**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C.20549**

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** **

**FORM 10-Q**

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THE SECURITIES EXCHANGE ACTOF 1934**

**For the quarter ended September 30,2002**

**Commission filenumber 000-25475**

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**LATITUDE COMMUNICATIONS,INC.**

(Exact name of registrant as specified in itscharter)

 

 

| **Delaware**                                                    |   | **94-3177392**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

**2121Tasman Drive, Santa Clara, CA 95054**

(Address of principal executive offices, including zip code)

**(408)988-7200**

(Registrant’stelephone number, including area code)

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes ý    No o

As of October 31, 2002, there were 19,459,295 shares of theregistrant’s Common Stock outstanding.

 

**INDEX**

** **

** **

 
|     |          | **Page**                                                                                                                                                                                    |   |
|----------|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **PART** |          |                                                                                                                                                                                        |   |
| **I.**   |          | FINANCIAL INFORMATION                                                                                                                                                                       |   |   |
|     |          |                                                                                                                                                                                        |   |   |
|     | **Item 1.**   | **Financial Statements  (Unaudited)**                                                                                                                                                       |   |   |
|     |          |                                                                                                                                                                                        |   |   |
|     |          | Condensed  consolidated balance sheets at September 30, 2002 and December 31, 2001                                                                                                          | **3**  |   |
|     |          |                                                                                                                                                                                        |   |   |
|     |          | Condensed  consolidated statements of operations and comprehensive loss for the three  months ended September 30, 2002 and 2001; and for the nine months ended  September 30, 2002 and 2001 | **4**  |   |
|     |          |                                                                                                                                                                                        |   |   |
|     |          | Condensed  consolidated statements of cash flows for the nine months ended September 30,  2002 and 2001                                                                                     | **5**  |   |
|     |          |                                                                                                                                                                                        |   |   |
|     |          | Notes  to condensed consolidated financial statements                                                                                                                                       | **6**  |   |
|     |          |                                                                                                                                                                                        |   |   |
|     | **Item  2.**  | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                                                                             | **9**  |   |
|     |          |                                                                                                                                                                                        |   |   |
|     | **Item  3.**  | **Quantitative  and Qualitative Disclosures About Market Risk**                                                                                                                             | **20** |   |
|     |          |                                                                                                                                                                                        |   |   |
|     | **Item 4.**   | **Controls and Procedures**                                                                                                                                                                 | **20** |   |
|     |          |                                                                                                                                                                                        |   |   |
| **PART** |          |                                                                                                                                                                                        |
| **II.**  |          | **OTHER INFORMATION**                                                                                                                                                                       |   |   |
|     |          |                                                                                                                                                                                        |
|     | **Item  1.**  | **Legal  Proceedings**                                                                                                                                                                      | **20** |   |
|     |          |                                                                                                                                                                                        |   |   |
|     | **Item  2.**  | **Changes  in Securities and Use of Proceeds**                                                                                                                                              | **21** |   |
|     |          |                                                                                                                                                                                        |   |   |
|     | **Item  3.**  | **Defaults  Upon Senior Securities**                                                                                                                                                        | **21** |   |
|     |          |                                                                                                                                                                                        |   |   |
|     | **Item  4.**  | **Submission  of Matters to a Vote of Security Holders**                                                                                                                                    | **21** |   |
|     |          |                                                                                                                                                                                        |   |   |
|     | **Item  5.**  | **Other  Information**                                                                                                                                                                      | **21** |   |
|     |          |                                                                                                                                                                                        |   |   |
|     | **Item 6.**   | **Exhibits and  Reports on Form 8-K**                                                                                                                                                       | **21** |   |
|     |          |                                                                                                                                                                                        |   |   |
|     | **SIGNATURE** | **22**                                                                                                                                                                                      |   |
|          |               |                                                                                                                                                                                             |        |  |  |  |  |  |

** **

**2**

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** **

**PART I.         FINANCIAL INFORMATION**

**Item 1.            Financial Statements.**

**LATITUDECOMMUNICATIONS, INC.CONDENSED CONSOLIDATED BALANCESHEETS(in thousands, unaudited)**

 
|                                                                                                        |   | **September  30,  2002** |   | **December  31,  2001** |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|-------------------------|--------|
|                                                                                                        |   |                     |   |                    |   |
| **ASSETS**                                                                                                  |   |                     |   |                    |   |
| Current assets:                                                                                             |   |                     |   |                    |   |
| Cash and cash equivalents                                                                                   |   | $                        | 11,083 |                    | $      | 15,370 |   |
| Short-term investments                                                                                      |   | 14,527                   |   | 9,352                   |   |
| Accounts receivable, net                                                                                    |   | 8,825                    |   | 5,732                   |   |
| Inventory                                                                                                   |   | 753                      |   | 1,724                   |   |
| Prepaids and other assets                                                                                   |   | 2,541                    |   | 2,074                   |   |
| Deferred tax assets                                                                                         |   | —                   |   | 1,240                   |   |
| Total current assets                                                                                        |   | 37,729                   |   | 35,492                  |   |
| Property and equipment, net                                                                                 |   | 3,692                    |   | 4,548                   |   |
| Long-term investments                                                                                       |   | —                   |   | 7,607                   |   |
| Deferred tax assets                                                                                         |   | —                   |   | 6,257                   |   |
| Deposits and other long-term assets                                                                         |   | 1,028                    |   | 988                     |   |
| Total assets                                                                                                |   | $                        | 42,449 |                    | $      | 54,892 |   |
|                                                                                                        |   |                     |   |                    |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                               |   |                     |   |                    |   |
| Current liabilities:                                                                                        |   |                     |   |                    |   |
| Accounts payable                                                                                            |   | $                        | 1,989  |                    | $      | 887 |   |
| Accrued liabilities                                                                                         |   | 5,006                    |   | 5,028                   |   |
| Deferred revenue                                                                                            |   | 5,852                    |   | 3,825                   |   |
| Current portion of long-term debt                                                                           |   | 30                       |   | 110                     |   |
| Total current liabilities                                                                                   |   | 12,877                   |   | 9,850                   |   |
| Other non-current liabilities                                                                               |   | 3,050                    |   | 189                     |   |
| Total liabilities                                                                                           |   | 15,927                   |   | 10,039                  |   |
| Stockholders’ equity:                                                                                  |   |                     |   |                    |   |
| Preferred stock, $0.001 par value  Authorized: 5,000 shares at September 30, 2002 and December 31, 2001     |   |                     |   |                    |   |
| Issued and outstanding: No shares at September 30, 2002 and December  31, 2001                              |   | —                   |   | —                  |   |
| Common stock, $0.001 par value  Authorized: 75,000 shares at September 30, 2002 and December 31, 2001       |   |                     |   |                    |   |
| Issued and outstanding: 19,371 and 19,290 shares at September 30,  2002 and December 31, 2001, respectively |   | 19                       |   | 19                      |   |
| Additional paid-in capital                                                                                  |   | 57,755                   |   | 57,641                  |   |
| Deferred stock compensation                                                                                 |   | (31                      | )      | (212                    | )      |
| Accumulated other comprehensive income                                                                      |   | 109                      |   | 93                      |   |
| Accumulated deficit                                                                                         |   | (31,330                  | )      | (12,688                 | )      |
| Total stockholders’ equity                                                                             |   | 26,522                   |   | 44,853                  |   |
| Total liabilities and stockholders’ equity                                                             |   | $                        | 42,449 |                    | $      | 54,892 |   |

*The accompanying notesare an integral part of these condensed consolidated financial statements.*

