UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 
 FORM 10–Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2001
Commission file number 000–25475 
 LATITUDE COMMUNICATIONS, INC.(Exact name of registrant as specified in its charter) Delaware
  94–3177392(State or other jurisdiction of incorporation or
  organization)
  (I.R.S. Employer 
  Identification No.)
 2121 Tasman Drive,
Santa Clara, CA 95054(Address of principal executive offices, including zip
code) (408) 988–7200(Registrants telephone number, including area code) 
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YesxNo ̈ As
of April 30, 2001, there were 19,414,000 shares of the registrants Common
Stock outstanding.   INDEX



PART I.
  FINANCIAL INFORMATIONItem 1.
  Financial StatementsCondensed
  consolidated balance sheets at March 31, 2001 and December 31, 2000Condensed
  consolidated statements of operations and comprehensive income (loss) for the
  three months ended March 31, 2001 and 2000Condensed
  consolidated statements of cash flows for the three months ended March 31,
  2001 and 2000Notes
  to condensed consolidated financial statementsItem
  2.
  Managements
  Discussion and Analysis of Financial Conditionand Results of OperationsItem
  3.
  Quantitative
  and Qualitative Disclosures About Market RiskPART II.
  OTHER INFORMATIONItem 1.
  Legal
  ProceedingsItem
  2.
  Changes
  in Securities and Use of ProceedsItem
  3.
  Defaults
  Upon Senior SecuritiesItem
  4.
  Submission
  of Matters to a Vote of Security HoldersItem 5.
  Other
  InformationItem
  6.
  Exhibits
  and Reports on Form 8–KSIGNATUREPART I.            FINANCIAL INFORMATIONItem 1.              Financial
Statements.

LATITUDE COMMUNICATIONS, INC.CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands)(Unaudited)

March 31,
  2001
  December 31,
  2000ASSETSCurrent assets:Cash and
  cash equivalents
  $18,761
  $23,993Short–term
  investments
  12,327
  14,203Accounts
  receivable, net
  13,031
  10,044Inventory
  1,506
  1,662Prepaids
  and other assets
  2,550
  2,790Deferred
  tax asset
  2,779
  2,779Total current assets
  50,954
  55,471Property and equipment, net
  4,250
  4,062Long–term investments
  6,462
  2,301Deferred tax asset
  1,287
  794Deposits and other long–term assets
  537
  530Total
  assets
  $63,490
  $63,158LIABILITIES
  AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts
  payable
  $631
  $875Accrued
  liabilities
  3,978
  3,565Deferred
  revenue
  7,423
  6,434Current
  portion of long–term debt
  362
  362Total
  current liabilities
  12,394
  11,236Long–term debt
  12
  106Total liabilities
  12,406
  11,342Stockholders equity:Preferred
  stock, $0.001 par valueAuthorized: 5,000 shares at March 31, 2001 and 2000      Issued and outstanding: No
  shares at March 31, 2001 and 2000
  
  Common
  stock, $0.001 par valueAuthorized: 75,000 shares at March 31, 2001 and 2000      Issued and outstanding: 19,303
  and 18,989 shares at March 31, 2001 and 2000, respectively
  19
  19Additional
  paid–in capital
  57,698
  57,675Notes
  receivable from common stockholders
  (10)
  (10)Deferred
  stock compensation
  (509)
  (620)Accumulated other comprehensive income
  55
  46Accumulated deficit
  (6,169)
  (5,294)Total stockholders equity
  51,084
  51,816Total liabilities and stockholders equity
  $63,490
  $63,158The
accompanying notes are an integral part of these condensed consolidated
financial statements.

LATITUDE COMMUNICATIONS, INC.CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
(Unaudited)

Three Months
  Ended March 31,2001
  2000Revenue:Product
  $6,156
  $7,388Service
  4,060
  2,977Total revenue
  10,216
  10,365Cost
  of revenue:Product
  1,016
  1,226Service (includes non-cash stock
  compensation of $2 and $19 in 2001 and 2000, respectively)
  2,512
  1,521Total cost of revenue
  3,528
  2,747Gross
  profit
  6,688
  7,618Operating
  expenses:Research and development (includes
  non-cash stock compensation of $18 and $20 in 2001 and 2000, respectively)
  1,758
  1,552Marketing and sales (includes non-cash
  stock compensation of $11 and $25 in 2001 and 2000, respectively)
  5,616
  4,385General and administrative (includes
  non-cash stock compensation of $65 and $63 in 2001 and 2000, respectively)
  1,246
  828Total operating expenses
  8,620
  6,765Income
  (loss) from operations
  (1,932)
  853Interest
  income, net
  565
  587Income
  (loss) before benefit from (provision for) income taxes
  (1,367)
  1,440Benefit
  from (provision for) income taxes
  492
  (596)Net
  income (loss)
  $(875)
  $844Other
  comprehensive income (loss), net of taxUnrealized gain (loss) on securities
  24
  (156)Cumulative translation adjustment
  (15)
  Comprehensive
  income (loss)
  $(866)
  $688Net
  income (loss) per sharebasic
  $(0.05)
  $0.05Shares
  used in per share calculationbasic
  18,746
  18,662Net
  income (loss) per sharediluted
  $(0.05)
  $0.04Shares
  used in per share calculationdiluted
  18,746
  20,059The
accompanying notes are an integral part of these condensed consolidated
financial statements.





