<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000
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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2121 TASMAN DRIVE, SANTA CLARA, CA 95054
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(408) 988-7200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No / /
As of July 31, 2000, there were 19,132,697 shares of the registrant's
Common Stock outstanding.
================================================================================
<PAGE>
INDEX
<TABLE>
<S><C>
PAGE
PART I. FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS
Condensed consolidated balance sheets at June 30, 2000
and December 31, 1999............................................................. 3
Condensed consolidated statements of operations for
the three months ended June 30, 2000 and 1999; and for
the six months ended June 30, 2000 and 1999....................................... 4
Condensed consolidated statements of cash flows for the six
months ended June 30, 2000 and 1999............................................... 5
Notes to condensed consolidated financial statements.............................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................................... 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................ 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................. 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................................... 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................... 18
ITEM 5. OTHER INFORMATION................................................................. 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 18
SIGNATURE........................................................................................ 19
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LATITUDE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 3,275 $ 10,847
Short-term marketable securities............................................ 29,873 31,611
Accounts receivable, net.................................................... 12,838 8,006
Inventory................................................................... 978 832
Prepaid and other assets.................................................... 1,995 1,508
Deferred tax asset.......................................................... 3,457 3,457
--------------- --------------
Total current assets.................................................... 52,416 56,261
Property and equipment, net.................................................... 3,670 2,655
Long-term marketable securities................................................ 6,427 --
Deposits and other long-term assets............................................ 303 199
Deferred tax asset............................................................. 939 939
--------------- --------------
Total assets............................................................ $ 63,755 $ 60,054
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 1,518 $ 650
Accrued expenses............................................................ 4,364 4,181
Deferred revenue............................................................ 6,591 6,083
Current portion of long-term debt........................................... 432 576
--------------- --------------
Total current liabilities............................................... 12,905 11,490
Long-term debt................................................................. 263 453
--------------- --------------
Total liabilities....................................................... 13,168 11,943
--------------- --------------
Stockholders' equity:
Common stock, $0.001 par value.............................................. 19 19
Additional paid-in capital.................................................. 57,049 56,624
Notes receivable from common stockholders................................... (30) (61)
Deferred stock compensation................................................. (947) (1,441)
Accumulated other comprehensive loss........................................ (194) (77)
Accumulated deficit......................................................... (5,310) (6,953)
--------------- --------------
Total stockholders' equity.............................................. 50,587 48,111
--------------- --------------
Total liabilities and stockholders' equity........................ $ 63,755 $ 60,054
=============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE>
LATITUDE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- --------------------
2000 1999 2000 1999
--------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Revenue:
Product......................................................... $ 8,306 $ 5,576 $ 15,694 $ 10,203
Service......................................................... 3,383 2,150 6,360 3,951
-------- ----------- -------- ----------
Total revenue................................................. 11,689 7,726 22,054 14,154
Cost of revenue:
Product......................................................... 1,506 979 2,732 1,796
Service (exclusive of non-cash compensation expenses of $3,
$21, $22 and $43, respectively)............................... 1,778 1,058 3,280 1,961
-------- ----------- -------- ----------
Total cost of revenue......................................... 3,284 2,037 6,012 3,757
-------- ----------- -------- ----------
Gross profit....................................................... 8,405 5,689 16,042 10,397
-------- ----------- -------- ----------
Operating expenses:
Research and development (exclusive of non-cash compensation
expenses of $19, $19, $39 and $39, respectively).............. 1,570 972 3,102 1,875
Marketing and sales (exclusive of non-cash compensation
expenses of $26, $75, $51 and $153, respectively)............. 4,983 3,459 9,343 6,327
General and administrative (exclusive of non-cash compensation
expenses of $67, $106, $130 and $182, respectively)........... 960 509 1,725 934
Amortization of deferred stock compensation..................... 115 221 242 417
--------- ------------ --------- -----------
Total operating expenses...................................... 7,628 5,161 14,412 9,553
--------- ------------ --------- -----------
Income from operations............................................. 777 528 1,630 844
Interest income, net............................................... 582 246 1,169 238
--------- ------------ --------- -----------
Income before provision for income tax............................. 1,359 774 2,799 1,082
Provision for income tax........................................... (560) (50) (1,156) (70)
--------- ------------ --------- -----------
Net income......................................................... $ 799 $ 724 $ 1,643 $ 1,012
========= ============ ========= ==========
Other comprehensive income (loss), net of tax--
Unrealized gain (loss) on securities............................ 182 (151) (117) (151)
--------- ------------ --------- -----------
Comprehensive income............................................... $ 981 $ 573 $ 1,526 $ 861
========= ============ ========= ===========
Net income per share--basic......................................... $ 0.04 $ 0.06 $ 0.09 $ 0.13
========= ============ ========= ===========
Shares used in per share calculation--basic......................... 18,692 12,427 18,677 7,923
========= ============ ========= ===========
Net income per share--diluted....................................... $ 0.04 $ 0.04 $ 0.08 $ 0.06
========= ============ ========= ===========
Shares used in per share calculation--diluted....................... 19,812 18,716 19,973 17,739
========= ============ ========= ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE>
LATITUDE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 1,643 $ 1,012
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................................ 775 351
Provision for excess and obsolete inventory.............................. 258 40
Provision for doubtful accounts.......................................... 139 --
Amortization of deferred stock compensation.............................. 242 417
Changes in operating assets and liabilities:
Accounts receivable.................................................... (4,971) (895)
Inventory.............................................................. (404) (89)
Prepaids and other assets.............................................. (487) (880)
Accounts payable....................................................... 868 306
Accrued expenses....................................................... 183 48
Deferred revenue....................................................... 508 380
------------ -----------
Net cash (used in) provided by operating activities................ (1,246) 690
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment.......................................... (1,790) (580)
Purchases of available for sale securities................................... (21,532) (33,170)
Maturities of available for sale securities.................................. 16,726 5,598
Other........................................................................ (104) (63)
------------ -----------
Net cash used in investing activities.............................. (6,700) (28,215)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock....................................... 674 33,780
Repayment of notes payable and capital lease obligations..................... (334) (283)
Other........................................................................ 34 29
------------ -----------
Net cash used in financing activities.............................. 374 33,526
------------ -----------
Net increase (decrease) in cash and cash equivalents............................ (7,572) 6,001
Cash and cash equivalents, beginning of period.................................. 10,847 3,982
------------ -----------
Cash and cash equivalents, end of period........................................ $ 3,275 $ 9,983
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND BASIS OF PRESENTATION
Latitude Communications, Inc. (the "Company") is a leading provider of
enterprise e-conferencing solutions that enable geographically dispersed
organizations to collaborate in real time. The company's award-winning
MeetingPlace system is designed for enterprise-wide deployment to improve the
ability of employees, partners, and customers to meet and work. With
MeetingPlace, participants can schedule and attend a meeting, view, share and
edit documents, and capture and retrieve meeting content. MeetingPlace is
designed to be an enterprise-wide resource and to leverage existing technologies
such as telephones, cellular phones and personal computers.
