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, 2001

                                       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, 2001 was 27,614,540.



<PAGE>

<TABLE>
<CAPTION>

                                  RESONATE INC.
                                      INDEX

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

   Item 1.  Financial Statements:

       Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31,
         2000............................................................................. 3

       Condensed Consolidated Statements of Operations for the three and nine month
         periods ended September 30, 2001 and 2000........................................ 4

       Condensed Consolidated Statements of Cash Flows for the nine month periods ended
         September 30, 2001 and September 30, 2000........................................ 5

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

   Item 2.  Management's Discussion and Analysis of Financial Condition and Results of
        Operations....................................................................... 11
        Risk Factors..................................................................... 17

   Item 3.  Quantitative and Qualitative Disclosures About Market Risks.................. 28

PART II:  OTHER INFORMATION

   Item 1.  Legal Proceedings............................................................ 29

   Item 2.  Changes in Securities and Use of Proceeds.................................... 29

   Item 3.  Defaults Upon Senior Securities.............................................. 29

   Item 4.  Submission of Matters to a Vote of Security Holders.......................... 29

   Item 5.  Other Information............................................................ 29

   Item 6. Exhibits and Reports on Form 8-K.............................................. 30

Signatures............................................................................... 31
</TABLE>

                                       2
<PAGE>



PART I:       FINANCIAL INFORMATION
ITEM 1:       FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                  RESONATE INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (unaudited)

                                                         September 30,     December 31,
                                                             2001              2000
                                                          -----------      -----------
<S>                                                       <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                              $    55,352      $    76,053
   Short-term investments                                      24,601           32,981
   Accounts receivable, net                                     2,357            6,189

   Prepaid expenses and other current assets                    1,189            1,413
                                                          -----------      -----------
     Total current assets                                      83,499          116,636

Long-term investments                                           9,477               --
Property and equipment, net                                     3,659            5,089
Other assets                                                      505              218
                                                          -----------      -----------

       Total assets                                       $    97,140      $   121,943
                                                          ===========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Debt, current                                          $     2,005      $     2,793
   Accounts payable                                             1,074            1,132
   Accrued liabilities                                          2,944            3,875
   Deferred revenue                                             4,034            4,996
   Capital lease obligation, current                              590            1,091
                                                          -----------      -----------
     Total current liabilities                                 10,647           13,887

Debt, long-term                                                 1,084            2,418
Capital lease obligation, long-term                                50              471
                                                          -----------      -----------
       Total liabilities                                       11,781           16,776
                                                          -----------      -----------

Stockholders' equity:
     Common stock                                                   3                3
     Additional paid-in capital                               186,681          195,120
     Notes receivable from stockholders                          (759)          (1,055)
     Unearned stock-based compensation                         (3,811)         (14,360)
     Accumulated deficit                                      (96,755)         (74,541)
                                                          ------------     ------------
       Total stockholders' equity                              85,359          105,167
                                                          -----------      -----------

       Total liabilities and stockholders' equity         $    97,140      $   121,943
                                                          ===========      ===========
</TABLE>

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



                                       3
<PAGE>


<TABLE>
<CAPTION>

                                  RESONATE INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (in thousands, except share and per share amounts)
                                   (unaudited)

                                                   Three Months Ended                Nine Months Ended
                                                      September 30,                    September 30,
                                               --------------------------       --------------------------
                                                  2001           2000              2001           2000
                                               -----------    -----------       ----------     -----------
<S>                                            <C>            <C>               <C>            <C>
Revenue:
   Product                                     $     2,032    $     4,621       $    5,515     $    10,871
   Services                                          1,695          1,504            4,949           3,602
                                               -----------    -----------       ----------     -----------
       Total revenue                                 3,727          6,125           10,464          14,473

Cost of revenue:
   Product                                              24             75              151             165
   Services (including stock-based
       compensation of $103, $445, $402
       and $1,302, respectively)                       803          1,663            2,975           4,570
                                               -----------    -----------       ----------     -----------
       Total cost of revenue                           827          1,738            3,126           4,735
                                               -----------    -----------       ----------     -----------

Gross profit                                         2,900          4,387            7,338           9,738

Operating expenses:
   Research and development (including
       stock-based compensation of $166,
       $868, $289 and $2,855, respectively)          3,696          4,226           10,742          12,263
   Sales and marketing (including stock-based
       compensation of $(61), $1,392, $(470) and
       $4,340, respectively)                         4,375          8,600           15,637          24,696
   General and administrative (including stock-
       based compensation of $216, $1,147,
           $(101) and $3,504, respectively)          1,921          2,583            6,182           7,840
                                               -----------    -----------       ----------     -----------
       Total operating expenses                      9,992         15,409           32,561          44,799
                                               -----------    -----------       ----------     -----------

Loss from operations                                (7,092)       (11,022)         (25,223)        (35,061)
Interest and other income                              976          1,255            3,597           1,511
Interest and other expenses                           (220)          (220)            (588)           (599)
                                               ------------   ------------      -----------    ------------
Net loss                                            (6,336)        (9,987)           (22,214)      (34,149)
Beneficial conversion of Series F
   preferred stock                                      --          6,750               --           6,750
                                               -----------    -----------       ----------     -----------
Net loss attributable to common stockholders   $    (6,336)   $   (16,737)      $  (22,214)    $   (40,899)
                                               ============   ============      ===========    ============

