systems and network management product
providers including Tivoli Systems, BMC Software, Mercury Interactive,
Micromuse, Precise Software, Dirig Software, Wily Technology and others. We
cannot assure you that potential customers will choose our product over those of
our competitors. As these providers enhance their products and solutions to
target the needs and requirements of Internet deployed applications, potential
customers may choose their products over ours. In addition, many of our
competitors in the systems and network management market are larger companies
with greater financial and technical resources and more established brand
recognition. We may lose potential customers to our competitors if customers
prefer to make significant infrastructure purchases with larger vendors rather
than a smaller company like ours.



                                       19
<PAGE>

     Our principal competitors for our Resonate Central Dispatch and Resonate
Global Dispatch products include Cisco Systems, F5 Networks, Foundry Networks,
Nortel Networks and other server load balancing and traffic management product
suppliers. We expect to continue to face additional competition as new
participants enter the service level management market. In addition, companies
with greater resources and more established brand recognition and sales channels
may form alliances or acquire competing traffic management solutions and emerge
as significant competitors.

     Potential competitors have bundled their products and incorporated a load
balancing or traffic management capability into their existing products in a
manner that discourages users from purchasing our products. Our competitors have
also significantly reduced their prices and have forced us to match their price
reductions in order to remain competitive in some cases. Further price
reductions could significantly lower our revenue and increase our operating
losses.

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

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

     In order to increase the sales of our products, solutions and services, we
need to develop our direct and indirect sales channels effectively. If we are
unable to develop both our direct and indirect sales channels effectively, our
ability to increase revenue could be seriously harmed. In North America, we
currently sell our products and solutions directly and indirectly through
companies with whom we have established sales channel relationships. Outside
North America, we derive a significant portion of our revenue through our
indirect sales channels.

     Our sales and distribution strategy depends principally on:

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

 - Developing our indirect sales and distribution channels by
   establishing relationships with leading server system vendors,
   independent software vendors, value-added resellers and
   systems integrators

     If we fail to develop and maintain relationships with significant server
system vendors, independent software vendors, value-added resellers and systems
integrators, or if these third parties are not successful in their sales efforts
or if we fail to develop our direct sales organization effectively, sales of our
products, solutions and services may decrease or fail to increase.

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

     Outside of North America, we have only limited experience in marketing,
selling and supporting our products and solutions internationally. Prior to
1998, we had no revenue from sales to customers located outside North America.
Sales to customers located outside North America represented 8% of our total
revenue for the three months ended September 30, 2002 and 7% of our total
revenue for the three months ended September 30, 2001. Sales to customers
located outside North America represented 6% of our total revenue for the nine
months ended September 30, 2002 and 9% of our total revenue for the nine months
ended September 30, 2001.

     In order to increase our international sales, we intend to develop our
relationships with third parties who sell our products and solutions
internationally. Our investment in developing our international sales efforts




                                       20
<PAGE>

may not result in an increase in our revenue. We may not be able to achieve
positive operating margins for international sales in the near future. Our
efforts to increase our international sales could also be affected by a number
of risks and uncertainties, including:

 - The difficulties and significant costs of establishing and
   maintaining relationships with third parties who understand
   our products and can effectively sell to potential
   international customers

 - Unexpected changes in regulatory requirements

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

 - Reduced protection of intellectual property in other countries

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

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

 - Potentially adverse tax consequences

 - Political and economic instability

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

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

     We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into confidentiality agreements with our employees and consultants
and confidentiality and/or license agreements with our corporate partners, and
control access to and distribution of our software, documentation and other
proprietary information. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. In addition, other parties may breach confidentiality
agreements or other protective contracts we have entered into, and we may not be
able to enforce our rights in the event of these breaches. Any actions taken by
us to enforce our intellectual property rights could result in significant
expense to us and the diversion of management time and other resources.

     In September 2000, we filed a lawsuit for patent infringement against
Alteon Websystems, which has since been acquired by Nortel Networks. This action
has required us to expend significant financial resources to protect our
intellectual property, and has consumed valuable management time. In November
2001, the United States District Court, Northern District of California, issued
a claim construction ruling that we believe prevents us from prevailing in the
case. The case is currently on appeal. We will continue to expend financial
resources as the case proceeds.

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




                                       21
<PAGE>

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

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

IF WE CONTINUE TO USE SUBSTANTIAL AMOUNTS OF CASH, WE MAY NOT BE ABLE TO RAISE
ADDITIONAL FUNDS TO FUND OUR OPERATIONS AND MEET OUR FUTURE CAPITAL
REQUIREMENTS.

