**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarter ended March 31, 2003**

 

**Commission file number 000-25475**

 

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**LATITUDECOMMUNICATIONS, INC.**

(Exact name of registrant asspecified in its charter)

** **

| **Delaware**                                                    |   | **94-3177392**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |   |                                  |
| **2121 Tasman Drive, Santa Clara, CA  95054**                   |
| (Address of principal executive offices, including zip code)    |
|                                                            |   |                                  |
| **(408) 988-7200**                                              |
| (Registrant’s telephone  number, including area code)      |

 

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes ý       No o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

 

Yes o       No ý

 

As of April 30, 2003,there were 19,483,277 shares of the registrant’s Common Stock outstanding.

 

 

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**INDEX**

** **
| **PART I.**   | **FINANCIAL INFORMATION** |                                                                                                                                 |
|---------------|---------------------------|--------------------------------------------------------------------------------------------------------------------------------------|
|          |
|          | **Item 1.**               | **Financial Statements  (Unaudited)**                                                                                                |
|          |                      |                                                                                                                                 |
|          |                      | Condensed  consolidated balance sheets at March 31, 2003 and December 31, 2002                                                       |
|          |                      |                                                                                                                                 |
|          |                      | Condensed  consolidated statements of operations and comprehensive income (loss) for the  three months ended March 31, 2003 and 2002 |
|          |                      |                                                                                                                                 |
|          |                      | Condensed  consolidated statements of cash flows for the three months ended March 31,  2003 and 2002                                 |
|          |                      |                                                                                                                                 |
|          |                      | Notes  to condensed consolidated 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**                                                                      |
|          |                      |                                                                                                                                 |
|          | **Item 4.**               | **Controls and Procedures**                                                                                                          |
|          |                      |                                                                                                                                 |
| **PART II.**  | **OTHER INFORMATION**     |
|          |                      |                                                                                                                                 |
|          | **Item 1.**               | **Legal Proceedings**                                                                                                                |
|          |                      |                                                                                                                                 |
|          | **Item  2.**              | **Changes  in Securities and Use of Proceeds**                                                                                       |
|          |                      |                                                                                                                                 |
|          | **Item  3.**              | **Defaults  Upon Senior Securities**                                                                                                 |
|          |                      |                                                                                                                                 |
|          | **Item  4.**              | **Submission  of Matters to a Vote of Security Holders**                                                                             |
|          |                      |                                                                                                                                 |
|          | **Item 5.**               | **Other Information**                                                                                                                |
|          |                      |                                                                                                                                 |
|          | **Item 6.**               | **Exhibits and  Reports on Form 8-K**                                                                                                |
|          |                      |                                                                                                                                 |
| **SIGNATURE** |
|               |                           |                                                                                                                                      |  |  |

 

2

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**PART I.                 FINANCIALINFORMATION**

**Item 1.                    FinancialStatements.**

 

**LATITUDE COMMUNICATIONS,INC.CONDENSED CONSOLIDATED BALANCESHEETS(in thousands, except per share amounts)**

**(Unaudited)**

 
|                                                                           |   | **March 31,  2003** |   | **December  31,  2002** |   |
|--------------------------------------------------------------------------------|--------|---------------------|--------|-------------------------|--------|
|                                                                           |   |                |   |                    |   |
| **ASSETS**                                                                     |   |                |   |                    |   |
| Current assets:                                                                |   |                |   |                    |   |
| Cash and cash equivalents                                                      |   | $                   | 17,279 |                    | $      | 13,119 |   |
| Short-term investments                                                         |   | 7,047               |   | 12,066                  |   |
| Accounts receivable, net                                                       |   | 6,916               |   | 7,035                   |   |
| Inventory                                                                      |   | 1,250               |   | 952                     |   |
| Prepaids and other assets                                                      |   | 1,852               |   | 2,135                   |   |
| Total current assets                                                           |   | 34,344              |   | 35,307                  |   |
| Property and equipment, net                                                    |   | 3,634               |   | 3,915                   |   |
| Deposits and other long-term assets                                            |   | 1,099               |   | 1,060                   |   |
| Total assets                                                                   |   | $                   | 39,077 |                    | $      | 40,282 |   |
|                                                                           |   |                |   |                    |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                  |   |                |   |                    |   |
| Current liabilities:                                                           |   |                |   |                    |   |
| Accounts payable                                                               |   | $                   | 417    |                    | $      | 744 |   |
| Accrued liabilities                                                            |   | 4,694               |   | 5,274                   |   |
| Deferred revenue                                                               |   | 5,092               |   | 5,054                   |   |
| Total current liabilities                                                      |   | 10,203              |   | 11,072                  |   |
| Other non-current liabilities                                                  |   | 2,299               |   | 2,605                   |   |
| Total liabilities                                                              |   | 12,502              |   | 13,677                  |   |
| Stockholders’ equity:                                                     |   |                |   |                    |   |
| Preferred stock, $0.001 par value                                              |   |                |   |                    |   |
| Authorized: 5,000 shares at March 31, 2003  and December 31, 2002              |   |                |   |                    |   |
| Issued and outstanding: No shares at March  31, 2003 and December 31, 2002     |   | —              |   | —                  |   |
| Common stock, $0.001 par value                                                 |   |                |   |                    |   |
| Authorized: 75,000 shares at March 31, 2003  and December 31, 2002             |   |                |   |                    |   |
| Issued and outstanding: 19,390 shares at  March 31, 2003 and December 31, 2002 |   | 19                  |   | 19                      |   |
| Additional paid-in capital                                                     |   | 57,757              |   | 57,757                  |   |
| Accumulated other comprehensive income (loss)                                  |   | (17                 | )      | 49                      |   |
| Accumulated deficit                                                            |   | (31,184             | )      | (31,220                 | )      |
| Total stockholders’ equity                                                |   | 26,575              |   | 26,605                  |   |
| Total liabilities and stockholders’ equity                                |   | $                   | 39,077 |                    | $      | 40,282 |   |

 

*The accompanying notes are an integral part of thesecondensed consolidated financial statements.*

 

3

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**LATITUDE COMMUNICATIONS,INC.CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS AND**

**COMPREHENSIVE INCOME (LOSS)(in thousands, except per share amounts)(Unaudited)**

 
|                                                                                           |   | **Three  Months Ended  March 31,** |   |
|------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                           |   | **2003**                           |   | **2002** |   |
| Revenue:                                                                                       |   |                               |   |   |   |
| Product                                                                                        |   | $                                  | 1,973  |   | $ | 3,426 |   |
| Service                                                                                        |   | 7,462                              |   | 6,046 |   |
| Total revenue                                                                                  |   | 9,435                              |   | 9,472 |   |
| Cost of revenue:                                                                               |   |                               |   |   |   |
| Product                                                                                        |   | 684                                |   | 1,052 |   |
| Service (includes non-cash stock  compensation of $0 and $1, respectively)                     |   | 3,384                              |   | 3,428 |   |
| Total cost of revenue                                                                          |   | 4,068                              |   | 4,480 |   |
| Gross profit                                                                                   |   | 5,367                              |   | 4,992 |   |
|                                                                                           |   |                               |   |   |   |
| Operating expenses:                                                                            |   |                               |   |   |   |
| Research and development (includes non-cash  stock compensation of $0 and $12, respectively)   |   | 1,132                              |   | 1,420 |   |
| Marketing and sales (includes non-cash  stock compensation of $0 and $11, respectively)        |   | 3,185                              |   | 4,910 |   |
| General and administrative (includes  non-cash stock compensation of $0 and $46, respectively) |   | 1,148                              |   | 1,204 |   |
| Total operating expenses                                                                       |   | 5,465                              |   | 7,534 |   |
| Loss from operations                                                                           |   | (98                                | )      | (2,542 | ) |
| Interest income, net                                                                           |   | 158                                |   | 267 |   |
| Income (loss) before benefit from  (provision for) income taxes                                |   | 60                                 |   | (2,275 | ) |
| Benefit from (provision for) income taxes                                                      |   | (24                                | )      | 794 |   |
|                                                                                           |   |                               |   |   |   |
| Net income (loss)                                                                              |   | $                                  | 36     |   | $ | (1,481 | ) |
|                                                                                           |   |                               |   |   |   |
| Other comprehensive loss, net of tax—                                                     |   |                               |   |   |   |
| Unrealized gain on securities                                                                  |   | (66                                | )      | (53 | ) |
| Cumulative translation adjustment                                                              |   | —                             |   | 13 |   |
|                                                                                           |   |                               |   |   |   |
| Comprehensive loss                                                                             |   | $                                  | (30    | ) | $ | (1,521 | ) |
|                                                                                           |   |                               |   |   |   |
| Net income (loss) per share—basic                                                         |   | $                                  | 0.00   |   | $ | (0.08 | ) |
| Shares used in per share calculation—basic                                                |   | 19,390                             |   | 19,294 |   |
| Net income (loss) per share—diluted                                                       |   | $                                  | 0.00   |   | $ | (0.08 | ) |
| Shares used in per share  calculation—diluted                                             |   | 20,000                             |   | 19,294 |   |

 

*The accompanying notes are an integral part of thesecondensed consolidated financial statements.*

 