Net loss per share attributable to common
   stockholders:
   Basic and diluted                           $    (0.23)    $    (0.90)       $     (0.82)   $      (3.83)
                                               ===========    ===========       ============   =============
   Weighted average shares                          27,120         18,549              27,103         10,669
                                               ===========    ===========       =============  =============
</TABLE>


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



                                       4
<PAGE>


<TABLE>
<CAPTION>

                                  RESONATE INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

                                                                                Nine Months Ended
                                                                                  September 30,
                                                                           --------------------------
                                                                               2001           2000
                                                                           -----------    -----------
<S>                                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                              $   (22,214)    $  (34,149)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
         Depreciation and amortization                                           1,987          1,511
         Provision for doubtful accounts                                           324            305
         Stock-based compensation                                                  120         12,001
         Amortization of stock options issued for services                         107            712
         Warrant related non-cash interest expense                                  93             93
         Compensation expense relating to acceleration of options                  522             --
         Changes in assets and liabilities:
              Accounts receivable                                                3,508         (1,478)
              Prepaid expenses and other current assets                            224         (1,022)
              Other assets                                                        (287)           (37)
              Accounts payable                                                     (58)         1,250
              Accrued liabilities                                                 (931)           892
              Deferred revenue                                                    (962)         1,943
                                                                           ------------   -----------

              Net cash used in operating activities                            (17,567)       (17,979)
                                                                           ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment                                           (557)        (3,292)
     Purchase of investments                                                   (68,255)       (21,935)
     Proceeds from maturities or sales of investments                           67,326          7,000
                                                                           -----------    -----------

              Net cash used in investing activities                             (1,486)       (18,227)
                                                                           ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of common stock in initial public
       offering, net of issuance costs                                              --         88,166
     Proceeds from issuance of long-term debt                                       --          2,364
     Repayments of long-term debt                                               (2,205)        (1,387)
     Repayments of capital lease obligations                                      (932)          (661)
     Proceeds from issuance of mandatorily redeemable
       convertible preferred stock, net of issuance costs                           --         37,000
     Payments for stock repurchases                                               (118)            --
     Proceeds from exercise of preferred stock warrants                             --             10
     Proceeds from issuance of common stock upon exercise
       of stock options and employee stock purchase plan                         1,607            804
                                                                           -----------    -----------

              Net cash provided by (used in) financing activities               (1,648)       126,296
                                                                           ------------   -----------

Net increase (decrease) in cash and cash equivalents                           (20,701)        90,090

Cash and cash equivalents at beginning of period                                76,053          5,011
                                                                           -----------    -----------

Cash and cash equivalents at end of period                                 $    55,352    $    95,101
                                                                           ===========    ===========
</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 the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments (all of
which are normal and recurring in nature) necessary to present fairly the
financial position, results of operations and cash flows of Resonate Inc. and
its 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.

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

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

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

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


                                       6
<PAGE>

     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. Revenue recognized under such arrangements
for the three and nine month periods ended September 30, 2001 and 2000 was not
significant.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We have
complied with the guidance in SAB 101.

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

     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. Cash equivalents and investments are considered 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, cash equivalents, short-term and long-term
investments and accounts receivable. We limit our exposure to credit loss by
placing our cash, cash equivalents and short-term and long-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, in
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.

     One customer accounted for 15% of our total revenue during the three months
ended September 30, 2001 and one customer accounted for 33% of our total revenue
during the three months ended September 30, 2000. No customer accounted for more
than 10% of our total revenue during the nine months ended September 30, 2001
and one customer accounted for 21% of our total revenue during the nine months
ended September 30, 2000.

     At September 30, 2001, one customer accounted for 15% of total accounts
receivable. At December 31, 2000, no individual customer accounted for more than
10% of total accounts receivable.

     NET LOSS PER SHARE

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




                                       7
<PAGE>

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

                                                                Three Months Ended           Nine Months Ended
                                                                   September 30,               September 30,
                                                              ----------------------      ----------------------
                                                                2001          2000           2001         2000
                                                              ---------    ---------      ---------     --------
<S>                                                           <C>          <C>            <C>           <C>
Net loss attributable to common stockholders                  $  (6,336)   $  (9,987)     $ (22,214)    $(34,149)
Beneficial conversion of Series F preferred stock                    --        6,750             --        6,750
                                                              ---------    ---------      ---------     --------
Net loss attributable to common stockholders                  $  (6,336)   $ (16,737)     $ (22,214)    $(40,899)
                                                              ==========   ==========     ==========    =========

Basic and diluted:
     Weighted average shares                                     27,472       20,179         27,455       12,299
     Weighted average common stock subject to repurchase           (352)      (1,630)          (352)      (1,630)
                                                              ----------   ----------     ----------    ---------
     Shares used in computing basic and diluted net loss per
           share attributable to common stockholders             27,120       18,549         27,103       10,669
                                                              ---------    ---------      ---------     --------

     Basic and diluted net loss per share attributable to
          common stockholders                                 $  (0.23)    $  (0.90)      $  (0.82)     $ (3.83)
                                                              =========    =========      =========     ========
</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,
                                                              ----------------------      ----------------------
                                                                2001          2000           2001         2000
                                                              ---------    ---------      ---------     --------
<S>                                                                              <C>                         <C>
Weighted average effect of common stock equivalents:
     Warrants to purchase Preferred Stock                            --          266             --          246
     Warrants to purchase Common Stock                               --           77             --           73
     Employee stock options                                       1,938           92          2,553          317
     Common Stock subject to repurchase agreements                  352        1,630            352        1,630
                                                              ---------    ---------      ---------     --------
                                                                  2,290        2,065          2,905        2,266
                                                              =========    =========      =========     ========
</TABLE>

     COMPREHENSIVE INCOME

     We have adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement requires the
disclosure of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income, as defined, includes
all changes in equity (net assets) during the period from non-owner sources. To
date, we have not had any material transactions that are required to be reported
in comprehensive income.

