To set the stage for sales growth during the fourth and final quarter of fiscal 2003 we continued our sales channel and OEM market improvement, restructuring the reseller channel while introducing new OEM initiatives in the United States and Europe. Our marketing programs were maintained to generate leads to further drive increased demand for Perle products.

In our focus to now grow sales we have stepped up our product development release. We released higher performance models for the popular Perle Jet Stream and IOLAN+ serial/terminal servers. We released an 8-port model of the new Perle CS9000 console server line. This will allow customers with fewer devices in rack to benefit from the advanced management functionality of the CS9000 line, which previously existed in 16 and 24 port models. We added PPPoE (PPP over Ethernet) to the Perle router line. This will enable customers to take advantage of cost-effective Perle routers in DSL environments. At the beginning of the quarter we released 3.3v models in the Perle PCI Host multi-port card line. These cards will be used by customers in the new 3.3v servers coming into the market now. We have also re-focused our marketing campaigns into areas that are enjoying growth in the current environment, such as retail and medical technology

We embarked on a reorganization of our sales force and production processes to drive sales and further improve gross margins and shorten delivery lead times to our customers.

We continue to focus on the key fundamentals of building sales, improving margins and operating efficiencies while containing costs. Disciplined cost controls and good gross margins offset the lower sales revenue in the third quarter. Improved collection turns on receivables resulted in stronger cash flow.

Perle products continue to be well received and this combined with the strengthening of our distribution and OEM channel, and increasing productivity of our operations, gives me great confidence in the long-term outlook for our company's success.

/s/ Joseph Perle

Joseph E Perle

President and Chief Executive Officer

Perle Systems Limited

The following discussion should be read in conjunction with the audited consolidated financial statements and notes included in the Annual Report on Form 20-F, prepared in accordance with generally accepted accounting principles ("GAAP") in the United States and the Annual Report Supplement, prepared in accordance with generally accepted accounting principles in Canada for the fiscal year ended May 31, 2002.

Nine months ended February 28, 2003 and 2002

Overview

On June 5, 2001, the Company acquired the router product line of TriNexus Communications Inc ("TriNexus"). This strategically important product line will allow Perle to further develop its important Internet Protocol based connectivity lines.

On October 4, 2001, the Company undertook a further restructuring of its staff in terms of which 30 of 126 employees were temporarily laid off or terminated. The Company took a one-time non-cash charge of $575,000 in respect of future expenses for this restructuring in the quarter ended November 30, 2001.

In order to maintain a balanced cash flow stream, the Company re-negotiated and consolidated its long term and operating debt with its primary lender on May 31, 2001 to more favorable repayment terms. On December 19, 2002, the Company's lender agreed to again revise the terms of the Credit Agreement, which resulted in still more favorable terms for the Company. This agreement includes a reduction in the interest rates on its short and long-term debt to Canadian prime rate, a conversion of $4.22 million (Cdn$6.45 million) of its operating line of credit into a long-term loan, the deferral of principal payments on the long-term loan for the period November 2002 to May 2003, and the extension of the repayment terms of the long-term loan to fiscal 2004, 2005 and 2006. In addition, the revised terms require the Company to continue to meet certain financial targets in each fiscal year. (See Note 5(d) to the Condensed Consolidated Financial Statements).

Management has been responsive in matching the Company's expense base with its lower revenue stream and has maintained a sound working relationship with its vendors and secondary debt lenders, obtaining extended credit terms to ensure that the Company's operations are uninterrupted. Further details on the credit agreements and the Company's liquidity and its ability to continue as a going concern, can be found in Notes 2 and 5 to the Condensed Consolidated Financial Statements and in the liquidity section hereunder.

The Company continued to build on its new corporate brand logo and product positioning tag line "Essential Network Connectivity", reflecting the broader product offering and wider market appeal resulting from the integration of the product lines acquired in the acquisitions of Specialix, Chase and TriNexus, uniting the Company's portfolio of products under one brand making it easier for customers and resellers to identify Perle's quality standards in the products they select. The Company continues to offer limited lifetime warranties on most of its product ranges, standing behind its reputation for product excellence.

During the periods under review, the Company moved to streamline and develop its distributor and reseller partners in each region. It marketed its new Internet Protocol connectivity product offerings, the CS9000 console server, its router product range and Remote Access server board products to its distributors and resellers. The Company continued to dominate the AS400 controller market and to capture the RAS business of the Shiva product line following Intel's withdrawal from this market.