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

Three Months Ended
  March 31,2001
  2000Cash
  flows from operating activities:Net income (loss)
  $(875)
  $844Adjustments to reconcile net income
  (loss) to net cash provided by (used in) operating activities:Depreciation and amortization
  554
  370Amortization of capitalized
  software
  97
  26Provision for excess and obsolete
  inventory
  
  97Provision for doubtful accounts
  
  74Amortization of deferred stock
  compensation
  96
  127Deferred income taxes
  (493)
  Changes in operating assets and
  liabilitiesAccounts receivable
  (2,987)
  419Inventory
  156
  (102)Prepaids and other assets
  143
  (238)Accounts payable
  (244)
  695Accrued liabilities
  413
  (256)Deferred revenue
  989
  (787)Net cash provided by (used
  in) operating activities
  (2,151)
  1,269Cash
  flows from investing activities:Purchases of property and equipment
  (742)
  (1,080)Purchases of available for sale
  securities
  (16,461)
  (13,375)Maturities of available for sale
  securities
  14,200
  10,139Increase in deposits and other long-term
  assets
  (7)
  (9)Net cash used in investing
  activities
  (3,010)
  (4,325)Cash
  flows from financing activities:Proceeds from issuance of common stock
  38
  107Repayment of notes payable and capital
  lease obligations
  (94)
  (159)Other
  (15)
  33Net cash used in financing
  activities
  (71)
  (19)Net
  decrease in cash and cash equivalents
  (5,232)
  (3,075)Cash
  and cash equivalents, beginning of period
  23,993
  10,847Cash
  and cash equivalents, end of period
  $18,761
  $7,772The
accompanying notes are an integral part of these condensed consolidated
financial statements





LATITUDE COMMUNICATIONS, INC.NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1The Company and Basis of
Presentation

Latitude Communications, Inc. (the
Company) is a leading provider of enterprise e-conferencing solutions. The
Company develops, markets and supports its MeetingPlace system, which allows
companies to conduct virtual meetings and thereby extend decision making
processes across the disparate geographic locations of participants.
MeetingPlace is designed to be an enterprise-wide resource and to leverage
existing technologies such as telephones, cellular phones and personal
computers. The Company has distributed its product through distributors and a direct
sales force to companies across many industries in the United States, Europe
and Asia

The accompanying unaudited
condensed consolidated financial statements reflect all adjustments which, in
the opinion of management, are necessary for a fair presentation of the results
for the periods shown. The results of operations for such periods are not
necessarily indicative of the results expected for the full fiscal year or for
any future period. The balance sheet at December 31, 2000 was derived from audited
financial statements, however, it does not include all disclosures required by
generally accepted accounting principles in the United States of America.

The financial statements and
related disclosures have been prepared with the presumption that users of the
interim financial information have read or have access to the audited financial
statements for the preceding fiscal year. Accordingly, these financial
statements should be read in conjunction with the audited financial statements
and the related notes thereto contained in the Companys Annual Report on Form
10-K for the year ended December 31, 2000.

Note 2Inventory

March 31,
  2001
  December 31,
  2000Raw materials
  $1,046
  $1,216Finished goods
  460
  446$1,506
  $1,662Note 3Recent Accounting
Pronouncements

In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities."  SFAS No. 133 establishes a new model for accounting for derivatives
and hedging activities and supercedes and amends a number of existing
accounting standards. SFAS No. 133 requires that all derivatives be recognized
in the balance sheet at their fair market value and the corresponding
derivative gains or losses be either reported in the statement of operations or
as a deferred item depending on the type of hedge relationship that exists with
respect to any derivatives.  In July
1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivatives Instruments and Hedging Activities - Deferral
of Effective Date of FASB Statement No. 133."  SFAS No. 137 deferred the effective date until fiscal years
commencing after June 30, 2000. In June 2000, the Financial Accounting
Standards Board issued SFAS No. 138, "Accounting for Derivative
Instruments and Hedging Activities  An Amendment of FASB Statement No.
133." SFAS 138 amends the accounting and reporting standards for certain
derivatives and hedging activities such as net settlement contracts, foreign
currency transactions and intercompany derivatives. Adoption of SFAS No. 133
did not have a material impact on the Company's financial condition or results
of operations as currently conducted.