     SEGMENT INFORMATION

     During the period 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.

                                       8
<PAGE>

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

                                                                Three Months Ended           Nine Months Ended
                                                                   September 30,               September 30,
                                                              ----------------------      ----------------------
                                                                2001          2000           2001         2000
                                                              ---------    ---------      ---------     --------
<S>                                                           <C>          <C>            <C>           <C>
     North America                                            $   3,465    $   5,938      $   9,496     $ 13,704
     Europe and Asia Pacific                                        262          187            968          769
                                                              ---------    ---------      ---------     --------
                                                              $   3,727    $   6,125      $  10,464     $ 14,473
                                                              =========    =========      =========     ========
</TABLE>

     Our long-lived assets outside of North America were not significant to our
operations for the periods indicated.

     RECLASSIFICATION

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

     RECENT ACCOUNTING PRONOUNCEMENTS

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

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


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


NOTE 2.   SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
                                                                 Nine Months Ended
                                                                   September 30,
                                                              ----------------------
                                                                2001          2000
                                                              ---------    ---------
<S>                                                           <C>          <C>
Supplemental cash flow information:
     Issuance of warrants to purchase common stock in
         connection with strategic partnership                $      --    $     464
                                                              =========    =========

     Capital lease obligations                                $      --    $   1,053
                                                              =========    =========

     Common Stock issued in exchange for notes receivable     $      --    $     300
                                                              =========    =========

     Repurchase of unvested shares in exchange
         for reduction of notes receivable                    $     296    $      --
                                                              =========    =========
</TABLE>


                                       9
<PAGE>

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, entitled "World-Wide Web
Server With Delayed Resource-Binding For Resource-Based Load Balancing On A
Distributed Resource Multi-Node Network," which was issued to us on June 30,
1998. Alteon served its answer to our complaint in October 2000, in which Alteon
denied our allegations and counterclaimed that our patent is invalid. In October
2000, Alteon was acquired by Nortel Networks Corporation. The litigation is
currently in the discovery phase and a trial date has been set for the summer of
2002.

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

NOTE 4.   STOCK OPTION EXCHANGE PROGRAM

     In June 2001, Resonate's Board of Directors approved a stock option
exchange program. Under the program, all eligible employees based in the United
States, excluding executive officers and outside directors, were given the
opportunity to cancel one or more stock options previously granted to them in
exchange for one or more new stock options to be granted at least six months and
one day from the date the old options are cancelled, provided the individual is
still employed or providing service on such date. The participation deadline for
this program was July 27, 2001. The number of shares subject to the new options
will be equal to the number of shares subject to the old options adjusted for
terminations, and the exercise price of the new options will be the fair market
value of our Common Stock on January 31, 2002, the date the new options are
currently intended to be granted. The new options will have the same vesting
start date as the old options and will be immediately exercisable as to vested
shares when granted. In total, 611,548 stock options were cancelled as a result
of this program. As of September 30, 2001, 551,048 shares were subject to
reissuance under the stock option exchange program.

     In accordance with accounting rules, stock options granted to employees who
elect to participate in the stock option exchange program, during the six month
period prior to and following the implementation of the program may be subject
to variable plan accounting. In accordance with generally accepted accounting
principles, we would be required to record a non-cash compensation cost for any
such options until the options are exercised, forfeited or cancelled without
replacement. The valuation would be based on any excess of the closing stock
price at the end of the reporting period or date of exercise, forfeiture or
cancellation without replacement, if earlier, over the fair market value of our
Common Stock on the option's issuance date. The resulting compensation charge to
earnings would be recorded as the underlying options vest. Depending upon
movements in the market value of our Common Stock, this accounting treatment
could result in significant compensation charges in future periods. We do not
anticipate incurring non-cash compensation costs relating to the stock option
exchange program.




                                       10
<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"
beginning on page 17 of this report and our Annual Report on Form 10-K filed on
March 27, 2001 with the Securities and Exchange Commission.

OVERVIEW

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

     Resonate was founded in July 1995 and began substantive operations in April
1996. From April 1996 through the first quarter of 1997, we primarily engaged in
research activities, developing our products and building our business
infrastructure. We began shipping our first software product, Central Dispatch,
and first generated revenue from software license fees and implementation and
consulting fees in the first quarter of 1997. We released our Global Dispatch
software product in the first quarter of 1998 and our Commander software product
in the third quarter of 1999. We introduced our Resonate Commander Solutions in
the first quarter of 2001. In the nine months ended September 30, 2001, we
derived approximately 56% of our product revenue from our Central Dispatch
product. We have incurred significant costs to develop our technology, products,
solutions and services, to continue the recruitment of research and development
personnel, to build a sales force and a professional services organization, and
to expand our general and administrative infrastructure. Our total headcount was
185 at September 30, 2001.

