SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2001
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number: 0-30141
LIVEPERSON, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3861628
- ---------------------------------------- ------------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
330 WEST 34TH STREET, 10TH FLOOR
NEW YORK, NEW YORK 10001
- ------------------------------------------ ------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 918-2100
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(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 May 14, 2001, there were 33,983,381 shares of the issuer's common stock
outstanding.
LIVEPERSON, INC.
MARCH 31, 2001
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION.................................................. 3
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................ 3
Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited) and
December 31, 2000..................................................... 3
Unaudited Condensed Consolidated Statements of Operations for the three months
ended March 31, 2001 and 2000......................................... 4
Unaudited Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and 2000......................................... 5
Notes to Unaudited Interim Condensed Consolidated Financial Statements.......... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.......................................................... 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............. 32
PART II. OTHER INFORMATION..................................................... 33
ITEM 1. LEGAL PROCEEDINGS...................................................... 33
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................. 33
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................................ 33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................... 33
ITEM 5. OTHER INFORMATION...................................................... 33
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K........................................ 33
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LIVEPERSON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
(UNAUDITED) (Note 1(B))
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 13,204 $ 20,449
Marketable securities ......................................................... -- 1,000
Accounts receivable, net ...................................................... 1,085 1,271
Prepaid expenses and other current assets ..................................... 281 747
--------- ---------
Total current assets ...................................................... 14,570 23,467
Property and equipment, net ....................................................... 11,555 12,883
Goodwill and other intangibles, net ............................................... 7,548 8,291
Restricted cash related to leases ................................................. 4,225 2,000
Security deposits ................................................................. 74 68
Deferred costs, net ............................................................... -- 291
--------- ---------
Total assets .............................................................. $ 37,972 $ 47,000
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................................. $ 737 $ 1,126
Accrued expenses .............................................................. 2,767 1,446
Deferred revenue .............................................................. 387 615
--------- ---------
Total current liabilities ................................................. 3,891 3,187
--------- ---------
Long-term deferred revenue ........................................................ 185 277
Deferred rent ..................................................................... 457 304
Deferred gain on sale-leaseback ................................................... 392 457
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value per share; 5,000,000 shares authorized, 0
issued and outstanding at March 31, 2001 and December 31, 2000 ............. -- --
Common stock, $.001 par value per share; 100,000,000 shares authorized,
33,969,381 shares issued and outstanding at March 31, 2001; 33,914,613
shares issued and outstanding at December 31, 2000 ......................... 34 34
Additional paid-in capital ................................................... 114,427 119,780
Deferred compensation ........................................................ (2,063) (5,872)
Accumulated deficit .......................................................... (79,346) (71,167)
Accumulated other comprehensive loss ......................................... (5) --
--------- ---------
Total stockholders' equity ................................................ 33,047 42,775
--------- ---------
Total liabilities and stockholders' equity ................................ $ 37,972 $ 47,000
========= =========
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
3
LIVEPERSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
UNAUDITED
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2001 2000
------------ -----------
Revenue ...................................................... $ 2,368 $ 774
------------ -----------
Operating expenses:
Cost of revenue, exclusive of $37 and $0 for the 3
months ended March 31, 2001 and 2000, respectively,
reported below as non-cash compensation expense ...... 2,682 1,190
Product development, exclusive of $(179) and $0 for
the 3 months ended March 31, 2001 and 2000,
respectively, reported below as non-cash
compensation expense ................................. 1,252 1,767
Sales and marketing, exclusive of $260 and $756 for
the 3 months ended March 31, 2001 and 2000,
respectively, reported below as non-cash
compensation expense ................................. 2,116 3,425
General and administrative, exclusive of $257 and
$5,200 for the 3 months ended March 31, 2001 and
2000, respectively, reported below as non-cash
compensation expense .................................. 1,941 1,300
Amortization of goodwill and other intangibles............ 743 --
Non-cash compensation expense, net ....................... 375 5,956
Non-cash compensation credit related to restructuring,
net.................................................... (1,720) --
Restructuring charge ..................................... 3,391 --
------------ -----------
Total operating expenses ............................. 10,780 13,638
------------ -----------
Loss from operations ......................................... (8,412) (12,864)
------------ -----------
Other income (expense):
Other, net ............................................... 5 --
Interest income .......................................... 235 291
Interest expense ......................................... (7) --
------------ -----------
Total other income, net .............................. 233 291
------------ -----------
Net loss ..................................................... (8,179) (12,573)
Non-cash preferred stock dividend ............................ -- 18,000
------------ -----------
Net loss attributable to common stockholders ................. $ (8,179) $ (30,573)
============ ===========
Basic and diluted net loss per common share .................. $ (0.24) $ (4.15)
============ ===========
Weighted average shares outstanding used in basic and
diluted net loss per common share calculation ........... 33,951,476 7,362,000
============ ===========
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
4
LIVEPERSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
THREE MONTHS ENDED
MARCH 31,
----------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $ (8,179) $(12,573)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash compensation expense, net ....................... 375 5,968
Depreciation ............................................. 856 240
Non-cash compensation credit related to restructuring,
net .................................................. (1,720) --
Non-cash portions of restructuring charge ................ 855 --
Amortization of goodwill and other intangibles ........... 743 --
Amortization of gain on sale-leaseback ................... (65) --
Provision for doubtful accounts, net ..................... 348 20
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable .......................................... (185) (192)
Prepaid expenses and other current assets .................... 466 (424)
Security deposits ............................................ (6) 233
Accounts payable ............................................. (389) 2,336
Accrued expenses ............................................. 1,321 1,647
Deferred revenue ............................................. (243) 237
Deferred rent ................................................ 153 --
-------- --------
Net cash used in operating activities .................... (5,670) (2,508)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, including capitalized
software ................................................... (383) (5,289)
Purchase of investment securities available for sale ......... -- (15,058)
Sale of investment securities available for sale ............. 1,000 --
Purchase of restricted cash .................................. (2,225) --
-------- --------
Net cash used in investing activities .................... (1,608) (20,347)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Series A, B, C and D
preferred stock and warrants to acquire common stock ..... -- 17,918
Proceeds from issuance of common stock in connection
with the exercise of warrants and options ................ 38 344
Deferred offering costs ...................................... -- (1,450)
-------- --------
Net cash provided by financing activities ................ 38 16,812
-------- --------
Effect of foreign exchange rate changes on cash
and cash equivalents ..................................... (5) --
-------- --------
Net decrease in cash and cash equivalents ................ (7,245) (6,043)
Cash and cash equivalents at the beginning of the
period ...................................................... 20,449 14,944
-------- --------
Cash and cash equivalents at the end of the period ........... $ 13,204 $ 8,901
======== ========
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
5
LIVEPERSON, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) SUMMARY OF OPERATIONS
LivePerson, Inc. (the "Company" or "LivePerson") was incorporated in the
State of Delaware in 1995 under the name of Sybarite Interactive Inc. The
Company, which commenced operations in 1996, changed its name to Live Person,
Inc. in January 1999 and to LivePerson, Inc. in March 2000. The Company is a
leading application service provider of technology that facilitates real-time
sales and customer service for companies doing business on the Internet.