Note 4Net Income Per Share

Basic net income (loss) per share
is computed by dividing net income (loss) available to common stockholders by
the weighted average number of vested common shares outstanding for the period.
Diluted net income (loss) per share is computed giving effect to all dilutive
potential common shares, including options, warrants and preferred stock.

A reconciliation of the numerator and
denominator of basic and diluted EPS is provided as follows (in thousands,
except per share amounts).

Three Months Ended
  March 31,2001
  2000(Unaudited)Net
  income (loss) per share, basic and diluted:Numerator for net income (loss), basic
  and diluted
  $(875)
  $844Denominator for basic net income (loss)
  per share:Weighted average vested common shares
  outstanding
  18,746
  18,662Net income (loss) per share basic
  $(0.05)
  $0.05Denominator
  for diluted earnings per share:Weighted average vested common shares
  outstanding
  18,746
  18,662Effect of dilutive securities:Nonvested common shares
  
  314Common stock options
  
  1,042Warrants
  
  41Weighted average common and common
  equivalent shares
  18,746
  20,059Net
  income (loss) per share diluted
  $(0.05)
  $0.04Antidilutive
  securities not included in the calculation of diluted EPS because the Company
  incurred a net loss:Nonvested common shares
  523
  Common stock options
  193
  716
  Item
2. Managements Discussion and Analysis of
Financial Condition and Results of Operations.

This Managements Discussion and
Analysis of Financial Condition and Results of Operations and other parts of
this Form 10–Q include a number of forward-looking statements that
reflect our current views with respect to future events and financial
performance. We use words such as "anticipates,"
"believes," "expects," "future," and "intends,"
and similar expressions to identify forward-looking statements. You should not
place undue reliance on these forward-looking statements, which apply only as
of the date of this Quarterly Report on Form 10-Q. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from historical results or our predictions. These
risks are described in " Factors Affecting Future Operating Results "
and elsewhere in this Form 10–Q. Readers are cautioned not to place undue
reliance on these forward–looking statements, which reflect managements
analysis only as of the date hereof. The Company assumes no obligation to
update these forward–looking statements to reflect actual results or
changes in factors or assumptions affecting such forward–looking
statements.

Overview

We are a leading provider of
enterprise e-conferencing solutions that enable geographically dispersed
organizations to collaborate in real time. The Company's award-winning
MeetingPlace system is designed for enterprise-wide deployment to improve the
ability of employees, partners, and customers to meet and work. With
MeetingPlace, participants can schedule and attend a meeting, view, share and
edit documents, and capture and retrieve meeting content. MeetingPlace is
designed to be an enterprise-wide resource and to leverage existing
technologies such as telephones, cellular phones and personal computers.

We generate revenue from sales of
our MeetingPlace products and from customer support and consulting services.
Revenue derived from product sales constituted 60% of total revenue in the
first quarter of 2001 and 71% during the corresponding period of 2000. Product
revenue is generally recognized upon shipment if a signed contract exists, the
fee is fixed and determinable, collection of the resulting receivable is
reasonably assured, product returns are reasonably estimable and, if
applicable, acceptance has been obtained. We calculate an allowance for returns
based on historical rates. Service revenue includes revenue from implementation
and integration services, system management services, warranty coverage and
customer support. Revenue from implementation and system integration services
is recognized as the services are performed, while revenue from system
management services, warranty coverage and customer support is recognized
ratably over the period of the contract. Beginning in 2001, we expect to expand
our service offerings by providing hosted services to our customers.
Accordingly, future revenue from this new service offering will increase the
proportion of total revenue derived from services. To the extent that
prospective customers elect to purchase the hosted service rather than an
on-premises MeetingPlace system, our product revenue could be adversely
affected.

We sell our MeetingPlace products
primarily through our direct sales force and, to a lesser extent, through
indirect distribution channels. The majority of our revenue is derived from
Fortune 1000 companies, many of which initially purchase MeetingPlace servers
and later expand deployment of our products as they require additional capacity
for voice and web conferencing. In 1997, we expanded into international markets
by opening a sales and support office in the United Kingdom and establishing
distributor relationships in Hong Kong and Singapore, and in 1998, we
established a distributor relationship in Australia. While we intend to
increase sales through indirect channels and internationally, we cannot assure
you that we will be successful. In 1998, we expanded the breadth of our support
services by establishing a consulting services group to provide expanded
implementation services, system management services and customized project
consulting. In 1999, we opened a sales and support office in Singapore. In
addition, in 1999 and 2000, we increased our distribution partners to include
global partnerships, application service providers and partners focused on the
U.S. federal government.