4

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**LATITUDE COMMUNICATIONS,INC.CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS(Amounts in thousands, except per share amounts)(Unaudited)**

 
|                                                                         |   | **Three  Months Ended  March 31,** |   |
|------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                         |   | **2003**                           |   | **2002** |   |
| Cash flows from operating activities:                                        |   |                               |   |   |   |
| Net income (loss)                                                            |   | $                                  | 36     |   | $ | (1,481 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |   |                               |   |   |   |
| Depreciation and amortization                                                |   | 614                                |   | 701 |   |
| Amortization of capitalized software                                         |   | 33                                 |   | 121 |   |
| Write down of excess and obsolete inventory                                  |   | —                             |   | 150 |   |
| Provision for doubtful accounts                                              |   | —                             |   | 3 |   |
| Amortization of deferred stock compensation                                  |   | —                             |   | 69 |   |
| Changes in assets and liabilities:                                           |   |                               |   |   |   |
| Accounts receivable                                                          |   | 119                                |   | (752 | ) |
| Inventory                                                                    |   | (321                               | )      | 35 |   |
| Prepaids and other assets                                                    |   | 452                                |   | 60 |   |
| Deferred income taxes                                                        |   | —                             |   | (807 | ) |
| Accounts payable                                                             |   | (327                               | )      | 1,660 |   |
| Accrued liabilities                                                          |   | (886                               | )      | (584 | ) |
| Deferred revenue                                                             |   | 38                                 |   | (39 | ) |
| Net cash used in operating activities                                        |   | (242                               | )      | (864 | ) |
|                                                                         |   |                               |   |   |   |
| Cash flows from investing activities:                                        |   |                               |   |   |   |
| Purchases of property and equipment                                          |   | (310                               | )      | (235 | ) |
| Additions to software production costs                                       |   | (202                               | )      | — |   |
| Purchases of available for sale securities                                   |   | —                             |   | (6,635 | ) |
| Maturities of available for sale securities                                  |   | 4,953                              |   | 4,100 |   |
| Increase in deposits and other long-term  assets                             |   | (39                                | )      | (25 | ) |
| Net cash provided by (used in) investing  activities                         |   | 4,402                              |   | (2,795 | ) |
|                                                                         |   |                               |   |   |   |
| Cash flows from financing activities:                                        |   |                               |   |   |   |
| Proceeds from issuance of common stock, net                                  |   | —                             |   | 11 |   |
| Repayment of notes payable and capital  lease obligations                    |   | —                             |   | (16 | ) |
| Net cash used in financing activities                                        |   | —                             |   | (5 | ) |
|                                                                         |   |                               |   |   |   |
| Net increase (decrease) in cash and cash  equivalents                        |   | 4,160                              |   | (3,664 | ) |
| Cash and cash equivalents, beginning of  period                              |   | 13,119                             |   | 15,370 |   |
| Cash and cash equivalents, end of period                                     |   | $                                  | 17,279 |   | $ | 11,706 |   |

 

*The accompanying notes are an integral part of thesecondensed consolidated financial statements.*

 

5

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**LATITUDE COMMUNICATIONS,INC.NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 1—The Company and Basis of Presentation**

 

Latitude Communications,Inc. (the “Company”) is a leading provider of enterprise voice and webconferencing solutions.  The Companydevelops, markets and supports its MeetingPlace system, and related services,which enables real-time collaboration through meetings via Web browsers,groupware applications such as Outlook and Notes, and PSTN and IP phones.  MeetingPlace also allows users to share andedit live documents, record, and access meeting content.  The Company distributes its product andservices through distributors and a direct sales force to companies across manyindustries in the United States, Europe and Asia.

 

The accompanyingunaudited condensed consolidated financial statements reflect all adjustments,which, in the opinion of management, are necessary for a fair presentation ofthe results for the periods shown.  Theresults of operations for such periods are not necessarily indicative of theresults expected for the full fiscal year or for any future period.  The balance sheet at December 31, 2002 wasderived from audited financial statements; however, it does not include alldisclosures required by generally accepted accounting principles in the United Statesof America.  The financial statementsand related disclosures have been prepared with the presumption that users ofthe interim financial information have read or have access to the auditedfinancial statements for the preceding fiscal year.  Accordingly, these financial statements should be read inconjunction with the audited financial statements and the related notes theretocontained in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2002.

 

**Note 2—Recent Accounting Pronouncements**

 

In June 2002, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 146, “Accounting for Exit or Disposal Activities”(“SFAS 146”). SFAS 146 addresses significant issues regarding therecognition, measurement, and reporting of costs that are associated with exitand disposal activities, including restructuring activities that are currentlyaccounted for under the Emerging Issues Task Force (“EITF”) No. 94-3,“Liability Recognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs Incurred in aRestructuring)”.  The scope ofSFAS 146 also includes costs related to terminating a contract that is nota capital lease and termination benefits that employees who are involuntarilyterminated receive under the terms of a one-time benefit arrangement that isnot an ongoing benefit arrangement or an individual deferred-compensationcontract. SFAS 146 is effective for exit or disposal activities that are initiatedafter December 31, 2002.  The provisionsof EITF No. 94-3 shall continue to apply for an exit activity initiated underan exit plan that meets the criteria of EITF No. 94-3 prior to the adoption ofSFAS 146.  The effect on adoption ofSFAS 146 will change on a prospective basis the timing of when restructuringcharges are recorded from a commitment date approach to when the liability isincurred. SFAS 146 was adopted in the first quarter of 2003 and did nothave a significant impact on the Company’s financial position, results ofoperations or cash flows.

 

In January 2003, the FASBissued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable InterestEntities, an Interpretation of ARB No. 51”. FIN 46 requires certain variableinterest entities to be consolidated by the primary beneficiary of the entityif the equity investors in the entity do not have the characteristics of acontrolling financial interest or do not have sufficient equity at risk for theentity to finance its activities without additional subordinated financialsupport from other parties. FIN 46 is effective immediately for all newvariable interest entities created or acquired after January 31, 2003. Forvariable interest entities created or acquired prior to February 1, 2003, theprovisions of FIN 46 must be applied for the first interim or annual periodbeginning after June 15, 2003. The Company does not have any variable interestentities, and does not expect the adoption of FIN 46 to have a materialimpact on its financial position, results of operation or cash flows.

 

6

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**Note 3—Inventory**

 

**Inventoryconsists of the following (in thousands):**

 
|           |   | **March 31,  2003** |   | **December  31,  2002** |   |
|----------------|--------|---------------------|--------|-------------------------|--------|
|           |   | **(Unaudited)**     |   |
| Raw materials  |   | $                   | 248    |                    | $      | 628 |   |
| Finished goods |   | 1,002               |   | 324                     |   |
|           |   | $                   | 1,250  |                    | $      | 952 |   |

 

**Note 4—Pro Forma Stock Compensation**

 

Latitude has adopted thedisclosure-only provisions of SFAS 123. Had compensation cost been determinedbased on the fair value at the grant date for the awards granted since 1994,consistent with the provisions of SFAS 123 for the 1993 Stock Plan, the 1999Stock Plan, the 2001 Employee Stock Option Plan, the 1999 Directors’ StockOption Plan and the 1999 Employee Stock Purchase Plan, Latitude’s net income(loss) for the three months ended March 31, 2003 and 2002 would have been asfollows (in thousands, except per share data):

 
|                                                                            |   | **Three Months ended March 31,** |   |
|---------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                            |   | **2003**                         |   | **2002** |   |
| Net income (loss)—as reported                                              |   | $                                | 36     |   | $ | (1,481 | ) |
| Less stock based compensation expense  determined under fair value based method |   | (4,212                           | )      | (5,415 | ) |
|                                                                            |   |                             |   |   |   |
| Net loss—pro forma                                                         |   | (4,176                           | )      | (6,896 | ) |
| Net income (loss) per share—basic as  reported                             |   | 0.00                             |   | (0.08 | ) |
| Net loss per share—basic pro forma                                         |   | (0.22                            | )      | (0.36 | ) |
| Net income (loss) per share—diluted as  reported                           |   | 0.00                             |   | (0.08 | ) |
| Net loss per share—diluted pro forma                                       |   | $                                | (0.22  | ) | $ | (0.36 | ) |

 

Such pro formadisclosures may not be representative of future compensation cost becauseoptions vest over several years and additional grants are made each year.

 

The weighted averagegrant date fair value of stock options granted was $0.68 and $1.48 for March31, 2003 and 2002, respectively.  Therewere no purchase rights granted under the ESPP during the three months endedMarch 31, 2003 and 2002, respectively.

 

In accordance with theprovisions of SFAS 123, the following assumptions for option grants during thethree months ended March 31, 2003 and 2002 are included to estimate the fairvalue of each stock option and purchase right: 

 

7

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|                              |   | **Three  Months ended March 31,** |   |
|-----------------------------------|--------|-----------------------------------|--------|
|                              |   | **2003**                          |   | **2002** |   |
| **Stock Options:**                |   |                              |   |   |   |
| Expected dividend yield           |   | 0                                 | %      | 0 | % |
| Expected stock price volatility   |   | 105                               | %      | 105 | % |
| Risk-free interest rate           |   | 2.35-2.85                         | %      | 2.5-4.5 | % |
| Expected life (years)             |   | 4                                 |   | 4 |   |
|                              |   |                              |   |   |   |
| **Employee Stock Purchase Plan:** |   |                              |   |   |   |
| Expected dividend yield           |   | 0                                 | %      | 0 | % |
| Expected stock price volatility   |   | 105                               | %      | 105 | % |
| Risk-free interest rate           |   | 3.8                               | %      | 3.8 | % |
| Expected life (years)             |   | 0.5                               |   | 0.5 |   |

 

**Note 5—Net Income (Loss) Per Share**

 

Basic net income (loss)per share is computed by dividing net income (loss) available to commonstockholders by the weighted average number of vested common shares outstandingfor the period.  Diluted net income(loss) per share is computed by giving effect to all dilutive potential commonstock options.  Diluted net loss pershare is the same as basic net loss per share for the three months ended March31, 2002 because the inclusion of potentially dilutive common shares, whichconsisted of common shares issuable upon the exercise of stock options, wouldresult in an anti-dilutive per share effect.

