##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-Q/A

Amendment No. 2


|                                                  |  |                                                                                                 
|------------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|(Mark One)                                       
|þ                                                 |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                 
|For the quarterly period ended March 31,
    2000
|                                                 
|or                                               
|                                                 
|o                                                 |  | 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 000-26441

CLARENT CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 77-0433687                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

700 Chesapeake Drive

Redwood City, California 94063


(Address of principal executive offices and
zip code)


(650) 306-7511

(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 þ     No o


The number of shares outstanding of the
registrants Common Stock, $0.001 par value, was 32,529,618
at March 31, 2000.

This report consists of 21 pages of which this
page is number 1.



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1



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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION   
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     



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EXPLANATORY NOTE

This amendment on Form 10-Q/A amends
Items 1, 2 and 3 of Part I and Item 6 of
Part II of the Quarterly Report of Clarent Corporation (the
Company) on Form 10-Q previously filed for the
quarter ended March 31, 2000 (the Prior
Report), as amended. Subsequent to the issuance of the
Companys financial statements on the Prior Report, the
Company discovered accounting and financial irregularities
affecting such financial statements. Many of these
irregularities related to revenue recognition and cash reporting
arising primarily from operations in the Companys
Asia-Pacific regional office. The Company has determined that
these irregularities require the restatement of certain of its
previously issued financial statements. This amendment is filed
in connection with the Companys restatement of its
financial statements for the quarters ended March 31, 2000,
June 30, 2000, September 30, 2000, December 31,
2000, March 31, 2001 and June 30, 2001, as well as for
the year ended December 31, 2000. The circumstances
necessitating the restatement and their effects for the quarter
ended March 31, 2000 are more fully described in
Note 1 of Notes to Unaudited Condensed Consolidated
Financial Statements. In addition, the Companys current
litigation proceedings are described in Note 12 of Notes to
Unaudited Condensed Consolidated Financial Statements.

Financial statement information and related
disclosures included in this amended filing reflect, where
appropriate, changes as a result of the restatement. Statements
used in this Form 10-Q/A containing the words
(i) now, currently,
present, to date, and words of similar
import, and (ii) knowledge, and words of
similar import, are used to refer to conditions existing on the
filing date of this Form 10-Q/A. Except as specifically
indicated above, no other information included in the Prior
Report on Form 10-Q is amended by the Form 10-Q/A and
such information remains as of the date of the Prior Report. We
direct you to refer to our Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2001 and to
the other reports we file with the Securities and Exchange
Commission from time to time after the date of this report for
more current information regarding Clarent, including Risk
Factors that May Impact Future Operating Results.

CLARENT CORPORATION

FORM 10-Q/A INDEX

|                              |  |                                                                                                                       |    |          |    | 
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | -- | -------- | -- | 
|                              |  |                                                                                                                       |    | Page No.
|                              |  |                                                                                                                       |    |         
|PART I: FINANCIAL INFORMATION
|Item 1.                       |  | Financial Statements (Unaudited)                                                                                      |    |          | 3  | 
|                              |  | Condensed Consolidated Balance Sheets as of
    March 31, 2000 (restated) and December 31, 1999                       |    |          | 3  | 
|                              |  | Condensed Consolidated Statements of Operations
    for the Three Months Ended March 31, 2000
    (restated) and 1999 |    |          | 4  | 
|                              |  | Condensed Consolidated Statements of Cash Flows
    for the Three Months Ended March 31, 2000
    (restated) and 1999 |    |          | 5  | 
|                              |  | Notes to Unaudited Condensed Consolidated
    Financial Statements                                                    |    |          | 6  | 
|Item 2.                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                             |    |          | 15 | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                        |    |          | 20 | 
|PART II: OTHER INFORMATION   
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                      |    |          | 20 | 
|Signatures                    |  |                                                                                                                       | 21 |         

2



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PART I.     FINANCIAL
INFORMATION




ITEM 1.     FINANCIAL
STATEMENTS

CLARENT CORPORATION

CONDENSED CONSOLIDATED BALANCE
SHEETS

(In thousands)


|                                         |                                           |                            |                                            |              |         |         |        |         |         |         | 
|---------------------------------------- | ----------------------------------------- | -------------------------- | ------------------------------------------ | ------------ | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                         |                                           | March 31,                  |                                            | December 31,
|                                         |                                           | 2000                       |                                            | 1999        
|                                         |                                           |                            |                                            |             
|                                         |                                           | (Restated)                 |                                            |             
|                                         |                                           | (Unaudited)                |                                            |             
|ASSETS                                  
|Current assets:                          |                                           |                            |                                            |              |         |         |        |        
|                                         | Cash and cash equivalents                 |                            | $                                          | 226,463      |         |         | $      | 238,724 |        
|                                         | Short-term investments                    |                            |                                            | 57,020       |         |         |        | 42,581  |        
|                                         | Accounts receivable, gross                |                            |                                            | 23,286       |         |         |        | 26,532  |        
|                                         | Receivables allowance                     |                            |                                            | (2,409       | )       |         |        | (2,314  | )      
|                                         |                                           |                            |                                            |              |         |         |        |        
|                                         | Accounts receivable, net                  |                            |                                            | 20,877       |         |         |        | 24,218  |        
|                                         | Inventories                               |                            |                                            | 9,916        |         |         |        | 8,404   |        
|                                         | Prepaid expenses and other current assets |                            |                                            | 2,202        |         |         |        | 2,826   |        
|                                         |                                           |                            |                                            |              |         |         |        |        
|                                         |                                           | Total current assets       |                                            |              | 316,478 |         |        |         | 316,753 |        
|Property and equipment, net              |                                           |                            | 14,437                                     |              |         |         | 12,696 |        
|Other assets                             |                                           |                            | 4,218                                      |              |         |         | 5,919  |        
|                                         |                                           |                            |                                            |              |         |         |        |        
|                                         |                                           | Total assets               |                                            | $            | 335,133 |         |        | $       | 335,368 |        
|                                         |                                           |                            |                                            |              |         |         |        |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                           |                            |                                            |              |         |         |        |        
|                                         | Accounts payable                          |                            | $                                          | 6,449        |         |         | $      | 8,552   |        
|                                         | Compensation related accruals             |                            |                                            | 2,812        |         |         |        | 2,991   |        
|                                         | Deferred revenue                          |                            |                                            | 8,603        |         |         |        | 10,117  |        
|                                         | Other accrued liabilities                 |                            |                                            | 7,382        |         |         |        | 4,866   |        
|                                         |                                           |                            |                                            |              |         |         |        |        
|                                         |                                           | Total current liabilities  |                                            |              | 25,246  |         |        |         | 26,526  |        
|Stockholders equity:                    |                                           |                            |                                            |              |         |         |        |        
|                                         | Common stock                              |                            |                                            | 354,910      |         |         |        | 353,894 |        
|                                         | Deferred compensation                     |                            |                                            | (4,612       | )       |         |        | (5,990  | )      
|                                         | Accumulated other comprehensive loss      |                            |                                            | (64          | )       |         |        | (112    | )      
|                                         | Accumulated deficit                       |                            |                                            | (40,347      | )       |         |        | (38,950 | )      
|                                         |                                           |                            |                                            |              |         |         |        |        
|                                         |                                           | Total stockholders equity |                                            |              | 309,887 |         |        |         | 308,842 |        
|                                         |                                           |                            |                                            |              |         |         |        |        
|                                         |                                           |                            | Total liabilities and stockholders equity |              | $       | 335,133 |        |         | $       | 335,368 | 
|                                         |                                           |                            |                                            |              |         |         |        |        

See accompanying notes to condensed consolidated
financial statements.