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results for the periods shown. The results of
operations for such periods are not necessarily indicative of the results
expected for the full year or for any future period. The balance sheet at
December 31, 1999 was derived from audited financial statements, however, it
does not include all disclosures required by generally accepted accounting
principles.
The financial statements and related disclosures have been prepared with
the presumption that users of the interim financial information have read or
have access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999, dated
March 30, 2000.
NOTE 2--MARKETABLE SECURITIES
The following table summarizes the fair value and unrealized gains and
losses of marketable securities, by contractual maturity, at June 30, 2000. All
marketable securities have been classified as available-for-sale.
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATE
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Mutual funds....................................... $ 241 $ -- $ -- $ 241
Commercial paper
Due in 1 year or less........................... 4,306 -- (4) 4,302
Corporate notes and bonds
Due in 1 year or less........................... 25,388 -- (58) 25,330
Due in 1-2 years................................ 6,559 -- (132) 6,427
----------- ----------- ----------- -----------
$ 36,494 $ -- $ (194) $ 36,300
=========== =========== =========== ===========
</TABLE>
NOTE 3--INVENTORY
JUNE 30, DECEMBER 31,
2000 1999
----------- -------------
(UNAUDITED)
Raw materials.......................... $ 70 $ 24
Finished goods......................... 26 59
----------- -------------
$ 97 $ 83
=========== =============
6
<PAGE>
NOTE 4--RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, AcSEC released Statement of Position 98-9, or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence ("VSOE") of the
fair values of all the undelivered elements that are not accounted for by means
of long-term contract accounting, (2) VSOE of fair value does not exist for one
or more of the delivered elements, and (3) all revenue recognition criteria of
SOP 97-2 (other than the requirement for VSOE of the fair value of each
delivered element) are satisfied. The provisions of SOP 98-9 that extend the
deferral of certain paragraphs of SOP 97-2 became effective December 15, 1998.
These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15, 1999.
Retroactive application is prohibited. The Company adopted SOP 98-9 on January
1, 2000 and the adoption did not have a material effect on its results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities and
will be adopted by the Company in 2001. SFAS 133 requires that all derivatives
be recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. The Company does not currently hold derivative
instruments or engage in hedging activities. The Company is currently evaluating
the impact SFAS 133 will have on its financial position and results of
operations.
In November, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 100, or SAB 100, which clarifies the SEC's views on
accounting for and disclosing certain expenses incurred in connection with exit
activities and business combinations. The Company does not expect SAB 100 to
have a material effect on its financial position, results of operations or cash
flow. In December, 1999, SAB 101 was issued which summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 is effective beginning in the fourth quarter of
2000. The Company is currently evaluating the impact SAB 101 will have on its
financial position and results of operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 or FIN 44, Accounting for Certain Transactions involving
Stock Compensation an interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion 25 for (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions cover specific events that occur after either December
15, 1998, or January 12, 2000. The Company believes the adoption of the
provisions of FIN 44 that were effective as of December 15, 1998 and January 12,
2000 and will be implemented effective July 1, 2000 will not have a material
effect on the Company's financial position or results of operations. The Company
is currently evaluating the impact of the remaining provisions of FIN 44 on its
financial position and results of operations.
7
<PAGE>
NOTE 5--NET INCOME PER SHARE
Basic net income per share is computed by dividing net income available to
common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net income per share is computed giving
effect to all dilutive potential common shares, including options, warrants and
preferred stock.
