10-Q 1 0001.txt FORM 10-Q ================================================================================ 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. ================================================================================ INDEX 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
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. LATITUDE COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2000 1999 --------------- -------------- (UNAUDITED) ASSETS 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 =============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 LATITUDE COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- -------------------- 2000 1999 2000 1999 --------- ----------- -------- ---------- 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 ========= ============ ========= ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 LATITUDE COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------- 2000 1999 ------------ ----------- 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 ============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 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.
GROSS GROSS ESTIMATE UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------- ----------- ----------- ----------- 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 =========== =========== =========== ===========
NOTE 3--INVENTORY JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------- (UNAUDITED) Raw materials.......................... $ 70 $ 24 Finished goods......................... 26 59 ----------- ------------- $ 97 $ 83 =========== ============= 6 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 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).
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30, ---------------------- --------------------- 2000 1999 2000 1999 ----------- ---------- ---------- ---------- (UNAUDITED) 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 =========== ========== ========== ==========
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 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:
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, ------------------- ------------------ 2000 1999 2000 1999 --------- -------- --------- ------- 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% ========= ======== ========= =======
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 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 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. 11 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. 12 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. 13 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. 14 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 15 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 16 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. 17 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 -------------- 18 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 19 6 EXHIBIT INDEX 27.1 Financial Data Schedule -------------- 20