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CLARENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per share
amounts)


(Unaudited)


|                                                                  |                                                |                          |        |        |        |   |        |       |       | 
|----------------------------------------------------------------- | ---------------------------------------------- | ------------------------ | ------ | ------ | ------ | - | ------ | ----- | ----- | 
|                                                                  |                                                |                         
|                                                                  |                                                | Three Months Ended      
|                                                                  |                                                | March 31,               
|                                                                  |                                                |                         
|                                                                  |                                                | 2000                     |        | 1999  
|                                                                  |                                                |                          |        |       
|                                                                  |                                                | (Restated)               |        |       
|Net revenue:                                                      |                                                |                          |        |        |        |   |        |      
|                                                                  | Product and software                           |                          | $      | 20,485 |        |   | $      | 6,128 |      
|                                                                  | Services                                       |                          |        | 2,505  |        |   |        | 586   |      
|                                                                  |                                                |                          |        |        |        |   |        |      
|                                                                  |                                                | Total net revenue        |        |        | 22,990 |   |        |       | 6,714 | 
|Cost of revenue:                                                  |                                                |                          |        |        |        |   |        |      
|                                                                  | Product and software                           |                          |        | 7,399  |        |   |        | 2,786 |      
|                                                                  | Services                                       |                          |        | 1,638  |        |   |        | 495   |      
|                                                                  |                                                |                          |        |        |        |   |        |      
|                                                                  |                                                | Total cost of revenue    |        |        | 9,037  |   |        |       | 3,281 | 
|                                                                  |                                                |                          |        |        |        |   |        |      
|Gross profit                                                      |                                                |                          | 13,953 |        |        |   | 3,433  |      
|Operating expenses:                                               |                                                |                          |        |        |        |   |        |      
|                                                                  | Research and development                       |                          |        | 4,340  |        |   |        | 1,566 |      
|                                                                  | Sales and marketing                            |                          |        | 11,055 |        |   |        | 4,025 |      
|                                                                  | General and administrative                     |                          |        | 2,441  |        |   |        | 1,357 |      
|                                                                  | Amortization of deferred compensation          |                          |        | 1,378  |        |   |        | 1,980 |      
|                                                                  | Amortization of goodwill and other intangibles |                          |        | 226    |        |   |        |      |      
|                                                                  |                                                |                          |        |        |        |   |        |      
|                                                                  |                                                | Total operating expenses |        |        | 19,440 |   |        |       | 8,928 | 
|                                                                  |                                                |                          |        |        |        |   |        |      
|Loss from operations                                              |                                                |                          | (5,487 | )      |        |   | (5,495 | )    
|Other income, net                                                 |                                                |                          | 4,115  |        |        |   | 16     |      
|                                                                  |                                                |                          |        |        |        |   |        |      
|Loss before provision for income taxes                            |                                                |                          | (1,372 | )      |        |   | (5,479 | )    
|Provision for income taxes                                        |                                                |                          | (25    | )      |        |   |       |      
|                                                                  |                                                |                          |        |        |        |   |        |      
|Net loss                                                          |                                                | $                        | (1,397 | )      |        | $ | (5,479 | )    
|                                                                  |                                                |                          |        |        |        |   |        |      
|Basic and diluted net loss per share                              |                                                | $                        | (0.04  | )      |        | $ | (1.00  | )    
|                                                                  |                                                |                          |        |        |        |   |        |      
|Shares used in computing basic and diluted net
    loss per share |                                                |                          | 31,448 |        |        |   | 5,481  |      
|                                                                  |                                                |                          |        |        |        |   |        |      

See accompanying notes to condensed consolidated
financial statements.

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CLARENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


(Unaudited)


|                                                                               |                                                                                               |                                                         |                                                                                       |         |         |        |        |        |        |        |  
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------- | ------- | ------ | ------ | ------ | ------ | ------ | -
|                                                                               |                                                                                               |                                                        
|                                                                               |                                                                                               | Three Months Ended                                     
|                                                                               |                                                                                               | March 31,                                              
|                                                                               |                                                                                               |                                                        
|                                                                               |                                                                                               | 2000                                                    |                                                                                       | 1999   
|                                                                               |                                                                                               |                                                         |                                                                                       |        
|                                                                               |                                                                                               | (Restated)                                              |                                                                                       |        
|Operating activities:                                                          |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|                                                                               | Net loss                                                                                      |                                                         | $                                                                                     | (1,397  | )       |        | $      | (5,479 | )     
|                                                                               | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                         |                                                                                       |         |         |        |        |        |       
|                                                                               |                                                                                               | Depreciation                                            |                                                                                       |         | 1,684   |        |        |        | 346    |       
|                                                                               |                                                                                               | Amortization of deferred compensation                   |                                                                                       |         | 1,378   |        |        |        | 1,980  |       
|                                                                               |                                                                                               | Amortization of goodwill and other intangibles          |                                                                                       |         | 226     |        |        |        |       |       
|                                                                               |                                                                                               | Changes in operating assets and liabilities:            |                                                                                       |         |         |        |        |        |        |       
|                                                                               |                                                                                               |                                                         | Accounts receivable                                                                   |         |         | 1,836  |        |        |        | (4,065 | )
|                                                                               |                                                                                               |                                                         | Inventories                                                                           |         |         | (1,512 | )      |        |        | (1,973 | )
|                                                                               |                                                                                               |                                                         | Prepaid expenses and other current assets                                             |         |         | 624    |        |        |        | (180   | )
|                                                                               |                                                                                               |                                                         | Other assets                                                                          |         |         |       |        |        |        | (20    | )
|                                                                               |                                                                                               |                                                         | Accounts payable, compensation related accruals
    and
    other accrued liabilities |         |         | 234    |        |        |        | 3,019  |  
|                                                                               |                                                                                               |                                                         | Deferred revenue                                                                      |         |         | (1,514 | )      |        |        | 2,338  |  
|                                                                               |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|                                                                               |                                                                                               | Net cash provided by (used in) operating
    activities |                                                                                       |         | 1,559   |        |        |        | (4,034 | )     
|                                                                               |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|Investing activities :                                                         |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|                                                                               | Purchases of short-term investments                                                           |                                                         |                                                                                       | (41,808 | )       |        |        |       |       
|                                                                               | Maturities of short-term investments                                                          |                                                         |                                                                                       | 30,355  |         |        |        |       |       
|                                                                               | Purchases of property and equipment                                                           |                                                         |                                                                                       | (3,478  | )       |        |        | (2,191 | )     
|                                                                               |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|                                                                               |                                                                                               | Net cash used in investing activities                   |                                                                                       |         | (14,931 | )      |        |        | (2,191 | )     
|                                                                               |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|Financing activities:                                                          |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|                                                                               | Proceeds from line of credit                                                                  |                                                         |                                                                                       |        |         |        |        | 300    |       
|                                                                               | Proceeds from issuance of long term debt                                                      |                                                         |                                                                                       |        |         |        |        | 1,254  |       
|                                                                               | Proceeds from issuance of common stock                                                        |                                                         |                                                                                       | 1,016   |         |        |        | 22     |       
|                                                                               |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|                                                                               |                                                                                               | Net cash provided by financing activities               |                                                                                       |         | 1,016   |        |        |        | 1,576  |       
|                                                                               |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|Effect of exchange rate changes on cash and cash
    equivalents               |                                                                                               |                                                         | 95                                                                                    |         |         |        | 13     |       
|                                                                               |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|Net decrease in cash and cash equivalents                                      |                                                                                               |                                                         | (12,261                                                                               | )       |         |        | (4,636 | )     
|Cash and cash equivalents at beginning of period                               |                                                                                               |                                                         | 238,724                                                                               |         |         |        | 11,903 |       
|                                                                               |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|Cash and cash equivalents at end of period                                     |                                                                                               | $                                                       | 226,463                                                                               |         |         | $      | 7,267  |       
|                                                                               |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|Supplemental disclosure of non-cash activities:                                |                                                                                               |                                                         |                                                                                       |         |         |        |        |       
|Preferred stock received in exchange for
    settlement of accounts receivable |                                                                                               | $                                                       | 1,500                                                                                 |         |         |        |       |       

See accompanying notes to condensed consolidated
financial statements.