A reconciliation of the numerator and denominator of basic and diluted EPS
is provided as follows (in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30,
---------------------- ---------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income per share, basic and diluted:
Numerator for net income, basic and diluted............ $ 799 $ 724 $ 1,643 $ 1,012
----------- ---------- ---------- ----------
Denominator for basic net income per share:
Weighted average vested common shares outstanding.... 18,692 12,427 18,677 7,923
----------- ---------- ---------- ----------
Net income per share basic............................. $ 0.04 $ 0.06 $ 0.09 $ 0.13
=========== ========== ========== ==========
Denominator for diluted earnings per share:
Weighted average vested common shares outstanding.... 18,692 12,427 18,677 7,923
Effect of dilutive securities:
Nonvested common shares............................ 402 249 358 274
Common stock options............................... 680 1,155 898 1,121
Warrants........................................... 38 72 39 97
Convertible preferred stock........................ -- 4,813 -- 8,324
----------- ---------- ---------- ----------
Weighted average common and common equivalent shares. 19,812 18,716 19,973 17,739
----------- ---------- ---------- ----------
Net income per share diluted........................... $ 0.04 $ 0.04 $ 0.08 $ 0.06
=========== ========== ========== ==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," and similar
expressions identify such forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
expressed or forecasted. Factors that might cause such a difference include, but
are not limited to, those discussed in the section entitled "Factors That May
Affect Future Results" and those appearing elsewhere in this Form 10-Q. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. The Company
assumes no obligation to update these forward-looking statements to reflect
actual results or changes in factors or assumptions affecting such
forward-looking statements.
OVERVIEW
We are a leading provider of enterprise e-conferencing solutions that
enable geographically dispersed organizations to collaborate in real time. The
company's award-winning MeetingPlace system is designed for enterprise-wide
deployment to improve the ability of employees, partners, and customers to meet
and work. With MeetingPlace, participants can schedule and attend a meeting,
view, share and edit documents, and capture and retrieve meeting content.
MeetingPlace is designed to be an enterprise-wide resource and to leverage
existing technologies such as telephones, cellular phones and personal
computers.
We generate revenue from sales of our MeetingPlace products and related
services revenue. Product revenue is generally recognized upon shipment. We
calculate an allowance for returns based on historical rates. Service revenue
includes revenue from implementation and system integration services, system
management services, warranty coverage and customer support. Revenue from
implementation and system integration services is
8
<PAGE>
recognized as the services are performed, while revenue from system management
services, warranty coverage and customer support is recognized ratably over the
period of the contract.
We sell our MeetingPlace products primarily through our direct sales force
and, to a lesser extent, through indirect distribution channels. The majority of
our revenue is derived from Fortune 1000 companies, many of which initially
purchase MeetingPlace servers and later expand deployment of our products as
they require additional capacity for voice and data conferencing. We have
international sales offices in the United Kingdom and Singapore and expect to
continue to expand into new international markets. In addition, we have
established distributor relationships in Australia, Hong Kong and Japan. While
we intend to increase sales through indirect channels and internationally, we
cannot assure you that we will be successful.
Total cost of revenue consists of component and materials costs, direct
labor costs, warranty costs, royalties and overhead related to manufacturing of
our products, as well as materials, travel and labor costs related to personnel
engaged in our service operations. Product gross margin is impacted by the
proportion of product revenue derived from software sales, which typically carry
higher margins than hardware sales, and from indirect distribution channels,
which typically carry lower margins than direct sales. Service gross margin is
impacted by the mix of services we provide, which have different levels of
profitability, and the efficiency with which we provide full care support and
other services to our customers.
RESULTS OF OPERATIONS
The following table lists, for the periods indicated, the percentage of
total revenue of each line item from our condensed consolidated statement of
operations to total revenues:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
------------------- ------------------
2000 1999 2000 1999
--------- -------- --------- -------
<S> <C> <C> <C> <C>
Revenue:
Product............................................. 71.1% 72.2% 71.2% 72.1%
Service............................................. 28.9% 27.8% 28.8% 27.9%
--------- -------- --------- -------
Total revenue................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue:
Product............................................. 12.9% 12.7% 12.4% 12.7%
Service............................................. 15.2% 13.7% 14.9% 13.9%
--------- -------- --------- -------
Total cost of revenue........................... 28.1% 26.4% 27.3% 26.6%
--------- -------- --------- -------
Gross profit........................................... 71.9% 73.6% 72.7% 73.4%
--------- -------- --------- -------
Operating expenses:
Research and development............................ 13.4% 12.6% 14.1% 13.2%
Marketing and sales................................. 42.7% 44.7% 42.3% 44.7%
General and administrative.......................... 8.2% 6.6% 7.8% 6.6%
Amortization of deferred stock compensation......... 1.0% 2.9% 1.1% 2.9%
--------- -------- --------- -------
Total operating expenses........................ 65.3% 66.8% 65.3% 67.4%
--------- -------- --------- -------
Income from operations................................. 6.6% 6.8% 7.4% 6.0%
Interest income (expense), net......................... 5.0% 3.2% 5.3% 1.7%
--------- -------- --------- -------
Income before provision for income tax................. 11.6% 10.0% 12.7% 7.7%
--------- -------- --------- -------
Provision for income tax............................... (4.8)% (0.6)% (5.2)% (0.5)%
--------- -------- --------- -------
Net income............................................. 6.8% 9.4% (7.5)% 7.2%
========= ======== ========= =======
</TABLE>
PRODUCT REVENUE
Product revenue was $8.3 million and $15.7 million for the second quarter
and first half of 2000, which represented increases of 49.0% and 53.8% when
compared to the corresponding periods of 1999. The increases were due primarily
to increased sales of our MeetingPlace products domestically to new customers,
increased sales of
9
<PAGE>
additional products and features to existing customers, and, to a lesser extent,
increased international sales. International sales represented approximately
8.5% and 8.1% of product revenue in the three months ended June 30, 2000 and
1999, respectively and approximately 10.5% and 6.8% of product revenue in the
six months ended June 30, 2000 and 1999, respectively.