     Because our business operations currently use more cash than we generate,
the cash used each quarter substantially reduces the cash available to fund our
operations and future capital requirements. If we need additional cash to fund
our operations or capital requirements, we may need to issue additional debt,
convertible debt or equity securities. In addition, the current unfavorable
market for equity or debt financing makes it increasingly difficult to raise
additional funding. If we do not achieve positive cash flow from our operations
and future financing is not available, or is not available on acceptable terms,
we may not be able to fund our continuing operations.

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

     The products we currently offer operate on Solaris, Windows NT, Windows
2000, AIX, Linux and HP-UX operating systems, and features of our products are
dependent upon application and network monitoring standards used by a customer.
If new operating systems are developed or new network monitoring standards
emerge, our failure to modify our products in a timely or cost effective manner
could limit our potential customer base, which would adversely affect our
ability to increase our revenue. Furthermore, we will need to modify our
products or develop new versions of our products as new versions of operating
systems are developed. Similarly, if we decide to discontinue support of a given
standard, those customers or potential customers who utilize that standard may
be unable or unwilling to buy our solutions. If we fail to continue to develop
new products to respond to changes in computer networks and operating systems,
or if we discontinue support of an operating system, our ability to grow our
business will suffer.

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

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

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

Our products are integrated with our customers' networks and software
applications. The sale and support of our products may entail the risk of
product liability or warranty claims. Any of these claims, even if not
meritorious, could result in costly litigation or divert management's attention
and resources. Although we carry general liability insurance, our current




                                       22
<PAGE>

insurance coverage would likely be insufficient to protect us from all the
liability that may be imposed under these types of claims. A material product
liability claim may seriously harm our results of operations.

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

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

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

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

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

     All of our primary computer systems are located in our principal
headquarters in Sunnyvale, California. Sunnyvale exists on or near a known
earthquake fault zone. Although our facility which hosts our computer systems is
designed to be fault tolerant, the system is vulnerable to damage from fire,
floods, earthquakes, power loss, telecommunications failures, acts of terrorism
and similar events. Although we maintain general business insurance against
fires, floods and some general business interruptions, there can be no assurance
that the amount of coverage will be adequate in any particular case.

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

     As of October 31, 2002, our executive officers, directors and 5%
stockholders and their affiliates beneficially own, in the aggregate,
approximately 56.6% of our outstanding common stock. As a result, these
stockholders are able to exercise significant control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, which may have the effect of delaying or
preventing a third party from acquiring control over us even if our other
stockholders believe that it is desirable.

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

     The market price of our common stock has fluctuated and may continue to
fluctuate significantly in response to a number of factors such as changes in
accounting rules and regulations, market trends, recommendations from analysts
and company performance, some of which are beyond our control. In the past,
securities class action litigation has often been brought against a company
following periods of volatility in the market price of its securities. We may,
in the future, be the target of similar litigation. Regardless of its outcome,




                                       23
<PAGE>

securities litigation may result in substantial costs and divert management's
attention and resources, which could harm our business and results of
operations.

     In December 2001, a putative securities class action lawsuit was filed in
the United States District Court for the Southern District of New York against
us, certain investment bank underwriters for our initial public offering, and
various of our officers and directors. The lawsuit, captioned In re Resonate
Inc. Initial Public Offering Securities Litigation, Civil Action No.
01-CV-11245, generally alleges undisclosed and improper practices by the
underwriters concerning the allocation of our IPO shares, in violation of
federal securities laws, and seeks unspecified damages on behalf of persons who
purchased our stock during the period from August 2, 2000 to December 6, 2000.
The Court has appointed a lead plaintiff in this litigation. On April 19, 2002,
plaintiffs filed an amended complaint. Other actions have been filed making
similar allegations regarding the IPOs of more than 300 other companies. All of
these have been coordinated for pretrial purposes as In re Initial Public
Offering Securities Litigation, Civil Action No. 21-MC-92. Defendants in these
cases have filed omnibus motions to dismiss on common pleading issues. Oral
argument on the omnibus motions to dismiss are scheduled for October 29, 2002.
Our officers and directors have been dismissed without prejudice in this
litigation. We believe we have meritorious defenses to the claims against us and
will defend ourselves vigorously.

A SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK MAY CAUSE OUR STOCK
PRICE TO DECLINE.

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

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

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

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

The net proceeds from our initial public offering, which closed in August 2000,
were not allocated for specific uses other than working capital and general
corporate purposes. Thus, our management has broad discretion over how these
proceeds are used and could spend most of these proceeds in ways with which our
stockholders may not agree. As of September 30, 2002, we have used approximately
$20.2 million of the proceeds from our initial public offering, of which $1.6
million was used to repurchase our common stock and $18.6 million was used for
working capital purposes.