The Company's primary revenue source is from the sale of the LivePerson
services, which is conducted within one operating segment. Prior to November
1998, when the LivePerson services were introduced, the Company provided
services primarily related to Web-based community programming and media design.
(B) UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The accompanying interim condensed consolidated financial statements as of
March 31, 2001 and for the three months ended March 31, 2001 and 2000 are
unaudited. In the opinion of management, the unaudited interim condensed
consolidated financial statements have been prepared on the same basis as the
annual financial statements and reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly the consolidated
financial position of LivePerson as of March 31, 2001 and the consolidated
results of operations and cash flows for the interim periods ended March 31,
2001 and 2000. The financial data and other information disclosed in these notes
to the condensed consolidated financial statements related to these periods are
unaudited. The results of operations for any interim period are not necessarily
indicative of the results of operations for any other future interim period or
for a full fiscal year. The condensed consolidated balance sheet at December 31,
2000 has been derived from audited consolidated financial statements at that
date.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). These unaudited interim
condensed consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto for
the year ended December 31, 2000, included in the Company's Form 10-K filed with
the SEC on March 30, 2001.
(C) RESTRICTED CASH AND LETTERS OF CREDIT
The Company is contingently liable under standby letters of credit
totaling $4,225 at March 31, 2001. These letters of credit relate
to the Company's office-space leases which are fully secured by certificates of
deposits held by the Company. Management does not expect any material losses to
result from these off-balance-sheet instruments. The fair value of these
instruments is zero. At March 31, 2001, long-term restricted cash of $4,225
consisted of security deposits held in certificates of deposit in connection
with the lease of the Company's principal executive offices.
(D) REVENUE RECOGNITION
Prior to November 1998, when the LivePerson services were introduced, the
Company generated revenue from services primarily related to Web-based community
programming and media design. Revenues from such services were recognized upon
completion of the project, provided that no significant Company obligations
remained and collection of the resulting receivable was probable. As of December
31, 1999, the Company no longer generated any revenues from these services.
During 1998, the Company began offering the LivePerson services. The
LivePerson services facilitate real-time sales and customer service for
companies doing business on the Internet. The Company charges an initial
non-refundable set-up fee as well as a monthly fee for each operator access
account ("seat") using the LivePerson services.
The initial set-up fee principally represents customer service, training
and other administrative costs related to the deployment of the LivePerson
services. Such fees are initially recorded as deferred revenue and recognized
ratably over a period of 24 months, representing the Company's current estimate
of the expected term of a client relationship. This estimate may change in the
future. The Company does not charge an additional set-up fee if an existing
client adds more seats. Unamortized deferred fees, if any, are recognized upon
termination of the agreement with the customer.
The Company also records revenue based upon a monthly fee charged for each
seat using the LivePerson services, provided that no significant Company
obligations remain and collection of the resulting receivable is probable. The
Company recognizes monthly service revenue fees as services are provided. The
Company's service agreements typically have no termination date and are
terminable by either party upon 30 to 90 days' notice without penalty.
The Company also generates revenue from web hosting and call center
referrals. The Company recognizes commissions based on revenue generated from
these referrals upon notification from the other party of sales attributable to
LivePerson. To date, revenues from commissions have not been material.
Professional services revenue consists of training provided to customers.
Revenue is recognized when services are provided and collection of the resulting
receivable is probable. During the three months ended March 31, 2001 and 2000,
revenue from professional services was $38 and $0, respectively.
(E) BASIC AND DILUTED NET LOSS PER SHARE
The Company calculates earnings per share in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share ("EPS")," and SEC Staff Accounting Bulletin No. 98. Under
SFAS No. 128, basic EPS excludes dilution for common stock equivalents and is
computed by dividing net income or loss attributable to common shareholders by
the weighted average number of common shares outstanding for the period. All
options, warrants or other potentially dilutive instruments issued for nominal
consideration are required to be included in the calculation of basic and
diluted net loss attributable to common stockholders. The Company has included
20,229 shares of common stock in the calculation of basic and diluted net loss
attributable to common stockholders for the three months ended March 31, 2001
which relate to certain options that were originally issued by HumanClick Ltd.
