##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q/A




Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934

(Mark One)



|    |                                                                                                   
|--- | --------------------------------------------------------------------------------------------------
|[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934 (AMENDED)

For the quarterly period ended April 1, 2000

OR



|      |                                                                                          
|----- | -----------------------------------------------------------------------------------------
|[   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the transition period from
          to

For the Quarter ended April 1, 2000

| |                              
| | -----------------------------
| | Commission File Number 1-9434

PICTURETEL CORPORATION

(Exact name of Registrant as specified in its
charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|                                                              
|                                                              
|                                                              
|                                                              
|Delaware                                                       |  | 04-2835972                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|100 Minuteman Road, Andover, MA                                |  | 01810                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|Registrants telephone number:                                 |  | 978-292-5000                        

Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the last
90 days.

Yes  X     No

Indicate the number of shares outstanding of each of the
issuers classes of common stock as of the latest practical
date.

As of May 5, 2000, there were outstanding 40,966,647 shares
of common stock of the registrant.



---






---

TABLE OF CONTENTS



|                                                                                      |                                                                    |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I. CONSOLIDATED FINANCIAL INFORMATION                                           
|                                                                                      | CONSOLIDATED BALANCE SHEETS                                       
|                                                                                      | CONSOLIDATED STATEMENTS OF OPERATIONS                             
|                                                                                      | CONSOLIDATED STATEMENTS OF CASH FLOWS                             
|                                                                                      | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        
|MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                                      | Item 3. Quantitative and Qualitative Disclosures about Market Risk
|Part II -- OTHER INFORMATION                                                         
|                                                                                      | Item 1. Legal Proceedings                                         
|                                                                                      | Item 6. Exhibits and Reports on Form 8-K                          
|EX-27.1 Financial Data Schedule                                                      



---



PICTURETEL CORPORATION

FORM 10-Q

INDEX




|                                            |         |                                                     |                                                                                        |  |      |                | 
|------------------------------------------- | ------- | --------------------------------------------------- | -------------------------------------------------------------------------------------- |  | ---- | -------------- | 
|PART I.  CONSOLIDATED FINANCIAL INFORMATION |         |                                                     |                                                                                        | 
|                                           
|                                            | Item 1. |                                                     | Consolidated Financial Statements:                                                     |  |      |                | 
|                                            |         | Consolidated Balance Sheets                         |                                                                                        |  |      |               
|                                           
|                                           
|                                           
|                                           
|                                            |         | April 1, 2000 and December 31, 1999                 |                                                                                        |  | 3    |               
|                                            |         |                                                     | Consolidated Statements of Operations                                                  |  |      |                | 
|                                           
|                                           
|                                           
|                                           
|                                            |         | Three Months Ended April 1, 2000 and
	April 4, 1999 |                                                                                        |  | 4    |               
|                                            |         |                                                     | Consolidated Statements of Cash Flows                                                  |  |      |                | 
|                                           
|                                           
|                                           
|                                           
|                                            |         | Three Months Ended April 1, 2000 and
	April 4, 1999 |                                                                                        |  | 5    |               
|                                           
|                                           
|                                           
|                                           
|                                            |         | Notes to Consolidated Financial Statements          |                                                                                        |  | 6-11 |               
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            | Item 2. |                                                     | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |  |      | 12-20          | 
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            | Item 3. |                                                     | Quantitative and Qualitative Disclosures about Market Risk                             |  |      | 20             | 
|PART II.  OTHER INFORMATION                 |         |                                                     |                                                                                        | 
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            | Item 1. |                                                     | Legal Proceedings                                                                      |  |      | 21             | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item 2. |                                                     | Changes in Securities                                                                  |  |      | Not Applicable | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item 3. |                                                     | Defaults Upon Senior Securities                                                        |  |      | Not Applicable | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item 4. |                                                     | Submission of Matters to a Vote of Security Holders                                    |  |      | Not Applicable | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item 5. |                                                     | Other Information                                                                      |  |      | Not Applicable | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item 6. |                                                     | Exhibits and Reports on Form 8-K                                                       |  |      | 21             | 
|                                           
|                                           
|                                           
|                                           
|Signatures                                  |         |                                                     | 22                                                                                     | 




2



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##### Table of Contents






PART I.  CONSOLIDATED FINANCIAL INFORMATION

PICTURETEL CORPORATION






CONSOLIDATED BALANCE SHEETS


(Dollars in thousands, except per share amounts)





|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |              |         |  |        |          |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------ | ------------ | ------- |  | ------ | -------- | ------- | 
|                                                                                                                                                                        |                                                                                                                                                               | April 1,                                                                |        | December 31,
|                                                                                                                                                                        |                                                                                                                                                               | 2000                                                                    |        | 1999        
|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |             
|                                                                                                                                                                        |                                                                                                                                                               | (Unaudited)                                                             |        | Restated    
|                                                                                                                                                                        |                                                                                                                                                               | Restated                                                                |        |             
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|ASSETS                                                                                                                                                                  |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|Current assets:                                                                                                                                                         |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Cash and cash equivalents (Note 5)                                                                                                                            |                                                                         | $      | 23,824       |         |  | $      | 21,915   |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Restricted cash and cash equivalents                                                                                                                          |                                                                         |        | 150          |         |  |        | 1,200    |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Marketable securities (Note 5)                                                                                                                                |                                                                         |        | 27,891       |         |  |        | 37,787   |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Accounts receivable, less allowances for doubtful accounts of
	$5,303 and $5,642 at April 1, 2000 and December 31,
	1999, respectively                        |                                                                         |        | 59,291       |         |  |        | 77,120   |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Inventories                                                                                                                                                   |                                                                         |        | 39,115       |         |  |        | 32,930   |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Other current assets                                                                                                                                          |                                                                         |        | 7,901        |         |  |        | 12,562   |        
|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                        | Total current assets                                                                                                                                          |                                                                         |        | 158,172      |         |  |        | 183,514  |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|Property and equipment, net                                                                                                                                             |                                                                                                                                                               |                                                                         | 84,237 |              |         |  | 86,219 |         
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|Capitalized software costs, net                                                                                                                                         |                                                                                                                                                               |                                                                         | 9,574  |              |         |  | 11,341 |         
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|Goodwill, net                                                                                                                                                           |                                                                                                                                                               |                                                                         | 3,968  |              |         |  | 4,242  |         
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|Other assets                                                                                                                                                            |                                                                                                                                                               |                                                                         | 9,147  |              |         |  | 9,554  |         
|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                        |                                                                                                                                                               | Total assets                                                            |        | $            | 265,098 |  |        | $        | 294,870 | 
|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS
	 EQUITY                                                                                                     
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|Current liabilities:                                                                                                                                                    |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Short-term borrowings                                                                                                                                         |                                                                         | $      |             |         |  | $      | 196      |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Accounts payable                                                                                                                                              |                                                                         |        | 21,832       |         |  |        | 21,681   |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Accrued compensation and benefits                                                                                                                             |                                                                         |        | 6,673        |         |  |        | 10,517   |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Accrued expenses                                                                                                                                              |                                                                         |        | 34,325       |         |  |        | 37,518   |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Current portion of capital lease obligations                                                                                                                  |                                                                         |        | 1,817        |         |  |        | 1,782    |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Deferred revenue                                                                                                                                              |                                                                         |        | 27,699       |         |  |        | 28,826   |        
|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                        | Total current liabilities                                                                                                                                     |                                                                         |        | 92,346       |         |  |        | 100,520  |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|Capital lease obligations, net of current portion                                                                                                                       |                                                                                                                                                               |                                                                         | 54,115 |              |         |  | 54,584 |         
|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                        |                                                                                                                                                               | Total liabilities                                                       |        |              | 146,461 |  |        |          | 155,104 | 
|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|Commitments and contingencies (Notes 5 and 8)                                                                                                                           |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|Redeemable convertible preferred stock, $.01 par value;
	15,000,000 shares authorized; 4,478,708 shares issued and
	outstanding at April 1, 2000 and December 31, 1999. |                                                                                                                                                               |                                                                         | 30,500 |              |         |  | 30,500 |         
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|Stockholders equity:                                                                                                                                                   |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Common stock, $.01 par value; 80,000,000 shares authorized;
	41,058,662 and 40,617,634 shares issued and outstanding at
	April 1, 2000 and December 31, 1999. |                                                                         |        | 411          |         |  |        | 406      |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Additional paid-in capital                                                                                                                                    |                                                                         |        | 228,487      |         |  |        | 225,513  |        
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Accumulated deficit                                                                                                                                           |                                                                         |        | (138,622     | )       |  |        | (114,780 | )      
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Accumulated other comprehensive loss                                                                                                                          |                                                                         |        | (1,583       | )       |  |        | (1,317   | )      
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                        | Treasury stock, 92,065 shares, at cost                                                                                                                        |                                                                         |        | (556         | )       |  |        | (556     | )      
|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                        |                                                                                                                                                               | Total stockholders equity                                              |        |              | 88,137  |  |        |          | 109,266 | 
|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |              |         |  |        |         
|                                                                                                                                                                        |                                                                                                                                                               | Total liabilities, redeemable preferred stock and
	stockholders equity |        | $            | 265,098 |  |        | $        | 294,870 | 
|                                                                                                                                                                        |                                                                                                                                                               |                                                                         |        |              |         |  |        |         