* *

*3*

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**LATITUDECOMMUNICATIONS, INC.CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS AND COMPREHENSIVE LOSS(in thousands, except per share amounts)(Unaudited)**

 
|                                                                                                        |   | **Three  Months Ended** |    | **Nine  Months Ended** |   |
|-------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|------------------------|--------|
|                                                                                                        |   | **September  30,**      |    | **September  30,**     |   |
|                                                                                                        |   | **2002**                |    | **2001**               |   | **2002** |   | **2001** |   |
|                                                                                                        |   |                    |    |                   |   |   |   |   |   |
| Revenue:                                                                                                    |   |                    |    |                   |   |   |   |   |   |
| Product                                                                                                     |   | $                       | 3,211   |                   | $      | 1,640 |   | $ | 10,135 |   | $ | 10,780 |   |
| Service                                                                                                     |   | 7,557                   |    | 4,984                  |   | 20,120 |   | 14,313 |   |
| Total revenue                                                                                               |   | 10,768                  |    | 6,624                  |   | 30,255 |   | 25,093 |   |
| Cost of revenue:                                                                                            |   |                    |    |                   |   |   |   |   |   |
| Product                                                                                                     |   | 1,311                   |    | 651                    |   | 3,719 |   | 2,328 |   |
| Service (includes non-cash stock compensation of $0, $2, $1 and $6,  respectively)                          |   | 3,632                   |    | 2,761                  |   | 10,395 |   | 7,915 |   |
| Total cost of revenue                                                                                       |   | 4,943                   |    | 3,412                  |   | 14,114 |   | 10,243 |   |
| Gross profit                                                                                                |   | 5,825                   |    | 3,212                  |   | 16,141 |   | 14,850 |   |
|                                                                                                        |   |                    |    |                   |   |   |   |   |   |
| Operating expenses:                                                                                         |   |                    |    |                   |   |   |   |   |   |
| Research and development (includes non-cash stock compensation of  $10, $16, $32 and $51, respectively)     |   | 1,712                   |    | 1,425                  |   | 4,642 |   | 4,596 |   |
| Marketing and sales (includes non-cash stock compensation of $6, $23,  $24 and $45, respectively)           |   | 4,620                   |    | 4,635                  |   | 14,330 |   | 15,401 |   |
| General and administrative (includes non-cash stock compensation of  $39, $63, $124 and $193, respectively) |   | 1,288                   |    | 1,332                  |   | 3,642 |   | 4,492 |   |
| Restructuring charge                                                                                        |   | 5,400                   |    | —                 |   | 5,400 |   | 870 |   |
| Total operating expenses                                                                                    |   | 13,020                  |    | 7,392                  |   | 28,014 |   | 25,359 |   |
| Loss from operations                                                                                        |   | (7,195                  | )       | (4,180                 | )      | (11,873 | ) | (10,509 | ) |
| Interest income, net                                                                                        |   | 212                     |    | 387                    |   | 729 |   | 1,436 |   |
| Loss before benefit from (provision for) income taxes                                                       |   | (6,983                  | )       | (3,793                 | )      | (11,144 | ) | (9,073 | ) |
| Benefit from (provision for) income taxes                                                                   |   | (8,965                  | )       | 1,328                  |   | (7,498 | ) | 3,194 |   |
|                                                                                                        |   |                    |    |                   |   |   |   |   |   |
| Net loss                                                                                                    |   | $                       | (15,948 | )                      | $      | (2,465 | ) | $ | (18,642 | ) | $ | (5,879 | ) |
|                                                                                                        |   |                    |    |                   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income, net of tax—  Unrealized gain on securities                                 |   | 95                      |    | 147                    |   | 70 |   | 115 |   |
|                                                                                                        |   |                    |    |                   |   |   |   |   |   |
| Cumulative translation adjustment                                                                           |   | (18                     | )       | (27                    | )      | (54 | ) | (3 | ) |
|                                                                                                        |   |                    |    |                   |   |   |   |   |   |
| Comprehensive loss                                                                                          |   | $                       | (15,871 | )                      | $      | (2,345 | ) | $ | (18,626 | ) | $ | (5,767 | ) |
|                                                                                                        |   |                    |    |                   |   |   |   |   |   |   |   |   |   |
| Net loss per share—basic and diluted                                                                   |   | $                       | (0.82   | )                      | $      | (0.13 | ) | $ | (0.96 | ) | $ | (0.30 | ) |
|                                                                                                        |   |                    |    |                   |   |   |   |   |   |   |   |   |   |
| Shares used in per share calculation—basic and diluted                                                 |   | 19,375                  |    | 19,415                 |   | 19,345 |   | 19,411 |   |

*The accompanying notesare an integral part of these condensed consolidated financial statements.*

* *

*4*

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

 
|                                                                         |   | **Nine  Months Ended** |    |
|------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                         |   | **September  30,**     |    |
|                                                                         |   | **2002**               |    | **2001** |   |
| Cash flows from operating activities:                                        |   |                   |    |   |   |
| Net loss                                                                     |   | $                      | (18,642 | ) | $ | (5,879 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |   |                   |    |   |   |
| Depreciation and amortization                                                |   | 2,098                  |    | 1,869 |   |
| Disposal of discontinued property and equipment                              |   | 601                    |    | — |   |
| Amortization of capitalized software                                         |   | 424                    |    | 416 |   |
| Write-down of excess and obsolete inventory                                  |   | 570                    |    | — |   |
| Provision for doubtful accounts                                              |   | —                 |    | 800 |   |
| Amortization of deferred stock compensation                                  |   | 181                    |    | 295 |   |
| Changes in assets and liabilities:                                           |   |                   |    |   |   |
| Accounts receivable                                                          |   | (3,146                 | )       | (2,745 | ) |
| Inventory                                                                    |   | 401                    |    | (353 | ) |
| Prepaids and other assets                                                    |   | (891                   | )       | 272 |   |
| Deferred income taxes                                                        |   | 7,497                  |    | (3,230 | ) |
| Accounts payable                                                             |   | 1,102                  |    | (251 | ) |
| Accrued liabilities                                                          |   | 2,992                  |    | 1,472 |   |
| Deferred revenue                                                             |   | 2,027                  |    | (1,254 | ) |
| Net cash used in operating activities                                        |   | (4,786                 | )       | (3,098 | ) |
|                                                                         |   |                   |    |   |   |
| Cash flows from investing activities:                                        |   |                   |    |   |   |
| Purchases of property and equipment                                          |   | (1,843                 | )       | (2,714 | ) |
| Purchases of available for sale securities                                   |   | (9,549                 | )       | (32,787 | ) |
| Maturities of available for sale securities                                  |   | 11,897                 |    | 30,475 |   |
| Increase in deposits and other long-term assets                              |   | (40                    | )       | (480 | ) |
| Net cash (used in) provided by investing activities                          |   | 465                    |    | (5,506 | ) |
|                                                                         |   |                   |    |   |   |
| Cash flows from financing activities:                                        |   |                   |    |   |   |
| Proceeds from issuance of common stock, net                                  |   | 114                    |    | 8 |   |
| Repayment of notes payable and capital lease obligations                     |   | (80                    | )       | (206 | ) |
| Net cash (used in) provided by financing activities                          |   | 34                     |    | (198 | ) |
|                                                                         |   |                   |    |   |   |
| Net decrease in cash and cash equivalents                                    |   | (4,287                 | )       | (8,802 | ) |
| Cash and cash equivalents, beginning of period                               |   | 15,370                 |    | 23,993 |   |
| Cash and cash equivalents, end of period                                     |   | $                      | 11,083  |   | $ | 15,191 |   |

*The accompanying notesare an integral part of these condensed consolidated financial statements.*

* *

*5*

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

**(Unaudited)**

** **

**Note 1—The Company andBasis of Presentation**

LatitudeCommunications, Inc. (the “Company”) is a leading provider of enterprise voiceand web conferencing solutions. The Company develops, markets and supports itsMeetingPlace system, and related services, which enables real-timecollaboration through meetings via Web browsers, groupware applications such asOutlook and Notes, and PSTN and IP phones. MeetingPlace also allows users toshare and edit live documents, record, and access meeting content. The Companydistributes its product and services through distributors and a direct salesforce to companies across many industries in the United States, Europe andAsia.

Theaccompanying unaudited condensed consolidated financial statements reflect alladjustments, which, in the opinion of management, are necessary for a fairpresentation of the results for the periods shown. The results of operationsfor such periods are not necessarily indicative of the results expected for thefull fiscal year or for any future period. The balance sheet at December 31,2001 was derived from audited financial statements; however, it does notinclude all disclosures required by generally accepted accounting principles inthe United States of America. The financial statements and related disclosureshave been prepared with the presumption that users of the interim financialinformation have read or have access to the audited financial statements forthe preceding fiscal year.  Accordingly,these financial statements should be read in conjunction with the auditedfinancial statements and the related notes thereto contained in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2001.

**Note 2—Recent AccountingPronouncements**

InJune 2002, the Financial Accounting Standards Board (“FASB”) issued Statementof Financial Accounting Standards No. 146, “Accounting for Exit or DisposalActivities’” (“SFAS 146”). SFAS 146 addresses significant issuesregarding the recognition, measurement, and reporting of costs that areassociated with exit and disposal activities, including restructuringactivities that are currently accounted for under EITF No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).” The scopeof SFAS 146 also includes costs related to terminating a contract that isnot a capital lease and termination benefits that employees who areinvoluntarily terminated receive under the terms of a one-time benefitarrangement that is not an ongoing benefit arrangement or an individualdeferred-compensation contract. SFAS 146 will be effective for exit or disposalactivities that are initiated after December 31, 2002 and early application isencouraged.  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.Latitude will adopt SFAS 146 during the first quarter ending March 31,2003 and does not expect an impact on its financial position and results ofoperations from the adoption of SFAS 146.

