----

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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

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**FORM 10–Q**

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period endedJune 30, 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)      |

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             Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.  

Yes ý  No o

             As of July 31, 2001, there were19,414,000 shares of the registrant’s Common Stock outstanding.

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**INDEX**

| **PART I**    |         | **FINANCIAL INFORMATION**                                                                                                                                                                 |
|---------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |         |                                                                                                                                                                                      |
|          | **Item 1.**  | **Financial  Statements**                                                                                                                                                                 |
|          |         |                                                                                                                                                                                      |
|          |         | Condensed  consolidated balance sheets at June 30, 2001 and December 31, 2000                                                                                                             |
|          |         |                                                                                                                                                                                      |
|          |         | Condensed  consolidated statements of operations and comprehensive income (loss) for the  three months ended June 30, 2001 and 2000; and for the six months ended June  30, 2001 and 2000 |
|          |         |                                                                                                                                                                                      |
|          |         | Condensed  consolidated statements of cash flows for the six months ended June 30, 2001  and 2000                                                                                         |
|          |         |                                                                                                                                                                                      |
|          |         | Notes  to condensed consolidated financial statements                                                                                                                                     |
|          |         |                                                                                                                                                                                      |
|          | **Item  2.** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                                                                           |
|          |         |                                                                                                                                                                                      |
|          | **Item  3.** | **Quantitative  and Qualitative Disclosures About Market Risk**                                                                                                                           |
|          |         |                                                                                                                                                                                      |
| **PART II.**  |         | **OTHER INFORMATION**                                                                                                                                                                     |
|          |         |                                                                                                                                                                                      |
|          | **Item  1.** | **Legal Proceedings**                                                                                                                                                                     |
|          |         |                                                                                                                                                                                      |
|          | **Item  2.** | **Changes  in Securities and Use of Proceeds**                                                                                                                                            |
|          |         |                                                                                                                                                                                      |
|          | **Item  3.** | **Defaults  Upon Senior Securities**                                                                                                                                                      |
|          |         |                                                                                                                                                                                      |
|          | **Item  4.** | **Submission  of Matters to a Vote of Security Holders**                                                                                                                                  |
|          |         |                                                                                                                                                                                      |
|          | **Item 5.**  | **Other Information**                                                                                                                                                                     |
|          |         |                                                                                                                                                                                      |
|          | **Item  6.** | **Exhibits  and Reports on Form 8–K**                                                                                                                                                |
|          |         |                                                                                                                                                                                      |
| **SIGNATURE** |         |
|               |              |                                                                                                                                                                                           |  |  |

** **

**PART I.            FINANCIAL INFORMATION****Item 1.              FinancialStatements.**

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

|                                          | **June 30,  2001**                                                                                      |   | **December 31,  2000** |   |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                          |                                                                                                         |   |                        |   |
| **ASSETS**                                    |                                                                                                    |   |                   |   |
| Current  assets:                              |                                                                                                    |   |                   |   |
|                                          | Cash  and cash equivalents                                                                              | $      | 15,481                 |   | $ | 23,993 |   |
|                                          | Short–term  investments                                                                            | 8,699  |                   | 14,203 |   |
|                                          | Accounts  receivable, net                                                                               | 5,492  |                   | 10,044 |   |
|                                          | Inventory                                                                                               | 2,173  |                   | 1,662  |   |
|                                          | Prepaids  and other assets                                                                              | 2,282  |                   | 2,790  |   |
|                                          | Deferred  tax asset                                                                                     | 2,779  |                   | 2,779  |   |
|                                          |                                                                                                    |        |                   |        |   |
|                                          | Total  current assets                                                                                   | 36,906 |                   | 55,471 |   |
| Property  and equipment, net                  | 4,653                                                                                                   |   | 4,062                  |   |
| Long–term  investments                   | 14,789                                                                                                  |   | 2,301                  |   |
| Deferred  tax asset                           | 2,697                                                                                                   |   | 794                    |   |
| Deposits  and other long-term assets          | 580                                                                                                     |   | 530                    |   |
|                                          |                                                                                                         |   |                        |   |
|                                          | Total  assets                                                                                           | $      | 59,625                 |   | $ | 63,158 |   |
|                                          |                                                                                                         |   |                        |   |
|                                          |                                                                                                    |   |                   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY** |                                                                                                    |   |                   |   |
| Current  liabilities:                         |                                                                                                    |   |                   |   |
|                                          | Accounts  payable                                                                                       | $      | 1,106                  |   | $ | 875 |   |
|                                          | Accrued  liabilities                                                                                    | 4,463  |                   | 3,565  |   |
|                                          | Deferred  revenue                                                                                       | 4,960  |                   | 6,434  |   |
|                                          | Current  portion of long–term debt                                                                 | 316    |                   | 362    |   |
|                                          |                                                                                                    |        |                   |        |   |
|                                          | Total  current liabilities                                                                              | 10,845 |                   | 11,236 |   |
| Long–term  debt                          | —                                                                                                  |   | 106                    |   |
|                                          |                                                                                                         |   |                        |   |
|                                          | Total  liabilities                                                                                      | 10,845 |                   | 11,342 |   |
|                                          |                                                                                                         |   |                        |   |
|                                          |                                                                                                    |   |                   |   |
| Stockholders’  equity:                   |                                                                                                    |   |                   |   |
|                                          | Preferred  stock, $0.001 par value                                                                      |   |                   |   |   |
|                                          | Authorized:  5,000 shares at June 30, 2001 and December 31, 2000                                        |   |                   |   |   |
|                                          | Issued  and outstanding: No shares at June 30, 2001 and December 31, 2000                               | — |                   | — |   |
|                                          | Common  stock, $0.001 par value                                                                         |   |                   |   |   |
|                                          | Authorized:  75,000 shares at June 30, 2001 and December 31, 2000                                       |   |                   |   |   |
|                                          | Issued  and outstanding: 19,414 and 19,302 shares at June 30, 2001 and December 31,  2000, respectively | 19     |                   | 19     |   |
|                                          | Additional  paid–in capital                                                                        | 57,889 |                   | 57,675 |   |
|                                          | Notes  receivable from common stockholders                                                              | (8     | )                      | (10    | ) |
|                                          | Deferred  stock compensation                                                                            | (408   | )                      | (620   | ) |
|                                          | Accumulated  other comprehensive income (loss)                                                          | (4     | )                      | 46     |   |
|                                          | Accumulated  deficit                                                                                    | (8,708 | )                      | (5,294 | ) |
|                                          |                                                                                                    |        |                   |        |   |
|                                          | Total  stockholders’ equity                                                                        | 48,780 |                   | 51,816 |   |
|                                          |                                                                                                    |        |                   |        |   |
|                                          | Total  liabilities and stockholders’ equity                                                        | $      | 59,625                 |   | $ | 63,158 |   |
|                                          |                                                                                                    |        |                   |        |   |
|                                               |                                                                                                         |        |                        |        |  |  |  |  |  |  |