SERVICE REVENUE
Service revenue was $3.4 million and $6.4 million for the second quarter
and first half of 2000, which represented increases of 57.3% and 61.0% when
compared to the corresponding periods of 1999. The increases were attributable
primarily to growth in our customer base during this period, which led to
increased sales of full care support services, as well as the introduction of
additional consulting services such as managed services and expanded
implementation and integration services.
TOTAL COST OF REVENUE
Total cost of revenue was $3.3 million and $6.0 million for the second
quarter and first half of 2000, which represented increases of 61.2% and 60.0%
when compared to the corresponding periods of 1999. The increase in total cost
of revenue was attributable primarily to increased sales of our MeetingPlace
products and related services, as well as the increased size of our services
staff and the costs of providing services to support an increasingly
geographically dispersed customer base. Resulting gross profit was $8.4 million
and $16.0 million for the second quarter and first half of 2000, as compared to
$5.7 million and 10.4 million in the corresponding periods of 1999. Gross margin
was 71.9% and 72.7% as a percentage of revenue, for the second quarter and first
half of 2000, as compared to 73.6% and 73.4% for the corresponding periods of
1999.
Product gross margin was 81.9% and 82.6% as a percentage of product
revenue for the second quarter and first half of 2000 as compared to 82.4% for
both of the corresponding periods of 1999. We expect that product gross margin
may decrease in the future due in part to potential pricing pressure and an
expected increase in the proportion of revenue derived from indirect
distribution channels.
Service gross margin was 47.4% and 48.4% as a percentage of revenue for
the second quarter and first half of 2000 as compared to 50.8% and 50.4% for the
corresponding periods in 1999. We expect that service gross margin may decline
in the future as a result of the addition of support personnel, potential
pricing pressure and an increase in the mix of lower margin service offerings.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of compensation and
related costs for research and development personnel, facilities expenses for
testing space and equipment and royalty payments. Research and development
expenses were $1.6 million and $3.1 million for the second quarter and first
half of 2000, which represented increases of 61.5% and 65.4% when compared to
corresponding periods in 1999. As a percentage of total revenues, research and
development expenses were 13.4% and 14.1% in the second quarter and first half
of 2000, increases from the 12.6% and 13.2% in the corresponding periods in
1999. The increase was attributable primarily to the addition of personnel in
our research and development organization associated with product development.
We expect to continue to make substantial investments in research and
development and anticipate that research expenses will continue to increase in
absolute dollars.
MARKETING AND SALES EXPENSES
Marketing and sales expenses consist primarily of promotional
expenditures and compensation and related costs for marketing and sales
personnel. Marketing and sales expenses were $4.9 million and $9.3 million for
the second quarter and first half of 2000, which represented increases of 44.1%
and 47.7% when compared to corresponding periods in 1999. As a percentage of
total revenues, marketing and sales expenses of 42.5% in both the second quarter
and first half of 2000 represent decreases from 44.9% and 44.7% in the
corresponding periods of 1999. The decrease in marketing and sales expenses as a
percentage of revenue was due primarily to increased revenue. The increase in
absolute dollars of $1.5 million and $3.0 million for the second quarter and
first half of 2000 as compared to the corresponding period in 1999, reflected
the addition of personnel in our sales and marketing organizations, as well as
costs associated with increased selling efforts to develop market awareness of
our products and services.
10
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of personnel
expenses, legal and accounting expenses and other general corporate expenses.
General and administrative expenses were $960,000 and $1.7 million for the
second quarter and first half of 2000, which represented increase of 88.6% and
84.5% when compared to the corresponding periods in 1999. As a percentage of
total revenues, general and administrative expenses were 8.2% and 7.8% in the
first quarter of 2000, increases from the 6.6% in both of the corresponding
periods in 1999. The increase in both absolute dollars and percentage of revenue
was attributable primarily to the addition of personnel in our general and
administrative organization and expenses in connection with being a public
company. We expect general and administrative expenses to increase in absolute
dollars as we add personnel and incur additional costs related to the
anticipated growth of our business and operation as a public company.
AMORTIZATION OF DEFERRED STOCK COMPENSATION
In connection with the completion of our initial public offering in May
1999, options granted in the last quarter of 1997, 1998 and the first quarter of
1999 have been considered to be compensatory. Total deferred stock compensation
associated with these options as of June 30, 2000 amounted to $3.1 million, of
which $2,000, $299,000, $752,000 and $242,000 had been amortized to expense in
1997, 1998, 1999 and the first half of 2000, respectively. These amounts are
being amortized based on the vesting period of these options, most of which are
over 48 months. We expect amortization of approximately $227,000 in the six
months ending December 31, 2000, $453,000 in 2001 and $267,000 in 2002 related
to the options presently outstanding.
INTEREST INCOME (EXPENSE), NET
Interest income, net of interest expense, was $582,000 and $1.2 million
for the second quarter and first half of 2000, compared to $246,000 and $238,000
for the corresponding periods in 1999. The increase in net interest income was
attributable primarily to interest income earned on higher cash and marketable
securities average balances in the second quarter and first half of 2000 as
compared to corresponding periods in 1999, primarily from net proceeds from our
initial public offering in May 1999.
INCOME TAXES
The provision for income tax was $560,000 and $1.2 million for the second
quarter and first half of 2000, compared to $50,000 and $70,000 for the
corresponding periods in 1999. Our effective tax rate was approximately 41% for
the second quarter and first half of 2000 and approximately 6% for the
corresponding periods in 1999. The rate in 1999 was lower than the statutory
U.S. federal rate due primarily to the utilization of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
In May 1999, we completed an initial public offering of common stock,
resulting in net proceeds to us of approximately $33.8 million. As of June 30,
2000, we had $39.6 million of cash, cash equivalents and marketable securities,
which represented 62% of total assets.