InOctober 2001, the FASB issued Statement of Financial Accounting Standards No.144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-LivedAssets”. SFAS 144 supercedes Statement of Financial Accounting Standards No.121, “Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to Be Disposed Of.” SFAS 144 applies to all long-lived assets, includingdiscontinued operations, and consequently amends Accounting Principles BoardOpinion No. 30, “Reporting Results of Operations Reporting the Effects ofDisposal of a Segment of a Business”. SFAS 144 develops one accounting modelfor long-lived assets that are to be disposed of by sale. SFAS 144 requiresthat long-lived assets that are to be disposed of by sale be measured at thelower of book value or fair value less selling costs. Additionally, SFAS 144expands the scope of discontinued operations to include all components of anentity with operations that (1) can be distinguished from the rest of theentity and (2) will be eliminated from the ongoing operations of the entity ina disposal transaction. The adoption of SFAS 144 did not have a significantimpact on our financial position or results of operations.

 

6

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**Note 3—Inventory**

**Inventory consists of the following (in thousands):**

** **
|           |   | **September  30,** |   | **December  31,** |   |
|----------------|--------|--------------------|--------|-------------------|--------|
|           |   | **2002**           |   | **2001**          |   |
|           |   | **(Unaudited)**    |   |
| Raw materials  |   | $                  | 534    |              | $      | 1,113 |   |
| Finished goods |   | 219                |   | 611               |   |
|           |   | $                  | 753    |              | $      | 1,724 |   |

** **

**Note 4—Net Loss Per Share**

Basicnet loss per share is computed by dividing net loss by the weighted averagenumber of vested common shares outstanding for the period. Diluted net loss pershare is computed giving effect to all dilutive potential common shares.  Diluted net loss per share is the same asbasic net loss per share for the periods presented because the inclusion ofpotentially dilutive common shares, which consisted of nonvested common sharesand common shares issuable upon the exercise of stock options, would result inan antidilutive per share effect.

A reconciliation of the numerator and denominator ofbasic and diluted net loss per share is provided as follows (in thousands,except per share amounts):

|                                                                                                              |   | **Three  Months Ended** |    | **Nine  Months Ended** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|------------------------|--------|
|                                                                                                              |   | **September  30**       |    | **September  30,**     |   |
|                                                                                                              |   | **2002**                |    | **2001**               |   | **2002** |   | **2001** |   |
|                                                                                                              |   | **(Unaudited)**         |    | **(Unaudited)**        |   |
| Net loss per share, basic and diluted:                                                                            |   |                    |    |                   |   |   |   |   |   |
| Numerator for net loss, basic and diluted                                                                         |   | $                       | (15,948 | )                      | $      | (2,465 | ) | $ | (18,642 | ) | $ | (5,879 | ) |
| Denominator for basic and diluted net loss per share:                                                             |   |                    |    |                   |   |   |   |   |   |
| Weighted average vested common shares outstanding                                                                 |   | 19,375                  |    | 19,415                 |   | 19,345 |   | 19,411 |   |
| Net loss per share basic and diluted                                                                              |   | $                       | (0.82   | )                      | $      | (0.13 | ) | $ | (0.96 | ) | $ | (0.30 | ) |
|                                                                                                              |   |                    |    |                   |   |   |   |   |   |
| Anti-dilutive securities not included in the calculation of diluted  EPS because the Company incurred a net loss: |   |                    |    |                   |   |   |   |   |   |
| Nonvested common shares                                                                                           |   | —                  |    | 77                     |   | — |   | 403 |   |
| Common stock options                                                                                              |   | 4,860                   |    | 3,798                  |   | 4,860 |   | 3,798 |   |

** **

**7**

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** **

**Note 5—Restructuring**

Duringthe quarter ended June 30, 2001, the Company initiated a restructuring program.As a part of this restructuring program, the Company recorded costs and othercharges of $870,000 classified as operating expenses.  Of this amount, $442,000 related to a reduction in the workforceby approximately 40 regular employees across all functional areas of theCompany, $228,000 related primarily to non-cancelable lease costs arising fromthe consolidation of excess facilities and $200,000 related to discontinuedassets written-off.

Duringthe quarter ended September 30, 2002, the Company initiated a restructuringprogram. As a part of this restructuring program, the Company recorded costsand other charges of $5,400,000 classified as operating expenses.  Of this amount, $900,000 related to areduction in the workforce by approximately 45 fulltime employees across allfunctional areas of the Company, including three members of executivemanagement; $3,900,000 related primarily to non-cancelable lease costs arisingfrom the consolidation of excess facilities; and $600,000 related todiscontinued assets written-off.

Asummary of the restructuring costs is as follows (in thousands):

 
|                                                |   | **Severance** |   | **Facilities** |   |           |   |      |   |
|-----------------------------------------------------|--------|---------------|--------|----------------|--------|----------------|--------|-----------|--------|
|                                                |   | **and**       |   | **and Other**  |   | **Asset**      |   |      |   |
|                                                |   | **Benefits**  |   | **Charges**    |   | **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                                           |   | (306          | )      | (103           | )      | —         |   | (409      | )      |
| Non-cash charges                                    |   | —        |   | (120           | )      | (600           | )      | (720      | )      |
| Restructuring reserve balance at September 30, 2002 |   | $             | 594    |           | $      | 4,024          |   | $         | — |   | $ | 4,618 |   |

The Company expects to pay the balance of theseverance and benefits in the quarter ending December 31, 2002.  The amounts related to non-cancelable leasecosts are expected to be paid over the respective lease terms through fiscal2005.

 

**Note 6—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 September 30, 2002, 7,600 shares wererepurchased at a weighted average cost of $1.22 per share.  As of September 30, 2002, the Company haspurchased 268,000 shares under this program at a weighted average cost of $1.43per share.

 

**Note 7—Contingencies**

In November 2001, aseries of securities class actions were filed in United States District Courtfor the Southern District of New York against certain underwriters forLatitude’s initial public offering (“IPO”), Latitude Communications, and certainofficers and directors of Latitude. The current amended complaint allegesundisclosed and improper practices by the underwriters concerning theallocation of Latitude’s IPO shares in violation of the federal securitieslaws, and seeks unspecified damages on behalf of persons who purchasedLatitude’s stock during the period from May 6, 1999 to December 6, 2000.

In October 2002,Latitude’s officers and directors who were defendants were dismissed from theaction without prejudice.  The Companyremains a defendant in the action.  We,along with other issuer defendants, have filed a motion, which is currentlypending before the court, to dismiss the amended complaint with prejudice.

Latitude believes it hasmeritorious defenses to the claims against it and will defend itselfvigorously. In the opinion of management, after consultation with legal counseland based on currently available information, the

 

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ultimate disposition ofthese matters is not expected to have a material adverse effect on ourbusiness, financial condition or results of operations, and hence no amountshave been accrued for these cases.

 

**Note 8—Deferred Tax ValuationAllowance**

AtDecember 31, 2001, the Company had total gross U.S. deferred tax assets of $7.5million. These assets included temporary differences related principally to netoperating losses that carry forward and research and development credits.  During the third quarter ended September 30,2002, the Company concluded that a deferred tax asset valuation allowanceshould be established due to the uncertainty of realizing the tax losscarry-forwards and other deferred tax assets in accordance with Statement ofFinancial Accounting Standards No. 109 (“SFAS 109”), “Accounting for IncomeTaxes”.  Accordingly, in the thirdquarter of 2002, the Company recorded a non-cash charge of $9.0 million toprovide a full valuation allowance for its deferred tax assets.  The Company’s assessment in recording thevaluation allowance was based principally on its historical operating losses;the loss of a major customer and restructuring efforts announced in the thirdquarter of 2002; and unfavorable macro-economic conditions.  The establishment of the deferred tax assetvaluation allowance is the reason for the reduction in the deferred tax assetsline items on the accompanying consolidated balance sheets for the period endedSeptember 30, 2002.

    SFAS No. 109, “Accounting for Income Taxes,”requires the establishment of a valuation allowance for deferred tax assetswhen it is deemed more likely than not that these assets will not be realized.The deferred tax assets will be recognized in future periods to the extent thatthe Company can reasonably expect such assets to be realized. The Company willevaluate the probability of realizing its deferred tax assets on a quarterlybasis. If the Company determines that a portion or all of the deferred taxassets are realizable, then the valuation allowance will be reducedaccordingly.