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CLARENT CORPORATION

NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS


1.     BASIS OF
PRESENTATION

The accompanying unaudited condensed consolidated
financial statements of the Company as of March 31, 2000
(restated) and for the three months ended March 31, 2000
(restated) and March 31, 1999 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. In
the opinion of management, the condensed consolidated financial
statements include all adjustments that management considers
necessary for a fair presentation of the results of operations
for the interim periods shown. The results of operations for
such periods are not necessarily indicative of the results
expected for the full fiscal year or for any future period. The
balance sheet at December 31, 1999 has been derived from
audited financial statements at that date but does not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial
statements. These financial statements should be read in
conjunction with the consolidated financial statements and
related notes included in the Companys Annual Report on
Form 10-K for the year ended December 31, 1999, filed
with the Securities and Exchange Commission on March 28,
2000. Certain prior period balances have been reclassified to
conform to current period presentation.



| |                                        
| | ---------------------------------------
| | Restatement of Financial
    Statements

On August 26, 2001, the Companys Board
of Directors formed a special committee, comprised of three
outside directors, Messrs. Pape, Forman and Barker. The
special committee directed and instructed the Companys
outside counsel to investigate certain facts that had come to
the Boards attention and that the Board determined could
reflect potential accounting and financial irregularities. The
Companys outside counsel, at the direction of the special
committee, requested the Companys independent auditors to
assist in the investigation. On September 4, 2001, the
Company announced that it had discovered accounting and
financial irregularities that materially affected the
Companys previously reported financial results for the
first two quarters of the year 2001. Subsequently on
October 23, 2001, the Company announced that it also had
discovered accounting and financial irregularities that
materially affected the Companys previously reported
financial results for the year 2000.

To address the activities discovered in its
investigation, the Company has implemented remedial actions,
including the prompt termination of employees who appear to have
been involved in activities relating to the irregularities,
closure of the Companys Asia-Pacific regional
headquarters, and the adoption of new and more stringent
subsidiary cash control and expense approval policies, such as
new banking and internal reporting procedures, improved controls
over sales representatives and sales orders and hiring and
payroll procedures, and new and more stringent credit approval
policies.

In the course of the investigation, the Company
discovered accounting and financial irregularities arising from
activities that appear to have been initiated by a number of
parties no longer associated with the Company, resulting in,
among other things, an overstatement in revenue of an aggregate
amount of $129.4 million over the restated periods. The
circumstances necessitating the restatement, and the impact on
the Company, can be described in the following general
categories:



| |                     
| | --------------------
| | Revenue Restatement:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company discovered that its revenue had been
    overstated for certain periods because revenue from sales in the
    Asia-Pacific region had been recognized in situations where
    customers had indirectly received Company funds from third
    parties, by means of arrangements effected through unauthorized
    acts of Company employees. These arrangements were entered into
    in violation of Company procedures and were not reported to the
    appropriate personnel within the Company.

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CLARENT CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue also had been overstated for certain
    periods because revenue had been recognized from certain sales
    in the Asia-Pacific region where customers now claim to have
    return rights or that the Company has repurchase obligations.
    The Company now believes that certain Company personnel may have
    entered into agreements with customers in the Asia-Pacific
    region purporting to provide such return rights or repurchase
    obligations. These agreements were entered into in violation of
    Company procedures and were not reported to the appropriate
    personnel within the Company.
|
| |  | The Company has restated revenue for certain
    periods because, based on current information and actual payment
    history, it now appears that certain customers may not have been
    creditworthy at the time of purchase.                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Revenue also had been overstated for certain
    periods because of transactions involving the sale of products
    over which the Company continued to have some control until a
    subsequent period.                                                                                                                                                                                                                                                                                                                                                                                                                      



| |                    
| | -------------------
| | Impact on Expenses:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In connection with the restatement, the Company
    has adjusted certain accruals and reserves related to accounts
    receivable, warranty and inventory and has made reclassification
    entries. The Company also recorded additional losses in the form
    of restructuring and asset impairments in the third quarter of
    2001. These losses resulted from what the Company now knows was
    an over-expansion of its operating capacity and operating
    expenses as well as the overall downturn in the
    telecommunications industry. The Company increased its operating
    capacity based on forecasts that included revenue levels that
    the Company now knows, based on the discovery of financial
    irregularities, were overstated, but which the Company believed
    at the time were appropriate.
|
| |  | The Company also determined that expenses were
    understated because certain payments or loans made from the
    Asia-Pacific regional office were effected in violation of
    Company procedures and were not reported to the appropriate
    personnel within the Company. The Company believes that such
    payments or loans are not recoverable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



| |                     
| | --------------------
| | Financial Condition:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Companys cash position was overstated
    in the March 31, 2001 and June 30, 2001 financial
    statements because personnel in the Asia Pacific region
    transferred cash in violation of the Companys policies and
    procedures. These cash transfers were not reported to the
    appropriate personnel within the Company. As a result, the cash
    transfers were accounted for in improper periods. As of
    September 30, 2001, in the aggregate, there was no direct
    material impact on the cash position of the Company as a result
    of the improper recording of these transactions, including the
    cash transfers, although the Company had recorded liabilities of
    approximately $24 million associated with the
    irregularities giving rise to the restatement. As of the date of
    filing of this report, the Companys cash position has been
    materially impacted by several factors, as discussed below.
|
| |  | The unauthorized transactions with third parties
    that appear to have used Company funds to purchase the
    Companys products had a material impact on the
    Companys financial condition because of the expense of the
    inventory for which the Company will probably not be able to
    recover any value and the associated distribution costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The Companys primary source of liquidity is
    its operating cash flows, which have been disrupted by the
    activities giving rise to, and the impact of, the restatement as
    well as the downturn in demand for telecommunications equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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CLARENT CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company suffered substantial operating losses
    due to the activities necessitating the restatement because it
    over-expanded its operating capacity and operating expenses in
    2000 and the first two quarters of 2001. The Company increased
    its operating capacity based on forecasts that included revenue
    levels that the Company now knows, based on the discovery of
    financial irregularities, were overstated, but which the Company
    believed at the time were appropriate.

As a result of the information discovered in the
investigation, the Company has determined that it is appropriate
to restate its financial statements for the quarters ended
March 31, 2000, June 30, 2000, September 30,
2000, December 31, 2000, March 31, 2001 and
June 30, 2001, as well as for the year ended
December 31, 2000. For more current information regarding
the restatements, please refer to the Companys Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 2001.

The following tables summarize the effect of the
restatement for the quarterly period ended March 31, 2000.

Condensed Consolidated Statements of Operations
Data (in thousands, except per share amounts):

|                                     |  |                    |        |             |  |   |        |  
|------------------------------------ |  | ------------------ | ------ | ----------- |  | - | ------ | -
|                                     |  |                   
|                                     |  | Three Months Ended
|                                     |  | March 31, 2000    
|                                     |  |                   
|                                     |  | As Reported        |        | As Restated
|                                     |  |                    |        |            
|Total net revenue                    |  | $                  | 24,583 |             |  | $ | 22,990 |  
|Gross profit                         |  |                    | 14,634 |             |  |   | 13,953 |  
|Loss from operations                 |  |                    | (4,806 | )           |  |   | (5,487 | )
|Net loss                             |  |                    | (716   | )           |  |   | (1,397 | )
|Basic and diluted net loss per share |  | $                  | (0.02  | )           |  | $ | (0.04  | )

Condensed Consolidated Balance Sheets Data (in
thousands):

|                                           |  |                |         |             |  |   |         | 
|------------------------------------------ |  | -------------- | ------- | ----------- |  | - | ------- | 
|                                           |  |               
|                                           |  | March 31, 2000
|                                           |  |               
|                                           |  | As Reported    |         | As Restated
|                                           |  |                |         |            
|Accounts receivable, net                   |  | $              | 22,577  |             |  | $ | 20,877  | 
|Inventories                                |  |                | 9,004   |             |  |   | 9,916   | 
|Total current assets                       |  |                | 317,266 |             |  |   | 316,478 | 
|Total assets                               |  |                | 335,921 |             |  |   | 335,133 | 
|Deferred revenue                           |  |                | 9,901   |             |  |   | 8,603   | 
|Other accrued liabilities                  |  |                | 6,191   |             |  |   | 7,382   | 
|Total current liabilities                  |  |                | 25,353  |             |  |   | 25,246  | 
|Total stockholders equity                 |  |                | 310,568 |             |  |   | 309,887 | 
|Total liabilities and stockholders equity |  |                | 335,921 |             |  |   | 335,133 | 

Recent
Events

In January 2002, the Company engaged Regent
Pacific Management Corporation, an international firm that
specializes in the recovery and restructuring of
under-performing companies, and appointed Gary J. Sbona of
Regent Pacific as its chief executive officer. Mr. Sbona
has also joined the Companys board of directors and has
been appointed chairman of the board. On March 9, 2002, the
Company appointed James B. Weil of Regent Pacific as its
president.