Total cost of revenue consists of
component and materials costs, direct labor costs, warranty costs, royalties
and overhead related to manufacturing of our products, as well as materials,
travel and labor costs related to personnel engaged in our service operations.
Product gross margin is impacted by the proportion of product revenue derived
from software sales, which typically carry higher margins than hardware sales,
and from indirect distribution channels, which typically carry lower margins
than direct sales. Service gross margin is impacted by the mix of services we
provide, which have different levels of profitability, and the efficiency with
which we provide support to our customers. We record an allowance for excess
and obsolete inventory by identifying inventory components either considered
excess based on estimates of future usage or obsolete due to changes in our
products. As a result of technological changes, our products may become
obsolete or we could be required to redesign our products.

Results Of Operations

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

Three Months Ended
  March 31,2001
  2000Revenue:Product
  60.3%
  71.3%Service
  39.7%
  28.7%Total revenue
  100.0%
  100.0%Cost
  of revenue:ProductF
  9.9%
  11.8%Service
  24.6%
  14.7%Total cost of revenue
  34.5%
  26.5%Gross
  profit
  65.5%
  73.5%Operating
  expenses:Research and development
  17.2%
  15.0%Marketing and sales
  55.0%
  42.3%General and administrative
  12.2%
  8.0%Total operating expenses
  84.4%
  65.3%Income
  (loss) from operations
  (18.9)%
  8.2%Interest
  income, net
  5.5%
  5.7%Income
  (loss) before benefit from (provision for) income taxes
  (13.4)%
  13.9%Benefit
  from (provision for) income taxes
  4.8%
  (5.8)%Net
  income (loss)
  (8.6)%
  8.1%



Product Revenue

Product revenue was $6.2 million
for the first quarter of 2001, which represented a decrease of 17% when
compared to the corresponding period of 2000. The decrease was due primarily to
fewer MeetingPlace system sales in an environment of reduced capital spending
by our existing and target customers. International sales represented
approximately 17% and 13% of product revenue in the three months ended March
31, 2001 and 2000.

Service Revenue

Service revenue was $4.1 million
for the first quarter of 2001, which represented an increase of 36% when
compared to the corresponding period of 2000. The increase was attributable
primarily to growth in our customer base during this period, which led to
increased sales of support services to new and existing customers, as well as
the introduction of additional consulting services such as managed services and
expanded implementation and integration services.

Total Cost of Revenue

Total cost of revenue was $3.5
million for the first quarter of 2001, which represented an increase of 28%
when compared to the corresponding period of 2000. The increase in total cost
of revenue was attributable primarily to the increased size of our services
staff and the costs of providing services to support an increasingly
geographically dispersed customer base, partially offset by lower product cost
of revenue as a result of shipping fewer MeetingPlace systems.

Gross profit was $6.7 million for
the first quarter of 2001, as compared to $7.6 million in the corresponding
period of 2000. Gross margin was 66% as a percentage of revenue, for the first
quarter of 2001, as compared to 74% for the corresponding period of 2000.

Product gross margin remained
constant at 83% as a percentage of product revenue for the first quarter of
2001 and for the corresponding period of 2000. We expect that product gross
margin may decrease in the future due in part to potential pricing pressure and
an expected increase in the proportion of revenue derived from indirect
distribution channels.

Service gross margin was 38% as a
percentage of service revenue for the first quarter of 2001 as compared to 49%
for the corresponding period in 2000. We expect that service gross margins will
increase over the first quarter of 2001 but will remain below prior year levels
as a result of the addition of support personnel, potential pricing pressure
and an increase in the mix of lower margin service offerings.

Research and Development Expenses

Research and development expenses
consist primarily of compensation and related costs for research and
development personnel, facilities expenses for testing space and equipment and
royalty payments. Research and development expenses were $1.8 million for the
first quarter of 2001, which represented an increase of 13% when compared to
corresponding period in 2000. As a percentage of total revenues, research and
development expenses rose from 15% in the first quarter of 2000 to 17% in the
first quarter of 2001. The increase was attributable primarily to the addition
of personnel in our research and development organization associated with
product development. We expect to continue to make substantial investments in
research and development and anticipate that research expenses will continue to
increase in absolute dollars.

Marketing and Sales Expenses

Marketing and sales expenses
consist primarily of promotional expenditures and compensation and related
costs for marketing and sales personnel. Marketing and sales expenses were $5.6
million for the first quarter of 2001, which represented an increase of 28%
when compared to corresponding period in 2000. As a percentage of total
revenues, marketing and sales expenses increased from 42% in the first quarter
of 2000 to 55% in the first quarter of 2001. The increase in marketing and
sales expenses as a percentage of revenue was due primarily to spending in
advance of anticipated revenue. The increase in absolute dollars of $1.2
million for the first quarter year over year, reflected the addition of
personnel in our sales and marketing organizations, as well as costs associated
with increased selling efforts to develop market awareness of our products and services.