("HumanClick") for nominal consideration and subsequently assumed by the Company
in connection with its acquisition of HumanClick in October 2000 (see note 3).
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock and resulted in the issuance of common stock. Diluted net loss per share
presented is equal to basic net loss per share since all common stock
equivalents are anti-dilutive for each of the periods presented.
Diluted net loss per common share for the periods ending March 31, 2001
and 2000 does not include the effects of options to purchase 5,274,474 and
5,574,405 shares of common stock, respectively, warrants to purchase 457,030 and
542,968 shares of common stock, respectively, and an aggregate of 0 and
17,962,273 shares of convertible preferred stock on an "as if" converted basis,
respectively, as the effect of their inclusion is anti-dilutive during each
period.
(F) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and, as amended by SFAS No. 137, was adopted by
the Company in the fourth quarter of 2000. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. The
adoption of this statement has not impacted the Company's financial statements
as it does not use derivative instruments.
6
LIVEPERSON, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 2000, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue 00-2, "Accounting for Web Site Development Costs," which provided
guidance on when to capitalize versus expense costs incurred to develop a Web
site. The consensus is effective for Web site development costs in quarters
beginning after June 30, 2000. The Company initially adopted the guidance as
described by Issue 00-2 in 2000, which has not materially impacted the Company's
results of operations.
(2) BALANCE SHEET COMPONENTS
Property and equipment is stated at cost and is summarized as follows:
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
(UNAUDITED)
Computer equipment and software ................... $11,177 $11,528
Furniture, equipment and building improvements .... 3,167 3,509
------ ------
14,344 15,037
Less accumulated depreciation ..................... 2,789 2,154
------ ------
Total ........................................ $11,555 $12,883
======= =======
Accrued expenses consist of the following:
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
(UNAUDITED)
Professional services and consulting fees ......... $ 290 $ 244
Payroll and related costs ......................... 134 126
Employee stock purchase plan payable .............. 31 43
Sales commissions ................................. 63 426
Equipment lease payments .......................... 625 557
Restructuring charge (see Note 4).................. 1,451 --
Other ............................................. 173 50
------ ------
Total ........................................ $2,767 $1,446
====== ======
7
LIVEPERSON, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(3) ACQUISITIONS
On October 12, 2000, the Company acquired HumanClick Ltd., a private
company organized under the laws of the State of Israel. The functional currency
for HumanClick is the U.S. dollar. This transaction was accounted for under the
purchase method of accounting and, accordingly, the operating results of
HumanClick were included in the Company's consolidated results of operations
from the date of acquisition. In connection with the transaction, LivePerson
assumed HumanClick's outstanding stock options which remain outstanding as
options to purchase shares of LivePerson's common stock.
The purchase price was $9,656, which included the issuance of 4,238,405
shares of the Company's common stock valued at $9,143 and acquisition costs of
$241. Of the 4,238,405 shares issued, 1,564,298 are subject to a repurchase
option by the Company if two of the former shareholders of HumanClick are no
longer employed by HumanClick under certain circumstances prior to October 12,
2003. The price pursuant to which the Company may repurchase such shares is
equal to the lesser of the 30-day average price per share of the Company's
common stock prior to the termination of employment, and $7 per share. One-third
of the stock subject to the repurchase option shall be released from the
Company's repurchase option on each of October 12, 2001, 2002 and 2003. In
addition, options to purchase shares of HumanClick's common stock were exchanged
for options to purchase approximately 262,000 shares of the Company's common
stock. The fair value of the options, amounting to $265, was included in the
purchase price. This amount excludes the intrinsic value of the unvested options
at the date of acquisition, amounting to $272, which was also included in the
purchase price; however, such amount was allocated to deferred compensation in
accordance with FIN No. 44, and is being amortized over the remaining vesting
periods.
Of the purchase price, $474 was allocated to net tangible assets. The
historical carrying amounts of such net tangible assets approximated their fair
values. The purchase price in excess of the fair value of the net tangible
liabilities assumed, in the amount of $8,910, was allocated to goodwill and
intangible assets and is being amortized on a straight-line basis over an
expected period of benefit of three years.
The allocation of the purchase price in connection with the HumanClick
acquisition is as follows:
Current assets, primarily receivables ...................... $ 627
Property and equipment ..................................... 95
Goodwill and other intangible assets ....................... 8,910
Liabilities assumed, net ................................... (248)
Deferred compensation ...................................... 272
-------
$ 9,656
=======
The following unaudited pro forma consolidated financial information gives
effect to the acquisition of HumanClick, as if the acquisition occurred on June
24, 1999 (HumanClick's date of inception), by consolidating the results of
operations of HumanClick with the results of the Company for the three months
ended March 31, 2001 and 2000. The unaudited pro forma consolidated financial
information is not necessarily indicative of the consolidated results that would
have occurred, nor is it necessarily indicative of results that may occur in the
future.
MARCH 31,
--------------------------
2001 2000
---- ----
Revenues .............................................. $ 2,368 $ 774
Net loss attributable to common stockholders .......... $ (8,179) $ (31,756)
Net loss per share-basic and diluted .................. $ (0.24) $ (2.73)
Weighted average basic and diluted shares outstanding . 33,951,476 $11,620,634
8
LIVEPERSON, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(4) RESTRUCTURING
In the first quarter of 2001, following a review of the Company's business
in connection with its acquisition of HumanClick, the Company commenced
restructuring initiatives to streamline its operations, including the
consolidation of its two San Francisco Bay area offices. The restructuring
resulted in a reduction of the Company's workforce by approximately 90 people as
of the end of the first quarter of 2001. In the first quarter of 2001, the
Company recorded a charge of approximately $3,390 for severance and other
expenses related to the restructuring. The Company also recognized a net
non-cash compensation credit in the amount of approximately $1,720 associated
with LivePerson employees who were terminated as part of the Company's
restructuring initiatives. The net non-cash compensation credit represents the
reversal of $3,228 of previously recognized amortization of deferred
compensation related to options of employees which did not vest due to their
termination of employment in connection with the Company's restructuring
initiatives, offset by the acceleration of vesting of certain other employee
options of $1,508 also in connection with the restructuring initiatives.