At March 31, 2002, the Companys cash,
cash equivalents and short-term investments were approximately
$34 million, which may not be adequate to meet the
Companys operating cash needs through the end

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CLARENT CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


of 2002, unless the Company achieves increased
revenues and further reduces its expenses. To reduce its
expenditures, the Company restructured in several areas,
including reducing staffing, implementing expense management and
curtailing capital spending. For example, since July 2001, the
Companys headcount decreased by approximately 82%, from
approximately 1,018 employees to approximately
180 employees currently. In addition, the Company has
sustained, and expects to continue to sustain, substantial
expenses arising from the restatement of its financial
statements and related litigation matters. Until the Company
resolves the claims against it and reduces its commitments, the
Company expects that its expenses will continue to exceed its
revenues for the foreseeable future. The Company plans to take
further measures to conserve cash, and to continue to evaluate
its strategic alternatives.

For the quarter ended September 30, 2001,
the Company reported revenues of $18.7 million. In quarters
subsequent to the quarter ended September 30, 2001,
revenues have declined substantially. The Companys
revenues have been, and the Company expects will continue to be,
materially affected by the downturn in demand for
telecommunications equipment and by events causing, and the
impact of, the restatement of its financial statements. The
Company does not expect demand for its products to recover for
the remainder of 2002, and the Company expects operating losses
and negative cash flows from operations to continue for the
foreseeable future.

If the Company is not able to achieve increased
revenues and resolve the claims against it, or if the Company
incurs unexpected expenditures, then it will need to reduce
expenses further and raise additional funds to continue as a
going concern. The Company continues to evaluate its strategic
alternatives, including financing transactions or a sale of
assets. Due to the unavailability of a public market for the
Companys stock as well as the Companys current stock
price, additional funding may not be available to the Company on
favorable terms or at all. If the Company raises additional
funds through the issuance of equity securities, the percentage
ownership of its stockholders could be significantly diluted.
Furthermore, these securities may have rights, preferences or
privileges senior to the Companys common stock. If
additional funding is not available when needed, the Company may
be unable to continue as a going concern and achieve its
intended business objectives.

2.     FINANCIAL
INSTRUMENTS

Estimated fair values of financial instruments
are based on quoted market prices. The following is a summary of
available-for-sale securities (in thousands) at March 31,
2000.

|                         |                        |           |         |            |  |            |    |            |  |   |     |     |   |   |         |         | 
|------------------------ | ---------------------- | --------- | ------- | ---------- |  | ---------- | -- | ---------- |  | - | --- | --- | - | - | ------- | ------- | 
|                         |                        |           |         | Gross      |  | Gross      |    |           
|                         |                        | Amortized |         | Unrealized |  | Unrealized |    |           
|                         |                        | Cost      |         | Gains      |  | Losses     |    | Fair Value
|                         |                        |           |         |            |  |            |    |           
|Money market fund        |                        | $         | 25,899  |            |  | $          |   |            |  | $ | (3  | )   |   | $ | 25,896  |        
|Commercial paper         |                        |           | 152,683 |            |  |            | 9  |            |  |   | (29 | )   |   |   | 152,663 |        
|Government securities    |                        |           | 58,555  |            |  |            | 3  |            |  |   | (39 | )   |   |   | 58,519  |        
|Market auction preferred |                        |           | 31,890  |            |  |            |   |            |  |   |    |     |   |   | 31,890  |        
|                         |                        |           |         |            |  |            |    |            |  |   |     |     |   |   |         |        
|                         |                        | $         | 269,027 |            |  | $          | 12 |            |  | $ | (71 | )   |   | $ | 268,968 |        
|                         |                        |           |         |            |  |            |    |            |  |   |     |     |   |   |         |        
|Classified as:           |                        |           |         |            |  |            |    |            |  |   |     |     |   |   |         |        
|                         | Cash equivalents       |           | $       | 211,962    |  |            | $  | 8          |  |   | $   | (22 | ) |   | $       | 211,948 | 
|                         | Short-term investments |           |         | 57,065     |  |            |    | 4          |  |   |     | (49 | ) |   |         | 57,020  | 
|                         |                        |           |         |            |  |            |    |            |  |   |     |     |   |   |         |        
|                         |                        | $         | 269,027 |            |  | $          | 12 |            |  | $ | (71 | )   |   | $ | 268,968 |        
|                         |                        |           |         |            |  |            |    |            |  |   |     |     |   |   |         |        

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CLARENT CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


Expected maturities may differ from contractual
maturities because the issuers of the securities may have the
right to prepay or call obligations without prepayment
penalties. Realized gains and losses on sales of
available-for-sale securities were immaterial for the three
months ended March 31, 2000. There were no
available-for-sale securities at March 31, 1999.

3.     INVENTORIES

Inventories consist of the following (in
thousands):

|               |  |            |       |              |  |   |       | 
|-------------- |  | ---------- | ----- | ------------ |  | - | ----- | 
|               |  | March 31,  |       | December 31,
|               |  | 2000       |       | 1999        
|               |  |            |       |             
|               |  | (Restated) |       |             
|Raw materials  |  | $          | 7,728 |              |  | $ | 7,347 | 
|Finished goods |  |            | 2,188 |              |  |   | 1,057 | 
|               |  |            |       |              |  |   |       | 
|               |  | $          | 9,916 |              |  | $ | 8,404 | 
|               |  |            |       |              |  |   |       | 

4.     COMPREHENSIVE
LOSS

Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income
(SFAS 130). SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its
components, requiring foreign currency translation adjustments,
and unrealized gains and losses on short and long-term
investments which currently are reported in stockholders
equity, to be included in other comprehensive income/loss. Prior
year financial statements have been reclassified to conform to
the requirements of SFAS 130.

The Companys total comprehensive loss is as
follows (in thousands):

|                          |                                |                    |        |      |   |   |        |    | 
|------------------------- | ------------------------------ | ------------------ | ------ | ---- | - | - | ------ | -- | 
|                          |                                |                   
|                          |                                | Three Months Ended
|                          |                                | March 31,         
|                          |                                |                   
|                          |                                | 2000               |        | 1999
|                          |                                |                    |        |     
|                          |                                | (Restated)         |        |     
|Net loss                  |                                | $                  | (1,397 | )    |   | $ | (5,479 | ) 
|Other comprehensive loss: |                                |                    |        |      |   |   |        |   
|                          | Translation adjustments        |                    |        | 93   |   |   |        | 26 | 
|                          | Unrealized loss on investments |                    |        | (45  | ) |   |        |   | 
|                          |                                |                    |        |      |   |   |        |   
|Comprehensive loss        |                                | $                  | (1,349 | )    |   | $ | (5,453 | ) 
|                          |                                |                    |        |      |   |   |        |   

5.     INCOME
TAXES

The provision for income taxes of approximately
$25,000 for the three months ended March 31, 2000 consists
entirely of foreign income tax provided on the profits
attributable to the Companys foreign operations.

6.     STOCKHOLDERS
EQUITY

On February 15, 2000, the Companys
stockholders authorized an amendment to the restated certificate
of incorporation to increase the authorized number of shares of
common stock to 200,000,000 from 50,000,000 shares.

On January 31, 2000, the Company increased
the authorized number of shares of common stock authorized for
issuance under the 1999 Amended and Restated Equity Incentive
Plan (the 1999 Plan) by

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CLARENT CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


792,465, or 2.5% of the Companys
outstanding shares, measured as of that date. This increase was
in accordance with Section 4(a) of the 1999 Plan. At a
special meeting of the Companys stockholders on
February 15, 2000, the Companys stockholders approved
an amendment to the 1999 Plan to increase the aggregate number
of shares of common stock authorized for issuance under the 1999
Plan by 2,641,830 shares. The aggregate number of shares of
common stock authorized for issuance under the 1999 Plan was
14,792,465 at March 31, 2000.