General and Administrative Expenses

General and administrative expenses
consist primarily of personnel expenses, legal and accounting expenses and
other general corporate expenses. General and administrative expenses were $1.2
million for the first quarter of 2001, which represented an increase of 50%
when compared to the corresponding period in 2000. As a percentage of total
revenues, general and administrative expenses increased from 8% in 2000 to 12%
in 2001. The increase in absolute dollars was attributable primarily to the
addition of personnel in our general and administrative organization. We expect
general and administrative expenses to increase in absolute dollars as we add
personnel and incur additional costs related to the anticipated growth of our
business.

Amortization of Deferred Stock Compensation

In connection with the completion
of our initial public offering in May 1999, options granted in the last quarter
of 1997, 1998 and the first quarter of 1999 have been considered to be compensatory.
Total remaining deferred stock compensation associated with these options as of
March 31, 2001 amounted to $509,000. This amount is being amortized based on
the remaining vesting period of these options, and we expect amortization of
approximately $284,000 over the remainder of 2001 and $225,000 in 2002 related
to the options presently outstanding.

Interest Income, Net

Interest income, net of interest
expense, was $565,000 for the first quarter of 2001, compared to interest
income, net of interest expense, of $587,000 for the corresponding period in
2000. Interest expense was related to obligations under capital leases and
equipment loans. The decrease in net interest income was attributable primarily
to lower market interest rates.

Benefit from (Provision for) Income Taxes

For the quarter ended March 31,
2001, the benefit from income taxes was $492,000, compared to a provision of
$596,000 in the quarter ended March 31, 2000. Our effective tax rate was
approximately 36% for the first quarter of 2001 and approximately 41% for the
same period in 2000. The decline in the effective rate was due to certain
minimum taxes which offset the benefit from income taxes on a net loss in 2001.

Liquidity and Capital Resources

In May 1999, we completed an initial
public offering of common stock, resulting in net proceeds to us of
approximately $33.8 million. As of March 31, 2001, we had $37.6 million of
cash, cash equivalents and investments, which represented 59% of total assets.

Cash used in operating activities
was $2.2 million during the first three months of 2001, compared to cash
provided by operating activities of $1.3 million in the same period of
2000. Cash used in operating activities increased in 2001 due to a net loss and
an increase in accounts receivable, partially offset by an increase in deferred
revenue and adjustments for non–cash items.

Cash used in investing activities
in the first three months of 2001 was $3.0 million, which consisted primarily
of the purchase of marketable securities of $16.5 million and purchase of
property and equipment of $742,000, partially offset by maturities of
marketable securities. For the first three months in 2000, cash used in
investing activities was $4.3 million which consisted primarily of the purchase
of marketable securities of $13.4 million and purchase of property and
equipment of $1.1 million, partially offset by maturities of marketable
securities.

Cash used in financing activities
in the first three months of 2001 of $71,000 consisted primarily of payments on
obligations under capital leases and notes payable of $94,000 partially offset
by the proceeds from issuance of common stock under employee benefit plans. For
the first three months of 2000, cash used in financing activities of $19,000
primarily consisted of payments on obligations under capital leases and notes
payable of $159,000, partially offset by the proceeds from issuance of common
stock under employee benefit plans.

We believe that our current cash,
cash equivalents and marketable securities will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at
least the next 12 months.

Impact of Recently Issued
Accounting Standards

In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." 
SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supercedes and amends a number of existing accounting
standards. SFAS No. 133 requires that all derivatives be recognized in the
balance sheet at their fair market value and the corresponding derivative gains
or losses be either reported in the statement of operations or as a deferred
item depending on the type of hedge relationship that exists with respect to
any derivatives.  In July 1999, the
Financial Accounting Standards Board issued SFAS No. 137, "Accounting for
Derivatives Instruments and Hedging Activities - Deferral of Effective Date of
FASB Statement No. 133."  SFAS No.
137 deferred the effective date until fiscal years commencing after June 30,
2000. In June 2000, the Financial Accounting Standards Board issued SFAS No.
138, "Accounting for Derivative Instruments and Hedging Activities  An
Amendment of FASB Statement No. 133." SFAS 138 amends the accounting and
reporting standards for certain derivatives and hedging activities such as net
settlement contracts, foreign currency transactions and intercompany
derivatives. Adoption of SFAS No. 133 did not have a material impact on the
Company's financial condition or results of operations as currently conducted.

Factors That May Affect Future
Results

In addition to the other
information in this report, the following factors should be considered
carefully in evaluating the Companys business and prospects:

Our future profitability is uncertain due to our limited
operating history.We have a limited operating history and cannot
assure you that our revenue will continue to grow or that we will return to
profitability in the future. Our financial statements must be considered in
light of the risks and uncertainties encountered by companies in the early
stages of development. We rely substantially on sales of our MeetingPlace
products, which have limited market acceptance.