 

A reconciliation of thenumerator and denominator of basic and diluted net income (loss) per share isprovided as follows (in thousands, except per share amounts):

 

|                                                                                    |   | **Three  Months Ended  March 31,** |   |
|-----------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                    |   | **2003**                           |   | **2002** |   |
|                                                                                    |   | **(Unaudited)**                    |   |
| Net income (loss) per share, basic and  diluted:                                        |   |                               |   |   |   |
| Numerator for basic and diluted net income  (loss) per share                            |   | $                                  | 36     |   | $ | (1,481 | ) |
| Denominator for basic net income (loss) per  share:                                     |   |                               |   |   |   |
| Weighted average vested common shares  outstanding                                      |   | 19,390                             |   | 19,294 |   |
| Net income (loss) per share - basic                                                     |   | $                                  | 0.00   |   | $ | (0.08 | ) |
|                                                                                    |   |                               |   |   |   |
| Denominator for diluted net income (loss)  per share:                                   |   |                               |   |   |   |
| Weighted average vested common shares  outstanding                                      |   | 19,390                             |   | 19,294 |   |
| Effect of dilutive securities:                                                          |   |                               |   |   |   |
| Common stock options                                                                    |   | 610                                |   | — |   |
| Weighted average common and common  equivalent shares                                   |   | 20,000                             |   | 19,294 |   |
| Net income (loss) per share - diluted                                                   |   | $                                  | 0.00   |   | $ | (0.08 | ) |
|                                                                                    |   |                               |   |   |   |
| Anti-dilutive securities not in diluted net  loss per share calculation for the period: |   |                               |   |   |   |
| Common stock options                                                                    |   | —                             |   | 4,509 |   |

 

8

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**Note 6—Restructuring**

 

During the quarter endedJune 30, 2001, the Company initiated a restructuring program.  As a part of this restructuring program, theCompany recorded costs and other charges of $870,000 classified as operatingexpenses.  Of this amount, $442,000related to a reduction in the workforce by approximately 40 regular employeesacross all functional areas of the Company, $228,000 related to non-cancelablelease costs arising from the consolidation of excess facilities and $200,000related to discontinued assets written-off.

 

During the quarter endedSeptember 30, 2002, the Company initiated another restructuring program.  As a part of this restructuring program, theCompany recorded costs and other charges of $5,400,000 classified as operatingexpenses.  Of this amount, $900,000related to a reduction in the workforce by approximately 45 fulltime employeesacross all functional areas of the Company, including three members ofexecutive management; $3,900,000 related to non-cancelable lease costs arisingfrom the consolidation of excess facilities; and $600,000 related todiscontinued assets written-off.

 

A summary of therestructuring costs is as follows (in thousands):

 
|                                                |   | **Severance  and  Benefits** |   | **Facilities  and Other  Charges** |   | **Asset  Write-Offs** |   | **Total** |   |
|-----------------------------------------------------|--------|------------------------------|--------|------------------------------------|--------|-----------------------|--------|-----------|--------|
| Provisions for fiscal 2001                          |   | $                            | 442    |                               | $      | 228                   |   | $         | 200    |   | $ | 870 |   |
| Cash paid                                           |   | (222                         | )      | (70                                | )      | —                |   | (292      | )      |
| Non-cash charges                                    |   | (31                          | )      | —                             |   | (200                  | )      | (231      | )      |
| Adjusted provision                                  |   | (189                         | )      | 189                                |   | —                |   | —    |   |
| Restructuring reserve balance at December  31, 2001 |   | —                       |   | 347                                |   | —                |   | 347       |   |
| Provisions for fiscal 2002                          |   | 900                          |   | 3,900                              |   | 600                   |   | 5,400     |   |
| Cash paid                                           |   | (877                         | )      | (172                               | )      | —                |   | (1,049    | )      |
| Non-cash charges                                    |   | —                       |   | (174                               | )      | (600                  | )      | (774      | )      |
| Restructuring reserve balance at December  31, 2002 |   | 23                           |   | 3,901                              |   | —                |   | 3,924     |   |
| Cash paid                                           |   | (4                           | )      | (302                               | )      | —                |   | (306      | )      |
| Non-cash charges                                    |   | —                       |   | (61                                | )      | —                |   | (61       | )      |
| Restructuring reserve balance at March 31,  2003    |   | $                            | 19     |                               | $      | 3,538                 |   | $         | — |   | $ | 3,557 |   |

 

The amounts related toseverance and benefits costs are expected to be paid during fiscal 2003.  The amounts related to non-cancelable leasecosts are expected to be paid over the respective lease terms through fiscal2005.

 

**Note 7 – Share Repurchase Program**

 

On July 24, 2001 theCompany’s Board of Directors approved a Share Repurchase Program of up to1,000,000 shares of common stock. During the three months ended March 31, 2003, no shares wererepurchased.  As of March 31, 2003, theCompany has purchased 339,200 shares under this program at a weighted averagecost of $1.35 per share.

 

**Note 8 – Contingencies &Commitments**

 

**Litigation:**

 

InNovember 2001, a series of securities class actions were filed in the UnitedStates District Court for the Southern District of New York against certainunderwriters for Latitude’s initial public offering (“IPO”), LatitudeCommunications Inc., and Emil C. Wang and Rick M. McConnell, who were officersof Latitude at the time of the IPO. The complaints were consolidated into asingle action, and a consolidated amended complaint against Latitude was filedin April 2002. The amended complaint alleges, among other things, that theunderwriter defendants violated the securities laws by failing to disclosealleged compensation arrangements in the initial public offering’s registrationstatement and by engaging in manipulative practices to artificially inflate theprice of the Company’s common stock after the initial public offering. Theamended complaint also alleges, among other things, that Latitude and the namedofficers violated section 11 of the Securities Act of 1933 and section 10(b) ofthe Exchange Act of 1934 on the basis of an alleged failure to disclose theunderwriters’ alleged compensation arrangements and manipulative practices. Nospecific amount of damages has been claimed. Similar complaints have been filed

 

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against more than 300 otherissuers that have had initial public offerings since 1998, and all of theseactions have been included in a single coordinated proceeding.

 

Mr.McConnell and Mr. Wang have subsequently been dismissed from the action withoutprejudice pursuant to a tolling agreement. Furthermore, in July 2002, Latitudeand the other issuers in the consolidated cases filed motions to dismiss theamended complaint for failure to state a claim. The motion to dismiss claimsunder section 11 was denied as to virtually all the defendants in theconsolidated actions, including Latitude. However, the claims against Latitudeunder section 10(b) were dismissed.

 

Latitude will defend itself vigorously against the claims in thislawsuit. Due to the inherent uncertainties of litigation and because thelitigation is still at a preliminary stage, the ultimate outcome of the mattercannot be predicted.

 

**Guarantees:**

 

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees,Including Guarantees of Indebtedness of Others.”  FIN 45 requires that upon issuance of certain guarantees, aguarantor must recognize a liability for the fair value of an obligationassumed under the guarantee.  FIN 45also requires significant new disclosures, in both interim and annual financialstatements, by a guarantor, about obligations associated with guaranteesissued.

 

Latitude purchases long distance capacityfrom third parties.  These purchaseagreements require a minimum commitment at a fixed rate for a specifiedperiod.  The Company incorporates longdistance services into fixed rate conferencing services contracts to some ofits customers.  The terms of thepurchase agreements and conferencing services contracts do not necessarilycoincide, and as a result, increases in long distance rates could expose theCompany to potential losses.

 

Latitude also, aspermitted under Delaware law and in accordance with our Bylaws, indemnifies itsofficers and directors for certain events or occurrences, subject to certainlimits, while the officer or director is or was serving at the Company’srequest in such capacity. The indemnification obligation is for the officer’sor director’s lifetime.  The maximumamount of potential future indemnification is unlimited; however, Latitude doeshave a Director and Officer Insurance Policy that limits its exposure andenables the Company to recover a portion of any future amounts paid.

 

In the Company’ssales agreements, Latitude typically agrees to indemnify its customers forexpenses or liability resulting from claimed infringements of patents,trademarks, copyrights or other intellectual property rights of third parties.The terms of these indemnification agreements may be perpetual after executionof the agreement. The maximum amount of potential future indemnification may beunlimited. To date the Company has not paid any amounts to settle claims ordefend lawsuits related to such indemnification agreements.

 

**Note 9 – Deferred Tax ValuationAllowance**

 

At December 31, 2001, theCompany had total gross U.S. deferred tax assets of $7.5 million.  These assets included temporary differencesrelated principally to net operating losses that carry forward and research anddevelopment credits.  During the thirdquarter ended September 30, 2002, the Company concluded that a deferred taxasset valuation allowance should be established due to the uncertainty ofrealizing the tax loss carry-forwards and other deferred tax assets inaccordance with Statement of Financial Accounting Standards No. 109 (“SFAS109”), “Accounting for Income Taxes”. Accordingly, in the third quarter of 2002, the Company recorded anon-cash charge of $9.0 million to provide a full valuation allowance for itsdeferred tax assets.  The Company’sassessment in recording the valuation allowance was based principally on itshistorical operating losses; the loss of a major customer and restructuringefforts announced in the third quarter of 2002; and unfavorable macro-economicconditions.