Perle continues to place importance on its research and development initiatives, introducing improvements to existing product ranges and new product lines, such as the innovative market leading CS9000 Console Server. Perle also has developed its on line Internet based training initiatives for its distribution channel. Combined with its service and hot line support offered in multiple languages and time zones, its marketing campaigns supporting existing and new product lines, Perle is confident of being able to maintain and build its reputation with VAR's and distributors around the world.

On April 1, 2002, the Company's common shares were delisted from the Nasdaq Stock Market and became eligible to trade on the Over The Counter Bulletin Board ("OTCBB"). The Company has been advised that its listing on The Toronto Stock Exchange is under review pending its compliance with The Toronto Stock Exchange Listing Requirements. Trading of the Company's Common Shares remained unaffected during this review, however, these changes could negatively impact the market for the Company's stock.

Sales

The global slowdown in the technology industry, which started late in fiscal 2000, has continued into fiscal 2003 resulting in reduced sales levels.

Sales for the nine months ended February 28, 2003 decreased to $17.6 million compared to sales of $22.6 million for the same period of fiscal 2002. Sales from the European segment decreased to $6.2 million or 35% of sales in the third quarter of fiscal 2003 from $7.8 million or 34% of sales for the same period of fiscal 2002. Sales from the Americas segment decreased to $9.4 million or 53% of sales for the third quarter of fiscal 2003 from $11.7 million or 52% of sales for the same period of fiscal 2002. Sales from the Asia-Pacific segment decreased to $2.0 million or 11% of sales in the third quarter from $3.1 million or 14% of sales for the same period of fiscal 2002.

On a long-term basis it is expected that approximately 50% of the Company's business will be generated in the U.S. segment, 40% in the European segment, and the remaining 10% in the Asia-Pacific segment.

Gross Profit

Gross profit (sales minus cost of sales) as a percentage of sales, was 57% for the nine months ended February 28, 2003 and fiscal 2002. The gross margin for fiscal 2003 is expected to continue at approximately the 57% - 59% range, reflecting the Company's current product mix and manufacturing initiatives.

Selling, general and administrative expenses were $6.9 million for the nine months ended February 28, 2003 compared to $8.5 million for the same period of fiscal 2002. As a percentage of sales, these expenses represented 39% compared to 38% for the same period of fiscal 2002. These costs have significantly decreased as a result of management's ongoing focus to reduce expenses in the current operating environment.

Research and Development

The Company's research and development activities are directed toward adding new functions to existing products and developing new products. All of the Company's research and development costs are expensed as incurred. In the nine months ended February 28, 2003, the Company expended $2.4 million or 13% of sales on research and development. This amount compares to $2.3 million or 10% of sales in the same period of fiscal 2002.

The Company's long-term target is for approximately 10% of its sales to be invested in research and development. Current research and development initiatives will be met by funds generated from operations. From time to time, the Company may acquire or license technology as an alternative to internal research and development.

Amortization of capital assets was $133,571 for the nine months ended February 28, 2003 as compared to $215,337 for the same period of fiscal 2002. This decrease is due to assets becoming fully depreciated.

Amortization of Intangible Assets and Goodwill

Amortization of intangible assets was $1.3 million for the nine months ended February 28, 2003 as compared to $1.8 million for the same period of fiscal 2002. This relates to the amortization of intangibles and technologies acquired in the Zeta, Chase, PORTtel and TriNexus acquisitions. The reduction is a result of the Company completing a review of the carrying values of its intangible assets. Through the process, the review indicated that on an undiscounted basis certain intangible assets, namely PORTtel Technology and distribution rights were impaired by $45,000 and $125,000, respectively. This write-down was recorded in the last quarter of fiscal 2002. A further write-down of $50,000 on these assets was taken in the second quarter of the current fiscal year.

The Company also undertook an independent valuation and audit of its Goodwill and Intangible Assets at November 30, 2002 and determined there was an impairment of $750,000 in respect of the goodwill and $50,000 in respect of the intangible assets.

Interest Expense

Interest expense for the nine months ended February 28, 2003 was $1.0 million, compared to $1.4 million for the same period of fiscal 2002. The lower interest charge is the result of prevailing lower interest rates over the prior year comparative period.

Income Taxes

The Company's income tax recovery was $335,898 in the nine months ended February 28, 2003 compared to approximately $353,406 in the same period last year reflecting tax liabilities and deferrals in certain jurisdictions resulting from its historical corporate structure. The Company has unrecorded tax losses of approximately $17.7 million that are available to reduce future years' taxable income. In fiscal 2003, notwithstanding these tax losses, the Company may still be liable for taxes in certain jurisdictions resulting from its historical corporate structure. The deferred tax recovery reflects the tax impact of the amortization of intangible assets from the Chase acquisition.