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

3



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##### Table of Contents



PICTURETEL CORPORATION






CONSOLIDATED STATEMENTS OF OPERATIONS


(Dollars in thousands, except per share amounts)


(Unaudited)





|                                                        |                                     |                          |         |          |        |   |         |        |        | 
|------------------------------------------------------- | ----------------------------------- | ------------------------ | ------- | -------- | ------ | - | ------- | ------ | ------ | 
|                                                        |                                     |                         
|                                                        |                                     | Three Months Ended      
|                                                        |                                     |                         
|                                                        |                                     | April 1,                 |         | April 4,
|                                                        |                                     | 2000                     |         | 1999    
|                                                        |                                     |                          |         |         
|                                                        |                                     |                          |         | Restated
|                                                       
|                                                       
|                                                       
|                                                       
|Revenue                                                 |                                     | $                        | 65,067  |          |        | $ | 76,194  |       
|                                                       
|                                                       
|                                                       
|                                                       
|Cost of revenue                                         |                                     |                          | 47,348  |          |        |   | 51,972  |       
|                                                        |                                     |                          |         |          |        |   |         |       
|Gross margin                                            |                                     |                          | 17,719  |          |        |   | 24,222  |       
|                                                        |                                     |                          |         |          |        |   |         |       
|Operating expenses:                                     |                                     |                          |         |          |        |   |         |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Selling, general and administrative |                          |         | 27,309   |        |   |         | 32,362 |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Research and development            |                          |         | 13,453   |        |   |         | 17,523 |       
|                                                        |                                     |                          |         |          |        |   |         |       
|                                                        |                                     | Total operating expenses |         |          | 40,762 |   |         |        | 49,885 | 
|                                                        |                                     |                          |         |          |        |   |         |       
|Loss from operations                                    |                                     |                          | (23,043 | )        |        |   | (25,663 | )     
|                                                       
|                                                       
|                                                       
|                                                       
|Interest income (expense), net                          |                                     |                          | (292    | )        |        |   | 199     |       
|                                                       
|                                                       
|                                                       
|                                                       
|Other income, net                                       |                                     |                          | 327     |          |        |   | 515     |       
|                                                        |                                     |                          |         |          |        |   |         |       
|Loss before income tax expense                          |                                     |                          | (23,008 | )        |        |   | (24,949 | )     
|                                                       
|                                                       
|                                                       
|                                                       
|Income tax expense                                      |                                     |                          | 834     |          |        |   | 1,021   |       
|                                                        |                                     |                          |         |          |        |   |         |       
|Net loss                                                |                                     |                          | (23,842 | )        |        |   | (25,970 | )     
|                                                       
|                                                       
|                                                       
|                                                       
|Preferred stock beneficial conversion feature           |                                     |                          |        |          |        |   | 5,612   |       
|                                                        |                                     |                          |         |          |        |   |         |       
|Net loss applicable to common shareholders              |                                     | $                        | (23,842 | )        |        | $ | (31,582 | )     
|                                                        |                                     |                          |         |          |        |   |         |       
|Net loss per common share  basic and diluted           |                                     | $                        | (0.59   | )        |        | $ | (0.79   | )     
|                                                        |                                     |                          |         |          |        |   |         |       
|Weighted average shares outstanding  basic and diluted |                                     |                          | 40,630  |          |        |   | 40,218  |       
|                                                        |                                     |                          |         |          |        |   |         |       




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

4



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##### Table of Contents



PICTURETEL CORPORATION






CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in thousands)


(Unaudited)


|                                                    |                                                                              |                                                        |        |          |        |   |         |         |        |  
|--------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | -------- | ------ | - | ------- | ------- | ------ | -
|                                                    |                                                                              |                                                       
|                                                    |                                                                              | Three Months Ended                                    
|                                                    |                                                                              |                                                       
|                                                    |                                                                              | April 1,                                               |        | April 4,
|                                                    |                                                                              | 2000                                                   |        | 1999    
|                                                    |                                                                              |                                                        |        |         
|Cash flows from operating activities:               |                                                                              |                                                        |        |          |        |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net loss                                                                     |                                                        | $      | (23,842  | )      |   | $       | (25,970 | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Adjustments to reconcile net loss to net cash used in operating
	activities: |                                                        |        |          |        |   |         |         |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Depreciation and amortization                          |        |          | 6,938  |   |         |         | 9,299  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Provision for doubtful accounts                        |        |          | 553    |   |         |         | 1,401  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Provision for inventory obsolescence                   |        |          | 2,649  |   |         |         | 810    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Other non-cash items                                   |        |          | (17    | ) |         |         | 128    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Changes in operating assets and liabilities:                                 |                                                        |        |          |        |   |         |         |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Accounts receivable                                    |        |          | 16,687 |   |         |         | 5,393  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Inventories                                            |        |          | (9,419 | ) |         |         | (8,364 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Other current assets                                   |        |          | 4,631  |   |         |         | (173   | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Accounts payable                                       |        |          | 237    |   |         |         | (9,428 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Accrued compensation and benefits and accrued expenses |        |          | (6,818 | ) |         |         | (710   | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Deferred revenue                                       |        |          | (950   | ) |         |         | 5,560  |  
|                                                    |                                                                              |                                                        |        |          |        |   |         |        
|Net cash used in operating activities               |                                                                              |                                                        | (9,351 | )        |        |   | (22,054 | )      
|                                                    |                                                                              |                                                        |        |          |        |   |         |        
|Cash flows from investing activities:               |                                                                              |                                                        |        |          |        |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchase of marketable securities                                            |                                                        |        | (23,126  | )      |   |         | (41,606 | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from sale of marketable securities                                  |                                                        |        | 33,022   |        |   |         | 36,333  |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchases of property and equipment                                          |                                                        |        | (2,284   | )      |   |         | (4,974  | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from sale of fixed assets                                           |                                                        |        | 10       |        |   |         |        |       
|                                                    |                                                                              |                                                        |        |          |        |   |         |        
|Net cash provided by (used in) investing activities |                                                                              |                                                        | 7,622  |          |        |   | (10,247 | )      
|                                                    |                                                                              |                                                        |        |          |        |   |         |        
|Cash flows from financing activities:               |                                                                              |                                                        |        |          |        |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Release of restricted cash and cash equivalents                              |                                                        |        | 1,050    |        |   |         |        |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Payments on short-term/long-term borrowings                                  |                                                        |        | (188     | )      |   |         | (850    | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Principal payments under capital lease obligations                           |                                                        |        | (433     | )      |   |         | (1,284  | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchase of treasury stock                                                   |                                                        |        |         |        |   |         | (556    | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from preferred stock issuance                                       |                                                        |        |         |        |   |         | 30,500  |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from exercise of stock options                                      |                                                        |        | 2,460    |        |   |         | 902     |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from employee stock purchase plan                                   |                                                        |        | 520      |        |   |         | 790     |       
|                                                    |                                                                              |                                                        |        |          |        |   |         |        
|Net cash provided by financing activities           |                                                                              |                                                        | 3,409  |          |        |   | 29,502  |        
|                                                    |                                                                              |                                                        |        |          |        |   |         |        
|Effect of exchange rate changes on cash             |                                                                              |                                                        | 229    |          |        |   | 65      |        
|                                                    |                                                                              |                                                        |        |          |        |   |         |        
|Net increase in cash and cash equivalents           |                                                                              |                                                        | 1,909  |          |        |   | (2,734  | )      
|                                                   
|                                                   
|                                                   
|                                                   
|Cash and cash equivalents at beginning of period    |                                                                              |                                                        | 21,915 |          |        |   | 62,642  |        
|                                                    |                                                                              |                                                        |        |          |        |   |         |        
|Cash and cash equivalents at end of period          |                                                                              | $                                                      | 23,824 |          |        | $ | 59,908  |        
|                                                    |                                                                              |                                                        |        |          |        |   |         |        

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

5



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##### Table of Contents



PICTURETEL CORPORATION






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Dollars in thousands, except per share amounts)


1.  Managements Representation

As permitted by the rules of the Securities and Exchange
Commission applicable to Quarterly Reports on Form 10-Q,
these notes are condensed and do not contain all the disclosures
required by generally accepted accounting principles. Reference
should be made to the consolidated financial statements and
related notes included in the Companys Annual Report on
Form 10-K for the year ended December 31, 1999, as
filed with the Securities and Exchange Commission on
April 14, 2000.