Approximately $446 of the $1,508 represents additional compensation related to
the intrinsic value of options at the date of modification during the first
quarter of 2001. The allocation of the restructuring charge is as follows:
Current Current
Beginning Period Period Ending
Balance Provision Utilization Balance
--------- --------- ----------- -------
Severance .......................... $ -- $ 1,386 $ (992) $ 394
Contract terminations .............. -- 1,057 -- 1,057
Write-off of fixed assets .......... -- 855 (855) --
Other .............................. -- 93 (93) --
--------- -------- ----------- -------
Total severance and related ... -- 3,391 (1,940) 1,451
Non-cash compensation credit, net .. -- (1,720) 1,720 --
--------- -------- ----------- -------
Net restructuring charge ...... $ -- $ 1,671 $ (220) $1,451
========= ======== =========== =======
9
LIVEPERSON, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) STOCK OPTIONS
During 1998, the Company established the Stock Option and Restricted Stock
Purchase Plan (the "1998 Plan"). Under the 1998 Plan, the Board of Directors
could issue incentive stock options or nonqualified stock options to purchase up
to 5,850,000 shares of common stock.
The Company established a successor to the 1998 Plan, the 2000 Stock
Incentive Plan (the "2000 Plan"). Under the 2000 Plan, the options which had
been outstanding under the 1998 Plan were incorporated into the 2000 Plan and
the Company increased the number of shares available for issuance under the plan
by approximately 4,150,000, thereby reserving for issuance 10,000,000 shares of
common stock in the aggregate. Options to acquire common stock granted
thereunder will have 10 year terms. Pursuant to the provisions of the 2000 Plan,
the share reserve was automatically increased on the first trading day in
January 2001 by approximately 1,020,000 shares (three percent of the total
number of shares of common stock outstanding on the last trading day in December
2000). Approximately 11,020,000 shares of common stock were reserved for
issuance under the 2000 Plan as of March 31, 2001.
In March 2000, the Company adopted the 2000 Employee Stock Purchase Plan
with 450,000 shares of common stock initially reserved for issuance.
10
LIVEPERSON, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) STOCK OPTIONS (CONTINUED)
During May 1999, the Company issued an option to purchase 94,500 shares of
common stock at an exercise price of $1.60 per share to a client in connection
with an agreement by the Company to provide services to the client for a
two-year period. The Company is receiving subscription revenue from the client
over the two-year period based on the number of seats the client is using. There
is no minimum guarantee. This option originally provided that it would vest in
or before May 2001 if the client met certain defined revenue targets and was
exercisable for a period of 3 years from the date of grant. The Company
accounted for this option in accordance with EITF Abstract No. 96-18,
"Accounting for Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services." Pursuant to EITF
96-18, the Company valued the option at each balance sheet date using a
Black-Scholes pricing model using a volatility factor of 50%, a $1.60 per share
exercise price and the then fair value of the Company's common stock as of each
balance sheet date. The $566 value ascribed to the option reflected the market
value at December 31, 1999, less amortization expense of $86 for the period from
May 1999 through December 1999, which was recorded as net deferred cost on the
Company's December 31, 1999 balance sheet. The unamortized value ascribed to
this option was adjusted at each balance sheet date to bring the total ascribed
value of the option up to the then current unamortized fair value. This cost was
ratably amortized over the two-year service agreement, as the Company believed
that the achievement of the revenue targets was probable. As a result, the
Company amortized $86 of the deferred costs as of December 31, 1999, of which
$24 was offset against the $27 of revenue recognized from the client in 1999,
and the remaining $62 of sales and marketing expense was reflected as a non-cash
compensation expense, all of which was recorded in the fourth quarter of 1999.
In February 2000, the Company amended the option agreement with the client
whereby the option became fully vested and immediately exercisable. The client
exercised the option in May 2000. However, the client was precluded from selling
the underlying common stock until the earlier of five years or, if certain
revenue targets were met, May 19, 2001. The value ascribed to the option at the
time the option agreement was amended, using a Black-Scholes pricing model, was
$1,014, which was ratably amortized over the remaining service period of
approximately fifteen months because the vesting of the option did not affect
the Company's obligation under the service agreement. In addition, the ratable
amortization of the remaining deferred cost of $1,014 was recorded as a
reduction of the revenue recognized from the client, with any excess
amortization recorded as sales and marketing expense which was reflected as a
non-cash compensation expense in the Company's statement of operations. The
Company amortized $723 of the deferred costs during the year ended December 31,
2000, of which $59 was offset against the $59 of revenue recognized from the
client. The remaining $664 of sales and marketing expense was included in
non-cash compensation expense in the Company's 2000 statement of operations.
As of March 31, 2001, the Company determined that it was unlikely that
the client would meet the remaining revenue requirements under the agreement.
Accordingly, the Company has amortized the remaining deferred cost of $291
during the three months ended March 31, 2001, of which $54 was offset against
the $54 of revenue recognized from the client. The remaining $237 of sales and
marketing expense is included in non-cash compensation expense in the Company's
statement of operations for the quarter ended March 31, 2001.