 

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

ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations and other parts of this Form 10–Q include a number offorward-looking statements that reflect our current views with respect tofuture events and financial performance. We use words such as “anticipates,”“believes,” “expects,” “future,” and “intends,” and similar expressions toidentify forward-looking statements. You should not place undue reliance onthese forward-looking statements, which apply only as of the date of thisQuarterly Report on Form 10-Q. These forward-looking statements are subject torisks and uncertainties that could cause actual results to differ materiallyfrom historical results or our predictions. These risks are described in “Factors Affecting Future Operating Results “ and elsewhere in this Form 10–Q.The Company assumes no obligation to update these forward–lookingstatements to reflect actual results or changes in factors or assumptionsaffecting such forward–looking statements.

Whilewe believe that the discussion and analysis in this report is adequate for afair presentation of the information, we recommend that you read thisdiscussion and analysis with Management’s Discussion and Analysis included inour Annual Report on Form 10-K for the year ended December 31, 2001 filed withthe Securities and Exchange Commission (“SEC”).

**Overview**

Weare a leading provider of integrated, secure voice and web conferencingsolutions that enable geographically dispersed organizations to work betterthrough real-time collaboration. The company’s award-winning MeetingPlacesystem integrates with standard communications infrastructures enabling peopleto share 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 to leverageexisting technologies such as telephones, cellular phones and personalcomputers.

Wegenerate revenue from sales of our MeetingPlace products and services, and fromrelated customer support and consulting services. Revenue derived from productsales constituted 30% of total revenue in the third quarter of 2002 and 25%during the corresponding period of 2001. Product revenue is generallyrecognized upon shipment if a signed contract exists, the fee is fixed ordeterminable, collection of the resulting receivable is probable, productreturns are reasonably estimable and, if applicable, acceptance has beenobtained. We calculate an

 

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allowance for returns based on historical rates.Service revenue includes revenue from our usage and subscription based managedand hosted MeetingPlace services, implementation and integration services,system management services, warranty coverage and customer support. Revenuefrom managed, hosted, implementation and system integration services isrecognized as the services are performed, while revenue from warranty coverageand customer support is recognized ratably over the period of the contract.

Wesell our MeetingPlace products primarily through our direct sales force and, toa lesser extent, through indirect distribution channels. The majority of ourrevenue is derived from Fortune 1000 companies, many of which initiallypurchase MeetingPlace servers and later expand deployment of our products asthey require additional capacity for voice and web conferencing.

Totalcost of revenue consists of component and materials costs, direct labor costs,warranty costs, royalties and overhead related to manufacturing of ourproducts, as well as materials, travel and labor costs related to personnelengaged in our service operations. Product gross margin is impacted by theproportion of product revenue derived from software sales, which typicallycarry higher margins than hardware sales, and from indirect distributionchannels, which typically carry lower margins than direct sales. Service grossmargin is impacted by the mix of services we provide, which have differentlevels of profitability, usage levels by our customers and the efficiency withwhich we provide support to our customers. We reduce the carrying value ofexcess and obsolete inventory by identifying inventory components eitherconsidered excess based on estimates of future usage or obsolete due to changesin our products. As a result of technological changes, our products may becomeobsolete or we could be required to redesign our products.

InSeptember 2002, as part of its restructuring program, the Company appointedRick McConnell as CEO of Latitude. In addition, Luis Buhler was named CFO andJohn Marcone was named VP of Worldwide Sales. During 2001 and 2002, we recordedsignificant accruals in connection with restructuring programs. These accrualsincluded estimates pertaining to employee separation costs and the settlementsof contractual obligations related to excess leased facilities and othercontracts.  Actual costs may differ fromthese estimates.  As a result of therestructuring plan announced in September 2002, the company expects to reducequarterly operating expenses (excluding the restructuring charge) by approximately18 to 20%.

 

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**ResultsOf Operations**

The following table lists, for the periods indicated,the percentage of total revenue of each line item from our condensedconsolidated statement of operations to total revenues:

 
|                                                  |   | **Three  Months Ended** |   | **Nine  Months Ended** |   |
|-------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
|                                                  |   | **September  30,**      |   | **September  30,**     |   |
|                                                  |   | **2002**                |   | **2001**               |   | **2002** |   | **2001** |   |
|                                                  |   |                    |   |                   |   |   |   |   |   |
| Revenue:                                              |   |                    |   |                   |   |   |   |   |   |
| Product                                               |   | 29.8                    | %      | 24.8                   | %      | 33.5 | % | 43.0 | % |
| Service                                               |   | 70.2                    |   | 75.2                   |   | 66.5 |   | 57.0 |   |
| Total revenue                                         |   | 100.0                   |   | 100.0                  |   | 100.0 |   | 100.0 |   |
| Cost of revenue:                                      |   |                    |   |                   |   |   |   |   |   |
| Product                                               |   | 12.2                    |   | 9.8                    |   | 12.3 |   | 9.3 |   |
| Service                                               |   | 33.7                    |   | 41.7                   |   | 34.4 |   | 31.5 |   |
| Total cost of revenue                                 |   | 45.9                    |   | 51.5                   |   | 46.7 |   | 40.8 |   |
| Gross profit                                          |   | 54.1                    |   | 48.5                   |   | 53.3 |   | 59.2 |   |
|                                                  |   |                    |   |                   |   |   |   |   |   |
| Operating expenses:                                   |   |                    |   |                   |   |   |   |   |   |
| Research and development                              |   | 15.9                    |   | 21.5                   |   | 15.3 |   | 18.3 |   |
| Marketing and sales                                   |   | 42.9                    |   | 70.0                   |   | 47.4 |   | 61.4 |   |
| General and administrative                            |   | 12.0                    |   | 20.1                   |   | 12.0 |   | 17.9 |   |
| Restructuring charge                                  |   | 50.1                    |   | 0.0                    |   | 17.8 |   | 3.4 |   |
| Total operating expenses                              |   | 120.9                   |   | 111.6                  |   | 92.5 |   | 101.0 |   |
| Loss from operations                                  |   | (66.8                   | )      | (63.1                  | )      | (39.2 | ) | (41.8 | ) |
| Interest income, net                                  |   | 2.0                     |   | 5.9                    |   | 2.4 |   | 5.7 |   |
| Loss before benefit from (provision for) income taxes |   | (64.8                   | )      | (57.2                  | )      | (36.8 | ) | (36.1 | ) |
| Benefit from (provision for) income taxes             |   | (83.3                   | )      | 20.0                   |   | (24.8 | ) | 12.7 |   |
| Net loss                                              |   | (148.1                  | )%     | (37.2                  | )%     | (61.6 | )% | (23.4 | )% |

*Product Revenue*

Productrevenue was $3.2 million for the third quarter of 2002, an increase of 96%compared to the corresponding period in 2001. Product revenue decreased $0.7 million, or 6%, to $10.1 million for thenine months ended September 30, 2002 from $10.8 million for the nine monthsended September 30, 2001.  The increasefrom third quarter 2001 to 2002 was due to the negative impact on third quarter2001 product orders by the aftermath of the events on September 11th,as enterprise customers delayed and re-evaluated their purchase needs.  The decrease from the nine months endedSeptember 30, 2001 to 2002 was due to fewer MeetingPlace system sales in anenvironment of reduced capital spending by our existing and target customers ascompared to historical highs in the first quarter of 2001. Internationalproduct sales represented approximately 35% of product revenue in the threemonths ended for both September 30, 2002 and 2001, and approximately 24% and20% of product revenue in the nine months ended September 30, 2002 and 2001,respectively.  In the near term, thecapital spending environment continues to be uncertain and we may experiencequarter-to-quarter variability in product revenue in absolute dollars.

*Service Revenue*

Servicerevenue increased $2.6 million, or 52%, to $7.6 million for the three monthsended September 30, 2002 from $5.0 million for the three months ended September30, 2001.  Service revenue increased$5.8 million, or 41%, to $20.1 million for the nine months ended September 30,2002 from $14.3 million for the nine months ended September 30, 2001.  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.