In the opinion of the management of PictureTel Corporation, the
accompanying unaudited consolidated financial statements contain
all adjustments necessary to present fairly the Companys
financial position at April 1, 2000 and December 31,
1999, results of operations for the three months ended
April 1, 2000 and April 4, 1999 and changes in cash
flow for the three months ended April 1, 2000 and
April 4, 1999.

The results disclosed in the Consolidated Balance Sheet at
April 1, 2000, the Consolidated Statement of Operations for
the three months ended April 1, 2000 and the Consolidated
Statement of Cash Flows for the three months ended April 1,
2000 are not necessarily indicative of the results to be expected
 for the full year.

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. These estimates affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. The financial statements include
significant estimates of the net realizable value of accounts
receivable, inventory and capitalized software and the amount of
certain contingent liabilities. Actual results could differ from
those estimates.




The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
The Company has incurred recurring losses from operations and
requires additional financing. These factors raise substantial
doubt about its ability to continue as a going concern.
Managements plans to continue as a going concern rely
heavily on forecasted revenue from new products which are planned
 for delivery commencing in the second quarter of 2000. In
addition, management is currently negotiating an expanded credit
facility and may seek additional equity investment. Management is
 also continuing to identify and implement internal actions to
improve the Companys liquidity. While there can be no
assurances that these plans will be successful, management
believes these actions will provide sufficient financial
resources for the next twelve months and beyond. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.







Revision







The Company has revised its consolidated financial statements for
 the year ended December 31, 1999. The adjustments were to
reclassify the presentation of the Series A Preferred Stock
into the mezzanine section of the balance sheet and to record the
 preferred stock beneficial conversion feature in the first
quarter of 1999 rather than over the first three quarters of
1999. The consolidation financial statements and related notes to
 the consolidated financial statements in this Form 10Q/A
reflect all such revisions through April 1, 2000. These
revisions have no impact on total assets, total liabilities, net
loss or cash flows for the year ended December 31,




6



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)





1999 or the three months ended April 1, 2000. A summary of
the impact of the adjustments for the three months ended
April 4, 1999 and at April 1, 2000 is as follows:







|                                              |  |                      |         |          |  |   |         |  
|--------------------------------------------- |  | -------------------- | ------- | -------- |  | - | ------- | -
|                                              |  |                     
|                                              |  | For the Three Months
|                                              |  | Ended               
|                                              |  | April 4, 1999       
|                                              |  |                     
|                                              |  | As                   |         |         
|                                              |  | Previously           |         | As      
|                                              |  | Reported             |         | Restated
|                                              |  |                      |         |         
|Net loss                                      |  | $                    | (25,970 | )        |  | $ | (25,970 | )
|                                             
|                                             
|                                             
|                                             
|Preferred stock beneficial conversion feature |  |                      | 1,434   |          |  |   | 5,612   |  
|                                             
|                                             
|                                             
|                                             
|Net loss applicable to common shareholders    |  |                      | (27,404 | )        |  |   | (31,582 | )
|                                             
|                                             
|                                             
|                                             
|Net loss per common share  basic and diluted |  |                      | (0.68   | )        |  |   | (0.79   | )







|                                       |  |               |         |                   |  |            |         |          |  |   |         |  |  |   |         | 
|-------------------------------------- |  | ------------- | ------- | ----------------- |  | ---------- | ------- | -------- |  | - | ------- |  |  | - | ------- | 
|                                       |  |               |         |                  
|                                       |  | April 1, 2000 |         | December 31, 1999
|                                       |  |               |         |                  
|                                       |  | As            |         |                   |  | As         |         |         
|                                       |  | Previously    |         | As                |  | Previously |         | As      
|                                       |  | Reported      |         | Restated          |  | Reported   |         | Restated
|                                       |  |               |         |                   |  |            |         |         
|Redeemable convertible preferred stock |  | $             |        |                   |  | $          | 30,500  |          |  | $ |        |  |  | $ | 30,500  | 
|                                      
|                                      
|                                      
|                                      
|Convertible preferred stock            |  |               | 45      |                   |  |            |        |          |  |   | 45      |  |  |   |        | 
|                                      
|                                      
|                                      
|                                      
|Additional paid in capital             |  |               | 258,942 |                   |  |            | 228,487 |          |  |   | 255,968 |  |  |   | 225,513 | 
|                                      
|                                      
|                                      
|                                      
|Total stockholders equity             |  |               | 118,637 |                   |  |            | 88,137  |          |  |   | 139,766 |  |  |   | 109,266 | 




2.  Inventories

Inventories consist of the following:

|                |  |          |        |              |  |   |        | 
|--------------- |  | -------- | ------ | ------------ |  | - | ------ | 
|                |  | April 1, |        | December 31,
|                |  | 2000     |        | 1999        
|                |  |          |        |             
|Purchased Parts |  | $        | 3,466  |              |  | $ | 3,184  | 
|               
|               
|               
|               
|Work in Process |  |          | 954    |              |  |   | 1,157  | 
|               
|               
|               
|               
|Finished Goods  |  |          | 34,695 |              |  |   | 28,589 | 
|                |  |          |        |              |  |   |        | 
|                |  | $        | 39,115 |              |  | $ | 32,930 | 
|                |  |          |        |              |  |   |        | 

3.  Earnings Per Share

The following table reconciles the numerator and the denominator
of the basic and diluted EPS computations shown on the
Consolidated Statements of Operations:




|                                  |                                            |                    |       |          |   |   |       |         |  
|--------------------------------- | ------------------------------------------ | ------------------ | ----- | -------- | - | - | ----- | ------- | -
|                                  |                                            |                   
|                                  |                                            | Three Months Ended
|                                  |                                            |                   
|                                  |                                            | April 1,           |       | April 4,
|                                  |                                            | 2000               |       | 1999    
|                                  |                                            |                    |       |         
|                                  |                                            |                    |       | Restated
|                                 
|                                 
|                                 
|                                 
|Basic and Diluted EPS Computation |                                            |                    |       |          |   |   |       |        
|                                 
|                                 
|                                 
|                                 
|Numerator:                        |                                            |                    |       |          |   |   |       |        
|                                 
|                                 
|                                 
|                                 
|                                  | Net loss applicable to common shareholders |                    | $     | (23,842  | ) |   | $     | (31,582 | )
|                                  |                                            |                    |       |          |   |   |       |        
|Denominator:                      |                                            |                    |       |          |   |   |       |        
|                                 
|                                 
|                                 
|                                 
|                                  | Weighted average common shares outstanding |                    |       | 40,630   |   |   |       | 40,218  |  
|                                  |                                            |                    |       |          |   |   |       |        
|Basic and diluted EPS             |                                            | $                  | (0.59 | )        |   | $ | (0.79 | )      
|                                  |                                            |                    |       |          |   |   |       |        




Options to purchase shares of the Companys common stock of
7,007,732 and 7,373,874 were outstanding at April 1, 2000
and April 4, 1999, respectively, but were not included in
the computation of diluted EPS because they were antidilutive due
 to the net losses sustained in 2000 and in 1999. Warrants for
2,723 shares of

7



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


the Companys Common Stock and Convertible Preferred Stock
of 4,478,708 shares were outstanding at April 1, 2000, but
were not included in the computation of diluted EPS because they
were antidilutive due to the loss sustained in 2000.