During 2000 and 1999, the Company granted or assumed stock options to
purchase 5,730,727 and 3,496,245 shares of common stock at a weighted average
exercise price of $3.62 and $1.37, per share, respectively, certain of which
were granted at less than the deemed fair value of the common stock at the date
of grant. For the years ended December 31, 2000 and 1999, the Company recorded
deferred compensation of $18,241 and $6,233, respectively, in connection with
these options. The aggregate amount of unamortized deferred compensation related
to the grant of options which was subsequently reversed against paid-in capital
in connection with the forfeiture of those options
11
LIVEPERSON, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) STOCK OPTIONS (CONTINUED)
associated with employees who left the Company during the year ended December
31, 2000, approximated $5,370. In 2000, the Company also recorded $272 of
deferred compensation relating to the intrinsic value of unvested options
assumed by the Company in connection with the HumanClick acquisition. These
amounts are presented as deferred compensation within the consolidated financial
statements and are being amortized over the vesting period, typically three to
four years, of the applicable options. The Company amortized $11,915 and $1,589
for the years ended December 31, 2000 and 1999, respectively, net of forfeitures
or cancellations of $2,023 in connection with employees who left the Company in
2000.
Excluding the net non-cash compensation credit of $1,720 related to the
Company's restructuring initiatives in the first quarter of 2001, discussed in
note 4 above, net non-cash compensation expense of $375 includes $237 related to
the May 1999 option granted to a client (discussed above) and $138 of
amortization expense for the three months ended March 31, 2001 (which is net of
forfeitures of $394).
The aggregate amount of unamortized deferred compensation reversed against
paid-in capital in connection with the forfeitures of those options associated
with the Company's employees who were terminated as part of the Company's
restructuring initiatives in the three months ended March 31, 2001 approximated
$2,609.
The Company recorded an additional $639 and $0 of non-cash compensation
expense during the first quarter of 2000 and 2001, respectively, in connection
with the vesting of options pursuant to employee severance agreements.
(6) COMMITMENTS AND CONTINGENCIES
The Company leases facilities and certain equipment under agreements
accounted for as operating leases. These leases generally require the Company to
pay all executory costs such as maintenance and insurance. Rental expense for
operating leases for the three months ended March 31, 2001 and 2000 was
approximately $1,172 and $358, respectively.
In March 2000, the Company entered into a lease for two floors at a
location in New York City. The lease term with respect to one floor commenced in
April 2000, with rent of approximately $1,400 per year in the first three years,
$1,500 per year in years four through seven and $1,600 per year in years eight
through ten. The related security deposit is $2,000 for the first three years,
$1,300 for years four through seven and $670 for years eight through ten. At the
Company's option, the Company provided the security deposit by a letter of
credit (see note 1). The lease term relating to the other floor commenced in
March 2001, with rent of approximately $1,500 per year in the first three years,
$1,600 per year in years four through seven and $1,700 per year in years eight
through ten. The related security deposit is $2,225 for the first three years,
$1,500 for years four through seven and $747 for years eight through ten. At the
Company's option, the Company provided the security deposit by a letter of
credit (see note 1).
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS IN CONJUNCTION WITH OUR UNAUDITED INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE
IN THIS REPORT. STATEMENTS IN THE FOLLOWING DISCUSSION ABOUT LIVEPERSON THAT ARE
NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT LIVEPERSON AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE SUCH STATEMENTS TO DIFFER MATERIALLY FROM ACTUAL
FUTURE EVENTS OR RESULTS. ANY SUCH FORWARD-LOOKING STATEMENTS ARE MADE PURSUANT
TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. IT IS ROUTINE FOR OUR INTERNAL PROJECTIONS AND EXPECTATIONS TO CHANGE AS
THE YEAR OR EACH QUARTER IN THE YEAR PROGRESS, AND THEREFORE IT SHOULD BE
CLEARLY UNDERSTOOD THAT THE INTERNAL PROJECTIONS AND BELIEFS UPON WHICH WE BASE
OUR EXPECTATIONS MAY CHANGE PRIOR TO THE END OF EACH QUARTER OR THE YEAR.
ALTHOUGH THESE EXPECTATIONS MAY CHANGE, WE ARE UNDER NO OBLIGATION TO INFORM YOU
IF THEY DO. OUR COMPANY POLICY IS GENERALLY TO PROVIDE OUR EXPECTATIONS ONLY
ONCE PER QUARTER, AND NOT TO UPDATE THAT INFORMATION UNTIL THE NEXT QUARTER.
ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THE
PROJECTIONS OR FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN
THIS REPORT, PARTICULARLY IN THE SECTION ENTITLED "--RISK FACTORS THAT MAY
AFFECT FUTURE RESULTS."
RECENT EVENTS
On April 30, 2001, we received a letter from The Nasdaq Stock Market,
Inc., notifying us of our failure to maintain a minimum bid price of $1.00 per
share during the preceding 30 consecutive business days. The letter stated that
we must demonstrate compliance with Nasdaq's minimum bid rule by July 30, 2001,
and that if we are not in compliance by that date, Nasdaq will notify us that
our common stock will be delisted from the Nasdaq National Market. If such event
occurs, we may appeal the decision to a Nasdaq Listing Qualifications Panel. We
cannot assure you that our bid price will comply with the requirements for
continued listing of our common stock on the Nasdaq National Market, or that any
appeal of a decision to delist our common stock will be successful.