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



                                       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,
                                               ------------------------           ------------------------
                                                  2001         2000                  2001         2000
                                               -----------  -----------           -----------  -----------
<S>                                                  <C>           <C>                  <C>           <C>
Revenue:
   Product                                           54.5%         75.4%                52.7%         75.1%
   Services                                          45.5          24.6                 47.3          24.9
                                                 --------     ---------             --------     ---------
       Total revenue                                100.0         100.0                100.0         100.0
                                                 --------     ---------             --------     ---------
Cost of revenue:
   Product                                            0.6           1.2                  1.4           1.1
   Services                                          21.5          27.2                 28.4          31.6
                                                 --------     ---------             --------     ---------
       Total cost of revenue                         22.1          28.4                 29.8          32.7
                                                 --------     ---------             --------     ---------
Gross profit                                         77.9          71.6                 70.2          67.3
                                                 --------     ---------             --------     ---------
Operating expenses:
   Research and development                          99.2          69.0                102.7          84.7
   Sales and marketing                              117.4         140.4                149.4         170.6
   General and administrative                        51.5          42.2                 59.1          54.2
                                                 --------     ---------             --------     ---------
       Total operating expenses                     268.1         251.6                311.2         309.5
                                                 --------     ---------             --------     ---------
Loss from operations                               (190.2)       (180.0)              (241.0)       (242.2)
Interest and other income                            26.2          20.5                 34.4          10.4
Interest and other expenses                          (5.9)         (3.6)                (5.6)         (4.1)
                                                 ---------      --------            ---------    ----------
Net loss                                           (169.9)%      (163.1)%             (212.2)%      (235.9)%
                                                 =========    ==========            =========    ==========
</TABLE>


REVENUE AND REVENUE RECOGNITION POLICY

     Our total revenue was $3.7 million for the three months ended September 30,
2001 and $6.1 million for the three months ended September 30, 2000. Our total
revenue was $10.5 million for the nine months ended September 30, 2001 and $14.5
million for the nine months ended September 30, 2000. 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 general slowdown in the domestic economy
beginning in the second half of 2000 and continuing in 2001, resulting in delays
or cancellations in anticipated sales to new and existing customers.

     Product revenue was $2.0 million or 54.5% of total revenue for the three
months ended September 30, 2001 and $4.6 million or 75.4% of total revenue for
the three months ended September 30, 2000. Product revenue was $5.5 million or
52.7% of total revenue for the nine months ended September 30, 2001 and $10.9
million or 75.1% of total revenue for the nine months ended September 30, 2000.
Services revenue was $1.7 million or 45.5% of total revenue for the three months
ended September 30, 2001 and $1.5 million or 24.6% of total revenue for the
three months ended September 30, 2000. Service revenue was $4.9 million or 47.3%
of total revenue for the nine months ended September 30, 2001 and $3.6 million
or 24.9% of total revenue for the nine months ended September 30, 2000. Our
revenue mix changed from prior periods as a result of generating higher revenues
from renewals of our maintenance contracts compared to new sales of products to
new and existing customers during the three months and nine months ended
September 30, 2001. We believe our revenue mix will generally consist of
approximately 55-60% product revenue and 40-45% service revenue in the next two
quarters.

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



                                       12
<PAGE>

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.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We have
complied with the guidance in SAB 101.

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

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

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

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

     One customer accounted for 15% of our total revenue during the three months
ended September 30, 2001 and one customer accounted for 33% of our total revenue
during the three months ended September 30, 2000. No customer accounted for more
than 10% of our total revenue during the nine months ended September 30, 2001
and one customer accounted for 21% of our total revenue during the nine months
ended September 30, 2000.


COST OF REVENUE

     Cost of revenue was $724,000 for the three months ended September 30, 2001
and $1.3 million for the three months ended September 30, 2000, excluding
stock-based compensation charges of $103,000 in 2001 and $445,000 in 2000. Cost
of revenue was $2.7 million for the nine months ended September 30, 2001 and
$3.4 million for the nine months ended September 30, 2000, excluding stock-based
compensation charges of $402,000 in 2001 and $1.3 million in 2000. Cost of
revenue as a percentage of total revenue was 22.1% for the three months ended
September 30, 2001 and 28.4% in the three months ended September 30, 2000,
including stock-based compensation. Cost of revenue as a percentage of total
revenue was 29.8% for the nine months ended September 30, 2001 and 32.7% in the
nine months ended September 30, 2000, including stock-based compensation. The
decreases in cost of revenue are primarily attributed to a reduction in our
professional services headcount from 28 at September 30, 2000 to 14 at September
30, 2001.

     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. Our negative gross
margin from services for the three months and nine months ended September 30,
2000, is attributed primarily to stock-based compensation of $445,000 for the
three months and $1.3 million for the nine months ended. We believe that our
cost of revenue, excluding stock-based compensation charges, will remain
consistent with current levels next quarter, as we expect our existing
professional services organization to support new and existing customers. Cost
of revenue as a percentage of total revenue may fluctuate from period to period.