*The accompanying notes are anintegral part of these condensed consolidated financial statements*

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

|                                                          | **Three Months Ended June 30,**                                                                              |   | **Six Months Ended June 30,** |   |
|---------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                          | ****                                                                                                         |   | ****                          |   |
|                                                          | **2001**                                                                                                     |   | **2000**                      |   | **2001** |   | **2000** |   |
| Revenue:                                                      |                                                                                                              |   |                               |   |  |   |  |   |
|                                                          | Product                                                                                                      | $      | 2,984                         |   | $ | 8,306 |   | $ | 9,140 |   | $ | 15,694 |   |
|                                                          | Service                                                                                                      | 5,269  |                          | 3,383  |   | 9,329 |   | 6,360 |   |
|                                                          |                                                                                                         |        |                          |        |   |  |   |  |   |
|                                                          | Total  revenue                                                                                               | 8,253  |                          | 11,689 |   | 18,469 |   | 22,054 |   |
| Cost  of revenue:                                             |                                                                                                         |   |                          |   |   |   |   |   |
|                                                          | Product                                                                                                      | 661    |                          | 1,506  |   | 1,677 |   | 2,732 |   |
|                                                          | Service  (includes non-cash stock compensation of $2, $3, $4 and $22, respectively)                          | 2,642  |                          | 1,781  |   | 5,154 |   | 3,302 |   |
|                                                          |                                                                                                         |        |                          |        |   |  |   |  |   |
|                                                          | Total  cost of revenue                                                                                       | 3,303  |                          | 3,287  |   | 6,831 |   | 6,034 |   |
|                                                          |                                                                                                         |        |                          |        |   |  |   |  |   |
| Gross  profit                                                 | 4,950                                                                                                        |   | 8,402                         |   | 11,638 |   | 16,020 |   |
|                                                          |                                                                                                              |   |                               |   |  |   |  |   |
|                                                          |                                                                                                         |   |                          |   |   |   |   |   |
| Operating  expenses:                                          |                                                                                                         |   |                          |   |   |   |   |   |
|                                                          | Research  and development (includes non-cash stock compensation of $17, $19, $35 and  $39, respectively)     | 1,413  |                          | 1,589  |   | 3,171 |   | 3,141 |   |
|                                                          | Marketing  and sales (includes non-cash stock compensation of $11, $26, $22 and $51,  respectively)          | 5,150  |                          | 5,009  |   | 10,766 |   | 9,394 |   |
|                                                          | General  and administrative (includes non-cash stock compensation of $65, $67, $130  and $130, respectively) | 1,914  |                          | 1,027  |   | 3,160 |   | 1,855 |   |
|                                                          | Restructuring  charge                                                                                        | 870    |                          | — |   | 870 |   | — |   |
|                                                          |                                                                                                         |        |                          |        |   |  |   |  |   |
|                                                          | Total  operating expenses                                                                                    | 9,347  |                          | 7,625  |   | 17,967 |   | 14,390 |   |
|                                                          |                                                                                                         |        |                          |        |   |  |   |  |   |
| Income  (loss) from operations                                | (4,397                                                                                                       | )      | 777                           |   | (6,329 | ) | 1,630 |   |
| Interest  income, net                                         | 484                                                                                                          |   | 582                           |   | 1,049 |   | 1,169 |   |
|                                                          |                                                                                                              |   |                               |   |  |   |  |   |
| Income  (loss) before benefit from (provision for) income tax | (3,913                                                                                                       | )      | 1,359                         |   | (5,280 | ) | 2,799 |   |
| Benefit  from (provision for) income tax                      | 1,374                                                                                                        |   | (560                          | )      | 1,866 |   | (1,156 | ) |
|                                                          |                                                                                                              |   |                               |   |  |   |  |   |
| Net  income (loss)                                            | $                                                                                                            | (2,539 | )                             | $      | 799 |   | $ | (3,414 | ) | $ | 1,643 |   |
|                                                          |                                                                                                              |   |                               |   |  |   |  |   |
|                                                          |                                                                                                         |   |                          |   |   |   |   |   |
| Other  comprehensive income (loss), net of tax—          |                                                                                                         |   |                          |   |   |   |   |   |
|                                                          | Unrealized  gain (loss) on securities                                                                        | (57    | )                             | 182    |   | (33 | ) | (117 | ) |
|                                                          | Cumulative  translation adjustment                                                                           | (1     | )                             | — |   | (17 | ) | — |   |
|                                                          |                                                                                                         |        |                          |        |   |  |   |  |   |
| Comprehensive  income (loss)                                  | $                                                                                                            | (2,597 | )                             | $      | 981 |   | $ | (3,464 | ) | $ | 1,526 |   |
|                                                          |                                                                                                              |   |                               |   |  |   |  |   |
| Net  income (loss) per share—basic                       | $                                                                                                            | (0.14  | )                             | $      | 0.04 |   | $ | (0.18 | ) | $ | 0.09 |   |
|                                                          |                                                                                                              |   |                               |   |  |   |  |   |
| Shares  used in per share calculation—basic              | 18,752                                                                                                       |   | 18,692                        |   | 18,749 |   | 18,677 |   |
|                                                          |                                                                                                              |   |                               |   |  |   |  |   |
| Net  income (loss) per share—diluted                     | $                                                                                                            | (0.14  | )                             | $      | 0.04 |   | $ | (0.18 | ) | $ | 0.08 |   |
|                                                          |                                                                                                              |   |                               |   |  |   |  |   |
| Shares  used in per share calculation—diluted            | 18,752                                                                                                       |   | 19,812                        |   | 18,749 |   | 19,973 |   |
|                                                          |                                                                                                              |   |                               |   |  |   |  |   |
|                                                               |                                                                                                              |        |                               |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

*Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.*

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

|                                            | **Six Months Ended**                                                                                 |    |
|-------------------------------------------------|------------------------------------------------------------------------------------------------------|---------|
|                                            | **June 30,**                                                                                         |    |
|                                            | ****                                                                                                 |    |
|                                            | **2001**                                                                                             |    | **2000** |   |
|                                            | ****                                                                                                 |    | **** |   |
|                                            |                                                                                                 |    |   |   |
| Cash  flows from operating activities:          |                                                                                                 |    |   |   |
|                                            | Net  income (loss)                                                                                   | $       | (3,414 | ) | $ | 1,643 |   |
|                                            | Adjustments  to reconcile net income (loss) to net cash provided by (used in) operating  activities: |    |    |   |    |
|                                            | Depreciation  and amortization                                                                       | 1,189   |   | 775 |   |
|                                            | Amortization  of capitalized software                                                                | 229     |   | — |   |
|                                            | Provision  for excess and obsolete inventory                                                         | —  |   | 258 |   |
|                                            | Provision  for doubtful accounts                                                                     | 650     |   | 139 |   |
|                                            | Amortization  of deferred stock compensation                                                         | 191     |   | 242 |   |
|                                            | Deferred  income taxes                                                                               | (1,866  | ) | — |   |
|                                            | Changes  in operating assets and liabilities:                                                        |    |   |   |   |
|                                            | Accounts  receivable                                                                                 | 3,902   |   | (4,971 | ) |
|                                            | Inventory                                                                                            | (511    | ) | (404 | ) |
|                                            | Prepaids  and other assets                                                                           | 279     |   | (487 | ) |
|                                            | Accounts  payable                                                                                    | 231     |   | 868 |   |
|                                            | Accrued  liabilities                                                                                 | 898     |   | 183 |   |
|                                            | Deferred  revenue                                                                                    | (1,474  | ) | 508 |   |
|                                            |                                                                                                 |         |   |  |   |
|                                            | Net  cash provided by (used in) operating activities                                                 | 303     |   | (1,246 | ) |
|                                            |                                                                                                 |         |   |  |   |
|                                            |                                                                                                 |    |   |   |
| Cash  flows from investing activities:          |                                                                                                 |    |   |   |
|                                            | Purchases  of property and equipment                                                                 | (1,780  | ) | (1,790 | ) |
|                                            | Purchases  of available for sale securities                                                          | (29,595 | ) | (21,532 | ) |
|                                            | Maturities  of available for sale securities                                                         | 22,525  |   | 16,726 |   |
|                                            | Increase  in deposits and other long-term assets                                                     | (50     | ) | (104 | ) |
|                                            |                                                                                                 |         |   |  |   |
|                                            | Net  cash used in investing activities                                                               | (8,900  | ) | (6,700 | ) |
|                                            |                                                                                                 |         |   |  |   |
|                                            |                                                                                                 |    |   |   |
| Cash  flows from financing activities:          |                                                                                                 |    |   |   |
|                                            | Proceeds  from issuance of common stock                                                              | 216     |   | 674 |   |
|                                            | Repayment  of notes payable and capital lease obligations                                            | (152    | ) | (334 | ) |
|                                            | Other                                                                                                | 21      |   | 34 |   |
|                                            |                                                                                                 |         |   |  |   |
|                                            | Net  cash provided by financing activities                                                           | 85      |   | 374 |   |
|                                            |                                                                                                      |    |  |   |
|                                            |                                                                                                 |    |   |   |
| Net  decrease in cash and cash equivalents      | (8,512                                                                                               | )       | (7,572 | ) |
| Cash  and cash equivalents, beginning of period | 23,993                                                                                               |    | 10,847 |   |
|                                            |                                                                                                      |    |  |   |
| Cash  and cash equivalents, end of period       | $                                                                                                    | 15,481  |   | $ | 3,275 |   |
|                                            |                                                                                                      |    |  |   |
|                                                 |                                                                                                      |         |  |  |  |  |  |  |  |  |

*Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.*

**LATITUDE COMMUNICATIONS, INC.NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**Note 1—The Company and Basis ofPresentation**

             Latitude Communications, Inc. (the"Company") is a leading provider of enterprise e-conferencingsolutions. The Company develops, markets and supports its MeetingPlace systemand services, which allow companies to conduct virtual meetings and therebyextend decision making processes across the disparate geographic locations ofparticipants. MeetingPlace is designed to be an enterprise-wide resource and toleverage existing technologies such as telephones, cellular phones and personalcomputers. The Company has distributed its product and services throughdistributors and a direct sales force to companies across many industries inthe United States, Europe and Asia.

             The accompanying unauditedcondensed consolidated financial statements reflect all adjustments which, inthe opinion of management, are necessary for a fair presentation of the resultsfor the periods shown. The results of operations for such periods are notnecessarily indicative of the results expected for the full fiscal year or forany future period. The balance sheet at December 31, 2000 was derived fromaudited financial statements, however, it does not include all disclosuresrequired by generally accepted accounting principles in the United States ofAmerica.

             The financial statements andrelated disclosures have been prepared with the presumption that users of theinterim financial information have read or have access to the audited financialstatements for the preceding fiscal year. Accordingly, these financialstatements should be read in conjunction with the audited financial statementsand the related notes thereto contained in the Company's Annual Report on Form10-K for the year ended December 31, 2000.

**Note 2—Inventory**

|            | **June 30,**    |   | **December 31,** |   |
|-----------------|-----------------|--------|------------------|--------|
|            | **2001**        |   | **2000**         |   |
|            | ****            |   | ****             |   |
|            | **(Unaudited)** |   |             |   |
| Raw  materials  | $               | 1,567  |             | $      | 1,216 |   |
| Finished  goods | 606             |   | 446              |   |
|            |                 |   |                  |   |
|            | $               | 2,173  |             | $      | 1,662 |   |
|            |                 |   |                  |   |

**Note 3—Recent AccountingPronouncements**

             In July 2001, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards No. 141 (“SFAS 141”), “Business Combinations.” SFAS 141 requires thepurchase method of accounting for business combinations initiated after June30, 2001 and eliminates the pooling-of-interests method.

             In July 2001, the FASB issuedStatement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill andOther Intangible Assets”, which is effective for fiscal years beginning afterMarch 15, 2001. SFAS 142 requires, among other things, the discontinuance ofgoodwill amortization. In addition, the standard includes provisions uponadoption for the reclassification of certain existing recognized intangibles asgoodwill, reassessment of the useful lives of existing recognized intangibles,reclassification of certain intangibles out of previously reported goodwill andthe testing for impairment of existing goodwill and other intangibles. Webelieve that the adoption of SFAS 142 will not have a significant impact on ourfinancial position and results of operations.