In the first quarter of 2001, following a review of our business in
connection with our acquisition of HumanClick Ltd. in 2000, we commenced
restructuring initiatives to streamline our operations, including the
consolidation of our two San Francisco Bay area offices. The restructuring
resulted in a reduction of our workforce by approximately 90 people as of the
end of the first quarter of 2001. In the first quarter of 2001, we recorded a
charge of approximately $3.4 million for severance and other expenses related to
the restructuring. We also recognized a non-cash compensation credit in the net
amount of approximately $1.7 million associated with LivePerson employees who
were terminated as part of our restructuring initiatives. The net non-cash
compensation credit represents the reversal of approximately $3.2 million of
previously recognized amortization of deferred compensation related to options
of employees which did not vest due to their termination of employment in
connection with our restructuring initiatives, offset by the acceleration of
vesting of certain other employee options of approximately $1.5 million also in
connection with the restructuring initiatives. Approximately $446,000 of the
$1.5 million represents additional compensation related to the intrinsic value
of options at the date of modification during the first quarter of 2001.
In addition, in the first quarter of 2001, three senior executives left
LivePerson, including most recently, our President and Chief Operating Officer.
Our Chief Financial Officer, Timothy E. Bixby, has assumed the additional
position of President.
OVERVIEW
LivePerson is a leading application service provider of technology that
facilitates real-time sales and customer service for companies doing business on
the Internet. We offer our proprietary real-time interaction technology as an
outsourced service. We currently generate revenue from the sale of our
LivePerson services, which enables our clients to communicate directly with
Internet users via text-based chat, and to a lesser extent from related
professional services. Our clients can respond to Internet user inquiries in
real-time, and can thereby enhance their Internet users' online shopping
experience.
Our business was incorporated in the State of Delaware in November 1995
under the name Sybarite Interactive Inc.; however, we did not commence
operations until January 1996. We had no significant revenue until 1997, when we
began to generate revenue from services primarily related to Web-based community
programming and media design.
In 1998, we shifted our core business focus to the development of the
LivePerson services and phased out our prior programming efforts, which last
generated revenue in December 1999. We introduced the LivePerson services in
November 1998.
13
In January 2000, we completed a private placement of 3,157,895 shares of
our series D redeemable convertible preferred stock with an affiliate of, and
other entities associated with, Dell Computer Corporation and with NBC
Interactive Media, Inc. (a division of NBC) at a purchase price of $5.70 per
share. We received net proceeds of approximately $17.9 million from this private
placement. Our series D redeemable convertible preferred stock converted, at a
two-for-three ratio, into 4,736,842 shares of common stock upon the closing of
our initial public offering on April 12, 2000, together with our other
outstanding convertible preferred stock. In connection with the issuance of our
series D redeemable convertible preferred stock, we recorded a non-cash
preferred stock dividend of $18.0 million, which relates to the beneficial
conversion feature associated with such preferred stock. The amount of this
dividend is limited to the gross proceeds received by us in connection with the
sale of our series D convertible preferred stock and was recorded in the first
quarter of 2000 because the series D convertible preferred stock was, at the
time it was issued, immediately convertible at the option of the holder.
On April 12, 2000, we consummated our initial public offering, which
resulted in the issuance of 4,000,000 shares of our common stock at $8.00 per
share, from which we received net proceeds of approximately $28.1 million.
On October 12, 2000, we acquired HumanClick Ltd., a private company
organized under the laws of Israel. The purchase price was $9.7 million, which
included the issuance of 4,238,405 shares of our common stock valued at $9.1
million and acquisition costs of $241,000. Through March 31, 2001, operating
expenses incurred by us related to HumanClick since the date of acquisition have
not had a material effect on our 2000 or 2001 statements of operations. We
expect such operating expenses to increase in absolute dollars over time.
REVENUE
With respect to the LivePerson services, our clients pay us an initial
non-refundable set-up fee, as well as a monthly fee for each operator access
account, which we refer to as a "seat." Our set-up fee is intended to recover
certain costs incurred by us (principally customer service, training and other
administrative costs) prior to deployment of our services. Such fees are
recorded as deferred revenue and recognized over a period of 24 months,
representing the estimated expected term of a client relationship. As a result
of recognizing set-up fees in this manner, combined with the fact that we have
more seats on an aggregate basis than clients, in 2000 and the three months
ended March 31, 2001, revenue attributable to our monthly service fee accounted
for 85% and 86%, respectively, of total LivePerson services revenue. In
addition, because we expect the aggregate number of seats to continue to grow,
we expect the set-up fee to represent a decreasing percentage of total revenue
over time. We do not charge an additional set-up fee if an existing client adds
more seats. Our service agreements typically have no termination date and are
terminable by either party upon 30 to 60 days' notice without penalty. We
recognize monthly service revenue fees and professional service fees as services
are provided. Professional service fees consist of training provided to
customers. Given the time required to schedule training for our clients'
operators and our clients' resource constraints, we have historically
experienced a lag between signing a client contract and generating revenue from
that client. This lag has generally ranged from one day to 30 days.
We also have contractual arrangements that complement our direct sales
force. These are primarily with Web hosting and call center service companies,
pursuant to which LivePerson is paid a commission based on revenue generated by
these service companies from our referrals. Aggregate commissions generated
under such agreements to date, as a percentage of total LivePerson services
revenue, have not been material, although we expect such commissions to increase
in both absolute terms and as a percentage of total LivePerson services revenue
over time.
Prior to November 1998, when the LivePerson services were introduced, we
generated revenue from services primarily related to Web-based community
programming and media design. As of January 2000, we no longer generated any
revenue from these services. Revenue generated from Web-based community
programming and media design services was recognized upon completion of the
project, provided that no significant obligations remained outstanding and
collection of the resulting receivable was probable.
In January 2001, we began generating revenue from the sale of HumanClick
products. We do not currently charge a set-up fee for these products as we do
not provide these customers with training and administrative costs are minimal.