 

SFAS No. 109, “Accountingfor Income Taxes,” requires the establishment of a valuation allowance fordeferred tax assets when it is deemed more likely than not that these assetswill not be realized.  The deferred taxassets will be recognized in future periods to the extent that the Company canreasonably expect such assets to be realized. The Company will evaluate the probability of realizing its deferred taxassets on a quarterly basis.  If theCompany determines that a portion or all of the deferred tax assets arerealizable, then the valuation allowance will be reduced accordingly.

 

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**Note 10 – Subsequent Event**

 

**On April 17, 2003 Latitude announced it had enteredinto an agreement to acquire the assets of Wanadu Incorporated (“Wanadu”), aprivately held developer of Flash-based content creation, management anddelivery products.  In the transaction,which closed on April 30, 2003, Latitude acquired Wanadu’s assets in exchangefor $900,000 in cash and a percentage of future revenue from sales of Wanaduproducts.**

 

**Item 2.                    Management’s Discussion andAnalysis of Financial Condition and Results of Operations.**

 

**Certain Forward-Looking Information**

 

This Management’sDiscussion and Analysis of Financial Condition and Results of Operations andother parts of this Form 10-Q include a number of forward-lookingstatements that reflect our current views with respect to future events andfinancial performance.  We use wordssuch as “anticipates,” “believes,” “expects,” “future,” and “intends,” andsimilar expressions to identify forward-looking statements. You should notplace undue reliance on these forward-looking statements, which apply only asof the date of this Quarterly Report on Form 10-Q.  These forward-looking statements are subject to risks anduncertainties that could cause actual results to differ materially fromhistorical results or our predictions. These risks are described in “ Factors That May Affect Future Results “and elsewhere in this Form 10-Q.  TheCompany assumes no obligation to update these forward-looking statements toreflect actual results or changes in factors or assumptions affecting suchforward-looking statements.

 

While we believe that thediscussion and analysis in this report is adequate for a fair presentation ofthe information, we recommend that you read this discussion and analysis withManagement’s Discussion and Analysis included in our Annual Report on Form 10-Kfor the year ended December 31, 2002 filed with the Securities and ExchangeCommission (“SEC”).

 

**Overview**

 

We are a leading providerof integrated, secure voice and web conferencing solutions that enablegeographically dispersed organizations to work better through real-timecollaboration.  Our MeetingPlace systemintegrates with standard communications infrastructures enabling people toshare and edit live documents to work together productively from anylocation.  With MeetingPlace,participants can schedule and attend a meeting, view, share and edit documents,and capture and retrieve meeting content. MeetingPlace is designed to be an enterprise-wide resource and toleverage existing technologies such as telephones, cellular phones and personalcomputers.

 

We generate revenue fromsales of our MeetingPlace products and services, and from related customersupport and consulting services. Revenue derived from services constituted 79% of total revenue in thefirst quarter of 2003 and 64% during the corresponding period of 2002.  Service revenue includes revenue from ourusage and subscription based managed and hosted MeetingPlace services,implementation and customization services, consulting services, warrantycoverage and customer support. Revenue from managed, hosted, and implementationservices is recognized as the services are performed, revenue fromcustomization services is recognized upon project completion, and revenue fromwarranty coverage and customer support is recognized ratably over the period ofthe underlying contract.  OurMeetingPlace services offerings allow companies to acquire MeetingPlace on ausage-based pricing model and have Latitude manage their MeetingPlacecapacity.  Accordingly, revenue fromthis new service offering has increased the proportion of total revenue derivedfrom services.

 

Revenue derived fromproduct sales constituted 21% of total revenue in the first quarter of 2003 and36% during the corresponding period of 2002. Product revenue is generally recognized upon shipment if a signedcontract exists, the fee is fixed or determinable, collection of the resultingreceivable is probable, product returns are reasonably estimable and, ifapplicable, acceptance has been obtained.

 

We sell our MeetingPlaceproducts primarily through our direct sales force and, to a lesser extent,through indirect distribution channels. The majority of our revenue is derived from large enterprises and organizations,many of which initially purchase MeetingPlace servers and later expanddeployment of our products as they require additional capacity for voice andweb conferencing.

 

Total cost of revenueconsists of component and materials costs, direct labor costs, amortization ofcapitalized software, warranty costs, royalties and overhead related tomanufacturing of our products, long distance services resold to our customers,and materials, travel and labor costs related to personnel engaged in our serviceoperations.  Product gross margin isimpacted by the proportion of product revenue derived from software sales,which typically carry higher margins than hardware sales, and from indirectdistribution channels, which typically carry lower

 

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margins thandirect sales.  Service gross margin isimpacted by the mix of services we provide, which have different levels ofprofitability, usage levels by our customers and the efficiency with which weprovide support to our customers.  Wereduce the carrying value of excess and obsolete inventory by identifyinginventory components either considered excess based on estimates of futureusage or obsolete due to changes in our product offerings.  As a result of technological changes, ourproducts may become obsolete or we could be required to redesign our products.

 

During 2002 and 2001, werecorded significant accruals in connection with restructuring programs.  These accruals included estimates pertainingto employee separation costs and the settlements of contractual obligationsrelated to excess leased facilities and other contracts.  Although we do not currently anticipatesignificant changes, actual costs may differ from these estimates, particularlythe costs surrounding the excess leased facilities (for example, increasedcommon area fees).

 

On April 17, 2003 weannounced entering into an agreement to acquire the assets of WanaduIncorporated, a privately held developer of Flash-based content creation,management and delivery products.  Inthe transaction, which closed on April 30, 2003, we acquired Wanadu’s assets inexchange for cash and a percentage of future revenue from sales of Wanaduproducts.  The acquisition is a key stepin our strategy to build and offer rich-media conferencing solutions thatintegrate voice, web, video and instant messaging technologies.

 

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**Results Of Operations**

 

The followingtable lists, for the periods indicated, the percentage of total revenue of eachline item from our condensed consolidated statement of operations to totalrevenues:

 

|                                                            |   | **Three  Months Ended  March 31,** |   |
|-----------------------------------------------------------------|--------|------------------------------------|--------|
|                                                            |   | **2003**                           |   | **2002** |   |
| Revenue:                                                        |   |                               |   |   |   |
| Product                                                         |   | 20.9                               | %      | 36.2 | % |
| Service                                                         |   | 79.1                               |   | 63.8 |   |
| Total revenue                                                   |   | 100.0                              |   | 100.0 |   |
| Cost of revenue:                                                |   |                               |   |   |   |
| Product                                                         |   | 7.2                                |   | 11.1 |   |
| Service                                                         |   | 35.9                               |   | 36.2 |   |
| Total cost of revenue                                           |   | 43.1                               |   | 47.3 |   |
| Gross profit                                                    |   | 56.9                               |   | 52.7 |   |
|                                                            |   |                               |   |   |   |
| Operating expenses:                                             |   |                               |   |   |   |
| Research and development                                        |   | 12.0                               |   | 15.0 |   |
| Marketing and sales                                             |   | 33.8                               |   | 51.9 |   |
| General and administrative                                      |   | 12.1                               |   | 12.7 |   |
| Total operating expenses                                        |   | 57.9                               |   | 79.6 |   |
| Loss from operations                                            |   | (1.0                               | )      | (26.9 | ) |
| Interest income, net                                            |   | 1.7                                |   | 2.8 |   |
| Income (loss) before benefit from  (provision for) income taxes |   | 0.7                                |   | (24.1 | ) |
| Benefit from (provision for) income taxes                       |   | (0.3                               | )      | 8.4 |   |
| Net income (loss)                                               |   | 0.4                                | %      | (15.7 | )% |

 

*Product Revenue*

 

Product revenue was $2.0million for the first quarter of 2003, a decrease of 42% compared to thecorresponding period in 2002.  Thedecrease was due to fewer MeetingPlace system sales in an uncertain economicand geopolitical environment, in which our existing and target customersreduced their capital spending. Additionally, the decrease in product revenue was due to the shift in ourrevenue mix, a positive result of enhancing our service offerings to includemanaged and hosted deployment options, which allows companies to acquireMeetingPlace on a usage-based pricing model. In the near term, we anticipate the environment for product sales to bechallenging and as a result we may experience quarter-to-quarter variability inproduct revenue in absolute dollars.

 

*Service Revenue*

 

Service revenue increased$1.4 million, or 23%, to $7.4 million for the three months ended March 31, 2003from $6.0 million for the three months ended March 31, 2002.  Service revenue is comprised of two parts,product support revenue and MeetingPlace services revenue, which includesmanaged and hosted services.  MeetingPlaceservices revenue increased to $3.9 million in the first quarter of 2003 from$2.9 million in the corresponding period in 2002, a 35% increase.  The increase was attributable primarily tothe introduction of new usage-based managed and hosted services to both new andexisting customers as well as increased minutes of usage from existingcustomers.

 

In August 2002, weannounced that Hewlett-Packard Company (“Hewlett-Packard”), our largestcustomer, had decided to pursue alternative vendor solutions for its voiceconferencing needs.  Service revenuefrom Hewlett-Packard consisted of $1.4 million and $2.0 million for the threemonths ended March 31, 2003 and 2002, respectively.  We expect that service revenue for the three months ending June30, 2003 will decline from the three months ended March 31, 2003 due to theexpected ramp-down of Hewlett-Packard service revenues.