Recent economic developments have
caused many companies to reduce headcount and overhead expenses and to
reconsider or delay capital expenditures. 
This may have an adverse effect on our ability to continue to grow
revenue.

In addition, we are unable to
predict our future product development, sales and marketing, and administrative
expenses. To the extent that these expenses increase, we will need to increase
revenue to sustain profitability. Our ability to increase revenue and sustain
profitability also depends on the other risk factors described in this section.

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

            changes
in our mix of revenues generated from product sales and services;            changes
by existing customers in their levels of purchases of our products and
services;            changes
in our mix of sales channels through which our products and services are sold;
and            changes
in our mix of domestic and international sales.Additionally, we expect to expand
our service offerings by providing hosted services to our customers.  Accordingly, future revenue from this new
service offering will increase the proportion of total revenue derived from
services.  To the extent that
prospective customers elect to purchase the hosted service rather than an
on-premises MeetingPlace system, our product revenue could be adversely
affected.

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



Our market is highly competitive.Because of
intense market competition, we may not be successful. Currently, our principal
competitors include:

            major
telecommunications carriers that operate service bureaus for voice
conferencing, such as AT&T Corp., MCI Worldcom, Inc. and Sprint
Corporation;            private
branch exchange, or PBX, vendors that sell systems with voice conferencing
capabilities, such as Lucent Technologies Inc. and Nortel Networks; and            companies
that offer web–based voice and data conferencing products.Many of these companies have longer
operating histories, stronger brand names and significantly greater financial,
technical, marketing and other resources than we do. These companies also may
have existing relationships with many of our prospective customers. In
addition, these companies may be able to respond more quickly than we can to
new or emerging technologies and changes in customer requirements.

In addition, we expect competition
to persist and intensify in the future, which could adversely affect our
ability to increase sales, penetrate new markets and maintain average selling
prices. In the future, we may experience competition from potential competitors
that include:

            networking
companies, such as Cisco Systems, Inc., 3Com Corporation, Lucent Technologies
Inc. and Nortel Networks that are focusing on enabling the transmission of
voice over the Internet and that may offer voice and data conferencing
functionality; and            collaborative
software providers, such as Microsoft Corporation and Lotus Development
Corporation, that are focusing on data conferencing products and that may in
the future incorporate voice conferencing functionality into their products.Our market is in an early stage of development, and our
products may not be adopted.If the market for
our integrated voice and web conferencing products fails to grow or grows more
slowly than we anticipate, we may not be able to increase revenues or return to
profitability. The market for integrated real–time voice and web
conferencing is relatively new and rapidly evolving. Our ability to remain
profitable depends in large part on the widespread adoption by end users of
real–time voice and web conferencing.

We will have to devote substantial
resources to educate prospective customers about the uses and benefits of our
products. In addition, businesses that have invested substantial resources in
other conferencing products may be reluctant or slow to adopt our products,
which might replace or compete with their existing systems. Our efforts to
educate potential customers may not result in our products achieving market
acceptance.

Rapid technological changes could cause our products to
become obsolete or require us to redesign our products.The market in
which we compete is characterized by rapid technological change, frequent new
product introductions, changes in customer requirements and emerging industry
standards. In particular, we expect that the growth of the Internet and
Internet–based telephony applications, as well as general technology
trends such as migrations to new operating systems, will require us to adapt
our product to remain competitive. This adaptation could be costly and time–consuming.
Our products could become obsolete and unmarketable if products using new
technologies are introduced and new industry standards emerge. For example, the
widespread acceptance of competing technologies, such as video conferencing and
the transmission of voice over the Internet, could diminish demand for our
current products. As a result, the life cycle of our products is difficult to
estimate.

To be successful, we will need to
develop and introduce new products and product enhancements that respond to
technological changes or evolving industry standards, such as the transmission
of voice over the Internet, in a timely manner and on a cost effective basis.
We cannot assure you that we will successfully develop these types of products
and product enhancements or that our products will achieve broad market
acceptance.

Our sales cycle is lengthy and unpredictable.Any delay in
sales of our products could cause our quarterly revenue and operating results
to fluctuate. The typical sales cycle of our products is lengthy, generally
between six to nine months, unpredictable, and involves significant investment
decisions by prospective customers, as well as our education of potential
customers regarding the use and benefits of our products. Furthermore, many of
our prospective customers have neither budgeted expenses for voice and web
conferencing systems nor have personnel specifically dedicated to procurement
and implementation of these conferencing systems. As a result, our customers
spend a substantial amount of time before purchasing our products in performing
internal reviews and obtaining capital expenditure approvals. We cannot be
certain that this cycle will not lengthen in the future. The emerging and
evolving nature of the real–time voice and web conferencing market may
lead to confusion in the market, which may cause prospective customers to
postpone their purchase decisions.