Cash used by operating activities was $1.2 million in the first six
months of 2000, compared to cash provided by operating activities of $690,000 in
the same period of 1999. Net cash used by operating activities in the first six
months of 2000 related to increased use of working capital of $4.3 million,
compared to $1.3 million in the same period in 1999. The largest component of
the increased use of working capital in the first six months of 2000 was an
increase in accounts receivable due to large sales transactions occurring late
in the second quarter of 2000. This increased use was partially offset by
adjustments for non-cash items of $1.4 million in the first six months of 2000,
compared to $808,000 in the same period in 1999 and by an increase in net
income.
Cash used in investing activities in the first six months of 2000 was
$6.7 million, which consisted primarily of the purchase of marketable securities
of $21.5 million and purchase of property and equipment of $1.8 million,
partially offset by maturities of marketable securities of $16.7 million. For
the first six months in 1999, cash used in investing activities of $28.2 million
reflected the purchase of available for sale securities of $33.2 million and the
purchase of property and equipment of $580,000, partially offset by maturities
of available for sale securities of $5.6 million.
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Cash provided by financing activities in the first six months of 2000 of
$374,000 consisted primarily of the proceeds from issuance of common stock under
employee benefit plans of $674,000, partially offset by payments on obligations
under capital leases and notes payable of $334,000. For the first six months of
1999, cash provided by financing activities of $33.5 million related primarily
to the proceeds of our initial public offering of common stock.
We believe that our current cash, cash equivalents and marketable
securities will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1998, AcSEC released Statement of Position 98-9, or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence ("VSOE") of the
fair values of all the undelivered elements that are not accounted for by means
of long-term contract accounting, (2) VSOE of fair value does not exist for one
or more of the delivered elements, and (3) all revenue recognition criteria of
SOP 97-2 (other than the requirement for VSOE of the fair value of each
delivered element) are satisfied. The provisions of SOP 98-9 that extend the
deferral of certain paragraphs of SOP 97-2 became effective December 15, 1998.
These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15, 1999.
Retroactive application is prohibited. The Company adopted SOP 98-9 on January
1, 2000 and the adoption did not have a material effect on its results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, or SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities and will be adopted by the Company in 2001. SFAS 133 requires that
all derivatives be recognized at fair value in the statement of financial
position, and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income, depending on
the type of hedging relationship that exists. The Company does not currently
hold derivative instruments or engage in hedging activities. The Company is
currently evaluating the impact SFAS 133 will have on its financial position and
results of operations.
In November, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 100, or SAB 100, which clarifies the SEC's views on
accounting for and disclosing certain expenses incurred in connection with exit
activities and business combinations. The Company does not expect SAB 100 to
have a material effect on its financial position, results of operations or cash
flow. In December, 1999, SAB 101 was issued which summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 is effective beginning in the fourth quarter of
2000. The Company is currently evaluating the impact SAB 101 will have on its
financial position and results of operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 or FIN 44, Accounting for Certain Transactions involving
Stock Compensation an interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion 25 for (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions cover specific events that occur after either December
15, 1998, or January 12, 2000. The Company believes the adoption of the
provisions of FIN 44 that were effective as of December 15, 1998 and January 12,
2000 and will be implemented effective July 1, 2000 will not have a material
effect on the Company's financial position or results of operations. The Company
is currently evaluating the impact of the remaining provisions of FIN 44 on its
financial position and results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information in this report, the following
factors should be considered carefully in evaluating the Company's business and
prospects:
OUR FUTURE PROFITABILITY IS UNCERTAIN DUE TO OUR LIMITED OPERATING
HISTORY. We have a limited operating history and cannot assure you that our
revenue will continue to grow or that we will maintain profitability in the
future. Our financial statements must be considered in light of the risks and
uncertainties encountered by companies in the early stages of development. We
rely substantially on sales of our MeetingPlace products, which have limited
market acceptance.
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In addition, we are unable to predict our future product development,
sales and marketing, and administrative expenses. To the extent that these
expenses increase, we will need to increase revenue to sustain profitability.
Our ability to increase revenue and sustain profitability also depends on the
other risk factors described in this section.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY. Our operating results
are difficult to predict. Our future quarterly operating results may fluctuate
and may not meet the expectations of securities analysts or investors. If this
occurs, the price of our common stock would likely decline. The factors that may
cause fluctuations of our operating results include the following:
o changes in our mix of revenues generated from product sales and
services;
o changes by existing customers in their levels of purchases of our
products and services;
o changes in our mix of sales channels through which our products and
services are sold; and
o changes in our mix of domestic and international sales.
Orders at the beginning of each quarter typically do not equal expected
revenue for that quarter. In addition, a significant portion of our orders is
received in the last month of each fiscal quarter. If we fail to ship products
by the end of a quarter in which the order is received, or if our prospective
customers delay their orders or delivery schedules until the following quarter,
we may fail to meet our revenue objectives.
OUR MARKET IS HIGHLY COMPETITIVE. Because of intense market competition,
we may not be successful. Currently, our principal competitors include:
o major telecommunications carriers that operate service bureaus for
voice conferencing, such as AT&T Corp., MCI Worldcom, Inc. and
Sprint Corporation;
o private branch exchange, or PBX, vendors that sell systems with
voice conferencing capabilities, such as Lucent Technologies Inc.
and Nortel Networks; and
o companies that offer web-based voice and data conferencing products,
such as WebEx, Inc. and PlaceWare, Inc.