 

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*Total Cost of Revenue*

 

Total cost of revenuedecreased  $412,000, or 9%, to $4.1million for the first quarter of 2003, from $4.5 million for the correspondingperiod of 2002.  The decrease in totalcost of revenue was due to lower amortization of capitalized software and theabsence of inventory write-downs in the first quarter of 2003. Additionally,lower expenses incurred in the first quarter of 2003 resulted from theimplementation of a cost reduction program in the third quarter of 2002.

 

Gross profit was $5.4million for the first quarter of 2003, as compared to $5.0 million in thecorresponding period of 2002.  Grossmargin was 57% as a percentage of revenue, for the first quarter of 2003, ascompared to 53% for the corresponding period of 2002.  The increase in overall gross margin was due to theaforementioned expenses and write-downs recorded in the first quarter of 2002,as well as the impact of lower expenses in the first quarter of 2003 due to thecost reduction program implemented in the third quarter of 2002.

 

Product gross margindecreased slightly, to 65% as a percentage of product revenue for the firstquarter of 2003 as compared to 69% for the corresponding period of 2002.  This decrease was due to the impact of fixedproduct costs on lower product revenue, as well as reduced selling prices.

 

Service gross margin was55% as a percentage of service revenue for the first quarter of 2003 ascompared to 43% for the corresponding period in 2002.  The increase was due to increased services revenue from higherusage volumes.

* *

*Research and Development Expenses*

 

Research and developmentexpenses consist of compensation and related costs for research and developmentpersonnel, facilities expenses for testing space, and equipment and purchasedsoftware. Research and development expenses were $1.1 million for the firstquarter of 2003, which represented a decrease of 20% when compared to thecorresponding period in 2002.  Thedecrease from first quarter 2002 to 2003 was due to decreases in the followingareas: $112,000 in compensation, $58,000 due to capitalized software, $56,000in expensed equipment and $67,000 in occupancy expenses.  As a percentage of total revenues, researchand development expenses were 12% and 15%, respectively, for the three monthsended March 31, 2003 and 2002.   Weexpect R&D expenses to increase due to the addition of the Wanadudevelopment team and the amortization of software development expensescapitalized in the first quarter of 2003.

* *

*Marketing and Sales Expenses*

 

Marketing and salesexpenses consist of promotional expenditures and compensation and related costsfor marketing and sales personnel. Marketing and sales expenses were $3.2 millionfor the first quarter of 2003, which represented a decrease of 35% whencompared to the corresponding period in 2002. The decrease in expenses was due to decreases in the following areas:$673,000 in compensation, $235,000 in consulting, $107,000 in advertising,$56,000 in travel, $275,000 in occupancy, $66,000 in meetings, $32,000 inemployee activities, $34,000 in recruiting, and $30,000 in depreciationexpenses.  As a percentage of totalrevenues, marketing and sales expenses were 34% and 52% for the three monthsended March 31, 2003 and 2002.  Weexpect additional expenses in the marketing area due to the increased focus onbuilding awareness of the Company and our products with potential customers.

* *

*General and Administrative Expenses*

 

General andadministrative expenses consist of personnel expenses, legal and accountingexpenses and other general corporate expenses. General and administrative expenses were $1.1 million for the threemonths ended March 31, 2003 and $1.2 million for the three months ended March31, 2002.  As a percentage of totalrevenues, general and administrative expenses were 12% for the three monthsended March 31, 2003 and 2002. We expect general and administrative expenses toincrease in absolute dollars relative to the first quarter of 2003 due tocorporate governance initiatives surrounding the Sarbanes-Oxley Act.

* *

*Amortization of Deferred Stock Compensation*

 

In connection with thecompletion of our initial public offering in May 1999, options granted in thelast quarter of 1997, during the year 1998 and the first quarter of 1999 havebeen considered to be compensatory.  Weamortized the deferred stock compensation associated with these options overthe vesting periods of the applicable

 

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options, resultingin amortization expense of $69,000 in the three months ended March 31,2002.  The amortization of deferredstock compensation was completed in the fourth quarter of 2002, with noadditional amortization expense in 2003.

 

*Interest Income, Net*

 

Interest income, net ofinterest and other expense of $13,000, was $158,000 for the first quarter of2003, compared to interest income, net of interest and other expense of $2,000,of $267,000 for the corresponding period in 2002.  The decrease in net interest income was due to lower investmentfunds caused by our use of cash in operations, and decreasing market interestrates.

* *

*Benefit from (Provision for) Income Taxes*

 

For the quarter endedMarch 31, 2003, the provision for income taxes was $24,000, compared to abenefit of $794,000 in the quarter ended March 31, 2002.  The provision for income taxes in thequarter ended March 31, 2003 includes state and foreign income taxes that weexpect to pay in 2003.

 

As described in Note 9 ofthe “Notes to Condensed Consolidated Financial Statements”, we recorded avaluation allowance equal to our deferred tax asset in the third quarter endedSeptember 30, 2002.  We concluded that adeferred tax asset valuation allowance should be established due to theuncertainty of realizing the tax loss carryforwards and other deferred taxassets in accordance with Statement of Financial Accounting Standards No. 109(“SFAS 109”), “Accounting for Income Taxes”.

 

**Liquidity and Capital Resources**

 

In May 1999, we completedan initial public offering of common stock, resulting in net proceeds to us ofapproximately $33.8 million. As of March 31, 2003, we had $24.3 million ofcash, cash equivalents and investments, which represented 62% of total assets.

 

Cash used in operatingactivities was $189,000 for the three months ended March 31, 2003, compared to$864,000 for the same period in 2002. Principal uses of cash in operating activities in 2003 were a decreasein accrued liabilities of $886,000, an increase in inventory of $321,000 and adecrease in accounts payable of $327,000, partially offset by a decrease inprepaids of $452,000, a decrease in accounts receivable of $119,000 anddepreciation and amortization of $667,000.

 

Cash provided byinvesting activities for the three months ended March 31, 2003 was $4.3million, which consisted primarily of maturities of marketable securities of$4.9 million offset by additions to software production costs of $202,000 andby purchases of property and equipment of $310,000.

 

There was no cashprovided by or used in financing activities for the three months ended March31, 2003.

 

We have nomaterial commitments for capital expenditures. On April 30, 2003 we acquired the assets of Wanadu Incorporated, aprivately held developer of Flash-based content creation, management anddelivery products, in exchange for $900,000 in cash and a percentage of futurerevenue from sales of Wanadu products. We may use cash to further acquire orlicense technology, products or businesses related to our currentbusiness.  In addition, we anticipatethat we will use cash for operating expenses. We lease office facilities under various leases that expire through2005.

 

We had netincome of $36,000 and negative cash flows from operations of $189,000 duringthe three months ended March 31, 2003.  For the year ended December 31,2002 we incurred a loss of $18.5 million and negative cash flows fromoperations of $4.1 million.  As of March31, 2003, we had an accumulated deficit of approximately $31.2 million. We expect to incur operating losses and negative cash flows through at leastthe third quarter of 2003.

 

Wepurchase long distance capacity from third parties.  These purchase agreements require a minimum commitment at a fixedrate for a specified period.  Weincorporate long distance services into fixed rate conferencing servicescontracts to some of our customers.  Theterms of the purchase agreements and conferencing services contracts do notnecessarily coincide, and as a result, increases in long distance rates couldexpose us to potential losses.

 

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As permitted underDelaware law and in accordance with our Bylaws, we indemnify our officers anddirectors for certain events or occurrences, subject to certain limits, whilethe officer or director is or was serving at our request in such capacity. Theindemnification obligation is for the officer’s or director’s lifetime. Themaximum amount of potential future indemnification is unlimited; however, we dohave a Director and Officer Insurance Policy that limits our exposure andenables us to recover a portion of any future amounts paid.

 

In our sales agreements,we typically agree to indemnify our customers for expenses or liabilityresulting from claimed infringements of patents, trademarks, copyrights orother intellectual property rights of third parties. The terms of theseindemnification agreements may be perpetual after execution of the agreement.The maximum amount of potential future indemnification may be unlimited. Todate we have not paid any amounts to settle claims or defend lawsuits relatedto such indemnification agreements.

 

We believe that ourcurrent cash, cash equivalents and short-term investments will be sufficient tomeet our anticipated cash needs for working capital and capital expendituresfor at least the next 12 months. Our future capital requirements will dependupon many factors, including revenue growth, management of working capital, thetiming of research and product development efforts and the expansion of ourmarketing and sales efforts.  If ourexisting cash balances and cash flows expected from future operations are notsufficient to meet our liquidity needs, we will need to raise additionalfunds.  If adequate funds are notavailable on acceptable terms, or at all, we may not be able to take advantageof market opportunities, develop or enhance new products, pursue acquisitionsthat would complement our existing product offerings or enhance our technicalcapabilities, execute our business plan or otherwise respond to competitivepressures.  The issuance of additionalequity securities may dilute our existing stockholders.