7.     SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION

The Company operates in one industry segment. The
Company designs, develops and sells Internet protocol telephony,
or IP telephony, systems. Net revenue for non-U.S. locations is
substantially the result of export sales from the U.S.

Net revenue by geographic region based on
customer location was as follows (in thousands):

|                            |                |                    |   |       |        |  |   |       |       | 
|--------------------------- | -------------- | ------------------ | - | ----- | ------ |  | - | ----- | ----- | 
|                            |                |                   
|                            |                | Three Months Ended
|                            |                | March 31,         
|                            |                |                   
|                            |                | 2000               |   | 1999 
|                            |                |                    |   |      
|                            |                | (Restated)         |   |      
|Product and software sales: |                |                    |   |       |        |  |   |      
|                            | United States  |                    | $ | 8,352 |        |  | $ | 3,986 |      
|                            | Other Americas |                    |   | 596   |        |  |   | 59    |      
|                            | Europe         |                    |   | 5,459 |        |  |   | 185   |      
|                            | Asia Pacific   |                    |   | 6,078 |        |  |   | 1,898 |      
|                            |                |                    |   |       |        |  |   |      
|                            |                | Total              |   | $     | 20,485 |  |   | $     | 6,128 | 
|                            |                |                    |   |       |        |  |   |      
|Services:                   |                |                    |   |       |        |  |   |      
|                            | United States  |                    | $ | 1,471 |        |  | $ | 343   |      
|                            | Other Americas |                    |   | 53    |        |  |   | 7     |      
|                            | Europe         |                    |   | 361   |        |  |   | 32    |      
|                            | Asia Pacific   |                    |   | 620   |        |  |   | 204   |      
|                            |                |                    |   |       |        |  |   |      
|                            |                | Total              |   | $     | 2,505  |  |   | $     | 586   | 
|                            |                |                    |   |       |        |  |   |      

8.     NET LOSS PER
SHARE

Basic and diluted net loss per share is computed
by dividing net loss by the weighted average number of common
shares outstanding during the period less outstanding shares
subject to a right of repurchase by the Company. Outstanding
shares subject to repurchase are not included in the
computations of basic and diluted net loss per share until the
time-based vesting restrictions have lapsed.

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CLARENT CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


The following table sets forth the computation of
basic and diluted net loss per share:

|                                     |                                     |                                                          |       |        |        |   |       |        |       | 
|------------------------------------ | ----------------------------------- | -------------------------------------------------------- | ----- | ------ | ------ | - | ----- | ------ | ----- | 
|                                     |                                     |                                                         
|                                     |                                     | Three Months Ended                                      
|                                     |                                     | March 31,                                               
|                                     |                                     |                                                         
|                                     |                                     | 2000                                                     |       | 1999  
|                                     |                                     |                                                          |       |       
|                                     |                                     |                                                         
|                                     |                                     | (In thousands, except                                   
|                                     |                                     | per share amounts)                                      
|                                     |                                     | (Restated)                                               |       |       
|Numerator:                           |                                     |                                                          |       |        |        |   |       |       
|                                     | Net loss                            |                                                          | $     | (1,397 | )      |   | $     | (5,479 | )    
|                                     |                                     |                                                          |       |        |        |   |       |       
|Denominator:                         |                                     |                                                          |       |        |        |   |       |       
|                                     | Weighted average shares outstanding |                                                          |       | 31,898 |        |   |       | 7,281  |      
|                                     | Less shares subject to repurchase   |                                                          |       | (450   | )      |   |       | (1,800 | )    
|                                     |                                     |                                                          |       |        |        |   |       |       
|                                     |                                     | Denominator for basic and diluted net loss per
    share |       |        | 31,448 |   |       |        | 5,481 | 
|                                     |                                     |                                                          |       |        |        |   |       |       
|Basic and diluted net loss per share |                                     | $                                                        | (0.04 | )      |        | $ | (1.00 | )     
|                                     |                                     |                                                          |       |        |        |   |       |       

In periods with a net loss, the Company excludes
all convertible preferred stock, warrants for convertible
preferred stock and common stock, outstanding stock options and
shares subject to repurchase from the calculation of diluted net
loss per common share because all such securities are
anti-dilutive. The total number of shares excluded from the
calculations of diluted net loss per share were 6,827,000 and
24,324,862 for the three months ended March 31, 2000 and
1999, respectively.

9.     OTHER
ASSETS

At March 31, 2000, the Company reduced its
accounts receivable by accepting Series A preferred stock
of one of its privately held customers with a value of
$1.5 million as an alternative to cash payment. At
March 31, 2000 the Companys investment was recorded
at cost and was included in Other Assets. Revenues from this
customer totaled $2.1 million in the three months ended
March 31, 2000 and were recorded at the value of the
products and services sold.

10.     RECENT
ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Financial
Instruments and for Hedging Activities
(SFAS 133), which provides a comprehensive and
consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for
fiscal years beginning after June 15, 2000 and is not
anticipated to have an impact on the Companys results of
operations or financial condition when adopted, as the Company
holds no derivative financial instruments and does not currently
engage in hedging activities.

In December 1998, the AICPA issued Statement of
Position 98-9, Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions
(SOP 98-9). SOP 98-9 requires use of the
residual method for recognition of revenue when
vendor-specific objective evidence (VSOE) exists for undelivered
elements but does not exist for delivered elements of a software
arrangement. The Company adopted the provisions of SOP 98-9 for
transactions entered into beginning January 1, 2000. The
adoption of SOP 98-9 did not have a material impact on the
Companys consolidated financial statements.

In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101
Revenue Recognition in Financial Statements
(SAB 101). SAB 101 provides guidance on
the recognition, presentation, and disclosure of revenue in
financial statements. SAB 101 is effective for years
beginning after December 15, 1999 and is required to be
reported beginning in the quarter ended June 30, 2000.

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CLARENT CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


SAB 101 is not expected to have a
significant effect on the Companys consolidated results of
operations, financial position, or cash flows.

11.     SUBSEQUENT
EVENT  ACQUISITIONS

On May 1, 2000, the Company announced the
signing of a definitive agreement to acquire ACT Networks, Inc.
(ACT Networks). ACT Networks is a leading provider
of multi-service access and voice/data integration products that
enable the convergence of voice, video and data onto one managed
network. Under the terms of the agreement, each outstanding
share of ACT Networks will be exchanged for 0.2546 of a share of
the Companys common stock. The exchange ratio will be
subject to a collar providing a maximum and minimum
value of the Companys common stock to be exchanged for
each share of ACT Networks at closing. Based on the
Companys closing price on Monday, May 1, 2000 the
Company will issue approximately $189.0 million of stock
for the outstanding shares of ACT Networks in addition to
assuming ACT Networks outstanding stock options. The
acquisition has been approved by the boards of directors of both
companies and is expected to close in the third quarter of 2000.
This transaction is subject to various closing conditions,
including approval by ACT Networks stockholders and
termination of the necessary waiting period under the
Hart-Scott-Rodino Act.

12.     SUBSEQUENT
EVENT  LITIGATION

Beginning in July 2001, the Company and certain
of its current and former officers and directors were named as
defendants in several class action shareholder complaints filed
in the United States District Court for the Southern District of
New York, collectively captioned In re Clarent Corp. Initial
Public Offering Securities Litigation. These lawsuits
purport to bring suit on behalf of all purchasers of the
Companys common stock between July 1, 1999 and
December 6, 2000. In these actions, the plaintiffs allege
that the Company, certain of its officers and directors and the
underwriters of its initial public offering (IPO)
violated the federal securities laws because the Companys
IPO registration statement and prospectus purportedly contained
untrue statements of material fact or omitted material facts
regarding the compensation to be received by, and the stock
allocation practices of, the IPO underwriters. The plaintiffs
further allege that the prospectus relating to the
Companys secondary offering was false and misleading for
the same reasons. The plaintiffs seek unspecified monetary
damages and other relief. Similar complaints were filed in the
same Court against hundreds of other public companies that
conducted IPOs of their common stock since the late 1990s (the
IPO Lawsuits). On August 8, 2001, the IPO
Lawsuits were consolidated for pretrial purposes before United
States Judge Shira Scheindlin of the Southern District of New
York. Judge Scheindlin held an initial case management
conference on September 7, 2001, at which time she ordered,
among other things, that the time for all defendants to respond
to any complaint be postponed until further order of the Court.
Thus, the Company has not been required to answer any of the
complaints, and no discovery has been served on the Company. In
accordance with Judge Scheindlins orders at further status
conferences in March and April, the appointed lead
plaintiffs counsel filed amended, consolidated complaints
in the IPO Lawsuits on April 19, 2002. However, Judge
Scheindlin does not expect any of the defendants to file motions
to dismiss the amended, consolidated complaints until at least
summer of 2002.