                                       13
<PAGE>

OPERATING EXPENSES

     Research and Development

     Research and development expenses were $3.5 million for the three months
ended September 30, 2001 and $3.4 million for the three months ended September
30, 2000, excluding stock-based compensation charges of $166,000 in 2001 and
$868,000 in 2000. Research and development expenses were $10.5 million for the
nine months ended September 30, 2001 and $9.4 million for the nine months ended
September 30, 2000, excluding stock-based compensation charges of $289,000 in
2001 and $2.9 million in 2000. Substantially all of the increases were related
to an increase in the spending on hiring temporary consultants.

     Research and development expenses as a percentage of total revenue were
99.2% for the three months ended September 30, 2001 and 69.0% in the three
months ended September 30, 2000, including stock-based compensation. Research
and development expenses as a percentage of total revenue were 102.7% for the
nine months ended September 30, 2001 and 84.7% in the nine months ended
September 30, 2000, including stock-based compensation. Research and development
expenses as a percentage of total revenue increased primarily due to the lower
revenue in the three and nine month periods ended September 30, 2001 compared to
the same periods in 2000. The number of research and development personnel
decreased from 77 at September 30, 2000 to 73 at September 30, 2001. We believe
that research and development expenses in absolute dollars, excluding
stock-based compensation charges, will be consistent with current levels next
quarter as we expect to continue to develop additional new products, and product
enhancements with our existing investments in research and development to date.
Research and development expenses as a percentage of total revenue may fluctuate
from period to period.

     Sales and Marketing

     Sales and marketing expenses were $4.4 million for the three months ended
September 30, 2001 and $7.2 million for the three months ended September 30,
2000, excluding stock-based compensation charges of $(61,000) in 2001 and $1.4
million in 2000. Sales and marketing expenses were $16.1 million for the nine
months ended September 30, 2001 and $20.4 million for the nine months ended
September 30, 2000, excluding stock-based compensation charges of $(470,000) in
2001 and $4.3 million in 2000. The decrease in sales and marketing expenses is
attributed primarily to more targeted marketing activities than in prior
periods, third-party recruitment fees and sales commissions, as well as a
decrease in overall sales and marketing headcount. The number of sales and
marketing personnel decreased from 109 at September 30, 2000 to 69 at September
30, 2001.

     Sales and marketing expenses as a percentage of total revenue were 117.4%
for the three months ended September 30, 2001 and 140.4% in the three months
ended September 30, 2000, including stock-based compensation. Sales and
marketing expenses as a percentage of total revenue were 149.4% for the nine
months ended September 30, 2001 and 170.6% in the nine months ended September
30, 2000, including stock-based compensation. The decrease in sales and
marketing expenses as a percentage of total revenue was attributed primarily to
a decrease in stock-compensation charges. We believe that sales and marketing
expenses in absolute dollars, excluding stock-based compensation charges, will
be consistent with current levels next quarter as we expect to sell and market
our products and solutions with the investments made to date. Sales and
marketing expenses as a percentage of total revenue may fluctuate from period to
period.

     General and Administrative

     General and administrative expenses were $1.7 million for the three months
ended September 30, 2001 and $1.4 million for the three months ended September
30, 2000, excluding stock-based compensation charges of $216,000 in 2001 and
$1.1 million in 2000. General and administrative expenses were $6.3 million for
the nine months ended September 30, 2001 and $4.3 million for the nine months
ended September 30, 2000, excluding stock-based compensation charges of
$(101,000) in 2001 and $3.5 million in 2000. The increase in general and



                                       14
<PAGE>

administrative expenses is primarily attributable to costs relating to legal
expenses in connection with our patent infringement action against Alteon Web
Systems, Inc. and additional public company administrative expenses such as
directors' and officers' insurance costs and filing fees. General and
administrative expenses also increased in 2001 as a result of executive
transition costs during the first six months of the year. The number of general
and administrative personnel decreased from 36 at September 30, 2000 to 29 at
September 30, 2001.

     General and administrative expenses as a percentage of total revenue were
51.5% for the three months ended September 30, 2001 and 42.2% in the three
months ended September 30, 2000, including stock-based compensation. General and
administrative expenses as a percentage of total revenue were 59.1% for the nine
months ended September 30, 2001 and 54.2% in the nine months ended September 30,
2000, including stock-based compensation. The increases in general and
administrative expenses as a percentage of total revenue were primarily due to
lower revenue in the three and nine month periods ended September 30, 2001
compared to the same periods in 2000. We believe that general and administrative
expenses in absolute dollars, excluding stock-based compensation, will be
consistent with current levels as we expect to support our operations with
investments made to date. 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. We
amortized $424,000, net of cancellations related to employee terminations, in
the three months ended September 30, 2001 compared to $3.9 million amortized in
the three months ended September 30, 2000. We amortized $120,000, net of
cancellations, in the nine months ended September 30, 2001 and $12.0 million in
the nine months ended September 30, 2000. The remaining unearned stock-based
compensation is expected to be amortized as follows: $838,000 in 2001, $2.2
million in 2002, $777,000 in 2003 and $12,000 in 2004.