InAugust 2002, we announced that Hewlett-Packard Company, our largest customer,had decided to pursue alternative vendor solutions for its voice conferencingneeds.  Service revenue fromHewlett-Packard consisted of $2.1 million and $1.3 million for the three monthsended September 30, 2002 and 2001, respectively, and $6.2

 

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million and $2.6 million for the nine months endedSeptember 30, 2002 and 2001, respectively. We expect that service revenue for the three months ending December 31,2002 will decline from the three months ended September 30, 2002 due to the expectedramp-down of Hewlett-Packard service revenues during the fourth quarter.  However, we cannot be assured of thisdecline as the actual rate and timing of such revenue reduction remainsunknown.  We did not generate anyproduct revenue from Hewlett-Packard for any of the periods presented.

*Total Cost of Revenue*

Totalcost of revenue increased  $1.5 million,or 45%, to $4.9 million for the third quarter of 2002, from $3.4 million forthe corresponding period of 2001. Total cost of revenue increased $3.9 million,or 38%, to $14.1 million for the nine months ended September 30, 2002.  The increases in total cost of revenue weredue to higher overall revenues.

Grossprofit was $5.8 million for the third quarter of 2002, as compared to $3.2million in the corresponding period of 2001. Gross profit was $16.1 million forthe nine months ended September 30, 2002, as compared to $14.8 million for thenine months ended September 30, 2001. Gross margin was 54% as a percentage of revenue, for the third quarterof 2002, as compared to 48% for the corresponding period of 2001, and was 53%and 59%, respectively, for the nine months ended September 30, 2002 andSeptember 30, 2001.  The decrease inoverall gross margins for the nine months ended September 30, 2002 compared tothe corresponding period in 2001 was due to the shift in revenue mix fromhigher margin product revenue to lower margin service revenue, and theconcurrent increase in fixed infrastructure costs necessary to support theincreased service revenue.

Productgross margin decreased slightly, to 59% as a percentage of product revenue forthe third quarter of 2002 as compared to 60% for the corresponding period of2001. Product gross margins decreased to 63% for the nine months endedSeptember 30, 2002 from 78% for the nine months ended September 30, 2001.  We expect that product gross margin will bestable in the near-term, and possibly improve based on the extent that productrevenues increase.

Servicegross margin was 52% as a percentage of service revenue for the third quarterof 2002 as compared to 45% for the corresponding period in 2001.  Service gross margin was 48% as a percentageof revenue for the nine months ended September 30, 2002 as compared to 45% forthe nine months ended September 30, 2001. We expect service gross margin to range from approximately 40% to 50% ofservice revenue.

*Research and DevelopmentExpenses*

Researchand development expenses consist primarily of compensation and related costsfor research and development personnel, facilities expenses for testing space,and equipment and purchased software. Research and development expenses were$1.7 million for the third quarter of 2002, which represented an increase of20% when compared to the corresponding period in 2001. Research and developmentexpenses were $4.6 million for the nine months ended September 30, 2002, whichrepresented an increase of 1% when compared to the corresponding period in2001. The increase from third quarter 2001 to 2002 was primarily due toincreased consulting and non-recurring engineering expenses.  The increase in expenses from the ninemonths ended September 30, 2001 to 2002 was primarily due to an increase incompensation-related expenses in 2002 relative to 2001.  As a percentage of total revenues, researchand development expenses were 16% and 22%, respectively, for the three monthsended September 30, 2002 and 2001, and were 15% and 18% for the nine monthsended September 30, 2002 and 2001. During the quarter ended September 30, 2002, the Company initiated arestructuring program, which is described in the Notes to CondensedConsolidated Financial Statements (Note 5 - Restructuring).  The restructuring plan is expected toreduce, in absolute dollars, fourth quarter 2002 research and developmentexpense relative to third quarter 2002 expense.

*Marketingand Sales Expenses*

Marketingand sales expenses consist primarily of promotional expenditures andcompensation and related costs for marketing and sales personnel. Marketing andsales expenses were $4.6 million for the three months ended September 30, 2002and September 30, 2001, respectively. Marketing and sales expenses decreased $1.1 million, or 7%, to $14.3million for the nine months ended September 30, 2002 from $15.4 million for thenine months ended September 30, 2001. The decrease in expenses was primarily due to lower compensationexpenses due to reduced headcount and reduced discretionary marketingexpenses.  As a percentage of totalrevenues, marketing and sales expenses were 43% and 70% for the three monthsended September 30, 2002 and 2001, respectively, and 47% and 61% for the ninemonths ended September 30, 2002 and 2001. As a result of the restructuring in September 2002,

 

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we expect marketing and sales expense in the fourthquarter of 2002 to decrease in absolute dollars relative to the third quarterof 2002.

*General andAdministrative Expenses*

Generaland administrative expenses consist primarily of personnel expenses, legal andaccounting expenses and other general corporate expenses.  General and administrative expensesdecreased $44,000, or 3%, to slightly less than $1.3 million for the threemonths ended September 30, 2002 from $1.3 million for the three months endedSeptember 30, 2001.  General andadministrative expenses decreased $850,000, or 19%, to $3.6 million for thenine months ended September 30, 2002 from $4.5 million for the nine monthsended September 30, 2001.  The decreasefrom the third quarter of 2001 to the third quarter of 2002 was primarily dueto $150,000 in bad debt expense recorded during the three months endedSeptember 30, 2001.  The decrease inexpenses from the nine months ended September 30, 2001 to the nine months endedSeptember 30, 2002 was attributable primarily to $800,000 of bad debt expensethat was recorded during the nine months ended September 30, 2001.  As a percentage of total revenues, generaland administrative expenses were 12% and 20% for the three months endedSeptember 30, 2002 and 2001, respectively, and 12% and 18% for the nine monthsended September 30, 2002 and 2001.  As aresult of the restructuring in September 2002, we expect general andadministrative expense in the fourth quarter of 2002 to decrease in absolutedollars relative to the third quarter of 2002.

*Amortization of DeferredStock Compensation*

Inconnection with the completion of our initial public offering in May 1999,options granted in the last quarter of 1997, during the year 1998 and the firstquarter of 1999 have been considered to be compensatory. Total remaining deferredstock compensation associated with these options as of September 30, 2002amounted to $31,000. This amount is being amortized based on the remainingvesting period of these options, and we expect the balance to be fullyamortized in the fourth quarter of 2002.

*Interest Income, Net*

Interestincome, net of interest and other expense of $9,000, was $212,000 for the thirdquarter of 2002, compared to interest income, net of interest and other expenseof $6,000, of $387,000 for the corresponding period in 2001. Interest income,net of interest and other expense of $13,000, was $729,000 for the nine monthsended September 30, 2002, compared to $1.4 million (net of interest and otherexpense of $25,000) for the corresponding period in 2001.  The decrease in net interest income wasattributable to lower market interest rates and lower average balances of cashand investments.

*Benefit from (Provisionfor) Income Taxes*

Forthe quarter ended September 30, 2002, the provision for income taxes was $9.0million, compared to a benefit of $1.3 million in the quarter ended September30, 2001. For the nine months ended September 30, 2002, the provision forincome taxes was $7.5 million, compared to a benefit of $3.2 million for thenine months ended September 30, 2001. The provision for income taxes for the three months and nine monthsended September 30, 2002 was due to establishing a $9.0 million valuationallowance on previously recorded deferred tax assets.

 

**Liquidity and CapitalResources**

InMay 1999, we completed an initial public offering of common stock, resulting innet proceeds to us of approximately $33.8 million. As of September 30, 2002, wehad $25.6 million of cash, cash equivalents and investments, which represented60% of total assets.  See Item 3 for a descriptionof our investments.

Cashused in operating activities was $4.8 million for the nine months endedSeptember 30, 2002, compared to $3.1 million for the same period of 2001. Cashused in operating activities in 2002 was primarily due to a net loss andchanges in working capital, especially an increase in accounts receivable,partially offset by non-cash charges such as depreciation expense and avaluation allowance on previously deferred tax assets and increases in deferredliabilities and deferred revenue.

 

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Cashprovided by investing activities in the first nine months of 2002 was $0.5million, which consisted primarily of maturities of marketable securities of$11.9 million, offset by purchases of marketable securities of $9.5 million andproperty and equipment of $1.9 million. For the first nine months in 2001, cashused in investing activities of $5.5 million consisted primarily of thepurchase of marketable securities of $32.8 million and purchase of property andequipment of $2.7 million, partially offset by maturities of marketablesecurities of $30.5 million.

 Cash provided by financing activities in thefirst nine months of 2002 was $34,000, which consisted of proceeds fromissuance of common stock under employee benefit plans, net of repurchases,partially offset primarily by payments on obligations under capital leases andnotes payable.  For the first ninemonths of 2001, cash used in financing activities was $198,000, which consistedof payments on obligations under capital leases and notes payable of $206,000,partially offset by proceeds from issuances of common stock.