**Note 4—Net Income Per Share**

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

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

 

|                                             | **Three Months Ended  June 30**                                                                                    |   | **Six Months Ended  June 30,** |   |
|--------------------------------------------------|--------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                             | ****                                                                                                               |   | ****                           |   |
|                                             | **2001**                                                                                                           |   | **2000**                       |   | **2001** |   | **2000** |   |
|                                             | ****                                                                                                               |   | ****                           |   | **** |   | **** |   |
|                                             | **(Unaudited)**                                                                                                    |   | **(Unaudited)**                |   |
|                                             |                                                                                                               |   |                           |   |
| Net  income (loss) per share, basic and diluted: |                                                                                                               |   |                           |   |   |   |   |   |
|                                             | Numerator  for net income (loss), basic and diluted                                                                | $      | (2,539                         | )      | $ | 799 |   | $ | (3,414 | ) | $ | 1,643 |   |
|                                             |                                                                                                               |        |                           |        |   |  |   |  |   |
|                                             | Denominator  for basic net income (loss) per share:                                                                |   |                           |   |   |   |   |   |   |
|                                             | Weighted  average vested common shares outstanding                                                                 | 18,752 |                           | 18,692 |   | 18,749 |   | 18,677 |   |
|                                             |                                                                                                               |        |                           |        |   |  |   |  |   |
|                                             | Net  income (loss) per share basic                                                                                 | $      | (0.14                          | )      | $ | 0.04 |   | $ | (0.18 | ) | $ | 0.09 |   |
|                                             |                                                                                                                    |   |                                |   |  |   |  |   |
|                                             |                                                                                                               |   |                           |   |   |   |   |   |
|                                             | Denominator  for diluted earnings per share:                                                                       |   |                           |   |   |   |   |   |   |
|                                             | Weighted  average vested common shares outstanding                                                                 | 18,752 |                           | 18,692 |   | 18,749 |   | 18,677 |   |
|                                             | Effect  of dilutive securities:                                                                                    |   |                           |   |   |   |   |   |   |
|                                             | Nonvested  common shares                                                                                           | — |                           | 402    |   | — |   | 358 |   |
|                                             | Common  stock options                                                                                              | — |                           | 680    |   | — |   | 899 |   |
|                                             | Warrants                                                                                                           | — |                           | 38     |   | — |   | 39 |   |
|                                             |                                                                                                               |        |                           |        |   |  |   |  |   |
|                                             | Weighted  average common and common equivalent shares                                                              | 18,752 |                           | 19,812 |   | 18,749 |   | 19,973 |   |
|                                             |                                                                                                               |        |                           |        |   |  |   |  |   |
|                                             | Net  income per share diluted                                                                                      | $      | (0.14                          | )      | $ | 0.04 |   | $ | (0.18 | ) | $ | 0.08 |   |
|                                             |                                                                                                                    |   |                                |   |  |   |  |   |
|                                             | Anti-dilutive  securities not included in the calculation of diluted EPS because the Company  incurred a net loss: |   |                           |   |   |   |   |   |   |
|                                             | Nonvested  common shares                                                                                           | 610    |                           | — |   | 567 |   | — |   |
|                                                  |                                                                                                                    |        |                                |        |  |  |  |  |  |  |  |  |  |  |  |  |  |

**Note 5—Restructuring**

**            **For the quarter ended June 30, 2001, the Company incurreda $870,000 restructuring charge with respect to a plan to restructure itsoperations by effecting a reduction in the workforce by approximately 40people, or 17% of its employee base. All functional areas of the Company wereaffected by the reduction. The affected employees are entitled to severance andother benefits pursuant to our benefits program.  In addition, the charge included reserves for excess facilitiesand other items. We expect to incur approximately $650,000 of theseexpenditures during the quarter ending September 30, 2001 and the remainderover the next 12-18 months.

**Note 6 – Share RepurchaseProgram**

             On July 24, 2001 the Company’sBoard of Directors approved a Share Repurchase Program of up to 1,000,000shares.  To date, the Company haspurchased approximately 77,000 shares under this program.

**Item2.              Management’s Discussionand Analysis of Financial Condition and Results of Operations.**

             This Management's Discussion andAnalysis of Financial Condition and Results of Operations and other parts ofthis Form 10-Q include a number of forward-looking statements that reflect ourcurrent views with respect to future events and financial performance. We usewords such as "anticipates," "believes,""expects," "future," and "intends," and similarexpressions to identify forward-looking statements. You should not place unduereliance on these forward-looking statements, which apply only as of the dateof this Quarterly Report on Form 10-Q. These forward-looking statements aresubject to risks and uncertainties that could cause actual results to differmaterially from historical results or our predictions. These risks aredescribed in " Factors Affecting Future Operating Results " andelsewhere in this Form 10-Q. Readers are cautioned not to place undue relianceon these forward-looking statements, which reflect management's analysis onlyas of the date hereof. The Company assumes no obligation to update theseforward-looking statements to reflect actual results or changes in factors orassumptions affecting such forward-looking statements.

**Overview**

             We are a leading provider ofenterprise e-conferencing solutions that enable geographically dispersed  organizations to collaborate in real time.The Company's award-winning MeetingPlace system is designed for enterprise-widedeployment to improve the ability of employees, partners, and customers to meetand 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 anenterprise-wide resource and to leverage existing technologies such astelephones, cellular phones and personal computers.

             We generate revenue from sales ofour MeetingPlace products and from customer support, hosting and consultingservices. Revenue derived from product sales constituted 36% of total revenuein the second quarter of 2001 and 71% during the corresponding period of 2000.Product revenue is generally recognized upon shipment if a signed contractexists, the fee is fixed or determinable, collection of the resultingreceivable is reasonably assured, product returns are reasonably estimable and,if applicable, acceptance has been obtained. We calculate an allowance forreturns based on historical rates. Service revenue includes revenue fromhosting, implementation and integration services, system management services,warranty coverage and customer support. Revenue from hosting, implementationand system integration services is recognized as the services are performed,while revenue from system management services, warranty coverage and customersupport is recognized ratably over the period of the contract. Beginning in2001, we have expanded our service offerings by providing hosted services toour customers. Accordingly, future revenue from this new service offering willincrease the proportion of total revenue derived from services. To the extentthat prospective customers elect to purchase the hosted service rather than anon-premises MeetingPlace system, our product revenue could be adverselyaffected.

             We sell our MeetingPlace productsprimarily through our direct sales force and, to a lesser extent, throughindirect distribution channels. The majority of our revenue is derived fromFortune 1000 companies, many of which initially purchase MeetingPlace serversand later expand deployment of our products as they require additional capacityfor voice and web conferencing. In 1997, we expanded into international marketsby opening a sales and support office in the United Kingdom and establishingdistributor relationships in Hong Kong and Singapore, and in 1998, weestablished a distributor relationship in Australia. While we intend toincrease sales through indirect channels and internationally, we cannot assureyou that we will be successful. In 1998, we expanded the breadth of our supportservices by establishing a consulting services group to provide expandedimplementation services, system management services and customized projectconsulting. In 1999, we opened a sales and support office in Singapore. Inaddition, in 1999 and 2000, we increased our distribution partners to includeglobal partnerships, application service providers and partners focused on theU.S. federal government.