If we fail to expand our sales and distribution channels,
our business could suffer.If we are unable to expand our sales and
distribution channels, we may not be able to increase revenue or achieve market
acceptance of our MeetingPlace product. We have recently expanded our direct
sales force and plan to recruit additional sales personnel. New sales personnel
will require training and take time to achieve full productivity, and there is
strong competition for qualified sales personnel in our business. In addition,
we believe that our future success is dependent upon establishing successful
relationships with a variety of distribution partners. To date, we have entered
into agreements with only a small number of these distribution partners. We
cannot be certain that we will be able to reach agreement with additional
distribution partners on a timely basis or at all, or that these distribution
partners will devote adequate resources to selling our products. Furthermore,
if our distribution partners fail to adequately market or support our products,
the reputation of our products in the market may suffer. In addition, we will
need to manage potential conflicts between our direct sales force and third–party
reselling efforts.

Our ability to expand into international markets is
uncertain.We intend to continue to expand our operations into
new international markets. In addition to general risks associated with
international expansion, such as foreign currency fluctuations and political
and economic instability, we face the following risks and uncertainties any of
which could prevent us from selling our products in a particular country or
harm our business operations once we have established operations in that
country:

            the
difficulties and costs of localizing products for foreign markets, including
the development of multilingual capabilities in our MeetingPlace system;            the
need to modify our products to comply with local telecommunications
certification requirements in each country; and            our
lack of a direct sales presence in other countries, our need to establish
relationships with distribution partners to sell our products in these markets
and our reliance on the capabilities and performance of these distribution
partners.If we fail to integrate our products with third–party
technology, our sales could suffer.Our products are
designed to integrate with our customers data and voice networks, as well as
with enterprise applications such as browsers and collaborative software
applications. If we are unable to integrate our products with these networks
and systems, sales of our products could suffer.

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

We may experience difficulties managing our expected
growth.Our recent growth has strained, and we expect that
any future growth will continue to strain, our management systems and
resources, which could hinder our ability to continue to grow in the future. We
may also experience difficulties meeting the demand for our products and
services. If we are unable to provide training and support for our products,
the implementation process will be longer and customer satisfaction may be
lower.

We may not be able to install
management information and control systems in an efficient and timely manner,
and our current or planned personnel, systems, procedures and controls may not
be adequate to support our future operations. Competition for qualified
personnel in the San Francisco Bay area, as well as other markets in which we
recruit, is extremely intense and characterized by rapidly increasing salaries,
which may increase our operating expenses or hinder our ability to recruit
qualified candidates.

Our business could suffer if we lose the services of our
current management team.Our future success depends on the ability of our
management to operate effectively, both individually and as a group. If we were
to lose the services of any of these key employees we may encounter
difficulties finding qualified personnel to replace them.



The loss of our right to use technology licensed to us by
third parties could harm our business.We license technology
that is incorporated into our products from third parties, including digital
signal processing algorithms and the MeetingPlace servers operating system and
relational database. Any interruption in the supply or support of any licensed
software could disrupt our operations and delay our sales, unless and until we
can replace the functionality provided by this licensed software. Because our
products incorporate software developed and maintained by third parties, we
depend on these third parties to deliver and support reliable products, enhance
their current products, develop new products on a timely and cost–effective
basis and respond to emerging industry standards and other technological
changes.

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

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

Our products may suffer from defects, errors or breaches
of security.Software and hardware products as complex as ours
are likely to contain undetected errors or defects, especially when first
introduced or when new versions are released. Any errors or defects that are
discovered after commercial release could result in loss of revenue or delay in
market acceptance, diversion of development resources, damage to our customer
relationships or reputation, and increased service and warranty cost. Our
products may not be free from errors or defects after commercial shipments have
begun, and we are aware of instances in which some of our customers have
experienced product failures or errors.

Many of our customers conduct
confidential conferences, and transmit confidential data, using MeetingPlace.
Concerns over the security of information sent over the Internet and the
privacy of its users may inhibit the market acceptance of our products. In
addition, unauthorized users in the past have gained, and in the future may be
able to gain, access to our customers MeetingPlace systems. Any compromise of
security could deter people from using MeetingPlace and could harm our
reputation and business and result in claims against us.

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

In the future, we may be subject to
legal proceedings and claims for alleged infringement of third party proprietary
rights. Any of these claims, even if not meritorious, could result in costly
litigation, divert managements attention and resources, or require us to enter
into royalty or license agreements which are not advantageous to us. Parties
making these claims may be able to obtain injunctive or other equitable relief,
which could prevent us from selling our products.