Net Loss

The net loss after taxes for the nine months ended February 28, 2003 was $2.04 million including a goodwill write-down of $750,000. This compares to $1.7 million loss in the same period last year including one-time charges of $575,000. The loss per share was $0.21 inclusive of the goodwill write-down, and $0.13 per share exclusive of the goodwill write-down. This compares to a loss of $0.17 per share inclusive of the one-time charges, and a loss of $0.11 per share exclusive of the one-time charges, in the same period last year. Notwithstanding the decline in the Company's sales, the Company's management has reduced selling, general, and administrative expenses to compensate for the overall profitability of the Company.

Cash profit per share in the nine months ended February 28, 2003 was $0.01. In the same period of fiscal 2002 cash profit per share was $0.12. Cash loss per share represents net income, excluding write-down of goodwill and amortization of intangible assets, capital assets and one-time charges.

The table below sets out the reconciliation of the net operating profit and cash earnings per share to GAAP net income (loss) and earnings (loss) per share:

The operating income for the America region in the nine months ended February 28, 2003 was $5.2 million as compared to $4.9 million in the same period of fiscal 2002. The increase in profitability is a result of focused cost re-alignment strategies in this region.

The operating loss for the EMEA region in the nine months ended February 28, 2003 was $(0.7) million for fiscal 2003 and fiscal 2002.

The operating profit for the Asia-Pacific region in the nine months ended February 28, 2003 was $0.2 million as compared to operating income of $0.5 million in the same period of fiscal 2002. The reduction in profitability is directly related to the reduction in sales revenue from the region.

Three months ended February 28, 2003 and 2002

Sales

Sales were $5.8 million for the third quarter of fiscal 2003 compared to $7.2 million for the same period of fiscal 2002. This decrease was due to the industry wide slowdown in the technology sector. Sales from the EMEA segment were $2.2 million or 38% of sales for the third quarter of fiscal 2003 compared to $2.5 million or 35% of sales for the same period of fiscal 2002. Sales from the U.S. segment were 3.3 million or 56% of sales in the third quarter of fiscal 2003 compared to $3.7 or 52% of sales for the same period of fiscal 2002. Sales from the Asia-Pacific segment were $0.3 million or 6% of sales for the third quarter of fiscal 2003 compared to $1.0 million or 13% in the same period of fiscal 2002.

Gross Profit

As a percentage of sales, gross profit (sales minus cost of sales) was 57% in the third quarter of fiscal 2003 compared to 56% in fiscal 2002. The gross margin in the fourth quarter of fiscal 2003 is expected to continue in the current range, reflecting the Company's current product mix.

Selling, General and Administration

Selling, general and administration expenses were $2.0 million for the third quarter of fiscal 2003 compared to $2.3 million for the same period of fiscal 2002. The decrease is a result of the Company's ongoing rationalization of operating costs. As a percentage of sales, these expenses represented 35% in the third quarter for fiscal 2003 compared to 32% for the same period of fiscal 2002.

Research and Development

The Company's research and development activities are directed toward adding new functions to existing products and developing new products. All of the Company's research and development costs are expensed as incurred. In the third quarter of fiscal 2003, the Company expended $0.7 million or 12% of sales on research and development. This amount compares to $0.8 million or 11% in the same period of fiscal 2002.

The Company anticipates that approximately 10% of its sales will be invested in research and development. Current research and development initiatives will be met by funds generated from operations. From time to time, the Company may acquire or license technology as an alternative to internal research and development.

Amortization of Intangible Assets and Goodwill

Amortization of intangible assets was $0.4 million for the third quarter of fiscal 2003 as compared to $0.5 million for the same period of fiscal 2002. This relates to the amortization of intangibles and technologies acquired in the Zeta, Chase, PORTtel and TriNexus acquisitions. The reduction in amortization is due to the impact of the write-down of certain intangible assets, namely PORTel Technology and distribution rights, which occurred in the last quarter of fiscal 2002.

Amortization of capital assets was $46,327 for the three months ended February 28, 2003 as compared to $70,678 for the same period of fiscal 2002. The reduction relates to the write-down of leasehold and assets no longer in service following the May 2000 restructuring.

Interest Expense

Interest expense for the third quarter of fiscal 2003 was $0.2 million compared to interest expense of $0.4 million for the same period of fiscal 2002. This decrease in interest expense is as a result of the prevailing lower interest rates during the quarter.