             Total cost of revenue consists ofcomponent and materials costs, direct labor costs, warranty costs, royaltiesand 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 derivedfrom software sales, which typically carry higher margins than hardware sales,and from indirect distribution channels, which typically carry lower marginsthan direct sales. Service gross margin is impacted by the mix of services weprovide, which have different levels of profitability, and the efficiency withwhich we provide support to our customers. We record an allowance for excessand obsolete inventory by identifying inventory components either consideredexcess based on estimates of future usage or obsolete due to changes in ourproducts. As a result of technological changes, our products may becomeobsolete or we could be required to redesign our products.

**Results Of Operations**

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

 

|                                                            | **Three Months Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|-----------------------------------------------------------------|----------------------------------|--------|--------------------------------|--------|
|                                                            | ****                             |   | ****                           |   |
|                                                            | **2001**                         |   | **2000**                       |   | **2001** |   | **2000** |   |
|                                                            |                                  |   |                                |   |  |   |  |   |
|                                                            |                             |   |                           |   |   |   |   |   |
| Revenue:                                                        |                             |   |                           |   |   |   |   |   |
|                                                            | Product                          | 36.2   | %                              | 71.1   | % | 49.5 | % | 71.2 |  % |
|                                                            | Service                          | 63.8   |                           | 28.9   |   | 50.5 |   | 28.8 |   |
|                                                            |                             |        |                           |        |   |  |   |  |   |
|                                                            | Total  revenue                   | 100.0  |                           | 100.0  |   | 100.0 |   | 100.0 |   |
| Cost  of revenue:                                               |                             |   |                           |   |   |   |   |   |
|                                                            | Product                          | 8.0    |                           | 12.9   |   | 9.1 |   | 12.4 |   |
|                                                            | Service                          | 32.0   |                           | 15.2   |   | 27.9 |   | 14.9 |   |
|                                                            |                             |        |                           |        |   |  |   |  |   |
|                                                            | Total  cost of revenue           | 40.0   |                           | 28.1   |   | 37.0 |   | 27.3 |   |
|                                                            |                             |        |                           |        |   |  |   |  |   |
| Gross  profit                                                   | 60.0                             |   | 71.9                           |   | 63.0 |   | 72.7 |   |
|                                                            |                                  |   |                                |   |  |   |  |   |
|                                                            |                             |   |                           |   |   |   |   |   |
| Operating  expenses:                                            |                             |   |                           |   |   |   |   |   |
|                                                            | Research  and development        | 17.1   |                           | 13.6   |   | 17.2 |   | 14.2 |   |
|                                                            | Marketing  and sales             | 62.5   |                           | 42.9   |   | 58.3 |   | 42.7 |   |
|                                                            | General  and administrative      | 23.2   |                           | 8.8    |   | 17.1 |   | 8.4 |   |
|                                                            | Restructuring  charge            | 10.5   |                           | 0.0    |   | 4.7 |   | 0.0 |   |
|                                                            |                             |        |                           |        |   |  |   |  |   |
|                                                            | Total  operating expenses        | 113.3  |                           | 65.3   |   | 97.3 |   | 65.3 |   |
|                                                            |                             |        |                           |        |   |  |   |  |   |
| Income  (loss) from operations                                  | (53.3                            | )      | 6.6                            |   | (34.3 | ) | 7.4 |   |
| Interest  income, net                                           | 5.9                              |   | 5.0                            |   | 5.7 |   | 5.3 |   |
|                                                            |                                  |   |                                |   |  |   |  |   |
| Income  (loss) before benefit from (provision) for income taxes | (47.4                            | )      | 11.6                           |   | (28.6 | ) | 12.7 |   |
|                                                            |                                  |   |                                |   |  |   |  |   |
| Benefit  from (provision for) income taxes                      | 16.6                             |   | (4.8                           | )      | 10.1 |   | (5.2 | ) |
|                                                            |                                  |   |                                |   |  |   |  |   |
| Net  income (loss)                                              | (30.8                            | )%     | 6.8                            | %      | (18.5 | )% | 7.5 | % |
|                                                            |                                  |   |                                |   |  |   |  |   |
|                                                                 |                                  |        |                                |        |  |  |  |  |  |  |  |  |

*             Product Revenue*

             Product revenuedecreased $5.3 million, or 64%, to $3.0 million for the three months ended June30, 2001 from $8.3 million for the three months ended June 30, 2000. Productrevenue decreased $6.6 million, or 42%, to $9.1 million for the six monthsended June 30, 2001 from $15.7 million for the six months ended June 30, 2000.The decreases were due primarily to reduced capital spending and longer salescycles at our existing and potential customers, resulting in fewer MeetingPlacesystems sales in the current year. International sales represented approximately 18.3% and 8.5% of productrevenue in the three months ended June 30, 2001 and 2000, respectively andapproximately 17.1% and 10.5% of product revenue in the six months ended June30, 2001 and 2000, respectively.

*ServiceRevenue*

             Service revenue increased $1.9million, or 56%, to $5.3 million for the three months ended June 30, 2001 from$3.4 million for the three months ended June 30, 2000. Service revenueincreased $2.9 million, or 47%, to $9.3 million for the six months ended June30, 2001 from $6.4 million for the six months ended June 30, 2000.  The increases were attributable primarily togrowth in our customer base during this period, which led to increased sales offull care support services, as well as the introduction of additional servicessuch as hosted and managed services.

*TotalCost of Revenue*

             Total cost of revenue was flat at$3.3 million for each of the three months ended June 30, 2001 and 2000.  Total cost of  revenue increased $800,000, or 13%, to $6.8 million for the sixmonths ended June 30, 2001 from $6.0 million for the six months ended June 30,2000.  The increase in total cost ofrevenue year to date was attributable primarily to a change in the mix ofrevenues from higher margin product revenue to somewhat lower margin servicerevenue and we expect this trend to continue.

             Gross profit decreased $3.4 million, or41%, to $5.0 million for the three months ended June 30, 2001from $8.4 millionfor the three months ended June 30, 2000. Gross profit decreased $4.4 million,or 27%, to $11.6 million for the six months ended June 30, 2001 from $16.0million for the six months ended June 30, 2000.  Gross profit decreased to 60.0% as a percentage of revenue forthe three months ended June 30, 2001 from 71.9% for the three months ended June30, 2000. Gross profit decreased to 63.0% as a percentage of revenue for thesix months ended June 30, 2001 from 72.7% for the six months ended June 30,2000.

             Product gross profit decreased to77.8% as a percentage of revenue for the three months ended June 30, 2001 from81.9% for the three months ended June 30, 2000. Product gross profit decreasedto 81.7% as a percentage of revenue for the six months ended June 30, 2001 from82.6% for the six months ended June 30, 2000. We expect that product grossmargin may continue to be lower than historical levels in the future due inpart to potential pricing pressure as well as overhead costs spread over fewerMeetingPlace systems.