We recognize monthly service fees as services are provided.
14
OPERATING EXPENSES
Our cost of revenue associated with programming activity consisted
primarily of the personnel expenses associated with outsourced programming and
design. We no longer incurred these costs as of December 1998. We began
developing the LivePerson services in the third quarter of 1998. We did not
allocate development costs of the LivePerson services separately. Accordingly,
since November 1998, our cost of revenue has principally been associated with
the LivePerson services and has consisted of:
- compensation costs relating to employees who provide customer
service to our clients;
- compensation costs relating to our network support staff;
- allocated occupancy costs and related overhead; and
- the cost of supporting our infrastructure, including expenses
related to leasing space and connectivity for our services,
third-party network monitoring and depreciation of certain hardware
and software.
Our product development expenses consist primarily of compensation and
related expenses for product development personnel, allocated occupancy costs
and related overhead, outsourced labor and expenses for testing new versions of
our software. Product development expenses are charged to operations as
incurred.
Our sales and marketing expenses consist of compensation and related
expenses for sales personnel and marketing personnel, allocated occupancy costs
and related overhead, advertising, sales commissions, marketing programs, public
relations, promotional materials, travel expenses and trade show exhibit
expenses.
Our general and administrative expenses consist primarily of compensation
and related expenses for executive, accounting and human resources personnel,
allocated occupancy costs and related overhead, professional fees, provision for
doubtful accounts and other general corporate expenses.
In the first quarter 2001, we increased our allowance for doubtful
accounts to $925,000 from $577,000 at December 31, 2000, principally due to an
increase in accounts receivable. We base our allowance for doubtful accounts on
specifically identified known doubtful accounts plus a general reserve for
potential future doubtful accounts. We adjust our allowance for doubtful
accounts when accounts previously reserved have been collected.
NON-CASH COMPENSATION EXPENSE, NET
During May 1999, we issued an option to purchase 94,500 shares of common
stock at an exercise price of $1.60 per share to ShopNow.com Inc. (now known as
Network Commerce Inc.), a client, in connection with an agreement to provide the
LivePerson services to Network Commerce for two years. As discussed below, the
option was amended in February 2000. The original terms of the option provided
that it would vest in or before May 2001, if revenue generated by Network
Commerce met certain targets. We granted the option as an incentive for entering
into a two-year service agreement with us, at a point in time when the
LivePerson services were new and their viability was unknown. The option had no
minimum revenue guarantee. At December 31, 1999, the total value ascribed to
this option, using a Black-Scholes pricing model, was $566,000. In 1999, we
amortized $86,000 of this deferred cost, of which $24,000 was offset against the
$27,000 of revenue recognized from Network Commerce. The remaining $62,000
constituted sales and marketing expense, all of which was recorded in the fourth
quarter of 1999, and was included in non-cash compensation expense in our 1999
statement of operations.
In February 2000, we amended the option agreement. Under the amendment,
the option became fully vested and immediately exercisable, and Network Commerce
exercised the option in May 2000. Network Commerce agreed, however, that it
could not sell the underlying common stock until the earlier of five years or,
if certain revenue criteria were met, May 19, 2001. The value ascribed to the
option at the time the option agreement was amended, using a Black-Scholes
pricing model, was $1,014,000, which was ratably amortized over the remaining
service period of approximately fifteen months because the vesting of the option
did not affect our obligation under the service agreement. In addition, the
ratable
15
amortization of the remaining deferred cost of $1,014,000 was recorded as a
reduction of the revenue recognized from Network Commerce with any excess
amortization recorded on a quarterly basis as sales and marketing expense, which
was reflected as a non-cash compensation expense in our statement of operations.
We amortized $723,000 of the deferred costs during the year ended December 31,
2000, of which $59,000 was offset against the $59,000 of revenue recognized from
Network Commerce. The remaining $664,000 of sales and marketing expense was
included in non-cash compensation expense in our 2000 Statement of Operations.
As of March 31, 2001, we determined that it was unlikely that Network
Commerce would meet the remaining revenue requirements under the agreement.
Accordingly, we have amortized the remaining deferred cost of $291,000 during
the three months ended March 31, 2001, of which $54,000 was offset against the
$54,000 of revenue recognized from Network Commerce. The remaining $237,000 of
sales and marketing expense is included in non-cash compensation expense in our
statement of operations for the quarter ended March 31, 2001.
During 2000 and 1999, we granted or assumed stock options to purchase
5,730,727 and 3,496,245 shares of common stock at a weighted average exercise
price of $3.62 and $1.37, per share, respectively, certain of which were granted
at less than the deemed fair value of the common stock at the date of grant. For
the years ended December 31, 2000 and 1999, we recorded deferred compensation of
approximately $18.2 million and $6.2 million, respectively, in connection with
these options. The aggregate amount of unamortized deferred compensation related
to the grant of options which was subsequently reversed against paid-in capital
in connection with the forfeiture of those options associated with employees who
left LivePerson during the year ended December 31, 2000, approximated $5.4
million. In 2000, we also recorded $272,000 of deferred compensation relating to
the intrinsic value of unvested options assumed by us in connection with the
HumanClick acquisition. These amounts are presented as deferred compensation
within our consolidated financial statements and are being amortized over the
vesting period, typically three to four years, of the applicable options. We
amortized approximately $11.9 million and $1.6 million for the years ended
December 31, 2000 and 1999, respectively, net of forfeitures or cancellations of
approximately $2.0 million in connection with employees who left LivePerson in
2000.