The Company's income tax recovery was approximately $0.1 million in the third quarter of fiscal 2002, unchanged from the same period last year.

The net loss after taxes in the third quarter of fiscal 2003 was $(3,196) as compared to a net income of $22,774 in the same quarter of the last fiscal year. This resulted in basic and diluted loss per common share of $nil both for basic and diluted earnings per common share in both quarters year over year.

Cash earnings per share, which represents earnings per share excluding the write-down of goodwill, depreciation of capital assets and intangibles and one-time charges, was $0.05 for the third quarter of fiscal 2003 compared to $0.06 for the same period last year.

The table below sets out the reconciliation of the net operating profit and cash earnings per share to GAAP net income (loss) and earnings (loss) per share:

Liquidity, Financial Resources and Working Capital

To finance the acquisition of the Affinity and Zeta product lines and the Specialix and Chase businesses, the Company incurred term and operating debt, which as at May 31, 2002, totaled $17.3 million, the current portion of which totaled $9.8 million. At that date, the Company had cash of $470,000 and accounts receivable of $5.7 million. In addition, during December 1999, the Company issued 670,000 special warrants at a price of Cdn$17.55 raising a total of approximately $7.2 million. In August 2000, the Company financed the acquisition of the Remote Access server board business and USB Multiport Controller product line from PORTtel Pty Ltd of Australia by the issue of 125,000 shares of Perle stock for $0.3 million. In order to finance the June 2001 acquisition of the router product line of TriNexus Communications, on May 31, 2001 the Company undertook a private placement of 300,000 common shares of Perle stock combined with a warrant to acquire 75,000 common shares which raised gross proceeds of Cdn$315,000. Pursuant to the terms of the Company's credit facilities with its lender, the Company is required within 60 days following completion of an equity offering by the Company to apply the net proceeds of such an offering towards repayment of the Company's term debt. The Company's lender agreed to waive this requirement for the private equity offering at June 2001. Further details of the Company's indebtedness can be found in Note 5 to the Condensed Consolidated Financial Statements of the Company.

The Company experienced recurring net losses for the fiscal years ended May 31, 2000, 2001 and 2002, following sales declines resulting from the significant slowdown in the technology industry and a general reduction in sales of the Company's older products, not fully offset by sales from its new product range. Although management significantly restructured operations with resulting reductions in operating costs and improved working capital for fiscal 2002, the changes were not sufficient to enable the Company to meet certain terms and covenants in its existing credit agreement.

On December 19, 2002, the Company's lender agreed to revise the terms of the Credit Agreement, which has resulted in more favorable terms for the Company. This agreement resulted in additional indirect working capital for the Company, including a reduction in the interest rates on its short and long-term debt to Canadian prime rate, a conversion of $4.22 million (Cdn$6.45 million) of its operating line of credit into a long-term loan. In addition, the deferral of principal payments on the long-term loan for the period November 2002 to May 2003, waivers for principal payments in September and October 2002, and the extension of the repayment terms of the long-term loan to fiscal 2004, 2005 and 2006. The revised terms required the Company to continue to meet certain financial targets and covenants in each quarter.

At February 28, 2003, the Company was in compliance with certain of these covenants and obtained a waiver for the covenant with which it did not comply.

The Company is current with its principal and interest payments at February 28, 2003.

However, in the current volatile marketplace the Company is unable to accurately forecast its future revenue and therefore its ability to comply with future debt covenants. Therefore, under GAAP, it has elected to reclassify its long-term debt as current debt.

Working capital, as defined by current assets less current liabilities, showed a deficiency of $7.3 million as at May 31, 2002 compared to a working capital deficiency of $15.5 million at February 28, 2003. The working capital deficiency increased during the quarter under review due to the Company reclassifying its term loan as current debt. The reclassification of this debt does not impact on the repayment terms of the term loan.

Management continues in a disciplined manner with its cost reduction initiatives to maintain the operating costs expense ratio in line with the lower sales levels. These initiatives follow on from the restructurings in May 2000 and October 2001 and continued through to the current period, with the ongoing integration of the Company's operations. (See Note 2 to the Condensed Consolidated Financial Statements). The Company's lender has been supportive of the actions taken by management.

The Company has no material commitment for capital expenditure projects at present.

FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company has experienced a substantial downturn in sales and operating earnings and working capital and shareholder's equity deficiencies for the year ended May 31, 2002 and the quarter ended February 28, 2003. Management has acted decisively to reduce and match the Company's expense base with its revenue stream and has implemented marketing and research and development programs to grow its sales. Despite management's efforts, should the slowdown in the technology sector continue, it may not be possible for the Company to meet its restrictive covenants under its credit agreement and continue to operate as a going concern. Under these circumstances the Company may seek to obtain waivers of its loan covenants and secure additional financing. However, there can be no assurance that the Company's lender will agree to any such waivers or that additional financing will be available on terms acceptable to the Company, if at all.

Proprietary Rights of the Company and Others

The Company does not hold any patents on its technology. Instead, it currently relies upon copyrights, trade secrets, unpatented proprietary know-how and continuing technology innovation to protect the technology that it considers important to the development of its business. The Company relies on various methods to protect its proprietary rights, including confidentiality agreements with its employees and suppliers and license agreements with its customers that contain terms and conditions prohibiting the unauthorized reproduction, disclosure or transfer of its software products. In addition, the Company does not provide the source code to its customers. These efforts may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of the Company's proprietary information. It is also possible that others could independently develop such know-how or obtain access to it or independently develop technologies that are substantially equivalent or superior to the Company's technology. If the Company's protective measures are not successful, its business, operating results and financial condition could be materially and adversely affected. The laws of certain foreign countries do not protect the Company's intellectual property rights to the same extent, as do the laws of the United States or Canada.

The patent position of technology is often uncertain and involves complex legal and factual questions. The Company does not know whether any future patent applications will result in the issuance of any patents. Even if patents are issued, they may be challenged, invalidated or circumvented. Any such patents may not provide a competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, or may have received patents and may obtain additional and proprietary rights to technologies used by or competitive with those of the Company. Patent litigation is becoming widespread among technology companies. If challenged, any patents that the Company is issued in the future may not be held valid. The Company may also become involved in interference proceedings in connection with one or more of its patents or patent applications to determine priority of invention.

The Company's commercial success also depends significantly on its ability to operate without infringing the patents and other proprietary rights of others. However, patent applications are, in many cases, maintained in secrecy until patents are issued. Consequently, the Company cannot be certain that it is the first inventor of technologies covered by pending patent applications or that it is not infringing on the patents of others.

Litigation may be necessary to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. If the Company becomes involved in any litigation, interference or other administrative proceedings relating to its proprietary rights, it will incur substantial expenses and the efforts of its technical and management personnel will be significantly diverted. In addition, an adverse determination could subject the Company to significant liabilities or require the Company to seek licenses that may not be available on favorable terms, if at all. The Company may be restricted or prevented from manufacturing and selling its products in the event of an adverse determination in a judicial or administrative proceeding or if it fails to obtain necessary licenses.

An important element of the Company's growth strategy is to review acquisition prospects that would complement its existing products, augment its market coverage and distribution ability or enhance its technological capabilities. Future acquisitions could result in restructuring charges, potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, any of which could materially adversely affect the Company's business, financial condition and results of operations and the market price of its Common Shares.

Acquisitions involve numerous risks, including risks associated with the integration of acquired operations, technologies and products, diversion of management's attention and potential loss of key employees of acquired organizations. The Company may not be able to successfully integrate the products, technologies or personnel of any business that might be acquired in the future. Failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations.

The Company's growth, both internally and through the acquisitions of Specialix, Chase, the Affinity product line and the product division of Zeta, the remote access server board business of PORTtel and the router product line of TriNexus Communications Inc. has placed additional demands on its management, financial personnel, information systems and controls. The Company may not be able to successfully manage expanding operations with the effect that a delay or failure to implement new and enhance existing systems and controls may have a material adverse effect on its business, operating results and financial condition.

The Company's products are highly complex and sophisticated and could contain design defects or software errors that are difficult to detect and correct. The Company cannot assure that errors will not be found in new products after it begins commercial shipments or, if discovered, that it will be able to successfully correct errors in a timely manner. The occurrence of product defects, and the inability to correct errors, could result in the delay or loss of market acceptance of the Company's products, material warranty expense under the Company's limited lifetime warranty, diversion of engineering and other resources from its product development efforts and the loss of credibility with its customers, system integrators and end users, any of which could have a material adverse effect on its business, operating results and financial condition. Although the Company maintains insurance coverage for product liability claims, it does not assure that coverage will be adequate or that all claims will be covered.

The Company designs and develops devices for the computer networking and data communications industries. As with any new technologies, there is a substantial risk that the marketplace may not accept the Company's new products. Market acceptance of the Company's products depends, in large part, upon its ability to demonstrate its products' performance and cost-effectiveness over competing products and the success of its sales efforts as well as those of its customers. The Company may not be able to continue to market its technology successfully and may not assure that any of its current or future products will be accepted in the marketplace.