Many of these companies have longer operating histories, stronger brand
names and significantly greater financial, technical, marketing and other
resources than we do. These companies also may have existing relationships with
many of our prospective customers. In addition, these companies may be able to
respond more quickly than we can to new or emerging technologies and changes in
customer requirements.
In addition, we expect competition to persist and intensify in the
future, which could adversely affect our ability to increase sales, penetrate
new markets and maintain average selling prices. In the future, we may
experience competition from potential competitors that include:
o networking companies, such as Cisco Systems, Inc., 3Com Corporation,
Lucent Technologies Inc. and Nortel Networks that are focusing on
enabling the transmission of voice over the Internet and that may
offer voice and data conferencing functionality; and
o collaborative software providers, such as Microsoft Corporation and
Lotus Development Corporation, that are focusing on data
conferencing products and that may in the future incorporate voice
conferencing functionality into their products.
OUR MARKET IS IN AN EARLY STAGE OF DEVELOPMENT, AND OUR PRODUCTS MAY NOT
BE ADOPTED. If the market for our integrated voice and data conferencing
products fails to grow or grows more slowly than we anticipate, we may not be
able to increase revenues or remain profitable. The market for integrated
real-time voice and data conferencing is relatively new and rapidly evolving.
Our ability to remain profitable depends in large part on the widespread
adoption by end users of real-time voice and data conferencing.
We will have to devote substantial resources to educate prospective
customers about the uses and benefits of our products. In addition, businesses
that have invested substantial resources in other conferencing products may be
reluctant or slow to adopt our products, which might replace or compete with
their existing systems. Our efforts to educate potential customers may not
result in our products achieving market acceptance.
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RAPID TECHNOLOGICAL CHANGES COULD CAUSE OUR PRODUCTS TO BECOME OBSOLETE
OR REQUIRE US TO REDESIGN OUR PRODUCTS. The market in which we compete is
characterized by rapid technological change, frequent new product introductions,
changes in customer requirements and emerging industry standards. In particular,
we expect that the growth of the Internet and Internet-based telephony
applications, as well as general technology trends such as migrations to new
operating systems, will require us to adapt our product to remain competitive.
This adaptation could be costly and time-consuming. Our products could become
obsolete and unmarketable if products using new technologies are introduced and
new industry standards emerge. For example, the widespread acceptance of
competing technologies, such as video conferencing and the transmission of voice
over the Internet, could diminish demand for our current products. As a result,
the life cycle of our products is difficult to estimate.
To be successful, we will need to develop and introduce new products and
product enhancements that respond to technological changes or evolving industry
standards, such as the transmission of voice over the Internet, in a timely
manner and on a cost effective basis. We cannot assure you that we will
successfully develop these types of products and product enhancements or that
our products will achieve broad market acceptance.
OUR SALES CYCLE IS LENGTHY AND UNPREDICTABLE. Any delay in sales of our
products could cause our quarterly revenue and operating results to fluctuate.
The typical sales cycle of our products is lengthy, generally between six to
nine months, unpredictable, and involves significant investment decisions by
prospective customers, as well as our education of potential customers regarding
the use and benefits of our products. Furthermore, many of our prospective
customers have neither budgeted expenses for voice and data conferencing systems
nor have personnel specifically dedicated to procurement and implementation of
these conferencing systems. As a result, our customers spend a substantial
amount of time before purchasing our products in performing internal reviews and
obtaining capital expenditure approvals. We cannot be certain that this cycle
will not lengthen in the future. The emerging and evolving nature of the
real-time voice and data conferencing market may lead to confusion in the
market, which may cause prospective customers to postpone their purchase
decisions.
IF WE FAIL TO EXPAND OUR SALES AND DISTRIBUTION CHANNELS, OUR BUSINESS
COULD SUFFER. If we are unable to expand our sales and distribution channels, we
may not be able to increase revenue or achieve market acceptance of our
MeetingPlace product. We have recently expanded our direct sales force and plan
to recruit additional sales personnel. New sales personnel will require training
and take time to achieve full productivity, and there is strong competition for
qualified sales personnel in our business. In addition, we believe that our
future success is dependent upon establishing successful relationships with a
variety of distribution partners. To date, we have entered into agreements with
only a small number of these distribution partners. We cannot be certain that we
will be able to reach agreement with additional distribution partners on a
timely basis or at all, or that these distribution partners will devote adequate
resources to selling our products. Furthermore, if our distribution partners
fail to adequately market or support our products, the reputation of our
products in the market may suffer. In addition, we will need to manage potential
conflicts between our direct sales force and third-party reselling efforts.
OUR ABILITY TO EXPAND INTO INTERNATIONAL MARKETS IS UNCERTAIN. We intend
to continue to expand our operations into new international markets. In addition
to general risks associated with international expansion, such as foreign
currency fluctuations and political and economic instability, we face the
following risks and uncertainties any of which could prevent us from selling our
products in a particular country or harm our business operations once we have
established operations in that country:
o the difficulties and costs of localizing products for foreign
markets, including the development of multilingual capabilities in
our MeetingPlace system;
o the need to modify our products to comply with local
telecommunications certification requirements in each country; and
o our lack of a direct sales presence in other countries, our need to
establish relationships with distribution partners to sell our
products in these markets and our reliance on the capabilities and
performance of these distribution partners.