Dell Computer Corporation has
registered the Latitude mark for computers in the United States and in other
countries. Dells United States trademark registration and Canadian application
have blocked our ability to register the Latitude Communications and
Latitude with logo marks in the United States and the Latitude
Communications mark in Canada. Since we believe that we have priority of trade
name usage in the United States, we have petitioned to cancel Dells United
States registration and opposed its Canadian application. The outcome of these
proceedings is uncertain. If Dells registration for the Latitude mark is not
canceled or if we are unable to obtain consent from Dell for our registration
of our marks, we may not be able to register our marks and would have to rely
solely on common law protection for these marks. We cannot assure you that we
will be free from challenges of or obstacles to our use or registration of our
marks.



We are subject to government regulation, and our failure to
comply with these regulations could harm our business.Our products
are subject to a wide variety of safety, emissions and compatibility regulations
imposed by governmental authorities in the United States or in other countries
in which we sell our products. If we are unable to obtain necessary approvals
or maintain compliance with the regulations of any particular jurisdiction, we
may be prohibited from selling our products in that territory. In addition, to
sell our products in many international markets, we are required to obtain
certifications that are specific to the local telephony infrastructure.

Our stock price may be volatile.We expect that
the market price of our common stock will fluctuate as a result of variations
in our quarterly operating results. These fluctuations may be exaggerated if
the trading volume of our common stock is low. In addition, due to the
technology–intensive and emerging nature of our business, the market
price of our common stock may rise and fall in response to:

            announcements
of technological or competitive developments;            acquisitions
or strategic alliances by us or our competitors; or            the
gain or loss by us of significant orders.Our executive officers and directors and their
affiliates own a large percentage of our voting stock and could control the
voting power of the common stock.Our executive
officers and directors and their affiliates beneficially own, in the aggregate,
a large percentage of our outstanding common stock. As a result, these
stockholders are able to exercise control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may delay,
deter or prevent transactions that would result in the change of control, which
in turn could reduce the market price of our common stock.

Future sales of our common stock may depress our stock
price.

If our stockholders sell
substantial amounts of common stock, including shares issued upon the exercise
of outstanding options and warrants, in the public market, the market price of
our common stock could fall.

Item
3. Quantitative and Qualitative Disclosures
About Market Risk.

Our exposure to market risk for
changes in interest rates relates primarily to our investment portfolio. We do
not use derivative financial instruments in our investment portfolio. We place
our investments with high credit quality issuers and, by policy, limit the
amount of credit exposure to any one issuer. The portfolio includes only
marketable securities with maturities of three to 24 months and with active
secondary or resale markets to ensure portfolio liquidity. We have no
investments denominated in foreign currencies and therefore are not subject to
foreign currency risk on such investments.

The table below presents principal
amounts and related weighted average interest rates by year of maturity for our
investment portfolio at March 31, 2001 (in thousands).

2001
  2002
  TotalMutual fund
  $107
  $
  $107Average interest rate
  5.06%
  
  5.06%Certificates of deposit
  $3,000
  $
  $3,000Average interest rate
  6.72%
  
  6.72%Corporate notes and bonds
  $9,220
  $6,462
  $15,682Average interest rate
  6.94%
  5.50%
  6.35%Currently, the majority of our
sales and expenses are denominated in U.S. dollars and, as a result, we have
not experienced significant foreign exchange gains and losses to date. While we
do expect to effect some transactions in foreign currencies in the next 12
months, we do not anticipate that foreign exchange gains and losses will be
significant. We have not engaged in foreign currency hedging activities to
date.

PART II.           OTHER INFORMATION

Item
1. Legal ProceedingsNot Applicable.

Item
2. Changes in Securities and Use of
Proceeds.

On May 6, 1999, in connection with
the Companys initial public offering, a Registration Statement on Form S–1
(No. 333–72935) was declared effective by the Securities and Exchange
Commission, pursuant to which 3,125,000 shares of the Companys Common Stock
were offered and sold for the account of the Company at a price of $12.00 per
share, generating gross offering proceeds of $37.5 million. The managing
underwriters were Credit Suisse First Boston Corporation, Hambrecht & Quist
LLC and Dain Rauscher Wessels. After deducting approximately $2.6 million in
underwriting discounts and $1.1 million in other related expenses, the net
proceeds of the offering were approximately $33.8 million. The Company has not
yet used any of the funds from the initial public offering, and the $33.8
million has been invested in investment grade, interest bearing securities. The
Company intends to use such remaining proceeds for capital expenditures, including
the acquisition of redundant computer and communication systems, and for
general corporate purposes, including working capital to fund increased
accounts receivable and inventory levels.

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.

(a)         Reports
on Form 8–KNone
                           _____________

SIGNATURE

Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.

Latitude Communications, Inc.By:
  /s/   RICK M. MCCONNELLRick M. McConnell Vice President of Finance
  and Administration and Chief Financial Officer (Principal Financial and
  Accounting Officer)Date:  May 15, 2001