             Service gross profit increased to49.9% as a percentage of revenue for the three months ended June 30, 2001 from47.4% for the three months ended June 30, 2000. Service gross profit decreasedto 44.8% as a percentage of revenue for the six months ended June 30, 2001 from48.1% for the six months ended June 30, 2000. Service gross profit was higher than usual during the three months endedJune 30, 2001 due to increased installation revenue during the quarter.

*Researchand Development Expenses*

             Research and development expensesconsist primarily of compensation and related costs for research anddevelopment personnel, facilities expenses for testing space and equipment andpurchased software. Research and development expenses decreased $200,000, or11%, to $1.4 million for the three months ended June 30, 2001 from $1.6 millionfor the three months ended June 30, 2000. Research and development expensesincreased $100,000, or 1%, to $3.2 million for the six months ended June 30,2001 from $3.1 million for the three months ended June 30, 2000.  As a percentage of total revenues, researchand development expenses were 17.1% and 13.6% for the three months ended June30, 2001 and 2000 and were 17.2% and 14.2% for the six months ended June 30,2001 and 2000. The increase in research and development expenses as apercentage of total revenues was due primarily to a decline in total revenues.We expect to continue to make substantial investments in research anddevelopment and anticipate that research expenses will increase in absolutedollars.

*Marketingand Sales Expenses*

             Marketing and sales expensesconsist primarily of promotional expenditures and compensation and relatedcosts for marketing and sales personnel. Marketing and sales expenses increased$200,000, or 3%, to $5.2 million for the three months ended June 30, 2001 from$5.0 million for the three months ended June 30, 2000. Marketing and sales expensesincreased $1.4 million, or 15%, to $10.8 million for the six months ended June30, 2001 from $9.4 million for the six months ended June 30, 2000. As apercentage of total revenues, marketing and sales expenses were 62.5% and 42.9%for the three months ended June 30, 2001 and 2000 and were 58.3% and 42.7% forthe six months ended June 30, 2001 and 2000. The increase in marketing andsales expenses as a percentage of revenue was due primarily to decreasedrevenue. The increases in absolute dollars reflected the addition of personnelin our sales and marketing organizations, as well as costs associated withincreased selling efforts to develop market awareness of our products andservices.

*Generaland Administrative Expenses*

             General and administrative expensesconsist primarily of personnel expenses, legal and accounting expenses andother general corporate expenses. General and administrative expenses increased$900,000, or 86%, to $1.9 million for the three months ended June 30, 2001 from$1.0 million for the three months ended June 30, 2000. General andadministrative expenses increased $1.3 million, or 70%, to $3.2 million for thesix months ended June 30, 2001 from $1.9 million for the six months ended June30, 2000. As a percentage of total revenues, general and administrativeexpenses were 23.2% and 8.8% for the three months ended June 30, 2001 and 2000and were 17.1% and 8.4% for the six months ended June 30, 2001 and 2000. Theincrease in both absolute dollars and percentage of revenue was attributableprimarily to $650,000 of bad debt expense during the three months ended June30, 2001.

             *Amortization of Deferred Stock Compensation*

             In connection with the completionof our initial public offering in May 1999, options granted in the last quarterof 1997, 1998 and the first quarter of 1999 have been considered to becompensatory. Total remaining deferred stock compensation associated with theseoptions as of June 30, 2001 amounted to $408,000. This amount is beingamortized based on the remaining vesting period of these options and we expectamortization of approximately $187,000 over the remainder of 2001 and $221,000in 2002 related to the options presently outstanding.

*InterestIncome, Net*

             Interest income, net of interestexpense, decreased 17% to $484,000 for the three months ended June 30, 2001from $582,000 for the three months ended June 30, 2000. Interest income, net ofinterest expense, decreased 10% to $1.0 million for the six months ended June30, 2001 from $1.2 million for the six months ended June 30, 2000. The decreasein net interest income was attributable primarily to lower average yields onour portfolio of cash and investments.

*IncomeTaxes*

             For the three months ended June 30,2001, the benefit from income taxes was $1.4 million, compared to a provisionof $560,000 in the three months ended June 30, 2000.  For the six months ended June 30, 2001, the benefit from incometaxes was $1.9 million, compared to a provision of $1.2 million in the sixmonths ended June 30, 2000.  Oureffective tax rate was approximately (35)% for the three months and six monthsended June 30, 2001 and approximately 41% for the three months and six monthsended June 30, 2000. The decline in the effective rate was due to certainminimum taxes payable even in a loss situation, which offset the benefit fromincome taxes otherwise available to offset the net loss in 2001.

**Liquidity and Capital Resources**

             In May 1999, we completed aninitial public offering of common stock, resulting in net proceeds to us ofapproximately $33.8 million. As of June 30, 2001, we had $39.0 million of cash,cash equivalents and investments, which represented 65% of total assets.

             Cash provided by operatingactivities was $300,000 for the six months ended June 30, 2001, compared tocash used in operating activities of $1.2 million in the same period of 2000.  The difference between the net income (loss) for the period andnet cash provided by or used in operating activities are non-cash items andchanges in components of working capital.

             Cash used in investing activitiesin the first six months of 2001 was $8.9 million, which consisted primarily ofthe purchase of investments of $29.6 million and purchase of property andequipment of $1.8 million, partially offset by maturities of investments of$22.5 million. For the first six months in 2000, cash used in investingactivities of $6.7 million consisted primarily of the purchase of investmentsof $21.5 million and purchase of property and equipment of $1.8 million,partially offset by maturities of investments of $16.7 million.

             Cash provided by financingactivities in the first six months of 2001 of $85,000 consisted primarily ofthe proceeds from issuance of common stock under employee benefit plans of$235,000, partially offset by payments on obligations under capital leases andnotes payable of $152,000. For the first six months of 2000, cash provided byfinancing activities of $374,000 consisted primarily of the proceeds fromissuance of common stock under employee benefit plans of $674,000, partiallyoffset by payments on obligations under capital leases and notes payable of$334,000.

We believe thatour current cash, cash equivalents and marketable securities will be sufficientto meet our anticipated cash needs for working capital and capital expendituresfor at least the next 12 months.

**Impact of Recently IssuedAccounting Standards**

             In July 2001, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards No. 141 (“SFAS 141”), “Business Combinations.” SFAS 141 requires thepurchase method of accounting for business combinations initiated after June30, 2001 and eliminates the pooling-of-interests method.

             In July 2001, the FASB issuedStatement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill andOther Intangible Assets”, which is effective for fiscal years beginning afterMarch 15, 2001. SFAS 142 requires, among other things, the discontinuance ofgoodwill amortization. In addition, the standard includes provisions uponadoption for the reclassification of certain existing recognized intangibles asgoodwill, reassessment of the useful lives of existing recognized intangibles,reclassification of certain intangibles out of previously reported goodwill andthe testing for impairment of existing goodwill and other intangibles. Webelieve that the adoption of SFAS 142 will not have a significant impact on ourfinancial position and results of operations.