IF WE FAIL TO INTEGRATE OUR PRODUCTS WITH THIRD-PARTY TECHNOLOGY, OUR
SALES COULD SUFFER. Our products are designed to integrate with our customers'
data and voice networks, as well as with enterprise applications such as
browsers and collaborative software applications. If we are unable to integrate
our products with these networks and systems, sales of our products could
suffer.
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In addition, we may be required to engage in costly and time-consuming
redesigns of our products because of technology enhancements or upgrades of
these systems. We may not be able to redesign our products or be certain that
any of these redesigns will achieve market acceptance. In addition, we will need
to continually modify our products as newer versions of the enterprise
applications with which our products integrate are introduced. Our ability to do
so largely depends on our ability to gain access to the advanced programming
interfaces for these applications, and we cannot assure you that we will have
access to necessary advanced programming interfaces in the future.
WE MAY EXPERIENCE DIFFICULTIES MANAGING OUR EXPECTED GROWTH. Our recent
growth has strained, and we expect that any future growth will continue to
strain, our management systems and resources, which could hinder our ability to
continue to grow in the future. We may also experience difficulties meeting the
demand for our products and services. If we are unable to provide training and
support for our products, the implementation process will be longer and customer
satisfaction may be lower.
We may not be able to install management information and control systems
in an efficient and timely manner, and our current or planned personnel,
systems, procedures and controls may not be adequate to support our future
operations. Competition for qualified personnel in the San Francisco Bay area,
as well as other markets in which we recruit, is extremely intense and
characterized by rapidly increasing salaries, which may increase our operating
expenses or hinder our ability to recruit qualified candidates.
OUR BUSINESS COULD SUFFER IF WE LOSE THE SERVICES OF OUR CURRENT
MANAGEMENT TEAM. Our future success depends on the ability of our management to
operate effectively, both individually and as a group. If we were to lose the
services of any of these key employees we may encounter difficulties finding
qualified personnel to replace them. Recently, we have had three individuals
join and two individuals leave the management team.
THE LOSS OF OUR RIGHT TO USE TECHNOLOGY LICENSED TO US BY THIRD PARTIES
COULD HARM OUR BUSINESS. We license technology that is incorporated into our
products from third parties, including digital signal processing algorithms and
the MeetingPlace server's operating system and relational database. Any
interruption in the supply or support of any licensed software could disrupt our
operations and delay our sales, unless and until we can replace the
functionality provided by this licensed software. Because our products
incorporate software developed and maintained by third parties, we depend on
these third parties to deliver and support reliable products, enhance their
current products, develop new products on a timely and cost-effective basis and
respond to emerging industry standards and other technological changes.
ANY INTERRUPTION IN SUPPLY OF COMPONENTS FROM OUTSIDE MANUFACTURERS AND
SUPPLIERS COULD HINDER OUR ABILITY TO SHIP PRODUCTS IN A TIMELY MANNER. We rely
on third parties to obtain most of the components of the MeetingPlace server and
integrate them with other standard components, such as the central processing
unit and disk drives. If these third parties are no longer able to supply and
assemble these components or are unable to do so in a timely manner, we may
experience delays in shipping our products and have to invest resources in
finding an alternative manufacturer or manufacture our products internally.
In addition, we obtain key hardware components, including the processors
and digital signal processing devices used in the MeetingPlace server, from sole
source suppliers. In the past, we have experienced problems in obtaining some of
these components in a timely manner from these sources, and we cannot be certain
that we will be able to continue to obtain an adequate supply of these
components in a timely manner or, if necessary, from alternative sources. If we
are unable to obtain sufficient quantities of components or to locate
alternative sources of supply, we may experience delays in shipping our products
and incur additional costs to find an alternative manufacturer or manufacture
our products internally.
OUR PRODUCTS MAY SUFFER FROM DEFECTS, ERRORS OR BREACHES OF SECURITY.
Software and hardware products as complex as ours are likely to contain
undetected errors or defects, especially when first introduced or when new
versions are released. Any errors or defects that are discovered after
commercial release could result in loss of revenue or delay in market
acceptance, diversion of development resources, damage to our customer
relationships or reputation or increased service and warranty cost. Our products
may not be free from errors or defects after commercial shipments have begun,
and we are aware of instances in which some of our customers have experienced
product failures or errors.
Many of our customers conduct confidential conferences, and transmit
confidential data, using MeetingPlace. Concerns over the security of information
sent over the Internet and the privacy of its users may inhibit the market
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acceptance of our products. In addition, unauthorized users in the past have
gained, and in the future may be able to gain, access to our customers'
MeetingPlace systems. Any compromise of security could deter people from using
MeetingPlace and could harm our reputation and business and result in claims
against us.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, AND WE MAY
BE SUBJECT TO INFRINGEMENT CLAIMS. Unauthorized parties may copy aspects of our
products and obtain and use information that we regard as proprietary, which
could cause our business to suffer. Furthermore, the laws of many foreign
countries do not protect our intellectual property rights to the same extent as
the laws of the United States.
In the future, we may be subject to legal proceedings and claims for
alleged infringement of third party proprietary rights. Any of these claims,
even if not meritorious, could result in costly litigation, divert management's
attention and resources, or require us to enter into royalty or license
agreements which are not advantageous to us. Parties making these claims may be
able to obtain injunctive or other equitable relief, which could prevent us from
selling our products.