4.  Comprehensive Loss

The Company adopted SFAS No. 130, Reporting
Comprehensive Income, in fiscal year 1998. The calculation
of comprehensive income includes the loss as reported in the
Consolidated Statements of Operations, the gains and losses on
foreign currency translation adjustments and unrealized gains and
 losses on marketable securities.

|                                                            |  |                    |         |          |  |   |         |  
|----------------------------------------------------------- |  | ------------------ | ------- | -------- |  | - | ------- | -
|                                                            |  |                   
|                                                            |  | Three Months Ended
|                                                            |  |                   
|                                                            |  | April 1,           |         | April 4,
|                                                            |  | 2000               |         | 1999    
|                                                            |  |                    |         |         
|Net loss                                                    |  | $                  | (23,842 | )        |  | $ | (25,970 | )
|                                                           
|                                                           
|                                                           
|                                                           
|Foreign currency translations, net                          |  |                    | (248    | )        |  |   | (809    | )
|                                                           
|                                                           
|                                                           
|                                                           
|Unrealized gains and (losses) on marketable securities, net |  |                    | (17     | )        |  |   | 8,423   |  
|                                                            |  |                    |         |          |  |   |         |  
|Comprehensive loss                                          |  | $                  | (24,107 | )        |  | $ | (18,356 | )
|                                                            |  |                    |         |          |  |   |         |  

5.  Debt

The Company has a revolving credit agreement, expiring
June 15, 2001. The Company has up to $35,000 available for
borrowing under the credit agreement. At April 1, 2000, no
borrowings were outstanding under this credit agreement. The
Company currently has $30,595 of outstanding standby letters of
credit issued under this agreement which reduces the amount
available for borrowing on a dollar for dollar basis. Fees for
letters of credit outstanding against this revolving credit line
are payable at 125 basis points per annum of the face amount. The
 revolving credit agreement is collateralized by substantially
all assets of the parent Company and certain stock of its
subsidiaries. The Company is required to maintain in a securities
 account cash collateral, as defined, equal to 105% of
outstanding letters of credit and other credit extension. This
cash collateral is defined as cash, marketable securities, U.S.
Treasury securities, commercial paper, certificates of deposit
and repurchase agreements with maturities of one year or less.
The cash and marketable securities subject to the cash collateral
 requirement currently amounts to $33,625. The secured letters of
 credit expire between June 15, 2000, and October 31,
2000. The credit agreement also contains certain financial
covenants, including net income (loss) and minimum cash and
marketable securities requirements.

The Company is currently seeking a waiver for not meeting its
first quarter net income covenant and is presently in default of
its minimum cash and marketable securities covenant. Further, it
anticipates that its quarterly financial results for the balance
of 2000 will likely be out of compliance with the current credit
facilitys financial covenants. Without a waiver for its
current noncompliance, the Company is in default under the
current credit agreement, which would allow the lenders to obtain
 cash and marketable securities from the Company to cover the
$30,595 of outstanding letters of credit. In addition, the
lenders obligation to issue future letters of credit will
automatically terminate. The Company is required to maintain
letters of credit of $28,595 under its lease agreements for the
buildings at 50, 100 and 200 Minuteman Road in Andover,
Massachusetts. Without the letters of credit, the landlord has
the right to obtain up to $28,595 in cash and marketable
securities from the Company and hold this amount in escrow to
apply against the principal portion of future lease payments.

The Company is currently negotiating with both its current
lenders and several other parties to address these issues and to
provide necessary additional liquidity and borrowing capacity.
These negotiations include the potential for a bridging facility
until a new, permanent facility is finalized and closed as well
as the use of

8



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


accounts receivable balances and other non-cash assets to secure
the letter of credit. In the event such efforts are unsuccessful,
 the Companys cash and marketable securities could be
reduced by the amount of the letters of credit, as discussed
above.

Additionally, given the Companys current cash usage and its
 unrestricted cash balances, without a new extended credit
facility, the Company could face significant liquidity issues
towards the end of the second quarter.

Local lines of credit are available for short-term advances of up
 to $979 to certain of the Companys foreign subsidiaries.
The agreements require interest payable up to one quarter of one
percent per annum. No borrowings were outstanding against these
local lines of credit at April 1, 2000.

In June 1999, the Company entered into a short-term security
 agreement with BankBoston. Under this agreement, the Company
pledged to the Bank certain amounts of cash and cash equivalents
as collateral for obligations of the Company arising from use of
the Banks cash management and foreign exchange services.
The required collateral was $150 as of April 1, 2000. This
amount is classified as restricted cash on the April 1, 2000
 consolidated balance sheet.

The Company has operating leases for various rented properties.
The Company signed an agreement to sublease MultiLinks
former facility at 6 Riverside Drive in Andover, Massachusetts in
 May 1999 as part of its space consolidation efforts. As of
April 1, 2000, the remaining obligation under this operating
 lease was $7,885. After giving effect to expected sublease
income, this obligation is $5,000. In addition, in
June 1998, the Company subleased its property at 50
Minuteman Road for a ten-year term. After giving effect to
expected sublease income, the remaining obligation under the
capital lease was $16,694 at April 1, 2000.

6.  Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This
statement was originally effective for all fiscal years beginning
 after June 15, 1999. In June 1999, the FASB issued
Statement 137, which delayed the effective date of Statement
 133 by one year. Statement 133 will be effective for
PictureTels fiscal year beginning January 1, 2001.
SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the
 fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction. The Company is currently
evaluating the effects of this change but anticipates that the
adoption of SFAS 133 will not have a significant effect on the
Companys financial position or results of operations.

In December 1998, the American Institute of Certified Public
 Accountants issued Statement of Position No. 98-9,
Modification of SOP No. 97-2, Software Revenue
Recognition, With Respect to Certain Transactions
(SOP 98-9). SOP 98-9 amends SOP 97-2 to
require recognition of revenue using the residual
method in circumstances outlined in SOP 98-9. Under
the residual method, revenue is recognized as follows:
(1) the total fair value of undelivered elements, as
indicated by vendor specific objective evidence, is deferred and
subsequently recognized in accordance with the relevant sections
of SOP 97-2 and (2) the difference between the total
arrangement fee and the amount deferred for the undelivered
elements is recognized as revenue related to the delivered
elements. The Company has adopted SOP 98-9 and it has not had a
significant impact on its results of operations or financial
position.

In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements,
(SAB 101) as amended by SAB 101A, which is
effective no later than the quarter ending June 30, 2000.
SAB 101 clarifies the Securities and Exchange
Commissions views regarding recognition of revenue. The
Company will adopt SAB 101 in the second quarter of 2000.
The

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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


Company has identified one series of transactions where the
adoption of SAB 101 is expected to have a material effect on
 its 2000 financial position and results of operations but it has
 not yet completed its analysis.

In March 2000, the Financial Accounting Standards Board
released FASB Interpretation No. 44
(FIN 44), Accounting for Certain
Transactions involving Stock Compensation  an
interpretation of APB Opinion No. 25. FIN 44
provides guidance for certain issues that arise in applying
Accounting Principles Board Opinion No. 25 (APB
No. 25), Accounting for Stock Issued to
Employees. The Company does not expect that the adoption of
 FIN 44 will have a significant impact on the Companys
 results of operations or financial position.

7.  Segment Information

The Company has determined that its reportable segments are
videoconferencing products, videoconferencing services and
audioconferencing. The videoconferencing products segment
develops, manufactures and markets visual communications systems
and collaboration software. The videoconferencing services
segment provides services for the videoconferencing products. The
 audioconferencing segment develops, manufactures, markets and
services multipoint control units.

|                                |  |              |         |              |  |              |        |       |  |       |        |   |  |   |        |   |  |   |         |  
|------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------ | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                |  | Video-       |         | Video-       |  |              |        |       |  |      
|                                |  | conferencing |         | conferencing |  | Audio-       |        |       |  |      
|                                |  | Products     |         | Services     |  | conferencing |        | Other |  | Total
|                                |  |              |         |              |  |              |        |       |  |      
|Quarter ended April 1, 2000:    |  |              |         |              |  |              |        |       |  |       |        |   |  |   |        |   |  |   |         |  
|                               
|                               
|                               
|                               
|Revenue from external customers |  | $            | 44,639  |              |  | $            | 18,198 |       |  | $     | 2,230  |   |  | $ |       |   |  | $ | 65,067  |  
|                               
|                               
|                               
|                               
|Operating income (loss)         |  | $            | (15,662 | )            |  | $            | 1,461  |       |  | $     | (3,366 | ) |  | $ | (5,476 | ) |  | $ | (23,043 | )
|                               
|                               
|                               
|                               
|Quarter ended April 4, 1999:    |  |              |         |              |  |              |        |       |  |       |        |   |  |   |        |   |  |   |         |  
|                               
|                               
|                               
|                               
|Revenue from external customers |  | $            | 53,838  |              |  | $            | 16,780 |       |  | $     | 5,576  |   |  | $ |       |   |  | $ | 76,194  |  
|                               
|                               
|                               
|                               
|Operating income (loss)         |  | $            | (22,735 | )            |  | $            | 1,570  |       |  | $     | 423    |   |  | $ | (4,921 | ) |  | $ | (25,663 | )

The classification Other consists of corporate
administrative functions, which are excluded from the
videoconferencing products, videoconferencing services and
audioconferencing segments for management decision making.

The Company evaluates the performance of its segments based upon
operating income. There is no material intersegment revenue.
Transfers of videoconferencing products to the videoconferencing
services segment are recorded at standard cost and are not
tracked for management reporting purposes. Asset information by
reportable segment has not been disclosed since the Company does
not produce such information internally.