Competition

The markets for networking and data communications products are intensely competitive and subject to frequent product introductions with improved price and performance characteristics, rapid technological change and new industry standards. The Company competes with numerous types of companies including companies which have been established for many years and have considerably greater financial, marketing, technical, human and other resources, as well as greater name recognition and a larger installed customer list. This may give these competitors certain advantages, including the ability to negotiate lower prices on components than those available to the Company. In addition, many of the Company's large competitors offer customers broader product lines, which provide more comprehensive solutions than those, which it currently offers. The Company expects that other companies will also enter markets in which it competes. Increased competition could result in significant price competition, reduced profit margins or loss of market share. The Company may not be able to compete successfully with existing or future competitors and cannot assure that competitive pressures will not materially and adversely affect its business, operating results and financial condition.

Fluctuations in Operating Results

The Company's revenue and operating results could fluctuate substantially from quarter to quarter and from year to year. This could result from any one or a combination of factors, including:

• the cancellation or postponement of orders;

• the timing and amount of significant orders from the Company's largest customers;
• the Company's success in developing, introducing and shipping product enhancements and new products;
• the Company's product mix;
• impact on financial operations resulting from possible future acquisitions;
• new product introductions by the Company's competitors;
• pricing actions by the Company or its competitors;
• the timing of delivery and availability of components from suppliers;
• changes in material costs;
• general economic conditions; and
• foreign exchange fluctuations.

The volume and timing of orders received during a quarter are difficult to forecast. The Company's customers from time to time encounter uncertain and changing demand for their products. Customers generally order based on their forecasts. If demand falls below such forecasts or if the Company's customers do not control inventories effectively, they may cancel or reschedule shipments. The Company's expense levels during any particular period are based in part on expectations of future sales. If sales in a particular quarter do not meet expectations, the Company's operating results could be materially adversely affected. The Company may not be able to sustain its recent rate of growth or return to profitable operations.

Sales outside of the U.S. segment contribute significantly to the Company's revenues. Sales to customers in foreign countries are subject to government controls and other risks, including difficulties in obtaining export licenses, fluctuations in currency exchange rates, political instability, trade restrictions, visa restrictions due to health alerts and changes in duty rates. Although the Company has not experienced any material difficulties in this regard to date, it may experience difficulties in the future.

The Company's results are reported in US dollars, although the functional currency of the Company is the Canadian dollar. Due to the geographic mix of the Company's customers, any fluctuation in the value of the Canadian dollar relative to the US dollar or other foreign currency may result in variations in its sales and earnings expressed in US dollars. A significant portion of the Company's revenues are generated in US dollars. The Company makes a portion of its component purchases in US dollars, creating a natural hedge that partially offsets this risk. In order to further manage this risk, the Company continually reviews its foreign exchange exposure and takes steps to reduce it by using a variety of methods including, when appropriate, the conversion of surplus foreign currency to US or Canadian dollars and borrowing in foreign currencies. The Company may not always be successful in its efforts.

The Company's operating results could also be adversely affected by seasonality of sales in different regions. This could have a material adverse effect on future sales of the Company's products and, consequently, its business, operating results and financial condition.

Dependence on Suppliers and Third Party Manufacturers

The Company subcontracts the assembly of its products to manufacturers that assemble and test the products. The Company's dependence on independent manufacturers exposes it to delays in obtaining adequate supplies of products and reduced control of manufacturing quality and production costs. If the Company's contract manufacturers fail to deliver products in the future on a timely basis, it could be difficult to obtain adequate supplies of products from other sources in the near term. A change in vendors may require significant lead-time and may result in shipment delays and expenses. The inability to obtain products on a timely basis, the loss of a vendor or a change in the terms and conditions of the outsourcing could have a material adverse effect on the Company's business, operating results and financial condition.

Dependence on Key Personnel

The Company is substantially dependent upon a number of key employees, including Joseph Perle, founder, President and Chief Executive Officer, John Feeney, Senior Vice-President and Chief Operating Officer, and Derrick Barnett, Vice-President, Finance and Chief Financial Officer. The loss of the services of these or any one or more of the Company's other key officers could have a material adverse effect on its business. Additionally, the Company's ability to develop, manufacture and market its products and compete with current and future competitors depends on its ability to attract and retain qualified personnel. The Company has contingent severance agreements with its senior executive officers. The Company does carry "Key Man" insurance coverage for its key employees; however, failure due to economic and business conditions to attract and retain qualified personnel could have a material adverse effect on the Company's business, operating results and financial condition.