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

     Our certificate of incorporation and bylaws contain provisions which could
make it harder for a third party to acquire us without the consent of our board
of directors. For example, if a potential acquirer were to make a hostile bid
for us, the acquirer would not be able to call a special meeting of stockholders
to remove members of our board of directors or act by written consent without a
meeting. In addition, our directors have staggered terms, which makes it
difficult to remove all of our directors at once. The acquirer would also be
required to provide advance notice of its proposal to remove directors at an




                                       24
<PAGE>

annual meeting. The acquirer also will not be able to cumulate votes at a
meeting, which will require the acquirer to hold more shares to gain
representation on our board of directors than if cumulative voting were
permitted.

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

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


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

     We maintain an investment portfolio of various issuers, types and
maturities. Our investment portfolio consists of both fixed and variable rate
financial instruments. We purchase only high-grade investments rated A or above
with original maturities of no more than thirteen months. These securities are
classified as available-for-sale, and consequently, are recorded on the balance
sheet at fair value. The average original maturity of investments in our
portfolio was approximately 357 days and the average remaining maturity of
investments in our portfolio was approximately 210 days as of September 30,
2002. At any time, a sharp rise in interest rates could seriously harm the fair
value of our investment portfolio. Conversely, declines in interest rates could
seriously decrease the interest income from our investment portfolio. Currently,
we do not hedge these interest rate exposures.

     As of September 30, 2002, we had total short-term debt outstanding of $1.0
million, which bears interest at rates that are tied to the prime rate.
Therefore, we are subject to exposure to interest rate risk for these borrowings
based on fluctuations in the prime rate. Based upon the outstanding indebtedness
under these arrangements, an increase in the prime rate of 0.5% would cause a
corresponding increase in our annual interest expense of approximately $5,000.

ITEM 4.  CONTROLS AND PROCEDURES

         a)   EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Within
the 90 days prior to the date of this quarterly report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 240.13a-14. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
current disclosure controls and procedures are effective in timely alerting them
to material information relating to us and our subsidiaries required to be
included in our periodic SEC filings.




                                       25
<PAGE>

         b)   CHANGES IN INTERNAL CONTROLS. There have been no
significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the date we carried out
this evaluation.


PART II:     OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On September 12, 2000, we filed a complaint for patent infringement against
Alteon Web Systems, Inc. in the United States District Court, Northern District
of California for permanent injunctive relief and damages. We believe Alteon
infringes United States Letters Patent No. 5,774,660, titled "World-Wide Web
Server With Delayed Resource-Binding For Resource-Based Load Balancing On A
Distributed Resource Multi-Node Network," which was issued to us on September
30, 1998. Alteon served its answer to our complaint in October 2000, in which
Alteon denied our allegations and counterclaimed that our patent is invalid. In
October 2000, Alteon was acquired by Nortel Networks Corporation. In November
2001, the Court issued a claim construction ruling that we believe prevents us
from prevailing in the case. In December 2001, we entered into a stipulated
judgment of non-infringement and, in January 2002, filed a notice of appeal. The
appeal is currently pending.

     In December 2001, a putative securities class action lawsuit was filed in
the United States District Court for the Southern District of New York against
us, certain investment bank underwriters for our initial public offering, and
various of our officers and directors. The lawsuit, captioned In re Resonate
Inc. Initial Public Offering Securities Litigation, Civil Action No.
01-CV-11245, generally alleges undisclosed and improper practices by the
underwriters concerning the allocation of our IPO shares, in violation of
federal securities laws, and seeks unspecified damages on behalf of persons who
purchased our stock during the period from August 2, 2000 to December 6, 2000.
The Court has appointed a lead plaintiff in this litigation. On April 19, 2002,
plaintiffs filed an amended complaint. Other actions have been filed making
similar allegations regarding the IPOs of more than 300 other companies. All of
these have been coordinated for pretrial purposes as In re Initial Public
Offering Securities Litigation, Civil Action No. 21-MC-92. Defendants in these
cases have filed omnibus motions to dismiss on common pleading issues. Oral
argument on the omnibus motions to dismiss are scheduled for October 29, 2002.
Our officers and directors have been dismissed without prejudice in this
litigation. We believe we have meritorious defenses to the claims against us and
will defend ourselves vigorously.