 

We have no materialcommitments for capital expenditures or strategic investments.  We may use cash to acquire or licensetechnology, products or businesses related to our current business.  In addition, we anticipate that we willexperience low or no growth or a decline in our operating expenses for theforeseeable future and that our operating expenses will be a material use ofour cash resources. Future payments due under operating lease obligations as ofSeptember 30, 2002 are $0.6 million for the remainder of 2002, and $2.4 millionannually for 2003, 2004 and 2005.

 

Latitude has incurred lossesof $7.4 million and $18.6 million and negative cash flows of $8.6 million and$4.3 million during the year ended December 31, 2001 and the nine months endedSeptember 30, 2002, respectively.  As of September 30, 2002, Latitude hadan accumulated deficit of approximately $31.3 million.  Latitude expectsto incur operating losses and negative cash flows through at least the fourthquarter of 2002.

Webelieve that our current cash, cash equivalents and short-term investments willbe sufficient to meet our anticipated cash needs for working capital andcapital expenditures for at least the next 12 months. Our future capitalrequirements will depend upon many factors, including revenue growth,management of working capital, the timing of research and product developmentefforts and the expansion of our marketing and sales programs.  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 not available on acceptable terms or at all,we may not be able to take advantage of market opportunities, develop orenhance new products, pursue acquisitions that would complement our existingproduct offerings or enhance our technical capabilities, execute our business planor otherwise respond to competitive pressures.  The issuance of additionalequity securities may dilute our existing stockholders.

 

**Impact of Recently IssuedAccounting Standards**

InJune 2002, the FASB issued SFAS No. 146, “Accounting for Exit or DisposalActivities’” (“SFAS 146”). SFAS 146 addresses significant issuesregarding the recognition, measurement, and reporting of costs that areassociated with exit and disposal activities, including restructuringactivities that are currently accounted for under EITF No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).” The scopeof SFAS 146 also includes costs related to terminating a contract that isnot a capital lease and termination benefits that employees who areinvoluntarily terminated receive under the terms of a one-time benefitarrangement that is not an ongoing benefit arrangement or an individualdeferred-compensation contract. SFAS 146 will be effective for exit or disposalactivities that are initiated after December 31, 2002 and early application isencouraged.  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. Wewill adopt SFAS 146 during the first quarter ending March 31, 2003 and donot expect an impact on our financial position and results of operations fromthe adoption of SFAS 146.

InOctober 2001, the FASB issued Statement of Financial Accounting Standards No. 144(“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets”.SFAS 144 supercedes Statement of Financial Accounting Standards No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto Be Disposed Of.” SFAS 144 applies to all long-lived assets, includingdiscontinued operations, and consequently amends Accounting Principles BoardOpinion No. 30, “Reporting Results of Operations Reporting the Effects ofDisposal of a Segment of a Business”. SFAS 144 develops one accounting modelfor long-lived assets that are to be

 

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disposed of by sale. SFAS 144 requires that long-livedassets that are to be disposed of by sale be measured at the lower of bookvalue or fair value less selling costs. Additionally, SFAS 144 expands thescope of discontinued operations to include all components of an entity withoperations that (1) can be distinguished from the rest of the entity and (2)will be eliminated from the ongoing operations of the entity in a disposaltransaction. The adoption of SFAS 144 did not have a significant impact on ourfinancial position or results of operations.

 

**Factors That May AffectFuture Results**

Inaddition to the other information in this report, the following factors shouldbe considered carefully in evaluating the Company’s business and prospects:

*Ourfuture profitability is uncertain due to recent economic developments that mayaffect 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 relysubstantially on sales of our MeetingPlace products and services, which havelimited market acceptance.  We cannot beassured that our revenue will grow or that we will return to profitability inthe future.

Inaddition, we are unable to predict our future product development, sales andmarketing, and administrative expenses. To the extent that these expenses increase,we will need to increase revenue to achieve profitability. Our ability toincrease revenue and achieve profitability also depends on the other riskfactors described in this section.

*Ouroperating results may fluctuate significantly.*Our operatingresults are difficult to predict. Our future quarterly operating results mayfluctuate and may not meet the expectations of securities analysts orinvestors. If this occurs, the price of our common stock would likely decline.The factors that may cause fluctuations of our operating results include thefollowing:

•                  changes in our mix of revenuesgenerated from product sales and services;

•                  changes by existing customers intheir levels of purchases of our products and services;

•                  changes in our mix of sales channelsthrough which our products and services are sold; and

•                  changes in our mix of domestic andinternational sales.

Ordersat the beginning of each quarter typically do not equal expected revenue forthat quarter. In addition, a significant portion of our orders is received inthe last month of each fiscal quarter. If we fail to ship products by the endof a quarter in which the order is received, or if our prospective customersdelay their orders or delivery schedules until the following quarter, we may failto meet our revenue objectives.

Additionally,we expanded our service offerings by providing hosted services to ourcustomers. Accordingly, future revenue from this new service offering willincrease the proportion of total revenue derived from services. To the extentthat prospective customers elect to purchase the hosted service rather than anon-premises MeetingPlace system, our product revenue could be adverselyaffected.

*Ourcustomers do not have long-term obligations to purchase our products and services;therefore our revenue and operating results could decline if our customers donot continue to purchase our products or use our services.*Ourcustomers are not obligated to continue to purchase our products or use ourservices.  As a result, the failure ofrepeat customer usage, or our inability to retain existing customers andsustain or increase their usage of our services, could result in lower thanexpected revenue and, therefore, harm our ability to become profitable andcause our stock price to decline.  Inaddition, because our customers have no continuing obligations with us, we mayface increased downward pricing pressure that could cause a decrease in ourgross margins.  Our customers depend onthe reliability of our services and we may lose a customer if we fail toprovide reliable services for even a single communication event.

*Weexpect to depend on sales of our MeetingPlace solution for substantially all ofour revenue for the foreseeable future.* We anticipate that revenues from our MeetingPlaceproduct and related services will continue to constitute substantially all ofour revenues for the foreseeable future. Consequently, any decline in the demand for MeetingPlace or its failureto achieve broad market acceptance, would seriously harm our business.

 

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*Ourrevenues could be significantly reduced by the loss of a major customer.*Wederive a significant portion of our revenues from a limited number ofcustomers.  The loss of any of thesemajor customers, if not replaced, could dramatically reduce our revenues.  During the quarter ending September 30,2002, we announced that our largest customer, Hewlett-Packard Company(“Hewlett-Packard”), had decided to pursue alternative vendor solutions for itsvoice conferencing needs.  For the threemonths ended September 30, 2002, Hewlett-Packard accounted for approximately19% of our total revenues and 28% of our service revenues.  For the nine months ended September 30,2002, Hewlett-Packard accounted for approximately 21% of our total revenues and31% of our service revenues.  We expectthat service revenue for the three months ending December 31, 2002 will declinefrom the three month period ended September 30, 2002 due to the expectedramp-down of Hewlett-Packard service revenues during the fourth quarter.  However, we cannot be assured of thisdecline as the actual rate and timing of such revenue reduction remainsunknown.  Hewlett-Packard was the onlycustomer that accounted for more than 10% of our total revenue for the threemonths ended September 30, 2002.

*Ourmarket is highly competitive.*Because of intense marketcompetition, we may not be successful. Currently, our principal competitorsinclude:

•                  major telecommunications carriersthat operate service bureaus for voice conferencing, such as AT&T Corp.,MCI Worldcom, Inc. and Sprint Corporation;

•                  private branch exchange, or PBX,vendors that sell systems with voice conferencing capabilities, such as LucentTechnologies Inc. and Nortel Networks; and

•                  companies that offer voice and webconferencing products and services such as Webex, Placeware, Raindance andSpectel.

Manyof these companies have longer operating histories, stronger brand names,larger market share and significantly greater financial, technical, marketingand other resources than we do. These companies also may have existingrelationships with many of our prospective customers. Large service bureaus maybundle conferencing services with other products in order to increase sales inother areas. In addition, these companies may be able to respond more quicklythan we can to new or emerging technologies and changes in customerrequirements. Because Latitude purchases long distance services from thirdparties, we may be forced to make purchases from some of these competitors.