The market price of the Company's common shares has been volatile and is likely to continue to be volatile. Factors that could affect the market price for the Company's common shares include:

• actual or anticipated fluctuations in its operating results;
• announcement of technological innovations or new product introductions by the Company or its competitors;
• changes of estimates of its future operating results by securities analysts;
• developments with respect to patents, copyrights or proprietary rights;
• general market conditions; and
• continued listing on The Toronto Stock Exchange and the OTCBB market.

The stock market has recently experienced significant price and volume fluctuations that have particularly affected the market prices for shares of technology companies. These broad market fluctuations may adversely affect the market price of the Company's common shares.

The capital markets on which the Company's common shares trade have certain asset, earnings, stock price and other requirements for the continued listing of a company's stock. Due to economic factors and market volatility factors which impacted upon the Company's stock price, the Company did not comply with certain of these requirements and as a result on April 1, 2002 the Company's common shares were delisted from the Nasdaq Stock Market and became eligible to trade on the OTC Bulletin Board.

The Company has been advised that its listing on The Toronto Stock Exchange ("TSX") is under review pending its compliance with the TSX's Listing Requirements.

These changes could negatively impact the market for the Company's stock.

Support of Company's Lender

The Company is required to meet certain covenants in terms of its lending agreement. In the event that the Company fails to meet these covenants, the Company will seek to obtain further waivers or revisions to its credit agreement from its lender. There can be no assurances that the Company's lender will agree to any such waivers or revisions and failure to obtain waivers or revisions may result in the lender accelerating payments due under the credit agreement. This may impact on the Company's ability to raise sufficient working capital and to continue as a going concern. The Company has in the past failed to meet certain of these covenants but has obtained waivers of non-compliance and revisions of its credit agreement from its lender.

Payment of Dividends

The Company has never paid cash dividends on its Common Shares and does not intend to pay any dividends for the foreseeable future. Subject to certain limited exceptions, the credit arrangements entered into with its lender prohibit the Company from paying dividends on its common shares.

(b) Term loan consists of the following:

The Company is current at February 28, 2003 with all principal interest and payments.

3. Letters of Credit and Guarantees

The Company had letters of guarantee outstanding as at February 28, 2003 and May 31, 2002 of approximately $327,000 for other general and corporate purposes.

4. Revised Credit Agreement

1. reduction of interest rates on the Company's operating line of credit and term loan borrowings to prime rate;
2. conversion of $4.22 million (Cdn$6.45 million) of its operating line of credit into a long-term loan;
3. deferral of principal payments on the long-term loan from November 2002 through May 2003;
4. extension of the repayment terms of the long-term loan to fiscal 2004, 2005 and 2006, on a flexible repayment schedule, based a percentage between 33.3% and 50% of the Company's EBITDA less interest, subject to certain minimum payments; and
5. revision of certain restrictive covenants (See above - Covenants and Securities).
6. repayment of the Company's operating line of credit and long-term debt by May 31, 2006

The Corporation has authorized an unlimited number of Common Shares, without par value, which participate equally in dividends and entitle the shareholder to one vote per share at all meetings of shareholders.

During the years ended May 31, 2002 and year to date February 28, 2003, the Corporation issued nil Common Shares, respectively, for cash consideration of nil, as part of the Amended 1995 Employee Stock Option Plan (the "Stock Option Plan") and the 1985 Employee Stock Option Plan.

(b) Stock Options

The Corporation has reserved 2,317,000 Common Shares (excluding Common Shares underlying lapsed options) for issue under its Stock Option Plan. Under the Stock Option Plan, options can be granted to eligible employees, directors and officers of the Corporation or a subsidiary of the Corporation and any other person or company engaged to provide ongoing management or consulting services to the Corporation or a subsidiary of the Corporation.

Options may be granted to purchase Common Shares of the Corporation at an exercise price not less than market price on the effective date of the grant. Options are exercisable annually on a cumulative basis, up to one-fifth of the optioned shares each year, for five years from the date of grant. The options expire ten years from the date of grant. Options may be exercised, in general, only if the option holder remains continuously employed by the Corporation or a subsidiary of the Corporation from the date of grant to the date of exercise.

The following table summarizes information about options outstanding as at February 28, 2003 for the Stock Option Plan Options Outstanding and Exercisable By Price Range as of 02/28/03

(c) Warrants

The Company has reserved for issuance 2,973,073 Common Shares of the following warrants:

On May 31, 2001, 500,000 warrants were issued to a Canadian financial institution as part of a new bank agreement. The warrants were scheduled to expire on May 31, 2005 and entitled the holder to acquire 500,000 Common Shares at a price of approximately Cdn$1.45. The warrants had a fair value on the date of issue of $242,609. These warrants were cancelled in terms of the new credit agreement dated December 19, 2002.