     In January 2002, we received a Demand for Arbitration from the individual
who transferred the domain name "resonate.com" to the Company in 1998. The
Demand for Arbitration alleges, among other things, that we breached our
obligations pursuant to our agreement with the individual by providing her with
"restricted stock" rather than stock that was not encumbered with any
restrictions. As a consequence, this individual alleges that she was unable to
sell her Resonate stock when it was trading at its highest price, and that she
is entitled to damages or, alternatively, to the return of her domain name and
additional payments by us for our prior use of the domain name. This dispute is
currently pending before the American Arbitration Association and a hearing date
has been set for January 2003. Although there can be no assurances that we will
prevail in the arbitration, we believe that we have meritorious defenses to the
claims asserted against us in the Demand for Arbitration and intend to defend
this action vigorously.

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

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     The net proceeds from our initial public offering, which closed in August
2000, were not allocated for specific uses other than working capital and
general corporate purposes. As of September 30, 2002, of the proceeds from our
initial public offering in August 2000, we used $1.6 million for the repurchase
of 700,000 shares of our common stock and $18.6 million for working capital
purposes.



                                       26
<PAGE>

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None.

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

Our annual meeting of stockholders was held on August 29, 2002 in Sunnyvale,
California. Of the 27,170,405 shares outstanding as of the record date,
21,429,665 shares were present or represented by proxy at the meeting. The
following matters were submitted to a vote of security holders:

(1) To elect the following to serve as directors of the company:

                                        Votes For          Votes Abstaining
                                      -------------        ----------------

         Russell Siegelman             21,390,801                38,864
         David Murphy                  21,391,101                38,564

(2)      To ratify the company's appointment of PricewaterhouseCoopers LLP as
         independent accountants for the company for the fiscal year ending
         December 31, 2002:

         Votes for:                    21,428,760
         Votes against:                       283
         Votes abstaining:                    622

ITEM 5.  OTHER INFORMATION

     Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

    3.1 (1)   Restated Certificate of Incorporation of the registrant.
    3.2 (2)   Bylaws of the registrant, as amended on January 24, 2002.
    4.1 (1)   Form of specimen certificate for registrant's common stock.
    99.1      CEO and CFO Certification
   -------------------------
   (1)  Incorporated by reference to the registrant's registration statement on
        Form S-1 (File No. 333-31730), declared effective August 2, 2000.
   (2)  Incorporated by reference to the registrant's annual report on Form
        10-K (File No. 000-31139) filed with the Securities and Exchange
        Commission on March 28, 2002.

(b)  Reports on Form 8-K

     We did not file any reports on Form 8-K during the three months ended
September 30, 2002.




                                       27
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements 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.

                                        RESONATE INC.



Date: November 14, 2002                 /s/Peter R. Watkins
                                        ---------------------------------
                                        Peter R. Watkins
                                        Chairman, President and
                                        Chief Executive Officer


                                        /s/Richard Hornstein
                                        ---------------------------------
                                        Richard Hornstein
                                        Vice President, Chief Financial Officer
                                        and General Counsel





                                       28
<PAGE>

                                 CERTIFICATIONS


I, Peter R. Watkins, certify that:

        1. I have reviewed this quarterly report on Form 10-Q of Resonate Inc.;

        2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

        3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

        4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                  (a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

                  (b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

                  (c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

        5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):

                  (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

                  (b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and

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


Date: November 14, 2002


                                          /s/ Peter R. Watkins
                                          ------------------------------
                                          Peter R. Watkins
                                          Chairman, President and
                                          Chief Executive Officer



                                       29
<PAGE>

I, Richard Hornstein, certify that:

        1. I have reviewed this quarterly report on Form 10-Q of Resonate Inc.;

        2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

        3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

        4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                  (a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

                  (b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

                  (c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

        5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

                  (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

                  (b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and

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


Date: November 14, 2002


                                   /s/ Richard Hornstein
                                   -------------------------------------------
                                   Richard Hornstein
                                   Vice President, Chief Financial Officer and
                                   General Counsel





                                       30
<PAGE>

INDEX TO EXHIBITS



    Exhibit
    Number       Description
    ------       ------------------------

    3.1 (1)   Restated Certificate of Incorporation of the registrant.
    3.2 (2)   Bylaws of the registrant, as amended on January 24, 2002.
    4.1 (1)   Form of specimen certificate for registrant's common stock.
    99.1      CEO and CFO Certification
   -------------------------
   (1)  Incorporated by reference to the registrant's registration statement on
        Form S-1 (File No. 333-31730), declared effective August 2, 2000.
   (2)  Incorporated by reference to the registrant's annual report on Form
        10-K (File No. 000-31139) filed with the Securities and Exchange
        Commission on March 28, 2002.




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