In September and October 2001, a series of
securities law class action complaints were filed in the United
States District Court for the Northern District of California
against the Company and certain of its current and former
executive officers and directors. The plaintiffs in each of
these actions allege, among other things, violations of the
Securities Exchange Act of 1934, as amended, due to the filing
with the SEC of allegedly false financial statements concerning
the Companys results of operations for the second, third
and fourth quarters of 2000, and the first and second quarters
of 2001. The original complaints seek unspecified monetary
damages and other relief. In November 2001, the court entered an
order consolidating these actions into a

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CLARENT CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


single action, and in December 2001 appointed a
lead class plaintiff. A consolidated complaint has not yet been
filed. No discovery has taken place and no trial date has been
set.

In October and November 2001, four shareholder
derivative actions were filed against the Company, three in the
Delaware Chancery Court and one in California Superior Court. In
November 2001, the three Delaware shareholder derivative actions
were consolidated into a single action. The plaintiffs in these
actions claim to be suing on the Companys behalf and name
various of the Companys current and former officers and
directors as defendants. The complaints assert several claims,
including breach of fiduciary duties, corporate waste, abuse of
control, unjust enrichment, usurpation of corporate
opportunities and mismanagement, resulting from, among other
things, the Companys reporting of allegedly false
financial statements concerning the Companys results of
operations for the second, third and fourth quarters of 2000 and
the first and second quarters of 2001, the Companys
alleged failure to disclose information regarding the
Companys operations and the defendants alleged
failure to implement and maintain adequate internal financial
controls. The complaints seek unspecified monetary damages and
other relief. The plaintiff in the California action has
commenced discovery against the defendants. However, the Company
is seeking a protective order relating to certain of the
discovery requests. Discovery has not commenced in the Delaware
action. On March 23, 2002, the Companys Board of
Directors formed a special litigation committee of the Board of
Directors to investigate the plaintiffs allegations. No
trial date has been set in either action.

On December 31, 2001, D-Link Corporation
(D-Link), a distributor and supplier to the Company,
filed two complaints in California Superior Court in which
D-Link asserted various breach of contract claims against the
Company. D-Link seeks damages of approximately
$19.0 million plus interest with respect to these alleged
breaches of contracts. On March 5, 2002 the court
consolidated the two actions. The Company has filed a
cross-complaint against D-Link alleging breach of contract and
breach of warranty. The Company has answered D-Links
complaints, denying all material allegations and asserting
various affirmative defenses. Discovery has commenced with
respect to both of the D-Link complaints, but a trial date has
not been set.

In December 2001, the Company received letters
from Bright Oceans Corporation (HK) Limited (Bright
Oceans) in which Bright Oceans asserted possible claims
against the Company. Bright Oceans claimed that it purchased
products from the Company on purchase orders subject to a right
of return. Bright Oceans seeks recovery of $4.6 million
plus interest and expenses based on its purported right of
return.

On April 12, 2002, a civil complaint for
violations of the federal securities laws was filed against the
Company and certain of its officers and directors in the United
States District Court for the District of Minnesota entitled
Ahlstrom, et al. v. Clarent Corporation, et al.The
plaintiffs in this action include Irwin L. Jacobs and a number
of investors apparently affiliated with him. Plaintiffs allege
that the defendants intentionally issued false financial reports
for the Company between March 2001 and August 2001 in violation
of Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 and similar provisions of Minnesota law. The Company
currently believes that this litigation will be coordinated or
consolidated for most pre-trial purposes with the other
securities law class action matters currently pending against
the Company. This matter is at an early stage. No response to
the complaint has yet been filed, and no discovery has taken
place.

On April 26, 2002, certain former
shareholders of PEAK Software Solutions, Inc.
(PEAK), some of whom are current employees of the
Company, including a key employee of the Company, filed a
lawsuit against the Company in Colorado state court. The
complaint alleges claims for common law fraud, securities fraud
and breach of contract relating to the Companys
acquisition of PEAK in July 2000. The complaint does not specify
the damages sought. The complaint has not yet been served and no
response has been filed.

The Company intends to defend itself vigorously
against these allegations. However, the ultimate outcome of
these matters cannot presently be determined.

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in
conjunction with our Unaudited Condensed Consolidated Financial
Statements and related Notes. Certain statements contained in
this Quarterly Report on Form 10-Q/A, including, without
limitation, statements containing the words believe,
anticipate, estimate,
expect, and words of similar import, constitute
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. You should not
place undue reliance on these forward-looking statements. Our
actual results could differ materially from those anticipated in
these forward-looking statements for many reasons, including the
risks faced by us described below and elsewhere in this
Quarterly Report, and in other documents we file with the SEC,
including our Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2001.

Overview

Clarent Corporation is a leading provider of
softswitch and Internet Protocol (IP) communications
solutions that take advantage of the flexibility and universal
reach of IP networks, the most prominent of which is the public
network known as the Internet. Our software platform and
softswitch solutions, in conjunction with our hardware, or
equipment provided by others, enable service providers to
deliver simultaneous transmission of voice, fax and data over IP
networks.

Our customers include service providers, system
integrators, resellers and enterprises. Service provider
customers include traditional local, international and wholesale
long distance telecommunication companies, as well as next
generation service providers, including Internet Service
Providers (ISPs), Application Service Providers
(ASPs), web-to-phone providers and others employing
Internet-based business models.

We sell our products both through distributors
and our direct sales force. We have sales and support personnel
based in a number of countries and locations throughout the
United States.

Our operations and prospects have been and we
expect will be significantly affected by the developments
leading to and relating to the restatement of our 2001 and 2000
financial statements. The circumstances necessitating the
restatement, and the impact on us, can be described in the
following general categories:

Revenue
Restatement:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We discovered that our revenue had been
    overstated for certain periods because revenue from sales in the
    Asia-Pacific region had been recognized in situations where
    customers had indirectly received our funds from third parties,
    by means of arrangements effected through unauthorized acts of
    our employees. These arrangements were entered into in violation
    of our procedures and were not reported to the appropriate
    personnel within the Company.                                                                                                              
|
| |  | Revenue also had been overstated for certain
    periods because revenue had been recognized from certain sales
    in the Asia-Pacific region where customers now claim to have
    return rights or that we have repurchase obligations. We now
    believe that certain of our personnel may have entered into
    agreements with customers in the Asia-Pacific region purporting
    to provide such return rights or repurchase obligations. These
    agreements were entered into in violation of our procedures and
    were not reported to the appropriate personnel within the
    Company.
|
| |  | We have restated revenue for certain periods
    because, based on current information and actual payment
    history, it now appears that certain customers may not have been
    creditworthy at the time of purchase.                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Revenue also had been overstated for certain
    periods because of transactions involving the sale of products
    over which we continued to have some control until a subsequent
    period.                                                                                                                                                                                                                                                                                                                                                                                                        

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Impact
on Expenses:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In connection with the restatement, we have
    adjusted certain accruals and reserves related to accounts
    receivable, warranty and inventory and have made
    reclassification entries. We also recorded additional losses in
    the form of restructuring and asset impairments in the third
    quarter of 2001. These losses resulted from what we now know was
    an over-expansion of our operating capacity and operating
    expenses as well as the overall downturn in the
    telecommunications industry. We increased our operating capacity
    based on forecasts that included revenue levels that we now
    know, based on the discovery of financial irregularities, were
    overstated, but which we believed at the time were appropriate.
|
| |  | We also determined that expenses were understated
    because certain payments or loans made from the Asia-Pacific
    regional office were effected in violation of our procedures and
    were not reported to the appropriate personnel within the
    Company. We believe that such payments or loans are not
    recoverable.                                                                                                                                                                                                                                                                                                                                                                                                                                     