These warrants were replaced by the issue of 2,898,073 new warrants as part of the Company's new credit agreement with its lender. The warrants expire on December 12, 2007 and have an exercise price of Cdn$0.43 each.

On May 31, 2001, 75,000 warrants were issued for $27,657 pursuant to a private placement. The warrants expire on May 31, 2003 and entitles the holder to acquire 75,000 Common Shares at a price of approximately Cdn$1.31.

TORONTO, CANADA - April 29, 2003 - Perle Systems Limited (OTCBB: PERL; TSX: PL), a leading provider of networking products for Internet Protocol ("IP") and e-business access, today reported unaudited financial results for the third quarter fiscal 2003 ended February 28, 2003.

All numbers are in US$ unless otherwise stated.

Based on US GAAP, the Company's revenue for the third quarter of fiscal 2003 totaled $5.8 million, compared to revenue of $6.5 million in the second quarter of fiscal 2003.

Net operating profit for the quarter was approximately $452,000 compared to a net operating profit of $102,000 in the preceding quarter. Cash earnings per share were $0.05 for the quarter compared to cash earnings per share of $0.01 in the preceding quarter.

The Company was near break even for the quarter. Disciplined cost controls and a sustained strong gross margin, offset the lower sales. Earnings per share, in line with the same quarter last year were zero.

For the nine months to February 28, 2003, the net loss was approximately $2.0 million including a goodwill write-down of $750,000. This compares to $1.7 million loss in the same period last year including one-time charges of $575,000. The loss per share was $0.21 inclusive of the goodwill write-down, and $0.13 per share exclusive of the goodwill write-down. This compares to a loss of $0.17 per share inclusive of the one-time charges, and a loss of $0.11 per share exclusive of the one-time charges, in the same period last year.

The Company is in compliance with its bank covenants having obtained a waiver from its lender for the third quarter. However, due to the volatile nature of the marketplace for technology products, it is difficult to accurately forecast future sales and profits, and therefore the Company's ability to comply with future bank covenant requirements. As a result, in compliance with GAAP, the Company has elected to reclassify its long-term debt as current debt. This reclassification has no impact on the repayment terms of the debt.

The Company is current with its principal and interest payments to its lender.

"Through disciplined cost and production controls we have, in a difficult sales environment, maintained the operating profit for the quarter," stated Joe Perle, President and Chief Executive Officer.

"In our focus to now grow sales we have stepped up our product development release schedule. We released higher performance models for the popular Perle Jet Stream and IOLAN+ serial/terminal servers. We released an 8-port model of the new Perle CS9000 console server line. This will allow customers with fewer devices in rack to benefit from the advanced management functionality of the CS9000 line, which previously existed in 16 and 24 port models. We added PPPoE (PPP over Ethernet) to the Perle router line. This will enable customers to take advantage of cost-effective Perle routers in DSL environments. At the beginning of the quarter we released 3.3v models in the Perle PCI Host multi-port card line. These cards will be used by customers in the new 3.3v servers coming into the market now. We have also re-focused our marketing campaigns into areas that are enjoying growth in the current environment, such as retail and medical technology."

"Our fundamental financial focus of building cash flow continues through offsetting the lower sales base by improving margins and driving operating efficiencies from within the business by containing costs. We are also concentrating on improving working capital by reducing the days sales outstanding in accounts receivable," stated Derrick Barnett, Vice President, Finance and Chief Financial Officer.

Perle Systems is a leading developer, manufacturer and vendor of high-reliability and richly featured networking products. These products are used to connect remote users reliably and securely to central servers for a wide variety of business applications. Perle specializes in Internet Protocol (IP) connectivity applications, including a focus on mid-size IP routing solutions. Product lines include routers, remote access servers, serial/console servers, emulation adapters, multi-port serial cards, multi-modem cards, print servers and network controllers. Perle distinguishes itself through extensive networking technology, depth of experience in major real-world network environments and long-term distribution and VAR channel relationships in major world markets. Perle has offices and representative offices in 12 countries in North America, Europe and Asia and sells its products through distribution channels worldwide. Its stock is traded on the OTCBB (symbol PERL) and the Toronto Stock Exchange (symbol PL). For more information about Perle and its products, access the Company's Web site at http://www.perle.com.

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