INTEREST AND OTHER INCOME

     For the three months ended September 30, 2001, we had interest and other
income of approximately $976,000 compared to $1.3 million for the three months
ended September 30, 2000. The decrease was primarily due to a lower interest
rate environment and a lower average cash and investment balance in the three
months ended September 30, 2001 compared to the three months ended September 30,
2000. For the nine months ended September 30, 2001, we had interest and other
income of approximately $3.6 million compared to $1.5 million for the nine
months ended September 30, 2000. The increase is primarily attributed to higher
average cash and investment balances in the nine months ended September 30, 2001
compared to the nine months ended September 30, 2000.


INTEREST AND OTHER EXPENSES

     Interest and other expenses consist primarily of interest incurred on our
outstanding debt and capital lease obligations. We had interest and other
expenses of approximately $220,000 for each of the three months ended September
30, 2001 and 2000. For the nine months ended September 30, 2001, we had interest
and other expenses of approximately $588,000 compared to $599,000 for the nine
months ended September 30, 2000.


LIQUIDITY AND CAPITAL RESOURCES

     From inception, we funded our operations through September 30, 2001
primarily through private placements of equity securities and to a lesser
extent, revenue, subordinated debt and lines of credit. We also raised
approximately $88 million, net of issuance costs, in our initial public offering



                                       15
<PAGE>

in August 2000. We have not used any of these proceeds to fund our operations as
of September 30, 2001. These proceeds remain in cash, cash equivalents,
short-term and long-term investment accounts.

     Net cash used in operating activities during the nine months ended
September 30, 2001 was $17.6 million and was attributable to a net loss of $22.1
million before stock related charges of $120,000. Cash provided by operating
activities resulted from decreases in accounts receivable of $3.5 million and
prepaid expenses of $224,000 and increased depreciation and amortization of $2.0
million and provision for doubtful accounts of $324,000. Cash generated by the
decrease in accounts receivable primarily resulted from delays in anticipated
sales to new and existing customers and increased collection efforts on
outstanding receivables. Cash provided by operating activities was offset by
increases in other assets of $287,000, decreases in accounts payable and accrued
liabilities of $989,000 and deferred revenue of $962,000.

     Net cash used in investing activities during the nine months ended
September 30, 2001 was $1.5 million and resulted from the purchases of $68.3
million in investments and purchases of property and equipment of $557,000,
offset by proceeds from the sale and maturities of investments of $67.3 million.

     Net cash used in financing activities totaled $1.6 million resulting from
repayments of debt and capital lease obligations of $3.1 million and payments
for repurchases of common stock of $118,000, offset by proceeds from the
issuance of common stock in connection with the exercise of stock options and
purchases of common stock through our employee stock purchase plan of $1.6
million.

     As of September 30, 2001, our principal sources of liquidity included $89.4
million of cash, cash equivalents and investments. We believe that our current
cash balances and cash flow from operations, if any, will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
twelve months.

RECENT ACCOUNTING PRONOUNCEMENTS

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

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


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



                                       16
<PAGE>

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.

     Although we currently do not intend to increase our total operating
expenses, we will need to generate significant additional revenue to achieve and
maintain profitability in the future. Moreover, failure to achieve and sustain
significant increases in our quarterly net sales could cause us to reduce our
operating expenses, which would adversely impact our ability to operate and grow
our business.

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

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

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

 - Develop and maintain strong relationships with server system vendors,
   independent software vendors, application service providers, value-added
   resellers and systems integrators to sell our products through indirect
   channels

 - Manage operations

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

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

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

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

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


                                       17
<PAGE>

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

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

 - Acceptance of our Resonate Commander Solutions

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

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

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

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

     Because of these and possibly other factors, we believe that
period-to-period comparisons of our results of operations are not meaningful and
should not be relied upon as an indicator of our future performance. Our
operating results were below expectations in the fourth quarter of 2000 and the
first quarter of 2001. Our operating results will likely also be below the
expectations of public market analysts and investors in some future quarter or
quarters. If this occurs, the price of our common stock will probably decline.

     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
expense 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 this seasonality experienced in prior periods.

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

     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 hardware-based
server load balancing products and network system management products, our
ability to sell our products and solutions will be severely limited. Rather than
utilizing comprehensive active service level management solutions, most web data
center administrators manage their services by adding servers and
interconnecting a variety of single function systems and traffic management
tools. In addition, our competitors offer a wide variety of hardware or software
products that purport to serve the needs addressed by our products and



                                       18
<PAGE>

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 service level 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 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 CENTRAL DISPATCH, COMMANDER, GLOBAL DISPATCH, ENTERPRISE SERVICES
CONSOLE, RESONATE COMMANDER SOLUTIONS 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 REVENUES MAY BE HARMED IF GENERAL ECONOMIC CONDITIONS CONTINUE TO WORSEN.

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

     Our software products, solutions and services are designed for customers
that use the Internet and Internet-based technologies to conduct business. While
growth of electronic business was initially rapid, many companies within the
Internet sector experienced a slowdown that began in the second quarter of 2000



                                       19
<PAGE>

and continues in 2001. Slowdowns in the Internet sector have adversely affected
the ability of some of our customers to timely fulfill their payment obligations
to us. To the extent we are required to write off more accounts receivable,
sales cycles lengthen or customers cancel orders, our results of operations will
be harmed.