8.  Litigation

A.  SEC Investigation

In May 1999, the Company was informed that the Securities
and Exchange Commission (SEC) had initiated a formal
investigation of matters related to the Companys 1997
restatement of its earnings. The Company has been cooperating
with the SEC and will continue to do so. The Company expresses no
 opinion as to the likely outcome. While no assurances can be
provided, the Company does not believe that the investigation
will have a material adverse affect to its business, financial
condition, results of operations or cash flows.

10



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


B.  Revnet, Inc.

On June 2, 1998, the Company was served with a complaint
from a former distribution channel customer, Revnet, Inc., which
has ceased operations. (Revnet, Inc., v. PictureTel
Corporation. Civil Action 98092039, filed April 2, 1998,
 in the Circuit Court for Baltimore City, Maryland.) The
complaint alleges that the Company breached an oral contract.
Revnet is allegedly seeking $200,000 in damages. Discovery is in
process. The Company believes that the complaint and the claim
for damages are without merit and intends to vigorously defend
against them. In addition, after limited discovery under the
above named suit, the Company on September 13, 1999 filed a
related action in the Circuit Court for Baltimore City, Maryland
against Revnet, Inc., Vuecom, Inc. (an entity related to Revnet,
Inc.), George Harris IV, George Sandmann and Lou Brown, (PictureTel Corporation v. RevNet, Inc., et al.Civil Action
24-C99-004406) alleging among other things Breach of Contract,
Fraudulent Inducement and Securities Fraud. The Companys
complaint is seeking more than $7,000 in damages. While no
assurances can be provided, the Company does not believe that the
 outcome of this dispute will have a material adverse affect on
its business, financial condition, results of operations or cash
flows.

In addition to the above, the Company has also been and is from
time to time subject to claims, such as potential patent
infringements, and suits incidental to the conduct of business.
There can be no assurance that the Companys insurance will
be adequate to cover all liabilities that may arise out of such
claims. Further, although the Company intends to defend itself
vigorously against all such claims, the ultimate outcome of the
claims cannot be accurately predicted. The Company does not
believe that any claim of which it is aware, other than the
claims listed above, could result in an outcome that will have a
material adverse affect to its business, financial condition,
results of operations or cash flows.

11



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)







MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS


(Dollars in thousands, unless otherwise indicated)


Forward-Looking Statements

This document includes forward-looking statements about the
Companys business, revenues and expenses, effective tax
rate, and operating and capital requirements. Forward-looking
statements made or incorporated by reference herein are not
guarantees of future performance. In addition, forward-looking
statements may be included in various other PictureTel documents
to be issued in the future and in various oral statements by
PictureTel representatives to security analysts and investors
from time to time. Any forward-looking statements are subject to
risks that could cause the actual results to vary materially.
Such risks are discussed in Risk Factors Which May Affect
Future Results and in other related portions of this
document.

Business Developments

In early 2000, the Company adopted and is now pursuing a
three-pronged approach to meeting the anticipated needs of the
developing multimedia collaboration marketplace. First, in
conjunction with Intel Corporation, it is developing its next
generation endpoint conferencing products for video, voice and
data collaboration. Second, it is expanding its enterprise-wide
solutions services beyond management of multipoint
videoconferences to include streaming video services, custom
integration, and outsourced management of enterprise
conferencing. The last prong is the development of
Internet-based, multimedia application services built around a
network-neutral collaboration hub and streaming technology
developed by its Starlight subsidiary.

To focus these efforts, the Company is presently in the process
of establishing independent business units within PictureTel
built around the above initiatives. Each will be free to pursue
its market and to seek strategic and financial partners to help
them increase PictureTels value.

Following this strategy, on April 18, 2000, the Company
announced the formation of 1414c, Inc. a wholly-owned subsidiary
established to provide application service providers (ASPs)
access to a broad range of IP-based interactive communication
solutions. These solutions will enable ASPs to provide rapid Web
access to streaming, videoconferencing, Voice-over-IP, and other
Web-enabled interactive solutions such as call scheduling and
launching.

12



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##### Table of Contents



Results of Operations

The following table sets forth, for the periods indicated, the
percentage of revenue for certain items in the Companys
Statement of Operations for each period:




|                                              |  |                    |       |          |  |  |       |  
|--------------------------------------------- |  | ------------------ | ----- | -------- |  |  | ----- | -
|                                              |  |                   
|                                              |  | Three Months Ended
|                                              |  |                   
|                                              |  | April 1,           |       | April 4,
|                                              |  | 2000               |       | 1999    
|                                              |  |                    |       |         
|                                              |  |                    |       | Restated
|                                             
|                                             
|                                             
|                                             
|Revenue                                       |  |                    | 100   | %        |  |  | 100   | %
|                                             
|                                             
|                                             
|                                             
|Cost of revenue                               |  |                    | 72.8  |          |  |  | 68.2  |  
|                                             
|                                             
|                                             
|                                             
|Gross margin                                  |  |                    | 27.2  |          |  |  | 31.8  |  
|                                             
|                                             
|                                             
|                                             
|Selling, general and administrative           |  |                    | 42.0  |          |  |  | 42.5  |  
|                                             
|                                             
|                                             
|                                             
|Research and development                      |  |                    | 20.6  |          |  |  | 23.0  |  
|                                             
|                                             
|                                             
|                                             
|Total operating expenses                      |  |                    | 62.6  |          |  |  | 65.5  |  
|                                             
|                                             
|                                             
|                                             
|Loss from operations                          |  |                    | (35.4 | )        |  |  | (33.7 | )
|                                             
|                                             
|                                             
|                                             
|Interest income, net                          |  |                    | 0.1   |          |  |  | 0.3   |  
|                                             
|                                             
|                                             
|                                             
|Other income (expense), net                   |  |                    | (0.1  | )        |  |  | 0.7   |  
|                                             
|                                             
|                                             
|                                             
|Loss before income tax expense                |  |                    | (35.4 | )        |  |  | (32.7 | )
|                                             
|                                             
|                                             
|                                             
|Income tax expense                            |  |                    | 1.2   |          |  |  | 1.4   |  
|                                             
|                                             
|                                             
|                                             
|Net loss                                      |  |                    | (36.6 | )        |  |  | (34.1 | )
|                                             
|                                             
|                                             
|                                             
|Preferred stock beneficial conversion feature |  |                    |      |          |  |  | (7.4  | )
|                                             
|                                             
|                                             
|                                             
|Net loss applicable to common shareholders    |  |                    | (36.6 | )        |  |  | (41.5 | )




Three Months Ended April 1, 2000 Compared to Three Months
 Ended April 4, 1999

Revenue.Consolidated first quarter 2000 revenue of
$65,067 decreased $11,127, or 15%, from first quarter 1999
levels. Video-conferencing products revenue was impacted by
customer deferrals of orders while awaiting the introduction of
new products in the second quarter. The audioconferencing
segments (MultiLinks) new high-capacity audio bridge
experienced some technical issues that reduced sales until being
successfully resolved late in the quarter. Revenue from sales to
foreign markets was approximately 53% and 48% of total revenue
during the first quarters of 2000 and 1999, respectively, as
order deferrals primarily impacted domestic revenue.

Gross Margin. Overall first quarter 2000 gross margin of
$17,719 declined $6,503, or 27%, from prior year levels and
represented 27% of revenue versus 32% in the first quarter of
1999. Lower revenue accounts for the dollar decline. Lower
average selling prices for videoconferencing products and
underabsorption of audioconferencing period costs are primarily
responsible for the decreased margin percentage.

Operating Expenses.First quarter 2000 operating expenses
of $40,762 decreased $9,123, or 18%, from comparable prior year
levels, principally as a result of headcount and other cost
reduction actions taken during 1999. Selling, general, and
administrative expenses decreased $5,053, or 16%, from first
quarter 1999 levels to $27,309 in the first quarter of 2000.
Headcount reductions and real estate consolidation actions are
responsible. Similarly, research and development expenses
decreased $4,070, or 23%, from prior year to $13,453 in
2000s first quarter. Lower headcount and reduced or
eliminated program spending on legacy products account for the
cost savings. The Company did not capitalize any software
development costs in either 2000 or 1999, as no current projects
had achieved technological feasibility.

Income Taxes. The Companys effective income tax rate
 was 4% in both the first quarter of 2000 and 1999. The tax rate
in both periods relates to state and foreign taxes.

Videoconferencing Products, Videoconferencing Services and
Audioconferencing Segments

Videoconferencing Products. First quarter 2000 revenue for
 this segment, which develops, manufactures, and markets visual
communications systems and collaboration software, totaled
$44,639. This represents

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Overall unit sales of videoconferencing systems increased nearly
15% in the first quarter of 2000 versus the comparable prior year
 period. Group system shipments increased 24% while
desktop/personal unit volume grew 10%. Within group systems,
however, traditional higher priced large room systems, such as
Concorde and Venue, represented only 32% of current year volume
compared with 64% of the group system volume in the first quarter
 of 1999. Lower priced compact systems such as Intel®
Teamstation and Swiftsite II account for the balance of
group system volume. This mix shift combined with lower prices
for each individual group system account for nearly 80% of the
segment revenue decline.