**Factors That May Affect FutureResults**

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

*             Our future profitability is uncertain due to our limitedoperating history.* We have a limited operating history and cannotassure you that our revenue will grow or that we will return to profitabilityin the future. Our financial statements must be considered in light of therisks and uncertainties encountered by companies in the early stages ofdevelopment. We rely substantially on sales of our MeetingPlace products andservices, which have limited market acceptance.

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

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

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

|   | · | changes in our mix of 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 are expanding ourservice offerings by providing hosted services to our customers. Accordingly,future revenue from this new service offering will increase the proportion oftotal revenue derived from services. To the extent that prospective customerselect to purchase the hosted service rather than an on-premises MeetingPlacesystem, our product revenue could be adversely affected.

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

             *Our market is highly competitive.* Because ofintense market competition, we may not be successful. Currently, our principalcompetitors 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 and services.                                                                      |

             Many of these companies have longeroperating histories, stronger brand names and significantly greater financial,technical, marketing and other resources than we do. These companies also mayhave existing relationships with many of our prospective customers. Inaddition, these companies may be able to respond more quickly than we can tonew or emerging technologies and changes in customer requirements.

             In addition, we expect competitionto persist and intensify in the future, which could adversely affect ourability to increase sales, penetrate new markets and maintain average sellingprices. In the future, we may experience competition from potential competitorsthat 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 web conferencing functionality; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                            |
|   | · | collaborative software providers, such as  Microsoft Corporation and Lotus Development Corporation, that are focusing on  web 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 ourproducts and services may not be adopted.*If the market for ourintegrated voice and web conferencing products and services fails to grow orgrows more slowly than we anticipate, we may not be able to increase revenuesor return to profitability. The market for integrated real–time voice andweb conferencing is relatively new and rapidly evolving. Our ability to beprofitable depends in large part on the widespread adoption by end users ofreal–time voice and web conferencing.

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

*             Rapid technological changes could cause our products andservices to become obsolete or require us to redesign our products.*The market inwhich we compete is characterized by rapid technological change, frequent newproduct introductions, changes in customer requirements and emerging industrystandards. In particular, we expect that the growth of the Internet andInternet–based telephony applications, as well as general technologytrends such as migrations to new operating systems, will require us to adaptour product to remain competitive. This adaptation could be costly and time–consuming.Our products and services could become obsolete and unmarketable if productsand services using new technologies are introduced and new industry standardsemerge. For example, the widespread acceptance of competing technologies, suchas video conferencing and the transmission of voice over the Internet, coulddiminish demand for our current products and services. As a result, the lifecycle of our products and services is difficult to estimate.

             To be successful, we will need todevelop and introduce new products and product enhancements that respond totechnological changes or evolving industry standards, such as the transmissionof 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 productsand product enhancements or that our products will achieve broad marketacceptance.

*             Our sales cycle is lengthy and unpredictable.*Any delay insales of our products and services could cause our quarterly revenue andoperating results to fluctuate. The typical sales cycle of our products islengthy, generally between six to nine months, unpredictable, and involvessignificant investment decisions by prospective customers, as well as oureducation of potential customers regarding the use and benefits of ourproducts. Furthermore, many of our prospective customers have neither budgetedexpenses for voice and web conferencing systems nor have personnel specificallydedicated to procurement and implementation of these conferencing systems. As aresult, our customers spend a substantial amount of time before purchasing ourproducts in performing internal reviews and obtaining capital expenditureapprovals. We cannot be certain that this cycle will not lengthen in thefuture. The emerging and evolving nature of the real–time voice and webconferencing market may lead to confusion in the market, which may causeprospective customers to postpone their purchase decisions.

*             If we fail to expand our sales and distributionchannels, our business could suffer.* If we are unable toexpand our sales and distribution channels, we may not be able to increaserevenue or achieve market acceptance of our MeetingPlace product. We plan torecruit additional sales personnel who will require training and take time toachieve full productivity, and there is strong competition for qualified salespersonnel in our business. In addition, we believe that our future success isdependent upon establishing successful relationships with a variety ofdistribution partners. To date, we have entered into agreements with only asmall number of these distribution partners. We cannot be certain that we willbe able to reach agreement with additional distribution partners on a timelybasis or at all, or that these distribution partners will devote adequateresources to selling our products. Furthermore, if our distribution partnersfail to adequately market or support our products, the reputation of ourproducts in the market may suffer. In addition, we will need to managepotential conflicts between our direct sales force and third–partyreselling efforts.

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

|   | · | the difficulties and costs of localizing  products and services 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–partytechnology, our sales could suffer.* Our products andservices are designed to integrate with our customers’ data and voice networks,as well as with enterprise applications such as browsers and collaborativesoftware applications. If we are unable to integrate our products and serviceswith these networks and systems, sales of our products and services couldsuffer.

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

*             We may experience difficulties managing our futuregrowth.*We expect that any future growth may strain ourmanagement systems and resources, which could hinder our ability to continue togrow in the future. We may also experience difficulties meeting the demand forour products and services. If we are unable to provide training and support forour products, the implementation process will be longer and customersatisfaction may be lower.

             We may not be able to installmanagement information and control systems in an efficient and timely manner,and our current or planned personnel, systems, procedures and controls may notbe adequate to support our future operations.

*             Our business could suffer if we lose the services of ourcurrent management team.* Our future success depends on the ability of ourmanagement to operate effectively, both individually and as a group. If we wereto lose the services of any of these key employees we may encounterdifficulties finding qualified personnel to replace them.

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

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

             In addition, we obtain key hardwarecomponents, including the processors and digital signal processing devices usedin the MeetingPlace server, from sole source suppliers. In the past, we haveexperienced problems in obtaining some of these components in a timely mannerfrom these sources, and we cannot be certain that we will be able to continueto obtain an adequate supply of these components in a timely manner or, ifnecessary, from alternative sources. If we are unable to obtain sufficientquantities of components or to locate alternative sources of supply, we mayexperience delays in shipping our products and incur additional costs to findan alternative manufacturer or manufacture our products internally.

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

             Many of our customers conductconfidential conferences, and transmit confidential data, using MeetingPlace.Concerns over the security of information sent over the Internet and theprivacy of its users may inhibit the market acceptance of our products. Inaddition, unauthorized users in the past have gained, and in the future may beable to gain, access to our customers’ MeetingPlace systems or our hostedservices. Any compromise of security could deter people from using MeetingPlaceand could harm our reputation and business and result in claims against us.