Financial
Condition:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our cash position was overstated in the
    March 31, 2001 and June 30, 2001 financial statements
    because personnel in the Asia Pacific region transferred cash in
    violation of the our policies and procedures. These cash
    transfers were not reported to the appropriate personnel within
    the Company. As a result, the cash transfers were accounted for
    in improper periods. As of September 30, 2001, in the
    aggregate, there was no direct material impact on our cash
    position as a result of the improper recording of these
    transactions, including the cash transfers, although we had
    recorded liabilities of approximately $24 million
    associated with the irregularities giving rise to the
    restatement. As of the date of filing of this report, our cash
    position has been materially impacted by several factors, as
    discussed below.
|
| |  | The unauthorized transactions with third parties
    that appear to have used our funds to purchase our products had
    a material impact on our financial condition because of the
    expense of the inventory for which we will probably not be able
    to recover any value and the associated distribution costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Our primary source of liquidity is our operating
    cash flows, which have been disrupted by the activities giving
    rise to, and the impact of, the restatement as well as the
    downturn in demand for telecommunications equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | We suffered substantial operating losses due to
    the activities necessitating the restatement because we
    over-expanded our operating capacity and operating expenses in
    2000 and the first two quarters of 2001. We increased our
    operating capacity based on forecasts that included revenue
    levels that we now know, based on the discovery of financial
    irregularities, were overstated, but which we believed at the
    time were appropriate.                                                                                                                                                                                                                                                                                                                                                                                                                               

To address the activities discovered in our
investigation, we have implemented remedial actions, including
the prompt termination of employees who appear to have been
involved in activities relating to the irregularities, closure
of our Asia-Pacific regional headquarters, and the adoption of
new and more stringent subsidiary cash control and expense
approval policies, such as new banking and internal reporting
procedures, improved controls over sales representatives and
sales orders and hiring and payroll procedures, and new and more
stringent credit approval policies.

We direct you to refer to Note 1 of Notes to
Unaudited Condensed Consolidated Financial Statements and our
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2001 for more current information
regarding the restatement.

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##### Table of Contents



Results of Operations

The following table presents certain consolidated
statement of operations data for the periods indicated as a
percentage of total net revenue:

|                                       |                                                |                          |    |      |     |    |     |     |     |   
|-------------------------------------- | ---------------------------------------------- | ------------------------ | -- | ---- | --- | -- | --- | --- | --- | --
|                                       |                                                |                         
|                                       |                                                | Three Months Ended      
|                                       |                                                | March 31,               
|                                       |                                                |                         
|                                       |                                                | 2000                     |    | 1999
|                                       |                                                |                          |    |     
|                                       |                                                | (Restated)               |    |     
|As a percentage of net revenue:        |                                                |                          |    |      |     |    |     |    
|                                       | Product and software                           |                          |    | 89   | %   |    |     | 91  | %  
|                                       | Services                                       |                          |    | 11   |     |    |     | 9   |    
|                                       |                                                |                          |    |      |     |    |     |    
|                                       |                                                | Total revenue            |    |      | 100 |    |     |     | 100 |   
|Cost of revenue:                       |                                                |                          |    |      |     |    |     |    
|                                       | Product and software                           |                          |    | 32   |     |    |     | 42  |    
|                                       | Services                                       |                          |    | 7    |     |    |     | 7   |    
|                                       |                                                |                          |    |      |     |    |     |    
|                                       |                                                | Total cost of revenue    |    |      | 39  |    |     |     | 49  |   
|                                       |                                                |                          |    |      |     |    |     |    
|Gross profit                           |                                                |                          | 61 |      |     |    | 51  |    
|Operating expenses:                    |                                                |                          |    |      |     |    |     |    
|                                       | Research and development                       |                          |    | 19   |     |    |     | 23  |    
|                                       | Sales and marketing                            |                          |    | 48   |     |    |     | 60  |    
|                                       | General and administrative                     |                          |    | 11   |     |    |     | 20  |    
|                                       | Amortization of deferred compensation          |                          |    | 6    |     |    |     | 30  |    
|                                       | Amortization of goodwill and other intangibles |                          |    | 1    |     |    |     |    |    
|                                       |                                                |                          |    |      |     |    |     |    
|                                       |                                                | Total operating expenses |    |      | 85  |    |     |     | 133 |   
|                                       |                                                |                          |    |      |     |    |     |    
|                                       | Loss from operations                           |                          |    | (24  | )   |    |     | (82 | )  
|Other income, net                      |                                                |                          | 18 |      |     |    |    |    
|                                       |                                                |                          |    |      |     |    |     |    
|Loss before provision for income taxes |                                                |                          | (6 | )    |     |    | (82 | )  
|Provision for income taxes             |                                                |                          |   |      |     |    |    |    
|                                       |                                                |                          |    |      |     |    |     |    
|                                       |                                                | Net loss                 |    |      | (6  | )% |     |     | (82 | )%
|                                       |                                                |                          |    |      |     |    |     |    

Net Revenue

Net revenue increased 242% to $23.0 million
for the three months ended March 31, 2000 from
$6.7 million in the three months ended March 31, 1999.
The increase in revenues was primarily attributable to an
increase in product and software sales of 234% to
$20.5 million in the three months ended March 31, 2000
from $6.1 million in the same period of 1999. Service
revenue increased by 327% to $2.5 million in the three
months ended March 31, 2000 from $586,000 for the same
period of 1999 due to a larger customer base and new products.
We have three customers individually contributing more than 10%
of revenue in the first quarter of 2000.

Cost of Revenue

Cost of revenue increased 175% to
$9.0 million for the three months ended March 31, 2000
from $3.3 million for the three months ended March 31,
1999. This increase was primarily attributable to an increase in
product and software costs of 166% to $7.4 million in the
three months ended March 31, 2000 from $2.8 million in
the same period of 1999. Service costs also increased by 231% to
$1.6 million in the three months ended March 31, 2000
from $495,000 in the same period of 1999 due to the increases in
technical support personnel to service our increased customer
base.

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Gross margin was 61% for the first quarter of
2000, compared to 51% for the corresponding period in 1999.
Increased sales of our software products, both in absolute
dollars and as a percentage of revenue, positively impacted our
gross margin in the three months ended March 31, 2000.

Research and Development Expenses

Research and development expenses increased 177%
to $4.3 million in the three months ended March 31,
2000 from $1.6 million in the three months ended
March 31, 1999. The absolute dollar increases in research
and development expenses from period to period were attributable
to increases in the number of research and development
personnel. Research and development expenses decreased as a
percentage of revenue to 19% for the three months ended
March 31, 2000 from 23% for the three months ended
March 31, 1999. The changes in research and development
costs as a percentage of revenue are attributable to
significantly higher revenues.

Sales and Marketing Expenses

Sales and marketing expenses increased 175% to
$11.1 million in the three months ended March 31, 2000
from $4.0 million in the three months ended March 31,
1999. The absolute dollar increase in sales and marketing
expenses was primarily attributable to an increase in personnel
and related expenses required to implement our sales and
marketing strategy and, to a lesser extent, increased public
relations and other promotional expenses. Sales and marketing
expenses decreased as a percentage of revenue to 48% for the
three months ended March 31, 2000 from 60% for the three
months ended March 31, 1999.

General and Administrative Expenses

General and administrative expenses increased 80%
to $2.4 million in the three months ended March 31,
2000 from $1.4 million in the three months ended
March 31, 1999. The absolute dollar increase in general and
administrative expenses from period to period was primarily
attributable to an increase in personnel and related expenses
required to build the infrastructure to support a larger
organization. General and administrative expenses decreased as a
percentage of revenue to 11% for the three months ended
March 31, 2000 from 20% for the three months ended
March 31, 1999. The changes in general and administrative
expenses as a percentage of revenue are attributable to
significantly higher revenues.