In addition, we expectcompetition to persist and intensify in the future, which could adverselyaffect our ability to increase sales, penetrate new markets and maintainaverage selling prices. In the future, we may experience competition frompotential competitors that include:

•                  networking companies, such as CiscoSystems, Inc., Lucent Technologies Inc. and Nortel Networks that are focusingon enabling the transmission of voice over the Internet and that may offervoice and web conferencing functionality; and

•                  collaborative software providers,such as Microsoft Corporation and Lotus Development Corporation, that arefocusing on web conferencing products and that may in the future incorporatevoice conferencing functionality into their products.

*Ourmarket is in an early stage of development, and our products and services maynot be adopted.*If the market for our integrated voice andweb conferencing products and services fails to grow or grows more slowly than weanticipate, we may not be able to increase revenues or return to profitability.The market for integrated real–time voice and web conferencing isrelatively new and rapidly evolving. Our ability to be profitable depends inlarge part on the widespread adoption by end users of real–time voice andweb conferencing.

Wewill have to devote substantial resources to educate prospective customersabout the uses and benefits of our products and services. In addition,businesses that have invested substantial resources in other conferencingproducts may be reluctant or slow to adopt our products, which might replace orcompete with their existing systems. Our efforts to educate potential customersmay not result in our products and services achieving market acceptance.

*Rapidtechnological changes could cause our products and services to become obsoleteor require us to redesign our products.*The market in whichwe compete is characterized 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 technologytrends such as migrations to new operating systems, will require us to adaptour product and services to remain competitive. This adaptation could be costlyand time–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 and the

 

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transmission of voice over the Internet, coulddiminish demand for our current products and services. As a result, the lifecycle of our products and services is difficult to estimate.

Tobe successful, we will need to develop and introduce new products, productenhancements and services that respond to technological changes or evolvingindustry standards, such as the transmission of voice over the Internet, in atimely manner and on a cost effective basis. We cannot assure you that we willsuccessfully develop these types of products and product enhancements or thatour products and services will achieve broad market acceptance.

*Oursales cycle is lengthy and unpredictable.*Any delay in salesof our products and services could cause our quarterly revenue and operatingresults to fluctuate. The typical sales cycle of our products is lengthy, generallybetween six to twelve months, unpredictable, and involves significantinvestment decisions by prospective customers, as well as our education ofpotential customers regarding the use and benefits of our products.Furthermore, many of our prospective customers have neither budgeted expensesfor voice and web conferencing systems nor have personnel specificallydedicated to procurement and implementation of these conferencing systems. As aresult, our customers spend a substantial amount of time before purchasing ourproducts in performing internal reviews and obtaining capital expenditureapprovals. The emerging and evolving nature of the real–time voice andweb conferencing market may lead to confusion in the market, which may causeprospective customers to postpone their purchase decisions.

*If wefail to expand our distribution channels, our business could suffer.*Ifwe are unable to expand our distribution channels, we may not be able toincrease revenue or achieve market acceptance of our MeetingPlace product andservices.  We believe that our futuresuccess is dependent upon establishing successful relationships with a varietyof distribution partners. To date, we have entered into agreements with only asmall number of these distribution partners. We cannot be certain that we willbe able to reach agreement with additional distribution partners on a timelybasis or at all, or that these distribution partners will devote adequateresources to selling our products. Furthermore, if our distribution partnersfail to adequately market or support our products, the reputation of ourproducts in the market may suffer. In addition, we will need to managepotential conflicts between our direct sales force and third–partyreselling efforts.

*Ourability to expand into international markets is uncertain.*Weintend to continue to expand our operations into new international markets. Inaddition to general risks associated with international expansion, such asforeign currency fluctuations and political and economic instability, we facethe following risks and uncertainties any of which could prevent us fromselling our products and services in a particular country or harm our businessoperations once we have established operations in that country:

•                  the difficulties and costs oflocalizing products and services for foreign markets, including the developmentof multilingual capabilities in our MeetingPlace system;

•                  the need to modify our products tocomply with local telecommunications certification requirements in eachcountry; and

•                  our lack of a direct sales presencein other countries, our need to establish relationships with distributionpartners to sell our products and services in these markets and our reliance onthe capabilities and performance of these distribution partners.

*If wefail to integrate our products with third–party technology, our salescould suffer.*Our products and services are designed tointegrate with our customers’ data and voice networks, as well as withenterprise 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.

Inaddition, we may be required to engage in costly and time–consumingredesigns of our products because of technology enhancements or upgrades ofthese systems. We may not be able to redesign our products or be certain thatany of these redesigns will achieve market acceptance. In addition, we willneed to continually modify our products as newer versions of the enterpriseapplications with which our products integrate are introduced. Our ability todo so largely depends on our ability to gain access to the advanced programminginterfaces for these applications, and we cannot assure you that we will haveaccess to necessary advanced programming interfaces in the future.

*We mayexperience difficulties managing our future growth.*We expectthat any future growth may strain our management systems and resources, whichcould hinder our ability to continue to grow in the future. We may also

 

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experience difficulties meeting the demand for ourproducts and services. If we are unable to provide training and support for ourproducts, the implementation process will be longer and customer satisfactionmay be lower.

Wemay not be able to install management information and control systems in anefficient and timely manner, and our current or planned personnel, systems,procedures and controls may not be adequate to support our future operations.

*Ourbusiness could suffer if we lose the services of our current management team.*Ourfuture success depends on the ability of our management to operate effectively,both individually and as a group. If we were to lose the services of any ofthese key employees we may encounter difficulties finding qualified personnelto replace them.

*Theloss of our right to use technology licensed to us by third parties could harmour business.*We license technology that is incorporated intoour products and services from third parties, including digital signalprocessing algorithms and the MeetingPlace server’s operating system andrelational database. Any interruption in the supply or support of any licensedsoftware could disrupt our operations and delay our sales, unless and until wecan replace the functionality provided by this licensed software. Because ourproducts incorporate software developed and maintained by third parties, wedepend on these third parties to deliver and support reliable products, enhancetheir current products, develop new products on a timely and cost–effectivebasis and respond to emerging industry standards and other technologicalchanges.

Werecently announced a strategic partnership with a company based in Israel tointegrate video conferencing functionality into our products. Politicalinstability in this region of the world may limit our access to this technologyor delay introduction of new products.

*Anyinterruption in supply of components from outside manufacturers and supplierscould hinder our ability to ship products in a timely manner*.We rely on third parties to obtain most of the components of the MeetingPlaceserver and integrate them with other standard components, such as the centralprocessing unit and disk drives. If these third parties are no longer able tosupply and assemble these components or are unable to do so in a timely manner,we may experience delays in shipping our products and have to invest resourcesin finding an alternative manufacturer or manufacture our products internally.

Inaddition, we obtain key hardware components, including the processors anddigital signal processing devices used in the MeetingPlace server, from solesource suppliers. In the past, we have experienced problems in obtaining someof these components in a timely manner from these sources, and we cannot becertain that we will be able to continue to obtain an adequate supply of thesecomponents in a timely manner or, if necessary, from alternative sources. If weare unable to obtain sufficient quantities of components or to locatealternative sources of supply, we may experience delays in shipping ourproducts and incur additional costs to find an alternative manufacturer ormanufacture our products internally.

*Ourproducts and services may suffer from defects, errors or breaches of security*.Software and hardware products and services as complex as ours are likely tocontain undetected errors or defects, especially when first introduced or whennew versions are released. Any errors or defects that are discovered aftercommercial release could result in loss of revenue or delay in marketacceptance, diversion of development resources, damage to our customerrelationships or reputation and increased service and warranty cost. Ourproducts and services may not be free from errors or defects after commercialshipments have begun, and we are aware of instances in which some of ourcustomers have experienced product failures or errors.

Manyof our customers conduct confidential conferences, and transmit confidentialdata, using MeetingPlace. Concerns over the security of information sent overthe Internet and the privacy of its users may inhibit the market acceptance ofour products. In addition, unauthorized users in the past have gained, and inthe future may be able to gain, access to our customers’ MeetingPlace systemsor our hosted services. Any compromise of security could deter people fromusing MeetingPlace and could harm our reputation and business and result inclaims against us.

In2001, we expanded our service offerings to include hosted services for ourcustomers. The success of our hosted services will depend on the efficient anduninterrupted operation of our computer and communication hardware and softwaresystems. In addition, some of our communications hardware and software for ourservices businesses 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

 

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accommodate increased usage. If we are unable toincrease our capacity to accommodate growth in usage, we could encounter systemperformance issues, which could harm our relationships with customers and ourreputation.

*We maybe unable to adequately protect our proprietary rights, and we may be subjectto infringement claims.*Unauthorized parties may copy aspectsof our products and obtain and use information that we regard as proprietary,which could cause our business to suffer. Furthermore, the laws of many foreigncountries do not protect our intellectual property rights to the same extent asthe laws of the United States.