The videoconferencing products segment generated a $15,662
operating loss during the first quarter of 2000 compared to a
$22,735 operating loss in the first quarter of 1999. Operating
cost reductions, principally in research and development and
sales, were responsible for the reduced losses and more than
offset a gross margin decline associated with the lower revenue.
Gross margin as a percent of revenue remained relatively flat
year-over-year because reduced manufacturing and distribution
overhead costs offset the impact of lower product prices.

Videoconferencing Services.The videoconferencing services
 segment provides maintenance as well as professional consulting,
 integration and management services for videoconferencing
products sold by the Company and its competitors. First quarter
2000 revenue grew from $16,780 in 1999 to $18,198 in 2000, an
increase of 8%. Greater professional service activity accounts
for the increase, particularly from hosting multipoint
videoconference calls for customers. Maintenance revenue,
including sales of spare parts, was unchanged from prior year
levels.

Segment operating income was $1,461 during 2000s first
quarter compared with $1,570 in the comparable prior year period.
 Increased costs on certain integration projects are responsible
for the profitability decline.

Audioconferencing (MultiLink).The audioconferencing
segment develops, manufactures, markets and services multipoint
audioconferencing control units. First quarter 2000 segment
revenue totaled $2,230 and compares with revenue of $5,576 during
 the first quarter of 1999. The decrease is the direct result of
technical issues identified with MultiLinks new System 700
audio bridge during the quarter. These issues, which were solved
late in the quarter, resulted in sharply lower unit sales.
MultiLinks sales are expected to return to historical
levels in the second quarter.

Operating income decreased from $423 in 1999s first quarter
 to a $3,366 operating loss in the first quarter of 2000. The
revenue decrease is responsible, as operating expenses were
essentially identical in both periods.

Liquidity and Capital Resources

At April 1, 2000, the Company had $23,824 in cash and cash
equivalents and $27,891 in short-term marketable securities.
Operating activities used $9,351 of cash during the first quarter
 of 2000 compared with a $22,054 use in the comparable 1999
quarter. The primary operating use of cash during both quarters
was to fund operating losses in excess of non-cash expense. The
Company generated $4,368 of cash from working capital during
2000s first quarter compared to using $7,722 of cash for
working capital in the first quarter of 1999. The Company paid
$1,128 of accrued severance and restructuring charges during the
first quarter of 2000 and had a remaining accrual in the amount
of $1,223 for such items as of April 1, 2000 that will be
paid over the next year and five months.

Investing activities provided $7,622 of cash in the first quarter
 of 2000 compared with a $10,247 usage the previous year. Changes
 in marketable securities balances are the principal reason for
both results. In addition, first quarter 2000 capital
expenditures of $2,284 were less than 50% of the comparable 1999
figure of $4,974, as the Company has sharply curtailed spending.

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Financing activities generated $3,409 of cash in the first
quarter of 2000, principally as a result of employee stock option
 exercises and reductions in restricted cash balances. During the
 first quarter of 1999 the Companys financing activities
generated $29,502 of cash through issuance of $30,500 of
preferred convertible stock to Intel Corporation.

Cash utilization is of major concern to the Company. To reduce
this usage, the Company has restructured several areas, reduced
staffing, intensified programs to reduce working capital, and
curtailed capital spending. However, without increased revenue
these actions alone will not return the Company to a cash
positive position.

The Company has a revolving credit agreement expiring
June 15, 2001. The Company has up to $35,000 available for
borrowing under the credit agreement. At April 1, 2000, no
borrowings were outstanding under this credit agreement. The
Company currently has $30,595 of outstanding standby letters of
credit issued under this agreement which reduces the amount
available for borrowing on a dollar for dollar basis. Fees for
letters of credit outstanding against this revolving credit line
are payable at 125 basis points per annum of the face amount. The
 revolving credit agreement is collateralized by substantially
all assets of the parent Company and certain stock of its
subsidiaries. The Company is required to maintain in a securities
 account cash collateral, as defined, equal to 105% of
outstanding letters of credit and other credit extension. This
cash collateral is defined as cash, marketable securities, U.S.
Treasury securities, commercial paper, certificates of deposit
and repurchase agreements with maturities of one year or less.
The cash and marketable securities subject to the cash collateral
 requirement currently amounts to $33,625. The secured letters of
 credit expire between June 15, 2000, and October 31,
2000. The credit agreement also contains certain financial
covenants, including net income (loss) and minimum cash and
marketable securities requirements.

The Company is currently seeking a waiver for not meeting its
first quarter net income covenant and is presently in default of
its minimum cash and marketable securities covenant. Further, it
anticipates that its quarterly financial results for the balance
of 2000 will likely be out of compliance with the current credit
facilitys financial covenants. Without a waiver for its
current noncompliance, the Company is in default under the
current credit agreement, which would allow the lenders to obtain
 cash and marketable securities from the Company to cover the
$30,595 of outstanding letters of credit. In addition, the
lenders obligation to issue future letters of credit will
automatically terminate. The Company is required to maintain
letters of credit of $28,595 under its lease agreements for the
buildings at 50, 100 and 200 Minuteman Road in Andover,
Massachusetts. Without the letters of credit, the landlord has
the right to obtain up to $28,595 in cash and marketable
securities from the Company and hold this amount in escrow to
apply against the principal portion of future lease payments.

The Company is currently negotiating with both its current
lenders and several other parties to address these issues and to
provide necessary additional liquidity and borrowing capacity.
These negotiations include the potential for a bridging facility
until a new, permanent facility is finalized and closed as well
as the use of accounts receivable balances and other non-cash
assets to secure the letters of credit. In the event such efforts
 are unsuccessful, the Companys cash and marketable
securities could be reduced by the amount of the letters of
credit, as discussed above.

Additionally, given the Companys current cash usage and its
 unrestricted cash balances, without a new extended credit
facility, the Company could face significant liquidity issues
towards the end of the second quarter.

Local lines of credit are available for short-term advances of up
 to $979 to certain of the Companys foreign subsidiaries.
The agreements require interest payable up to one quarter of one
percent per annum. No borrowings were outstanding against these
local lines of credit at April 1, 2000.

In June 1999, the Company entered into a short-term security
 agreement with BankBoston. Under this agreement, the Company
pledged to the Bank certain amounts of cash and cash equivalents
as collateral for obligations of the Company arising from use of
the Banks cash management and foreign exchange services.
The required collateral was $150 as of April 1, 2000. This
amount is classified as restricted cash on the April 1, 2000
 consolidated balance sheet.

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The Company received a report from its independent accountants
for the year ended December 31, 1999 containing an
explanatory paragraph stating that our recurring losses and
requirement for additional financing raise substantial doubt
about our ability to continue as a going concern. Moreover,
managements plans to continue as a going concern rely
heavily on forecasted revenue from new products being jointly
developed with Intel Corporation, new multi-media applications
services, and enhanced compact videoconferencing systems, all of
which are planned for delivery commencing in the second quarter
of 2000. Under generally accepted auditing standards, the
Companys auditors have concluded that they are unable to
rely on future revenue from these new products and services in
evaluating the achievability of managements plan to
continue as a going concern. In addition to the revenue plan,
management is currently negotiating a bridge loan facility, then
to be replaced by an expanded credit facility and may seek
additional equity investment. Management is also continuing to
identify and implement internal actions to improve the
Companys liquidity. While there can be no assurances that
these plans will be successful, management believes these
actions, if successful, will provide sufficient financial
resources for the next twelve months and beyond.

The Company has operating leases for various rented properties.
The Company signed an agreement to sublease MultiLinks
former facility at 6 Riverside Drive in Andover, Massachusetts in
 May 1999 as part of its space consolidation efforts. As of
April 1, 2000, the remaining obligation under this operating
 lease was $7,885. After giving effect to expected sublease
income, this obligation is $5,000. In addition, in
June 1998, the Company subleased its property at 50
Minuteman Road for a ten-year term. After giving effect to
expected sublease income, the remaining obligation under the
capital lease was $16,694 at April 1, 2000.

In October 1998, the Board of Directors authorized a plan to
 repurchase up to 1,000,000 shares of the Companys Common
Stock in open market, privately negotiated or other transactions.
 The Company repurchased 70,000 shares during the first quarter
of 1999 at a cost of $556 (approximately $7.94 per share). There
are no definitive plans to repurchase the additional shares under
 the plan.

Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This
statement was originally effective for all fiscal years beginning
 after June 15, 1999. In June 1999, the FASB issued
Statement 137, which delayed the effective date of Statement 133
by one year. Statement 133 will be effective for
PictureTels fiscal year beginning January 1, 2001.
SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the
 fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction. The Company is currently
evaluating the effects of this change but anticipates that the
adoption of SFAS 133 will not have a significant effect on the
Companys financial position or results of operations.

In December 1998, the American Institute of Certified Public
 Accountants issued Statement of Position No. 98-9,
Modification of SOP No. 97-2, Software Revenue
Recognition, With Respect to Certain Transactions
(SOP 98-9). SOP 98-9 amends SOP 97-2 to
require recognition of revenue using the residual
method in circumstances outlined in SOP 98-9. Under
the residual method, revenue is recognized as follows:
(1) the total fair value of undelivered elements, as
indicated by vendor specific objective evidence, is deferred and
subsequently recognized in accordance with the relevant sections
of SOP 97-2 and (2) the difference between the total
arrangement fee and the amount deferred for the undelivered
elements is recognized as revenue related to the delivered
elements. The Company has adopted SOP 98-9 and it has not
had a significant impact on its results of operations or
financial position.




In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements,
(SAB 101) as amended by SAB 101A, which is
effective no later than the quarter ending June 30, 2000.
SAB 101 clarifies the Securities and Exchange Commissions
views regarding recognition of revenue. The Company will adopt
SAB 101 in the second quarter of 2000. The Company has
identified one series of transactions where the adoption of
SAB 101 is expected to have a material effect on its 2000
financial position and results of operations but it has not yet
completed its analysis.




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In March 2000, the Financial Accounting Standards Board
released FASB Interpretation No. 44
(FIN 44), Accounting for Certain
Transactions involving Stock Compensation  an
interpretation of APB Opinion No. 25. FIN 44
provides guidance for certain issues that arise in applying
Accounting Principles Board Opinion No. 25 (APB
No. 25), Accounting for Stock Issued to
Employees. The Company does not expect that the adoption of
 FIN 44 will have a significant impact on the Companys
 results of operations or financial position.

Risk Factors Which May Affect Future Results

The following risk factors relating to the business of PictureTel
 and certain forward-looking statements contained herein should
be considered by current and prospective investors of PictureTel
stock. These factors should be considered in conjunction with
other information contained in this document.

New Products, Cost Reductions, Technological Change, and
Evolving Markets. The Company is engaged in an industry that
is still emerging as a result of extensive research and
development efforts and which continues to bring to market new,
more technologically advanced products introduced on an
accelerated basis. Simultaneously, the larger telecommunications
market is in a heightened competitive state due to deregulation
throughout the world. In order to maintain its market share in
this fast-paced emerging market, the Company must continue to
introduce, through internal development or by acquisition, joint
venture or other collaborative arrangements, significant
innovative, technologically leading and cost-competitive
products. There can be no assurance that such new products will
be introduced by the Company, or if introduced, will be accepted
by the market and its customers. In November 1998, the
Company acquired all of the common stock of Starlight Networks,
Inc. Starlight develops, manufactures and markets streaming video
 that enables live, interactive multicast video-on-demand. There
can be no assurance that the integration of Starlight will be
successful or produce products that will be accretive to the
Companys results of operations and financial condition. In
January 1999, the Company entered into a distribution and
joint product development agreement with Intel Corporation. The
two companies have jointly developed videoconferencing and
collaborative products based on a common PC-based technology
platform. There can be no assurance that the partnership will be
successful or produce products that will be accretive to the
Companys results of operations and financial condition. In
addition to offering products that operate in an integrated
service digital network (ISDN) environment, the Company and
its competitors are exploring new technologies and networks, such
 as the Internet and corporate intranets or LANs, for delivering
videoconferencing and data collaboration services. The industry
standards for such new technologies and networks, however, are
still in the early stages of development, which the Company
believes has led to customer uncertainty and, accordingly, a
slowdown in the growth of the general market for
videoconferencing products. As a result of customer preferences,
the Company continues to experience a shift in its sales model to
 videoconferencing systems with lower average selling prices.
There can be no assurance that the Company will be successful in
implementing cost reductions for all of its products or in
developing and marketing suitable new products and related
services with attractive margins for these new technologies and
networks. The possible transition, migration and/or convergence
of technologies is difficult to predict and could have profound
implications for the industry and the business of the Company.
Further, there is significant risk that existing products could
be rendered obsolete due to changing technology. The
Companys failure to develop and market new products on a
timely basis or to enhance its existing products or to respond
effectively to technological changes, new industry standards or
product announcements by competitors could have a material
adverse effect on the Companys business, financial
condition and results of operations. In April 2000, the
Company announced the formation of its 1414c subsidiary. 1414c,
Inc., a wholly-owned subsidiary, has the objective of providing
application service providers (ASPs) access to a broad range of
IP-based interactive communication solutions. These solutions
will enable ASPs to provide rapid Web access to streaming,
videoconferencing, Voice-over-IP, and other Web-enabled
interactive solutions such as call scheduling and launching.
There can be no assurance that 1414c will deliver these services
in a manner acceptable to its customers.

Competition.The increased competition resulting from
partnerships and acquisitions by and with our competitors,
together with mergers among competitors and a slowdown in the
growth of the general market for visual collaboration products,
has led and may continue to lead to increases in the defection or
 dilution of

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Manufacturing.Certain key subassemblies and products are
currently available only from one vendor and several vendors are
smaller corporations with limited financial resources that could
prove to be inadequate. In some cases components are sourced from
 only one vendor, even where multiple sources are available, to
maintain quality control and enhance the working relationship
with the vendor. In addition, the Company from time to time
enters into development arrangements with third parties to
develop and incorporate new features and functions into the
Companys products. Failure of these third parties to
fulfill their respective obligations under these development
arrangements could have a material adverse effect on the
Companys business, financial condition and results of
operations. The Companys business could also be adversely
affected by delays or interruptions in delivery, and poor quality
 of supplies, subassemblies or products from key vendors. In
addition, the Company designs and procures certain circuits,
components and subassemblies from non-videoconferencing divisions
 of its competitors, such as Sony and Panasonic Corporation. The
failure to obtain adequate supplies or the requirement to
redesign and source supplies from another manufacturer may take
substantial time and result in significant expense, each of which
 could adversely impact product shipments and materially and
adversely affect the Companys business, financial condition
 or results of operations.

Recent History of Losses.The Company reported a 15%
decrease in revenue for the first quarter of 2000 as compared to
the first quarter of 1999. Losses from operations were $23,043
and $25,663 for the first quarter of 2000 and 1999, respectively,
 representing a 10% decrease in losses from operations.

The Companys revenue decreased 20% during fiscal year 1999
as compared to fiscal year 1998 and decreased 13% between fiscal
year 1998 and fiscal year 1997. Losses from operations were
$90,284, $23,650 and $56,850 in 1999, 1998 and 1997,
respectively. Continued negative operating results could
adversely impact the Companys relationship with customers,
vendors and employees, as well as its liquidity and ability to
remain in compliance with covenants under its revolving credit
agreement. The Company received a report from its independent
accountants for the year ended December 31, 1999 containing
an explanatory paragraph stating that our recurring losses and
requirement for additional financing raise substantial doubt
about our ability to continue as a going concern.
Managements plans to continue as a going concern rely
heavily on forecasted revenue from new products being jointly
developed with Intel Corporation, new multi-media applications
services, and enhanced compact videoconferencing systems. There
can be no guarantee that such revenue increase will occur or will
 be sufficient to meet the Companys needs. In addition to
the revenue plan, management is currently negotiating an expanded
 credit facility and may seek additional equity investment.
However, there is no guarantee that either of these efforts will
be successful, or if successful, will be sufficient to meet the
Companys needs.

Product Protection and Intellectual Property.The
Companys success depends in part on its proprietary
technology. The Company attempts to protect its proprietary
technology through patents, copyrights, trademarks, trade secrets
 and license agreements. In absence of broad patent protection,
which is not likely, and despite the Companys reliance upon
 its proprietary confidential information, competitors of the
Company have been able to use algorithms, or other features
similar to those used by the Company, to design and manufacture
products that are directly competitive with the Companys
products. The Company believes that due to the rapid pace of
technological change in the visual collaboration industry, legal
protection for its

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Although the Company does not believe that its products infringe
the proprietary rights of any third parties, third parties have
asserted infringement and other claims against the Company from
time to time. There can be no assurance that third parties will
not assert such claims against the Company in the future or that
such claims will not be successful. The Company could incur
substantial costs and diversion of management resources with
respect to the defense of any claims relating to proprietary
rights, which in turn could have a material adverse effect on the
 Companys business, financial condition and result of
operations.