 

**Impact of Recently Issued Accounting Standards**

 

In June 2002, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards  No. 146,“Accounting for Exit or Disposal Activities” (“SFAS 146”). SFAS 146addresses significant issues regarding the recognition, measurement, andreporting of costs that are associated with exit and disposal activities,including restructuring activities that are currently accounted for under theEmerging Issues Task Force (“EITF”) No. 94-3, “Liability Recognition forCertain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring)”.  The scope of SFAS 146 also includescosts related to terminating a contract that is not a capital lease andtermination benefits that employees who are involuntarily terminated receiveunder the terms of a one-time benefit arrangement that is not an ongoingbenefit arrangement or an individual deferred-compensation contract. SFAS 146is effective for exit or disposal activities that are initiated after December31, 2002.  The provisions of EITF No.94-3 shall continue to apply for an exit activity initiated under an exit planthat meets the criteria of EITF No. 94-3 prior to the adoption of SFAS146.  The effect on adoption of SFAS 146will change on a prospective basis the timing of when restructuring charges arerecorded from a commitment date approach to when the liability is incurred.SFAS 146 was adopted in the first quarter of 2003 and did not have asignificant impact on our financial position, results of operations or cashflows.

 

In January 2003, the FASBissued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable InterestEntities, an Interpretation of ARB No. 51”. FIN 46 requires certain variableinterest entities to be consolidated by the primary beneficiary of the entityif the equity investors in the entity do not have the characteristics of acontrolling financial interest or do not have sufficient equity at risk for theentity to finance its activities without additional subordinated financialsupport from other parties. FIN 46 is effective immediately for all newvariable interest entities created or acquired after January 31, 2003. Forvariable interest entities created or acquired prior to February 1, 2003, theprovisions of FIN 46 must be applied for the first interim or annual periodbeginning after June 15, 2003.  We donot have any variable interest entities, and do not expect this adoption ofFIN 46 to have a material impact on our financial position, results ofoperations or cash flows.

 

**Factors That May Affect Future Results**

 

In addition to the otherinformation in this report, the following factors should be consideredcarefully in evaluating the Company’s business and prospects:

 

*Our future profitability is uncertain due to recent economicdevelopments that may affect our customers’ ability to purchase our products.*  Recent economic developments have causedmany companies to reduce headcount and overhead expenses and to reconsider ordelay capital expenditures. This has had, and may continue to have, an adverseeffect on our ability to grow revenue. Our financial statements must be considered in light of the risks anduncertainties encountered by companies that sell to corporate informationtechnology departments.  We rely

 

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substantially onsales of our MeetingPlace products and services, which have limited marketacceptance.  We cannot be assured thatour revenue will grow or that we will return to and/or maintain profitabilityin the future.

 

In addition, we are unableto predict our future product development, sales and marketing, andadministrative expenses. To the extent that these expenses increase, we willneed to increase revenue to achieve profitability. Our ability to increaserevenue and achieve profitability also depends on the other risk factorsdescribed in this section.

 

*Our operating results may fluctuate significantly.*Ouroperating results are difficult to predict. Our future quarterly operatingresults may fluctuate and may not meet the expectations of securities analystsor investors. If this occurs, the price of our common stock would likelydecline. The factors that may cause fluctuations of our operating resultsinclude the following:

 

•                  changesin our mix of revenues generated from product sales and services;

 

•                  changesby existing customers in their levels of purchases of our products andservices;

 

•                  changesin our mix of sales channels through which our products and services are sold;and

 

•                  changesin our mix of domestic and international sales.

 

Orders at the beginningof each quarter typically do not equal expected revenue for that quarter. Inaddition, a significant portion of our orders is received in the last month ofeach fiscal quarter. If we fail to ship products by the end of a quarter inwhich the order is received, or if our prospective customers delay their ordersor delivery schedules until the following quarter, we may fail to meet ourrevenue objectives.

 

Additionally, we havecontinued to expand our service offerings by providing hosted and managedservices to our customers. Accordingly, future revenue from this new serviceoffering may increase the proportion of total revenue derived from services. Tothe extent that prospective customers elect to purchase the hosted or managedservices rather than an on-premises MeetingPlace system, our product revenuecould be adversely affected.

 

*Our customers do not have long-term obligations to purchaseour products and services; therefore our revenue and operating results coulddecline if our customers do not continue to purchase our products or use ourservices.*Our customers are not obligated to continue topurchase our products or**use our services.  As a result, the failure of repeat customerusage, or our inability to retain existing customers and sustain or increasetheir usage of our services, could result in lower than expected revenue, andtherefore, harm our ability to become profitable and cause our stock price todecline.  In addition, because ourcustomers have no continuing obligations with us, we may face increaseddownward pricing pressure that could cause a decrease in our grossmargins.  Our customers depend on thereliability of our services and we may lose a customer if we fail to providereliable services for even a single communication event.

 

*We expect to depend on sales of our MeetingPlace solutionfor substantially all of our revenue for the foreseeable future.* We anticipate that revenues from ourMeetingPlace product and related services will continue to constitute substantiallyall of our revenues for the foreseeable future.  Consequently, any decline in the demand for MeetingPlace or itsfailure to achieve broad market acceptance, would seriously harm our business.

 

*Our revenues could be significantly reduced by the loss of amajor customer.*We derive a significant portion of ourrevenues from a limited number of customers. The loss of any of these major customers, if not replaced, coulddramatically reduce our revenues. During the quarter ended September 30, 2002, we announced that ourlargest customer, Hewlett-Packard Company (“Hewlett-Packard”), had decided topursue alternative vendor solutions for its voice conferencing needs.  For the three months ended March 31, 2003,Hewlett-Packard accounted for approximately 15% of our total revenues and 19%of our service revenues. Hewlett-Packard was the only customer that accounted for more than 10%of our total revenue for the three months ended March 31, 2003. We expect thatservice revenue for the three months ending June 30, 2003 will decline from thethree months ended March 31, 2003 due to the expected ramp-down ofHewlett-Packard service revenues.

 

*Our market is highly competitive.* Weexpect competition to persist and intensify in the future, which couldadversely affect our ability to increase sales, penetrate new markets andmaintain average selling prices.**Because of this competition, we may notbe successful. Currently, our principal competitors include:

 

•                  majortelecommunications carriers that operate service bureaus for voiceconferencing, such as AT&T Corporation, MCI Worldcom, Inc. and SprintCorporation;

 

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•                  collaborativesoftware and other companies that offer voice and/or web conferencing productsand services such as Lotus Software, Microsoft Corporation, RaindanceCommunications, Inc., Spectel and WebEx Communications, Inc.; and

 

•                  privatebranch exchange, or PBX, providers that sell systems with voice conferencingcapabilities, such as Avaya, Inc., Cisco Systems, Inc. and Nortel NetworksCorporation.

 

Many of these companieshave longer operating histories, stronger brand names, larger market share andsignificantly greater financial, technical, marketing and other resources thando we. These companies may have existing relationships with many of ourprospective customers. Large telecommunications carriers may also bundleconferencing with other services, such as long distance, in order to increasesales in other areas. In effect, these service providers can subsidize theirconferencing offering, enabling them to offer it to customers at very lowrates.  In addition, these companies maybe able to respond more quickly than we can to new or emerging technologies andchanges in customer requirements.

 

*We incorporate long distanceservices into fixed rate conferencing services contracts to some of ourcustomers, and as a result increases in long distance rates would negativelyaffect our margins. *Wepurchase long distance capacity from third parties who may be ourcompetitors.  These purchase agreementsrequire a minimum commitment at a fixed rate for a specified period.  We incorporate long distance services intofixed rate conferencing services contracts to some of our customers.  The terms of the purchase agreements andconferencing services contracts do not necessarily coincide, and as a result,increases in long distance rates could expose us to potential losses.

 

*Our market is in an early stage of development, and ourproducts and services may not be adopted.*If the market forour integrated voice and web conferencing products and services fails to growor grows more slowly than we anticipate, we may not be able to increaserevenues or return to and/or maintain profitability. The market for integratedreal-time voice and web conferencing is relatively new and rapidly evolving.Our ability to be profitable depends in large part on the widespread adoptionby end users of real-time voice and web conferencing.

 

We will have to devotesubstantial resources to educate prospective customers about the uses andbenefits of our products and services. In addition, businesses that haveinvested substantial resources in other conferencing products may be reluctantor slow to adopt our products, which might replace or compete with theirexisting systems. Our efforts to educate potential customers may not result inour products and services achieving market acceptance.

* *

*Rapid technological changes could cause our products andservices to become obsolete or require us to redesign our products or integratewith our competitors.*The market in which we compete ischaracterized by rapid technological change, frequent new productintroductions, changes in customer requirements and emerging industrystandards. In particular, we expect that the growth of the Internet andInternet-based telephony applications, as well as general technology trendssuch as migrations to new operating systems, will require us to adapt ourproduct and services to remain competitive. This adaptation could be costly andtime-consuming. Our products and services could become obsolete andunmarketable if products and services using new technologies are introduced andnew industry standards emerge. For example, the widespread acceptance ofcompeting technologies, such as video conferencing, could diminish demand forour current products and services. As a result, the life cycle of our productsand services is difficult to estimate.

 

Many of our competitorshave substantially greater resources than we do and we may not be able to matchtheir rate of product enhancement and innovation.  In particular, if we cannot maintain a competitive webconferencing product, we may be forced to integrate our voice conferencing withcompetitors who offer more advanced web conferencing products.

 

To be successful, we willneed to develop and introduce new products, product enhancements and servicesthat respond to technological changes or evolving industry standards, such asthe transmission of voice over the Internet, in a timely manner and on a costeffective basis. We cannot assure successful development of these types ofproducts and product enhancements or that our products and services willachieve broad market acceptance.

* *

*Our sales cycle is lengthy and unpredictable.*Anydelay in sales of our products and services could cause our quarterly revenueand operating results to fluctuate. The typical sales cycle of our products islengthy, generally between six to twelve months, unpredictable, and involvessignificant investment decisions by prospective customers, as well as oureducation of potential customers regarding the use and benefits of ourproducts.