Inthe future, we may be subject to legal proceedings and claims for allegedinfringement of third party proprietary rights. Any of these claims, even if notmeritorious, could result in costly litigation, divert management’s attentionand resources, or require us to enter into royalty or license agreements whichare not advantageous to us. Parties making these claims may be able to obtaininjunctive or other equitable relief, which could prevent us from selling ourproducts.

DellComputer Corporation has registered the “Latitude” mark for computers in theUnited States and in other countries. Dell’s United States trademarkregistration and Canadian application have ****blocked****ourability to register the “Latitude Communications” and “Latitude” with logomarks in the United States and the “Latitude Communications” mark in Canada aswell as other jurisdictions. Consequently, we have at present terminated our efforts to registerthese trademarks, and we will have to rely solely on common law protection forthese marks.  We cannot assure you thatwe will be free from challenges of or obstacles to our use or registration ofour marks.

*We aresubject to government regulation, and our failure to comply with theseregulations could harm our business.*Our products are subjectto a wide variety of safety, emissions and compatibility regulations imposed bygovernmental authorities in the United States or in other countries in which wesell our products and services. If we are unable to obtain necessary approvalsor maintain compliance with the regulations of any particular jurisdiction, wemay be prohibited from selling our products in that territory. In addition, tosell our products and services in many international markets, we are requiredto obtain certifications that are specific to the local telephonyinfrastructure.

*Ourstock price may be volatile.*We expect that the market priceof our common stock will fluctuate as a result of variations in our quarterlyoperating results.  These fluctuationsmay be exaggerated by the very low trading volume of our common stock at thepresent time.  In addition, due to thetechnology–intensive and emerging nature of our business, the marketprice of our common stock may rise and fall in response to:

•                  announcements of technological orcompetitive developments;

•                  acquisitions or strategic alliancesby us or our competitors; or

•                  the gain or loss by us of significantorders.

 

*We may needto raise additional capital in the future, and if we are unable to secureadequate funds on terms acceptable to us, we may be unable to execute ourbusiness plan. *If our existingcash balances and cash flows expected from future operations are not sufficientto meet our liquidity 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 technicalcapabilities, execute our business plan or otherwise respond to competitivepressures or unanticipated requirements.

*Futuresales 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, in the public market, the market price of our common stock could fall.

*We maybe 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. The deficiency can becured if the closing bid price exceeds $1 per share for 10 consecutive tradingdays prior to January 6, 2003.  ThroughOctober 31, 2002, the closing bid price per share has ranged between $0.49 and$0.98 since the notice date.  If ourefforts to regain 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 Qualitative DisclosuresAbout 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 marketable securities with maturities of one to twelve months andwith active secondary or resale markets to ensure portfolio liquidity. We haveno investments denominated in foreign country currencies and therefore are notsubject to foreign currency risk on such investments.

The table below presentsprincipal amounts and related weighted average interest rates by year ofmaturity for our investment portfolio at September 30, 2002 (in thousands).

 
|                      |   | **2002** |   | **2003** |   | **Total** |   |
|---------------------------|--------|----------|--------|----------|--------|-----------|--------|
|                      |   |     |   |     |   |      |   |
| Corporate notes and bonds |   | $        | 2,371  |     | $      | 9,093     |   | $ | 11,464 |   |
| Average interest rate     |   | 5.36     | %      | 3.64     | %      | 3.99      | %      |
| Federal agencies          |   | $        | — |     | $      | 3,063     |   | $ | 3,063 |   |
| Average interest rate     |   | —   |   | 4.28     | %      | 4.28      | %      |

Currently,the majority of our sales and expenses are denominated in U.S. dollars and, asa result, we have not experienced significant foreign exchange gains and lossesto date. While we do expect to effect some transactions in foreign currenciesin the next 12 months, we do not anticipate that foreign exchange gains andlosses will be significant. We have not engaged in foreign currency hedgingactivities to date.

**Item 4.            Controls and Procedures**

Wehave evaluated the design and operation of our disclosure controls andprocedures to determine whether they are effective in ensuring that thedisclosure of required information is timely made in accordance with theExchange Act and the rules and regulations of the Securities and Exchange Commission.This evaluation was made under the supervision and with the participation ofmanagement, including our principal executive officer and principal financialofficer within the 90-day period prior to the filing of this Quarterly Reporton Form 10-Q. The principal executive officer and principal financial officerhave concluded, based on their review, that our disclosure controls andprocedures, as defined at Exchange Act Rules 13a-14(c) and 15d-14(c), areeffective to ensure that information required to be disclosed by us in reportsthat we file under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in Securities and ExchangeCommission rules and forms. No significant changes were made to our internal controlsor other factors that could significantly affect these controls subsequent tothe date of their evaluation.

** **

**PART II.        OTHERINFORMATION**

**Item 1.            LegalProceedings**

In November 2001, aseries of securities class actions were filed in United States District Courtfor the Southern District of New York against certain underwriters forLatitude’s initial public offering (“IPO”), Latitude, and certain officers anddirectors of Latitude. The current amended complaint alleges undisclosed andimproper practices by the underwriters concerning the allocation of Latitude’sIPO shares, in violation of the federal securities laws, and seeks unspecifieddamages on behalf of persons who purchased Latitude’s stock during the periodfrom May 6, 1999 to December 6, 2000.

In October 2002,Latitude’s officers and directors who were defendants were dismissed from theaction without prejudice.  The Companyremains a defendant in the action.  We,along with other issuer defendants, have filed a motion, which is currentlypending before the court, to dismiss the amended complaint with prejudice.

Latitudebelieves it has meritorious defenses to the claims against it and will defenditself vigorously. In the opinion of management, after consultation with legalcounsel and based on currently available information, the ultimate dispositionof these matters is not expected to have a material adverse effect on ourbusiness, financial condition or results of operations, and hence no amountshave been accrued for these cases.

 

 

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**Item 2.            Changes in Securities and Use ofProceeds**

OnMay 6, 1999, in connection with the Company’s initial public offering, aRegistration Statement on Form S–1 (No. 333–72935) was declaredeffective by the Securities and Exchange Commission, pursuant to which3,125,000 shares of the Company’s Common Stock were offered and sold for theaccount of the Company at a price of $12.00 per share, generating grossoffering proceeds of $37.5 million. The managing underwriters were CreditSuisse First Boston Corporation, Hambrecht & Quist LLC and Dain RauscherWessels. After deducting approximately $2.6 million in underwriting discountsand $1.1 million in other related expenses, the net proceeds of the offeringwere approximately $33.8 million. No direct or indirect payments were made toofficers or directors or holders of ten percent or more of any class of equitysecurities of Latitude or any of their affiliates.  Latitude has invested such proceeds in investment grade, interest-bearingsecurities.  As of September 30, 2002,$25.6 million of the net proceeds were invested in cash and cash equivalentsand short-term investments and approximately $8.2 million had been used forworking capital.  Latitude intends touse the remaining proceeds for capital expenditures, including the acquisitionof redundant computer and communication systems, and for general corporatepurposes, including working capital to fund increased accounts receivable andinventory levels.

**Item 3.            Defaults Upon Senior Securities—NotApplicable**

**Item 4.            Submission of Matters to a Vote ofSecurity Holders—Not Applicable**

**Item 5.            OtherInformation**

**In accordance with Section10A(i)(2) of the Securities Exchange Act of 1934, as adopted pursuant toSection 202 of the Sarbanes-Oxley Act of 2002 (the “Act”), we are herebydisclosing the non-audit services approved by our Audit Committee to beperformed by PricewaterhouseCoopers LLP, our external auditor.  Non-audit services are defined in the Act asservices provided by the external auditor other than those provided inconnection with an audit or review of the financial statements of acompany.  The Audit Committee hasapproved the engagement of PricewaterhouseCoopers LLP for the followingnon-audit services:  (1) tax matterconsultations concerning state taxes; and (2) the preparation of federal andstate income tax returns.**

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

** **
| (a)    |   | Exhibits                                                                                                                |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                    |
| 99.1   |   | Certification 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 the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

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

** **

 

Date:  November 14, 2002

 

 

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**CERTIFICATIONPURSUANT 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 the filing date of this quarterlyreport (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:  November 14, 2002

 

 

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**CERTIFICATIONPURSUANT 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:

**d)**             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;

**e)**              evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterlyreport (the “Evaluation Date”); and

**f)**                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):

**c)**              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

**d)**             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:  November 14, 2002

 

 

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