             In 2001, we have expanded ourservice offerings to include hosted services for our customers. The success ofour hosted services will depend on the efficient and uninterrupted operation ofour computer and communication hardware and software systems. In addition, someof our communications hardware and software for our services businesses arehosted at third party co-location facilities. These systems and operations are vulnerable to damage or interruption asa result of human error, telecommunications failures, break-ins, acts ofvandalism, computer viruses and natural disasters. Systems failure or damagecould cause an interruption of our services and result in loss of customers,difficulties in attracting new customers and could adversely impact ouroperating results.  In addition, if thenumber of customers who purchase our hosted services increases over time, oursystems must be able to accommodate increased usage. If we are unable toincrease our capacity to accommodate growth in usage, we could encounter systemperformance issues, which could harm our relationships with customers and ourreputation.

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

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

             Dell Computer Corporation hasregistered the “Latitude” mark for computers in the United States and in othercountries. Dell’s United States trademark registration and Canadian applicationhave blocked our ability to register the “Latitude Communications” and“Latitude” with logo marks in the United States and the “LatitudeCommunications” mark in Canada. Since we believe that we have priority of tradename usage in the United States, we have petitioned to cancel Dell’s UnitedStates registration and opposed its Canadian application. The outcome of theseproceedings is uncertain. If Dell’s registration for the “Latitude” mark is notcanceled or if we are unable to obtain consent from Dell for our registrationof our marks, we may not be able to register our marks and would have to relysolely on common law protection for these marks. We cannot assure you that wewill be free from challenges of or obstacles to our use or registration of ourmarks.

*             We are subject to government regulation, and our failureto comply with these regulations could harm our business.* Our productsare subject to a wide variety of safety, emissions and compatibilityregulations imposed by governmental authorities in the United States or inother countries in which we sell our products and services. If we are unable toobtain necessary approvals or maintain compliance with the regulations of anyparticular jurisdiction, we may be prohibited from selling our products in thatterritory. In addition, to sell our products and services in many internationalmarkets, we are required to obtain certifications that are specific to thelocal telephony infrastructure.

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

|   | · | announcements of technological 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 theiraffiliates own a large percentage of our voting stock and could control thevoting power of the common stock.* Our executiveofficers and directors and their affiliates beneficially own, in the aggregate,a large percentage of our outstanding common stock. As a result, thesestockholders are able to exercise control over all matters requiringstockholder approval, including the election of directors and approval ofsignificant corporate transactions. This concentration of ownership may delay,deter or prevent transactions that would result in the change of control, whichin turn could reduce the market price of our common stock.

*             Future sales of our common stock may depress our stockprice.*

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

**Item3.              Quantitative andQualitative Disclosures About Market Risk.**

             Our exposure to market risk forchanges in interest rates relates primarily to our investment portfolio. We donot use derivative financial instruments in our investment portfolio. We placeour investments with high credit quality issuers and, by policy, limit theamount of credit exposure to any one issuer. The portfolio includes onlymarketable securities with maturities of three to 24 months and with activesecondary or resale markets to ensure portfolio liquidity. We have noinvestments denominated in foreign country currencies and therefore are notsubject to foreign currency risk on such investments.

             The table below presents principalamounts and related weighted average interest rates by year of maturity for ourinvestment portfolio at June 30, 2001 (in thousands).

|                       | **2001**               |   | **2002** |   | **2003** |   | **Total** |   |
|----------------------------|------------------------|--------|----------|--------|----------|--------|-----------|--------|
|                       | ****                   |   | ****     |   | ****     |   | ****      |   |
|                       |                   |   |     |   |     |   |      |   |
| Mutual  fund               | $                      | 108    |     | $      | —   |   | $         | — |   | $ | 108 |   |
|                       | Average  interest rate | 3.72   | %        | — |     | — |      | 3.72   | % |
| Corporate  notes and bonds | $                      | 6,569  |     | $      | 9,310    |   | $         | 4,511  |   | $ | 20,390 |   |
|                       | Average  interest rate | 7.04   | %        | 5.17   | %        | 4.58   | %         | 5.64   | % |
| Federal  agencies          | $                      | — |     | $      | —   |   | $         | 2,990  |   | $ | 2,990 |   |
|                       | Average  interest rate | — |     | — |     | 4.28   | %         | 4.28   | % |
|                       |                   |   |     |   |     |   |      |   |

             Currently, the majority of oursales and expenses are denominated in U.S. dollars and, as a result, we havenot experienced significant foreign exchange gains and losses to date. While wedo expect to effect some transactions in foreign currencies in the next 12months, we do not anticipate that foreign exchange gains and losses will besignificant. We have not engaged in foreign currency hedging activities todate.

**PART II.           OTHERINFORMATION**

**Item1.              Legal Proceedings—NotApplicable.**

**Item2.              Changes in Securities andUse of Proceeds.**

             On May 6, 1999, in connection withthe Company’s initial public offering, a Registration Statement on Form S–1(No. 333–72935) was declared effective by the Securities and ExchangeCommission, pursuant to which 3,125,000 shares of the Company’s Common Stockwere offered and sold for the account of the Company at a price of $12.00 pershare, generating gross offering proceeds of $37.5 million. The managingunderwriters were Credit Suisse First Boston Corporation, Hambrecht & QuistLLC and Dain Rauscher Wessels. After deducting approximately $2.6 million inunderwriting discounts and $1.1 million in other related expenses, the netproceeds of the offering were approximately $33.8 million. The Company has notyet used any of the funds from the initial public offering, and the $33.8million has been invested in investment grade, interest bearing securities. TheCompany intends to use such remaining proceeds for capital expenditures,including the acquisition of redundant computer and communication systems, andfor general corporate purposes, including working capital to fund increasedaccounts receivable and inventory levels.

**Item3.              Defaults Upon Senior Securities—NotApplicable.**

**Item4.              Submission of Matters to aVote of Security Holders.**

             On June 7, 2001, the Company heldits 2001 annual meeting of stockholders. The following summarizes the matters submitted to a vote of thestockholders:

|   | 1. | The ratification of the appointment of  PricewaterhouseCoopers, LLP as the Company’s independent accountants for the  fiscal year ending December 31, 2001.    In Favor: 16,144,287; Withheld: 68,564 |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item5.              Other Information—NotApplicable.**

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

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

 

**SIGNATURE**

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

|                        | **Latitude Communications, Inc.** |
|-----------------------------|-----------------------------------|
|                        |                              |   |
|                        |                              |   |
|                        | By:                               | /s/    RICK M. MCCONNELL |
|                        |                              |  |
|                        |                              | Rick M. McConnell |
|                        |                              | Vice President of Finance and |
|                        |                              | Administration and Chief Financial Officer |
|                        |                              | (Principal Financial and Accounting Officer) |
|                        |                              |   |
|                        |                              |   |
|                        |                              |   |
| Date:  August 14, 2001 |                              |   |