Amortization of Deferred
Compensation

We incurred $1.4 million in amortization of
deferred compensation expense for the three months ended
March 31, 2000 associated with the granting of stock
options and warrants to purchase common stock, as compared to
$2.0 million in the three months ended March 31, 1999.
Amortization of deferred compensation expense includes the
amortization of stock compensation charges resulting from the
granting of stock options at prices below the deemed fair value
of our common stock.

Amortization of Goodwill and Other
Intangibles

For the three months ended March 31, 2000,
we recorded amortization of goodwill of $226,000 resulting from
a purchase business combination completed in the fourth quarter
of 1999. No amortization for goodwill and other intangibles was
recorded in the corresponding period of 1999.

Other Income, Net

Other income, net increased to $4.1 million
in the three months ended March 31, 2000 from $16,000 in
the three months ended March 31, 1999. The increase was
attributable to the interest income earned on our cash, cash
equivalents and investments primarily as a result of the funds
raised in our initial and secondary public offerings.

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Provision for Income Taxes

For the three months ended March 31, 2000 we
recorded provisions for income taxes of $25,000 related to
current foreign income tax provided on the profits attributable
to our foreign operations.

Liquidity and Capital Resources

From inception through June 1999, we financed our
operations primarily through private sales of convertible
preferred stock, which totaled $18.9 million in aggregate
net proceeds. During 1999, we completed both an initial and a
secondary public offering, which resulted in net proceeds of
approximately $302.6 million.

Net cash provided by operating activities was
$1.6 million in the first quarter of 2000 compared with
$4.0 million used in operating activities in the same
period of 1999. Net cash provided by operating activities for
the first quarter of 2000 was attributable primarily to a net
loss of approximately $1.4 million, which was more than
fully offset by depreciation of $1.7 million, amortization
of $1.6 million, a decrease in accounts receivable of
$1.8 million, an increase in accounts payable, compensation
related accruals and other accrued liabilities of $234,000, and
a decrease in prepaid expenses and other current assets of
$624,000. These amounts were partially offset by an increase in
inventories of $1.5 million and a decrease in deferred
revenue of $1.5 million. The increase in inventory for the
first quarter was primarily in anticipation of expected growth
in product revenue as well as a greater need for evaluation
units. The decrease in accounts receivable for the first quarter
of 2000 primarily resulted from collection of aged receivable
balances.

Net cash used in operating activities for the
first quarter of 1999 was attributable primarily to a net loss
of approximately $5.5 million and increases in accounts
receivable of $4.1 million and inventory of
$2.0 million, partially offset by depreciation of $346,000,
amortization of deferred compensation of $2.0 million,
increases in accounts payable and other accrued liabilities of
$3.0 million and increases in deferred revenue of
$2.3 million. The increase in inventory for 1999 was
primarily in anticipation of expected growth in product revenue
as well as a greater need for evaluation units.

Net cash used in investing activities was
approximately $14.9 million in the first quarter of 2000 as
compared to $2.2 million for the same period in 1999. For
2000, $11.5 million of cash used in investing activities
was for the purchase of investment securities net of sales and
maturities. The remaining cash used in investing activities for
each year was for purchases of property and equipment.

Net cash provided by financing activities was
$1.0 million in the first quarter of 2000, as opposed to
$1.6 million for the same period in 1999. For the period
ended March 31, 2000, cash provided by financing activities
was attributable primarily to net proceeds from the exercise of
common stock options. For 1999, the cash provided by financing
activities was primarily attributable to proceeds from a bank
line of credit and long term debt.

On May 1, 2000 we announced the signing of a
definitive agreement to acquire ACT Networks, Inc. (ACT
Networks), a leading provider of multi-service access and
voice/data integration products that enable the convergence of
voice, video, and data onto a managed network, in a stock
transaction valued at approximately $189.0 million. The
acquisition is expected to close in the third quarter of 2000
subject to various closing conditions.

On March 31, 2000, our cash, cash
equivalents and short-term investment balance was
$283.5 million, which we believed would be sufficient to
meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months.

At March 31, 2002, our cash, cash
equivalents and short-term investments were approximately
$34 million, which may not be adequate to meet our
operating cash needs through the end of 2002, unless we achieve
increased revenues and further reduce our expenses. To reduce
our expenditures, we restructured in several areas, including
reducing staffing, implementing expense management and
curtailing capital spending. For example, since July 2001, our
headcount decreased by approximately 82%, from approximately
1,018 employees to approximately 180 employees currently. In
addition, we have sustained, and expect to continue to sustain,
substantial expenses arising from the restatement of our
financial statements and related litigation

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matters. Until we resolve the claims against us
and reduce our commitments, we expect that our expenses will
continue to exceed our revenues for the foreseeable future. We
plan to take further measures to conserve cash, and to continue
to evaluate our strategic alternatives.


For the quarter ended September 30, 2001, we
reported revenues of $18.7 million. In quarters subsequent to
the quarter ended September 30, 2001, revenues have
declined substantially. Our revenues have been, and we expect
will continue to be, materially affected by the downturn in
demand for telecommunications equipment and by events causing,
and the impact of, the restatement of our financial statements.
We do not expect demand for our products to recover for the
remainder of 2002, and we expect operating losses and negative
cash flows from operations to continue for the foreseeable
future.

If we are not able to achieve increased revenues
and resolve the claims against us, or if we incur unexpected
expenditures, then we will need to reduce expenses further and
raise additional funds to continue as a going concern. We
continue to evaluate our strategic alternatives, including
financing transactions or a sale of assets. Due to the
unavailability of a public market for our stock as well as our
current stock price, additional funding may not be available to
us on favorable terms or at all. If we raise additional funds
through the issuance of equity securities, the percentage
ownership of our stockholders could be significantly diluted.
Furthermore, these securities may have rights, preferences or
privileges senior to our common stock. If additional funding is
not available when needed, we may be unable to continue as a
going concern and achieve our intended business objectives.






ITEM 3.     QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Financial Market Risk

Our financial market risk includes risks
associated with international operations and related foreign
currencies. We anticipate that international sales will continue
to account for a significant portion of our consolidated
revenue. Our international sales are denominated in U.S. dollars
and therefore are not subject to foreign currency exchange risk.
Expenses of our international operations are denominated in each
countrys local currency and therefore are subject to
foreign currency exchange risk; however, through March 31,
2000 we have not experienced any significant negative impact on
our operations as a result of fluctuations in foreign currency
exchange rates. We do not engage in any hedging activities or
use derivative financial instruments.

We have an investment portfolio of fixed income
securities, including those classified as cash equivalents, of
approximately $269 million at March 31, 2000. These
securities are subject to interest rate fluctuations and will
decrease in market value if interest rates increase.

The primary objective of our investment
activities is to preserve principal while at the same time
maximizing yields without significantly increasing risk. We
invest primarily in high-quality, short-term debt instruments
such as U.S. government securities and instruments issued by
high quality financial institutions and companies including
money market instruments and debt issued by corporations. A
hypothetical 100 basis point increase in interest rates would
result in less than a $200,000 decrease (less than .1%) in the
fair market value of our available-for-sale securities.






PART II.     OTHER
INFORMATION







ITEM 6.     EXHIBITS
AND REPORTS ON FORM 8-K


(a) The following exhibits are filed as part
of this Form 10-Q/ A:

|      |  |                                                                                                                   
|----- |  | ------------------------------------------------------------------------------------------------------------------
|10.14 |  | Lease dated as of March 31, 2000 by and
    between Metropolitan Life Insurance Company and the
    registrant.(1)
|27.1  |  | Financial Data Schedule.                                                                                          



---

(1) Previously filed.

(b) Reports of Form 8-K.

There were no reports on Form 8-K filed by
the registrant during the quarter ended March 31, 2000.

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CLARENT CORPORATION

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.



| |                     | 
| | ------------------- | 
| | CLARENT CORPORATION | 



| |     |                    | 
| | --- | ------------------ | 
| | By: | /s/ JOHN J. OSHEA | 

| |                                                  | 
| | ------------------------------------------------ | 
| |                                                  | 
| | John J. OShea                                   | 
| | Chief Financial Officer                          | 
| | (Principal Financial and Accounting
    Officer) | 

Date: May 8, 2002

21