OUR SALES OF CENTRAL DISPATCH GENERATED APPROXIMATELY 56% OF OUR PRODUCT REVENUE
IN THE NINE MONTHS ENDED SEPTEMBER 30, 2001, AND A DECLINE IN OUR SALES, IN
ABSOLUTE DOLLARS, OF CENTRAL DISPATCH COULD MATERIALLY HARM OUR RESULTS OF
OPERATIONS.

     During the first nine months of 2001, we derived approximately 56% of our
product revenue from sales of our Central Dispatch product, and we expect to
derive a significant portion of our revenue from sales of Central Dispatch for
at least the next twelve months. Our ability to sell Central Dispatch depends
upon its ability to solve critical network performance and availability problems
of our customers. If Central Dispatch is unable to solve these problems for our
customers, our ability to maintain our existing customer base and to obtain new
customers for Central Dispatch will be adversely impacted, which would result in
a substantial loss of revenue or an inability to grow our revenue.

OUR ABILITY TO GROW OUR BUSINESS DEPENDS UPON INCREASED DEMAND FOR OUR PRODUCTS
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 for our
active service level management solutions, whether as a result of choosing to
outsource some or all of their applications to application service providers or
otherwise, we will be required to enhance or modify our products and solutions
in this manner. As a result, we could incur delays in introducing enhanced or
modified versions of our products and solutions, delays in capturing enterprise
customers and significant expenses. Any of these alternatives will limit our
ability to grow our business and could result in higher net losses.

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

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

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

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

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


                                       20
<PAGE>

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

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

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

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

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

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

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



                                       21
<PAGE>

or more of our competitors, their incentive to continue to devote their
resources to selling our products could decline and our revenue could suffer
accordingly. If any of these relationships is terminated, we may not be able to
develop or maintain substitute marketing and distribution relationships.

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

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

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

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

     Outside North America, we derive a significant portion of our revenue
through our indirect sales channels. To achieve broader distribution of our
products and solutions outside North America, we expect to continue to invest in
the development of indirect sales channels.

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

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

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

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

     In order to increase our revenue outside of North America, our
international operations in European countries need to operate effectively. If
our international operations are unable to operate effectively, our business and
results of operations may be seriously harmed. Such efforts may be more
difficult or take longer than we anticipate, and we may not be able to
successfully market, sell, deliver and support our products and solutions
internationally. Our international operations could also be affected by a number
of risks and uncertainties, including:

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

 - Unexpected changes in regulatory requirements


                                       22
<PAGE>

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

 - Reduced protection of intellectual property in other countries

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

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

 - Potentially adverse tax consequences

 - Political and economic instability

 - Costs relating to the granting of equity to international employees

Any of these factors could impair our ability to operate effectively in these
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 or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise obtain and use our products or technology. In addition, other
parties may breach confidentiality agreements or other protective contracts we
have entered into, and we may not be able to enforce our rights in the event of
these breaches. Any actions taken by us to enforce our intellectual property
rights could result in significant expense to us and the diversion of management
time and other resources.

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

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

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

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


                                       23
<PAGE>

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

     Our products operate on Solaris, Windows NT, Windows 2000, AIX, Linux and
HP/UX operating systems, and features of our products are dependent upon the
network standards used by a customer. If new operating systems are developed or
new network standards emerge, our failure to modify our products in a timely or
cost effective manner could limit our potential customer base, which would
adversely affect our ability to increase our revenue. Furthermore, we will need
to modify our products or develop new versions of our products as new versions
of operating systems are developed. Similarly, if we decide to discontinue
support of a given standard, those customers or potential customers who utilize
that standard may be unable or unwilling to buy our solutions. If we fail to
continue to develop new products to respond to changes in computer networks and
operating systems, or if we determine not to continue to support an operating
system, our ability to grow our business will suffer.

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

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

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

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

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

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



                                       24
<PAGE>

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

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

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

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

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

     California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for the State of California fall below 1.5%,
California has on some occasions implemented, and may in the future continue to
implement, rolling blackouts throughout California. We currently do not have
backup generators or alternate sources of power in the event of a blackout, and
our current insurance does not provide coverage for any damages we or our
customers may suffer as a result of any interruption in our power supply. If
blackouts interrupt our power supply, we would be temporarily unable to continue
operations at our facilities. We experienced one such blackout during the second
quarter of 2001, which resulted in several hours of lost productivity at our
corporate headquarters. Any such interruption in our ability to continue
operations at our facilities could damage our reputation, harm our ability to
retain existing customers and to obtain new customers, and could result in lost
revenue, any of which could substantially harm our business and results of
operations.

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

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

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

     Further, if we issue additional equity securities, stockholders may
experience dilution, and the new equity securities may have rights, preferences
or privileges senior to those of existing holders of our common stock. If we



                                       25
<PAGE>

cannot raise funds on acceptable terms, we may not be able to develop new
products or enhance our existing products, take advantage of future
opportunities, respond to competitive pressures or satisfy unanticipated
requirements.

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

     As of October 31, 2001, our executive officers, directors and 5%
stockholders and their affiliates beneficially own, in the aggregate,
approximately 55% of our outstanding common stock. As a result, these
stockholders are able to exercise significant control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, which may have the effect of delaying or
preventing a third party from acquiring control over us even if our other
stockholders believe that it is desirable.