 

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Furthermore, manyof our prospective customers have neither budgeted expenses for voice and webconferencing systems nor have personnel specifically dedicated to procurementand implementation of these conferencing systems. As a result, our customersspend a substantial amount of time before purchasing our products in performinginternal reviews and obtaining capital expenditure approvals.  The emerging and evolving nature of thereal-time voice and web conferencing market may lead to confusion in themarket, which may cause prospective customers to postpone their purchasedecisions.

* *

*If we fail to expand and develop our distribution channels,our business could suffer.*If we are unable to expand anddevelop our distribution channels, we may not be able to increase revenue orachieve market acceptance of our MeetingPlace product and services.  We believe that our future success isdependent upon establishing successful relationships with a variety ofdistribution partners. We cannot be certain that we will be able to reachagreement with the required distribution partners, or that these distributionpartners will devote adequate resources to selling our products. Furthermore,if our distribution partners fail to adequately market or support our products,the reputation of our products in the market may suffer. In addition, we will needto manage potential conflicts between our direct sales force and third-partyreselling efforts.

* *

*Our ability to expand into international markets isuncertain.*We intend to continue to expand our operationsinto new international markets. In addition to general risks associated withinternational expansion, such as foreign currency fluctuations and politicaland economic instability, we face the following risks and uncertainties, any ofwhich could prevent us from selling our products and services in a particularcountry or harm our business operations once we have established operations inthat country:

 

•                  thedifficulties and costs of localizing products and services for foreign markets,including the development of multilingual capabilities in our MeetingPlacesystem;

 

•                  theneed to modify our products to comply with local telecommunicationscertification requirements in each country; and

 

•                  ourlack of a direct sales presence in other countries, our need to establishrelationships with distribution partners to sell our products and services inthese markets and our reliance on the capabilities and performance of thesedistribution partners.

 

*If we fail to integrate our products with third-partytechnology, our sales could suffer.*Our products and servicesare designed to integrate with our customers’ data and voice networks, as wellas with enterprise applications such as browsers and collaborative softwareapplications. If we are unable to integrate our products and services withthese networks and systems, sales of our products and services could suffer.

 

In addition, we may berequired to engage in costly and time-consuming redesigns of our productsbecause of technology enhancements or upgrades of these systems. We may not beable to redesign our products or be certain that any of these redesigns willachieve market acceptance. In addition, we will need to continually modify ourproducts as newer versions of the enterprise applications with which ourproducts integrate are introduced. Our ability to do so largely depends on ourability to gain access to the advanced programming interfaces for theseapplications, and we cannot make assurances that we will have access tonecessary advanced programming interfaces in the future.

* *

*Our business could suffer if we lose the services of ourcurrent management team.*Our future success depends on theability of our management to operate effectively, both individually and as agroup. If we were to lose the services of any of these key employees, we mayencounter difficulties finding qualified personnel to replace them.

* *

*The loss of our right to use technology licensed to us bythird parties could harm our business.*We license technologythat is incorporated into our products and services from third parties,including digital signal processing algorithms and the MeetingPlace server’soperating system and relational database. Any interruption in the supply orsupport of any licensed software could disrupt our operations and delay oursales, unless and until we can replace the functionality provided by thislicensed software. Because our products incorporate software developed andmaintained by third parties, we depend on these third parties to deliver andsupport reliable products, enhance their current products, develop new productson a timely and cost-effective basis and respond to emerging industry standardsand other technological changes.

 

We have a strategicpartnership with a company based in Israel to integrate video conferencingfunctionality into our products. Political instability in this region of theworld may limit our access to this technology or delay introduction of newproducts.

 

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*Any interruption in supply of components from outsidemanufacturers and suppliers could hinder our ability to ship products in atimely manner*. We rely on third parties to obtain most of thecomponents of the MeetingPlace server and integrate them with other standardcomponents, such as the central processing unit and disk drives. If these thirdparties are no longer able to supply and assemble these components or areunable to do so in a timely manner, we may experience delays in shipping ourproducts and have to invest resources in finding an alternative manufacturer ormanufacture our products internally.

 

In addition, we obtainkey hardware components, including the processors and digital signal processingdevices used in the MeetingPlace server, from sole source suppliers. In thepast, we have experienced problems in obtaining some of these components in atimely manner from these sources, and we cannot be certain that we will be ableto continue to obtain an adequate supply of these components in a timely manneror, if necessary, from alternative sources. If we are unable to obtainsufficient quantities of components or to locate alternative sources of supply,we may experience delays in shipping our products and incur additional costs tofind an alternative manufacturer or manufacture our products internally.

* *

*Our products and services may suffer from defects, errors orbreaches of security*. Software and hardware products andservices as complex as ours are likely to contain undetected errors or defects,especially when first introduced or when new versions are released. Any errorsor defects that are discovered after commercial release could result in loss ofrevenue or delay in market acceptance, diversion of development resources,damage to our customer relationships or reputation and increased service andwarranty cost. Our products and services may not be free from errors or defectsafter commercial shipments have begun, and we are aware of instances in whichsome of our customers have experienced product failures or errors. Many of ourcustomers conduct confidential conferences, and transmit confidential data,using MeetingPlace. Concerns over the security of information sent over theInternet and the privacy of its users may inhibit the market acceptance of ourproducts. In addition, unauthorized users in the past have gained, and in thefuture may be able to gain, access to our customers’ MeetingPlace systems orour hosted services. Any compromise of security could deter people from usingMeetingPlace and could harm our reputation and business and result in claimsagainst us.

* *

*Thesuccess of our hosted services will depend on the efficient and uninterruptedoperation of our computer and communication hardware and software systems.*In addition, some of our communications hardware and software for our servicesbusinesses are hosted at third party co-location facilities.  These systems and operations are vulnerableto damage or interruption as a result of human error, telecommunicationsfailures, break-ins, acts of vandalism, computer viruses and natural disasters.Systems failure or damage could cause an interruption of our services andresult in loss of customers, difficulties in attracting new customers and couldadversely impact our operating results. In addition, if the number of customers who purchase our hosted servicesincreases over time, our systems must be able to accommodate increased usage.If we are unable to increase our capacity to accommodate growth in usage, wecould encounter system performance issues, which could harm our relationshipswith customers and our reputation.

* *

*We may be unable to adequately protect our proprietaryrights, and we may be subject to infringement claims.*Unauthorizedparties may copy aspects of our products and obtain and use information that weregard as proprietary, which could cause our business to suffer. Furthermore,the laws of many foreign countries do not protect our intellectual propertyrights to the same extent as the laws of the United States.

 

In the future, we may besubject to legal proceedings and claims for alleged infringement of third partyproprietary rights. Any of these claims, even if not meritorious, could resultin costly litigation, divert management’s attention and resources, or requireus to enter into royalty or license agreements which are not advantageous tous. Parties making these claims may be able to obtain injunctive or otherequitable relief, which could prevent us from selling our products.

 

Dell Computer Corporationhas registered the “Latitude” mark for computers in the United States and inother countries. Dell’s United States trademark registration and Canadianapplication have ****blocked****our ability to registerthe “Latitude Communications” and “Latitude” with logo marks in the UnitedStates and the “Latitude Communications” mark in Canada as well as otherjurisdictions.   Consequently, we haveat present terminated our efforts to register these trademarks, and we willhave to rely solely on common law protection for these marks.  We cannot make assurances that we will befree from challenges of or obstacles to our use or registration of our marks.

 

*We may encounter difficulties in integrating futureacquisitions and that could adversely affect our business. *We have recently acquired the assets of Wanadu Incorporated and may inthe future acquire technology, products or businesses related to our current orfuture business.  We have limitedexperience in acquisition activities and may

 

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have to devote substantial time and resources in order to completeacquisitions.  There may also be risksin entering markets where we have no or limited prior experience.  Further, these potential acquisitions entailrisks, uncertainties and potential disruptions to our business.  For example, we may not be able to successfullyintegrate a company’s operations, technologies, products and services,information systems and personnel into our business.  An acquisition may further strain our existing financial andmanagerial controls, and divert management’s attention away from our otherbusiness concerns.  In connection withthe Wanadu asset acquisition, we assumed certain contractual liabilities andhired certain employees of Wanadu, which is expected to result in an increasein research and development expenses. There may also be unanticipated costs and liabilities associated with anacquisition that could adversely affect our operating results.

* *

*We are subject to government regulation, and our failure tocomply with these regulations could harm our business.*Ourproducts are subject to a wide variety of safety, emissions, export andcompatibility regulations imposed by governmental authorities in the UnitedStates or in other countries in which we sell our products and services. If weare unable to obtain necessary approvals or maintain compliance with theregulations of any particular jurisdiction, we may be prohibited from sellingour products in that territory. In addition, to sell our products and servicesin many international markets, we are required to obtain certifications thatare specific to the local telephony infrastructure.

* *

*Our stock price may be volatile.*We expectthat the market price of our common stock will fluctuate as a result ofvariations in our quarterly operating results. These fluctuations may be exaggeratedby the very low trading volume of our common stock at the present time. Inaddition, due to the technology-intensive and emerging nature of our business,the market price of our common stock may rise and fall in response to:

 

•                  announcementsof technological or competitive developments;

 

•                  acquisitionsor strategic alliances by us or our competitors; or

 

•                  thegain or loss by us of significant orders.