Potential Fluctuations of Quarterly Operating Results.The
 majority of the Companys revenue in each quarter result
from orders booked in that quarter, and a substantial portion of
the Companys orders and shipments typically occur during
the last weeks of each quarter such that forecasting of revenue
and product mix is both complex and difficult. Unanticipated
variations in the timing of receipt of customer orders in any
quarter may produce significant fluctuations in quarterly
revenues. As a result, a shortfall in revenue compared to
internal expectations may not evidence itself until late in the
quarter and any resulting impact on earnings may not be
determinable until several weeks after the end of the quarter.
The Companys ability to maintain or increase net revenue
depends upon its ability to increase unit volume sales. There can
 be no assurance that the Company will be able to increase or to
maintain the current level of unit volume sales. Other factors
which may cause period-to-period fluctuations in operational
results include the timing of new product announcements and
introductions by the Company and its competitors, market
acceptance of new or enhanced versions of the Companys
products, changes in the product mix of sales, changes in the
relative proportions of sales among distribution channels or
among customers within each distribution channel, changes in
manufacturing costs, and general economic factors such as the
recent decline of currency values in the Asian markets.

International Operations.Revenue related to international
 operations of the Company totaled approximately 53% and 48% of
total revenue for the periods ended April 1, 2000 and
April 4, 1999, respectively. Management of the Company
expects international revenue to continue to constitute a
significant portion of total revenue in future periods. However,
there can be no assurance that the Company will be able to
maintain or increase international market demand for its products
 and, to the extent the Company is unable to do so, its business,
 financial condition, results of operations or cash flows could
be materially adversely affected. The Companys sales to
international distributors are denominated in U.S. dollars in
order to minimize risks associated with fluctuating foreign
currency rates. An increase in the value of the U.S. dollar
relative to other currencies, however, could make the
Companys product more expensive and, therefore, potentially
 less competitive in foreign markets. Sales by the Companys
 foreign subsidiaries are generally made in the foreign
subsidiarys local currency, in which case fluctuations in
the value of the U.S. dollar relative to such other currencies
could have a material adverse effect on the operating results of
the Company. Currently, the Company employs various currency
hedging strategies to reduce these risks. In addition, a
significant portion of the Companys revenue is derived from
 Asian markets. Given the current general weakness in the Asian
markets, there can be no assurance that the Company will be able
to sustain current revenue levels or growth in such markets.
There can be no assurance that the above factors will not have a
material adverse effect on the Companys future
international sales and, consequently, on its business, financial
 condition, results of operations or cash flows.

Volatility of Stock Price.As is frequently the case with
the stocks of high technology corporations, the market price of
PictureTel Common Stock has been, and may continue to be,
volatile. Factors such as quarterly fluctuations in results of
operations, increased competition, the introduction of new
products by the Company and by its competitors, changes in the
mix of products and sales channels, the timing of significant
customer orders, and macroeconomic conditions generally, may have
 a significant adverse effect on the market price of the
Companys stock in any given period. In addition, the stock
market has, from time to time, experienced extreme price and
volume fluctuations, which have particularly affected the market
price for many high technology corporations and which, on
occasion, have appeared to be unrelated to the operating
performance of such corporations. Past financial performance
should not be considered a reliable indicator of future
performance and investors should not use historical trends to
anticipate results or trends in future periods. Any shortfall in
revenue or earnings from the levels anticipated by securities
analysts could have an

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Dependence on Key Personnel.On August 31, 1999, the
Company announced that Dr. Norman Gaut had succeeded Bruce
R. Bond as Chairman of the Board, CEO and President of the
Company. In February 1998, Mr. Bond succeeded
Dr. Gaut as Chief Executive Officer and President, and had
been elected Chairman of the Board in June 1998. At that
time, Dr. Gaut had retired as an active employee while
remaining a member of the Board of Directors. Dr. Gaut
accepted this 1999 position at a difficult time for the Company.
The Company depends on a limited number of key senior management
personnel, including Norman Gaut; Arthur Fatum, Vice President
and CFO; David Grainger, Group Vice President and General Manager
 of Services; Timothy Duffy, Group Vice President and General
Manager of Conferencing Products; Robert Byrnes, Group Vice
President for Emerging Products; Lawrence Bornstein, Vice
President, Human Resources; and David Blandford, President and
General Manager, MultiLink. There has been and continues to be
considerable turnover in the Companys senior management
team over the past several years, and the loss of the services of
 one or more of the Companys senior management team or the
inability to attract, retain, motivate and manage additional key
personnel could have a material adverse effect on the business,
financial condition or operating results of the Company. In
addition, the Company continues to experience an increase in
voluntary employee attrition from engineering and other
departments. There is no assurance, given the competitive nature
of the current job market, that the Company will be able to
adequately fill the open positions.

Year 2000 Compliance.In prior years, the Company
discussed the nature and progress of its plans to become Year
2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no disruptions in
 mission critical information technology and non-information
technology systems and believes those systems successfully
responded to the Year 2000 date change. The Company is not aware
of any material problems resulting from Year 2000 issues, either
with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor
its mission critical computer applications and those of its
suppliers and vendors throughout the year 2000 to ensure that any
 latent Year 2000 matters that may arise are addressed promptly.

Euro.On January 1, 1999, eleven of the fifteen
member countries of the European Union established fixed
conversion rates between their existing sovereign currencies and
established the euro, making the euro their common legal currency
 on that date. Based on a recent assessment, the euro conversion
is not anticipated to have a material impact on the
Companys business.




Item 3.  Quantitative and Qualitative
Disclosures about Market Risk

There were no material changes in the Companys exposure to
market risk from December 31, 1999.

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##### Table of Contents






Part II  OTHER INFORMATION




Item 1.  Legal Proceedings

A.  SEC Investigation

In May 1999, the Company was informed that the Securities
and Exchange Commission (SEC) had initiated a formal
investigation of matters related to the Companys 1997
restatement of its earnings. The Company has been cooperating
with the SEC and will continue to do so. The Company expresses no
 opinion as to the likely outcome. While no assurances can be
provided, the Company does not believe that the investigation
will have a material adverse affect on its business, financial
condition, results of operations or cash flows.

B.  Revnet, Inc.

On June 2, 1998, the Company was served with a complaint
from a former distribution channel customer, Revnet, Inc., which
has ceased operations. (Revnet, Inc., v. PictureTel
Corporation. Civil Action 98092039, filed April 2, 1998,
 in the Circuit Court for Baltimore City, Maryland.) The
complaint alleges that the Company breached an oral contract.
Revnet is allegedly seeking $200 million in damages. Discovery is
 in process. The Company believes that the complaint and the
claim for damages are without merit and intends to vigorously
defend against them. In addition, after limited discovery under
the above named suit, the Company on September 13, 1999
filed a related action in the Circuit Court for Baltimore City,
Maryland against Revnet, Inc., Vuecom, Inc. (an entity related to
 Revnet, Inc.), George Harris IV, George Sandmann and Lou Brown,
(PictureTel Corporation v. RevNet, Inc., et al. Civil
Action 24-C99-004406) alleging among other things Breach of
Contract, Fraudulent Inducement and Securities Fraud. The
Companys complaint is seeking more than $7 million in
damages. While no assurance can be provided, the Company does not
 believe that the outcome of this dispute will have a material
adverse affect on its business, financial condition, results of
operations or cash flows.

In addition to the above, the Company has also been and is from
time to time subject to claims, such as potential patent
infringements, and suits incidental to the conduct of business.
There can be no assurance that the Companys insurance will
be adequate to cover all liabilities that may arise out of such
claims. Further, although the Company intends to defend itself
vigorously against all such claims, the ultimate outcome of the
claims cannot be accurately predicted. The Company does not
believe that any claim of which it is aware, other than the
claims listed above, could result in an outcome that will have a
material adverse effect to its business, financial condition,
results of operations or cash flows.




Item 6.  Exhibits and Reports on
Form 8-K



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

27.1  Financial Data Schedule for the period ended
April 1, 2000 as required by Item 601(c) of
Regulation S-K.



| |     |                    
| | --- | -------------------
| | (b) | Reports on Form 8-K

None

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SIGNATURE




Pursuant to the Securities Exchange Act of 1934, the registrant
has duly caused this report on Form 10-Q/A to be signed on
its behalf by the undersigned thereunto duly authorized.






| |                       
| | ----------------------
| | PICTURETEL CORPORATION






| |  |                    
| |  | -------------------
| |  | /s/ RALPH J. TAKALA




| |                                             
| | --------------------------------------------
| |                                             
|
| | Ralph J. Takala                             
|
|
| | Chief Financial Officer,                    
|
| | (Principal Financial and Accounting Officer)
|
| | August 14, 2000                             
|

22