Dell Computer Corporation has registered the "Latitude" mark for
computers in the United States and in other countries. Dell's United States
trademark registration and Canadian application have blocked our ability to
register the "Latitude Communications" and "Latitude" with logo marks in the
United States and the "Latitude Communications" mark in Canada. Since we believe
that we have priority of trade name usage in the United States, we have
petitioned to cancel Dell's United States registration and opposed its Canadian
application. The outcome of these proceedings is uncertain. If Dell's
registration for the "Latitude" mark is not canceled or if we are unable to
obtain consent from Dell for our registration of our marks, we may not be able
to register our marks and would have to rely solely on common law protection for
these marks. We cannot assure you that we will be free from challenges of or
obstacles to our use or registration of our marks.
WE ARE SUBJECT TO GOVERNMENT REGULATION, AND OUR FAILURE TO COMPLY WITH
THESE REGULATIONS COULD HARM OUR BUSINESS. Our products are subject to a wide
variety of safety, emissions and compatibility regulations imposed by
governmental authorities in the United States or in other countries in which we
sell our products. If we are unable to obtain necessary approvals or maintain
compliance with the regulations of any particular jurisdiction, we may be
prohibited from selling our products in that territory. In addition, to sell our
products in many international markets, we are required to obtain certifications
that are specific to the local telephony infrastructure.
OUR STOCK PRICE MAY BE VOLATILE. We expect that the market price of our
common stock will fluctuate as a result of variations in our quarterly operating
results. These fluctuations may be exaggerated if the trading volume of our
common stock is low. In addition, due to the technology-intensive and emerging
nature of our business, the market price of our common stock may rise and fall
in response to:
o announcements of technological or competitive developments;
o acquisitions or strategic alliances by us or our competitors; or
o the gain or loss by us of significant orders.
OUR EXECUTIVE OFFICERS AND DIRECTORS AND THEIR AFFILIATES OWN A LARGE
PERCENTAGE OF OUR VOTING STOCK AND COULD CONTROL THE VOTING POWER OF THE COMMON
STOCK. Our executive officers and directors and their affiliates beneficially
own, in the aggregate, a large percentage of our outstanding common stock. As a
result, these stockholders are able to exercise control over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may
delay, deter or prevent transactions that would result in the change of control,
which in turn could reduce the market price of our common stock.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our stockholders sell substantial amounts of common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market, the market price of our common stock could fall.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our exposure to market risk for changes in interest rates relates
primarily to our investment portfolio. We do not use derivative financial
instruments in our investment portfolio. We place our investments with high
credit quality issuers and, by policy, limit the amount of credit exposure to
any one issuer. The portfolio includes only marketable securities with
maturities of three to 24 months and with active secondary or resale markets to
ensure
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portfolio liquidity. We have no investments denominated in foreign country
currencies and therefore are not subject to foreign currency risk on such
investments.
The tables below presents principal amounts and related weighted average
interest rates for our investment portfolio at June 30, 2000.
SHORT-TERM INVESTMENTS (IN THOUSANDS):
AVERAGE
FAIR VALUE INTEREST RATE
---------- -------------
Mutual funds.................................. $ 241 6.10%
Commercial paper.............................. 4,302 6.68%
Corporate notes and bonds..................... 25,330 5.98%
----------
$ 29,873
==========
LONG-TERM INVESTMENTS (IN THOUSANDS):
AVERAGE
FAIR VALUE INTEREST RATE
---------- -------------
Corporate notes and bonds..................... $ 6,427 7.04%
=========
Currently, the majority of our sales and expenses are denominated in U.S.
dollars and, as a result, we have not experienced significant foreign exchange
gains and losses to date. While we do expect to effect some transactions in
foreign currencies in the next 12 months, we do not anticipate that foreign
exchange gains and losses will be significant. We have not engaged in foreign
currency hedging activities to date.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS--NOT APPLICABLE.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On May 6, 1999, in connection with the Company's initial public offering,
a Registration Statement on Form S-1 (No. 333-72935) was declared effective by
the Securities and Exchange Commission, pursuant to which 3,125,000 shares of
the Company's Common Stock were offered and sold for the account of the Company
at a price of $12.00 per share, generating gross offering proceeds of $37.5
million. The managing underwriters were Credit Suisse First Boston Corporation,
Hambrecht & Quist LLC and Dain Rauscher Wessels. After deducting approximately
$2.6 million in underwriting discounts and $1.1 million in other related
expenses, the net proceeds of the offering were approximately $33.8 million. The
Company has not yet used any of the funds from the initial public offering, and
the $33.8 million has been invested in investment grade, interest bearing
securities. The Company intends to use such remaining proceeds for capital
expenditures, including the acquisition of redundant computer and communication
systems, and for general corporate purposes, including working capital to fund
increased accounts receivable and inventory levels.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 1, 2000, the Company held its 2000 annual meeting of
stockholders. The following summarizes the matters submitted to a vote of the
stockholders:
1. The election of the following nominees to serve as members of the
Board of Directors:
NOMINEE IN FAVOR WITHHELD
------------------------- ------------------------ -------------------
Emil C.W. Wang 10,500,429 70,680
Robert J. Finocchio, Jr. 10,500,429 70,680
Klaus-Dieter Laidig 10,500,429 70,680
F. Gibson Myers, Jr. 10,500,429 70,680
James Patterson 10,500,429 70,680
2. The ratification of the appointment of PricewaterhouseCoopers, LLP as
the Company's independent accountants for the fiscal year ending December 31,
2000. In Favor: 10,522,335; Withheld: 48,774
ITEM 5. OTHER INFORMATION--NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1--Financial Data Schedule
(b) Reports on Form 8-K--None
--------------
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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, 2000
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6 EXHIBIT INDEX
27.1 Financial Data Schedule
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