 

We may need toraise additional capital in the future, and if we are unable to secure adequatefunds on terms acceptable to us, we may be unable to execute our businessplan.  If our existing cash balances andcash flows expected from future operations are not sufficient to meet ourliquidity needs, we will need to raise additional funds.  If adequate funds are not available onacceptable terms or at all, we may not be able to take advantage of marketopportunities, develop or enhance new products, pursue acquisitions that wouldcomplement our existing product offerings or enhance our technical capabilities,execute our business plan or otherwise respond to competitive pressures orunanticipated requirements.

* *

*Future sales of our common stock may depress our stock price*.  If our stockholders sell substantial amountsof common stock, including shares issued upon the exercise of outstandingoptions and warrants, in the public market, the market price of our commonstock could fall.

 

**We may be delisted from the Nasdaq National Market**.  On October 7, 2002, we were notified byNasdaq that Friday, October 4, 2002 represented the 30th consecutive tradingday in which the closing bid price was less than the minimum $1 per sharerequirement for listing on the Nasdaq National Market. On November 26, 2002 thecompany was notified that the closing bid price had exceeded $1 per share for10 consecutive trading days and that the company had regained compliance withNASDAQ’s listing requirements.  Wecannot make assurances that we will maintain compliance with all NASDAQ listingrequirements in the future.  If ourefforts to maintain compliance are unsuccessful, we may seek to list our shareson the Nasdaq SmallCap Market, which is generally considered to be not as broadand efficient a market as the Nasdaq National Market.  This lack of liquidity and visibility could further decrease theprice of our common stock.  In addition,delisting from the Nasdaq National Market could negatively impact ourreputation and customer relationships.

 

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**Item 3.                    Quantitative and QualitativeDisclosures About Market Risk**

 

Our exposure to marketrisk for changes in interest rates relates primarily to our investmentportfolio. We do not use derivative financial instruments in our investmentportfolio. We place our investments with high credit quality issuers and, bypolicy, limit the amount of credit exposure to any one issuer. The portfolioincludes only securities with maturities of one to twelve months and withactive secondary or resale markets to ensure portfolio liquidity. We have no investmentsdenominated in foreign currencies and therefore are not subject to foreigncurrency risk.

 

Currently, the majorityof our sales and expenses are denominated in U.S. dollars and, as a result, wehave not experienced significant foreign exchange gains and losses. While we doexpect to effect some transactions in foreign currencies in the next 12 months,we do not anticipate that foreign exchange gains and losses will besignificant. We have not engaged in foreign currency hedging activities.

 

The table below presentsprincipal amounts and related weighted average interest rates by year ofmaturity for our investment portfolio at March 31, 2003 (in thousands).

 
|                      |   | **2003** |   |
|---------------------------|--------|----------|--------|
|                      |   |     |   |
| Corporate notes and bonds |   | $        | 4,026  |   |
| Average interest rate     |   | 3.65     | %      |
| Federal agencies          |   | $        | 3,021  |   |
| Average interest rate     |   | 4.28     | %      |

 

**Item 4.                    Controlsand Procedures**

 

We have evaluated thedesign and operation of our disclosure controls and procedures to determinewhether they are effective in ensuring that the disclosure of required informationis timely made in accordance with the Exchange Act and the rules andregulations of the Securities and Exchange Commission. This evaluation was madeunder the supervision and with the participation of management, including ourprincipal executive officer and principal financial officer within the 90-dayperiod prior to the filing of this Quarterly Report on Form 10-Q. The principalexecutive officer and principal financial officer have concluded, based ontheir review, that our disclosure controls and procedures, as defined atExchange Act Rules 13a-14(c) and 15d-14(c), are effective to ensure thatinformation required to be disclosed by us in reports that we file under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in Securities and Exchange Commission rules and forms. Nosignificant changes were made to our internal controls or other factors thatcould significantly affect these controls subsequent to the date of theirevaluation.

 

**PART II.                OTHERINFORMATION**

 

**Item 1.                    LegalProceedings**

 

InNovember 2001, a series of securities class actions were filed in the UnitedStates District Court for the Southern District of New York against certainunderwriters for Latitude’s initial public offering (“IPO”), LatitudeCommunications Inc., and Emil C. Wang and Rick M. McConnell, who were officersof Latitude at the time of the IPO. The complaints were consolidated into asingle action, and a consolidated amended complaint against Latitude was filedin April 2002. The amended complaint alleges, among other things, that theunderwriter defendants violated the securities laws by failing to disclosealleged compensation arrangements in the initial public offering’s registrationstatement and by engaging in manipulative practices to artificially inflate theprice of the Company’s common stock after the initial public offering. Theamended complaint also alleges, among other things, that Latitude and the namedofficers violated section 11 of the Securities Act of 1933 and section 10(b) ofthe Exchange Act of 1934 on the basis of an alleged failure to disclose theunderwriters’ alleged compensation arrangements and manipulative practices. Nospecific amount of damages has been claimed. Similar complaints have been filedagainst more than 300 other issuers that have had initial public offeringssince 1998, and all of these actions have been included in a single coordinatedproceeding.

 

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Mr.McConnell and Mr. Wang have subsequently been dismissed from the action withoutprejudice pursuant to a tolling agreement. Furthermore, in July 2002, Latitudeand the other issuers in the consolidated cases filed motions to dismiss theamended complaint for failure to state a claim. The motion to dismiss claimsunder section 11 was denied as to virtually all the defendants in theconsolidated actions, including Latitude. However, the claims against Latitudeunder section 10(b) were dismissed.

 

Latitudewill defend itself vigorously against the claims in this lawsuit. Due to theinherent uncertainties of litigation and because the litigation is still at apreliminary stage, the ultimate outcome of the matter cannot be predicted.

 

**Item 2.                    Changes in Securities andUse of Proceeds**

 

On May 6, 1999, inconnection with the Company’s initial public offering, a Registration Statementon Form S-1 (No. 333-72935) was declared effective by the Securities andExchange Commission, pursuant to which 3,125,000 shares of the Company’s CommonStock were offered and sold for the account of the Company at a price of $12.00per share, generating gross offering proceeds of $37.5 million. The managingunderwriters were Credit Suisse First Boston Corporation, Hambrecht & QuistLLC and Dain Rauscher Wessels. After deducting approximately $2.6 million inunderwriting discounts and $1.1 million in other related expenses, the netproceeds of the offering were approximately $33.8 million. No direct orindirect payments were made to officers or directors or holders of ten percentor more of any class of equity securities of Latitude or any of theiraffiliates.  Latitude has invested suchproceeds in investment grade, interest-bearing securities.  As of March 31, 2003, $24.3 million of thenet proceeds were invested in cash and cash equivalents and short-terminvestments and approximately $9.5 million had been used for workingcapital.  Latitude intends to use theremaining proceeds for capital expenditures, including the acquisition ofcomputer and communication systems, and for general corporate purposes,including working capital to fund increased accounts receivable and inventorylevels.

 

**Item 3.                    Defaults Upon SeniorSecurities—Not Applicable**

 

**Item 4.                    Submission of Matters to aVote of Security Holders—Not Applicable**

 

**Item 5.                    OtherInformation – None**

 

**Item 6.                    Exhibits and Reports on Form8-K**

 
| (a) |   | Exhibits |
|-----|--------|----------|

 
| 99.1   |   | Certification of Rick McConnell, Chief Executive Officer of Latitude,  pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                             |
| 99.2   |   | Certification of Luis Buhler, Chief Financial Officer of Latitude,  pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.    |

 
| (b) |   | Reports on Form 8-K—None |
|-----|--------|-------------------------------|

 

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**SIGNATURE**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|   | **Latitude Communications, Inc.** |
|--------|-----------------------------------|
|   |                              |
|   |                              |
|   | **By:**                           | **/s/   LUIS BUHLER** |   |
|   |                              | Luis Buhler  Chief Financial Officer  Principal Financial and Accounting Officer |

 

Date:  May 14, 2003

 

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**CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

 

**CERTIFICATIONS**

 

**I, Rick McConnell, certify that:**

** **

**1.**               I have reviewed this quarterly report on Form 10-Qof Latitude Communications, Inc.;

** **

**2.**               Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

** **

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

** **

**4.**               The registrant’s other certifying officers and I areresponsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and wehave:

** **

**a)**              designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

** **

**b)**             evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

** **

**c)**              presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

** **

**5.**               The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

** **

**a)**              all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

** **

**b)**             any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

** **

**6.**               The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
|   | **Latitude Communications, Inc.** |
|--------|-----------------------------------|
|   |                              |
|   |                              |
|   | **By:**                           | **/s/   RICK McCONNELL** |   |
|   |                              | Rick McConnell  Chief Executive Officer |

 

Date:  May 14, 2003

 

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**CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

 

**CERTIFICATIONS**

 

**I, Luis Buhler, certify that:**

** **

**1.**               I have reviewed this quarterly report on Form 10-Qof Latitude Communications, Inc.;

** **

**2.**               Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

** **

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

** **

**4.**               The registrant’s other certifying officers and I areresponsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and wehave:

** **

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

** **

**b)**             evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

** **

**c)**              presented in this quarterly report our conclusions aboutthe effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

** **

**5.**               The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

** **

**a)**              all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

** **

**b)**             any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

** **

**6.**               The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
|   | **Latitude Communications, Inc.** |
|--------|-----------------------------------|
|   |                              |
|   |                              |
|   | **By:**                           | **/s/   LUIS BUHLER** |   |
|   |                              | Luis Buhler  Chief Financial Officer |

 

Date:  May 14, 2003

 

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