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

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

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

     The investment bankers who took part in our initial public offering of
stock - Goldman, Sachs & Co., Chase H&Q, Dain Rauscher Wessels and Wit SoundView
- have been named in numerous lawsuits alleging that they entered into "tie in"
arrangements or required excessive commissions in connection with initial public
offerings whose stock prices increased dramatically above the offering price in
the first few days after the offering and later dropped below the offering
price. These lawsuits also allege that these activities were not disclosed in a
prospectus, and therefore constitute material omissions in violation of the
federal securities laws. The companies that went public, in addition to their
officers and directors, have also often been named in these suits. Over 100 of
these suits have been filed in 2001, and we may, in the future, be the target of
similar litigation.

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

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

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

     The net proceeds from our initial public offering, which closed in August
2000, are not allocated for specific uses other than working capital and general
corporate purposes. Thus, our management has broad discretion over how these



                                       26
<PAGE>

proceeds are used and could spend most of these proceeds in ways with which our
stockholders may not agree. As of September 30, 2001, we have not used any of
the proceeds from our initial public offering in August 2000.

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

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

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

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




                                       27
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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

     As of September 30, 2001, we had total short-term and long-term debt
outstanding of $2.0 million, which bears interest rates that are tied to the
prime rate. Therefore, we are subject to exposure to interest rate risk for
these borrowings based on fluctuations in the prime rate. Based upon the
outstanding indebtedness under these arrangements, an increase in the prime rate
of 0.5% would cause a corresponding increase in our annual interest expense of
approximately $10,025.





                                       28
<PAGE>

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, entitled "World-Wide Web
Server With Delayed Resource-Binding For Resource-Based Load Balancing On A
Distributed Resource Multi-Node Network," which was issued to us on June 30,
1998. Alteon served its answer to our complaint in October 2000, in which Alteon
denied our allegations and counterclaimed that our patent is invalid. In October
2000, Alteon was acquired by Nortel Networks Corporation. The litigation is
currently in the discovery phase and a trial date has been set for the summer of
2002.

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

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

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

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

       None.

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

     The company's Annual Meeting of Stockholders was held on August 30, 2001 in
Santa Clara, California. Of the 27,337,321 shares outstanding as of the record
date, 21,986,845 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
                                    -------------------     --------------------

         Christopher C. Marino             21,981,590                5,255
         I. Robert Greene                  21,982,390                4,455

(2)      To ratify the Company's appointment of PricewaterhouseCoopers LLP as
         independent accountants for the Company for the fiscal year ending
         December 31, 2001:

         Votes for:                        21,953,035
         Votes against:                         9,872
         Votes abstaining:                     23,938

ITEM 5.  OTHER INFORMATION

       None.



                                       29
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1*   Restated Certificate of Incorporation of the Registrant.
3.2*   Bylaws of the Registrant.
4.1*   Form of Specimen Certificate for Registrant's common stock.
10.1*  Form of Indemnification Agreement between the Registrant and each of
       its directors and officers.
10.2*  1996 Stock Plan and form of agreement thereunder.
10.3*  2000 Stock Plan and form of agreement thereunder.
10.4*  2000 Employee Stock Purchase Plan and form of agreement thereunder.
10.5*  Fifth Amended and Restated Investor Rights Agreement dated July 6, 2000.
10.6*  Lease in Sunnyvale, California.
10.7*  Java License from Sun Microsystems, Inc.
99.1** Employment Agreement between Mr. Peter R. Watkins and Resonate Inc.
----------
*    Previously filed as an exhibit to the registrant's Registration Statement
     on Form S-1 (File No. 333-31730), declared effective on August 2, 2000.

**   Previously filed as an exhibit to the registrant's Annual Report on Form
     10-K (File No. 000-31139), filed with the Securities and Exchange
     Commission on March 27, 2001.

(b) Reports on Form 8-K

       We did not file any reports on Form 8-K during the three months ended
September 30, 2001.




                                       30
<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 9, 2001          /s/Peter R. Watkins
                                --------------------------------------------
                                Peter R. Watkins
                                President and Chief Executive Officer


                                /s/Robert C. Hausmann
                                --------------------------------------------
                                Robert C. Hausmann
                                Vice President and Chief Financial Officer





                                       31
<PAGE>

                                INDEX TO EXHIBITS

Exhibit
Number     Description

3.1*       Restated Certificate of Incorporation of the Registrant.
3.2*       Bylaws of the Registrant.
4.1*       Form of Specimen Certificate for Registrant's common stock.
10.1*      Form of Indemnification Agreement between the Registrant and each of
           its directors and officers.
10.2*      1996 Stock Plan and form of agreement thereunder.
10.3*      2000 Stock Plan and form of agreement thereunder.
10.4*      2000 Employee Stock Purchase Plan and form of agreement thereunder.
10.5*      Fifth Amended and Restated Investor Rights Agreement dated
           July 6, 2000.
10.6*      Lease in Sunnyvale, California.
10.7*      Java License from Sun Microsystems, Inc.
99.1**     Employment Agreement between Mr. Peter R. Watkins and Resonate Inc.
----------
*    Previously filed as an exhibit to the registrant's Registration Statement
     on Form S-1 (File No. 333-31730), declared effective on August 2, 2000.

**   Previously filed as an exhibit to the registrant's Annual Report on Form
     10-K (File No. 000-31139), filed with the Securities and Exchange
     Commission on March 27, 2001.





                                       32