Excluding the net non-cash compensation credit of approximately $1.7
million related to the Company's restructuring initiatives in the first quarter
of 2001 (as discussed in "Recent Events" above), net non-cash compensation
expense of $375,000 includes $237,000 related to the May 1999 option granted to
Network Commerce (discussed above) and $138,000 of amortization expense for the
three months ended March 31, 2001 (which is net of forfeitures of $394,000). The
aggregate amount of unamortized deferred compensation reversed against paid-in
capital in connection with the forfeitures of those options associated with
LivePerson employees who were terminated as part of our restructuring
initiatives in the three months ended March 31, 2001 approximated $2.6 million.
We recorded an additional $639,000 and $0 of non-cash compensation expense
during the first quarter of 2000 and 2001, respectively, in connection with the
vesting of options pursuant to employee severance agreements.
RESULTS OF OPERATIONS
Due to the phasing out of our programming services and our limited
operating history, we believe that comparisons of our first quarter 2001 and
2000 operating results with each other or those of prior periods are not
meaningful and that our historical operating results should not be relied upon
as indicative of future performance.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2001 AND 2000
REVENUE. Total revenue increased to $2.4 million in the three months ended
March 31, 2001 from $774,000 three months ended March 31, 2000. This increase
was due to the
16
introduction of HumanClick products, and to increased marketing efforts of the
LivePerson services, increased market acceptance of our services and increased
sales generated by LivePerson's sales force, and to a lesser extent, client
attrition, which accelerates the recognition of client set-up fees which had
been recorded as deferred revenue of approximately $166,000 in the three months
ended March 31, 2001. We cannot assure that we will achieve similar growth, if
any, in future periods.
COST OF REVENUE. Cost of revenue consists of compensation costs relating
to employees who provide customer service to our clients, compensation costs
relating to our network support staff, the cost of supporting our
infrastructure, including expenses related to leasing space and connectivity for
our services, third-party monitoring services, as well as depreciation of
certain hardware and software, and allocated occupancy costs and related
overhead. Cost of revenue increased to $2.7 million in the three months ended
March 31, 2001 from $1.2 million in the comparable period in 2000. This increase
was primarily attributable to costs associated with supporting our
infrastructure, including certain equipment leases, and to a lesser extent, to
the acquisition of HumanClick.
PRODUCT DEVELOPMENT. Our product development expenses consist primarily of
compensation and related expenses for product development personnel. Product
development costs decreased to $1.3 million for the three months ended March 31,
2001 from $1.8 million in the comparable period in 2000. This decrease was
primarily attributable to a decrease in outsourced labor costs and to our
restructuring initiatives, which resulted in fewer employees, streamlined
operations and reduced spending requirements.
SALES AND MARKETING. Our sales and marketing expenses consist of
compensation and related expenses for sales and marketing personnel, as well as
advertising, public relations and trade show exhibit expenses. Sales and
marketing expenses decreased to $2.1 million in the three months ended March 31,
2001, from $3.4 million in the comparable period in 2000. This decrease was
primarily attributable to reduced print advertising expense and to our
restructuring initiatives, which resulted in fewer employees, streamlined
operations and reduced spending requirements.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses
consist primarily of compensation and related expenses for executive,
accounting, human resources and administrative personnel. General and
administrative expenses increased to $1.9 million in the three months ended
March 31, 2001 from $1.3 million in the comparable period in 2000. This increase
was due primarily to an increase in occupancy and related costs and, to a lesser
extent, to insurance, professional fees, depreciation and an increase in our
allowance for doubtful accounts.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization expense of
$743,000 in the three months ended March 31, 2001 relates to goodwill and other
intangibles recorded as a result of our acquisition of HumanClick in October
2000.
NON-CASH COMPENSATION EXPENSE, NET. Non-cash compensation expense consists
primarily of amortization of deferred stock-based compensation. Deferred
stock-based compensation represents the difference between the exercise price
and the deemed fair value of certain stock options granted to employees.
Deferred compensation is being amortized over the vesting period of the
individual options. Non-cash compensation expense decreased to $375,000 in the
three months ended March 31, 2001 from $6.0 million in the comparable period in
2000. This decrease is due primarily to forfeitures of employee stock options
associated with employees who voluntarily left LivePerson in 2000 as well as
LivePerson employees who were terminated as part of our restructuring
initiatives in the first quarter of 2001.
OTHER INCOME. Interest income was $235,000 for the three months ended
March 31, 2001 and consists of interest earned on cash and cash equivalents
generated by the receipt of proceeds from our initial public offering and
preferred stock issuances. Interest expense was $7,000 in the three months ended
March 31, 2001. Other income for the three months ended March 31, 2000 was
$291,000.
NET LOSS. Our net loss decreased to $8.2 million for the three months
ended March 31, 2001 from $12.6 million for the comparable period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations principally through
cash generated by private placements of convertible preferred stock and the
initial public offering of our common stock. Through March 31, 2001, we have
raised a total of $69.5 million in aggregate net proceeds. As of March 31, 2001,
we had $13.2 million in cash and cash equivalents and marketable securities, a
decrease of $8.2 million from December 31,
17
2000. We regularly invest excess funds in short-term money market funds,
commercial paper, government securities, and short-term notes. In March 2000, we
entered into a letter of credit, which serves as the security deposit for a
portion of our lease of office space, in an aggregate amount of $2.0 million for
2000. We entered into an additional letter of credit for $2.2 million in March
2001 in connection with the other portion of our March 2000 lease of office
space. These are reflected as restricted cash on our condensed consolidated
balance sheets.
Net cash used in operating activities was $5.7 million for the three
months ended March 31, 2001 and consisted primarily of net operating losses,
non-cash items related to our restructuring initiatives and an increase in
accounts receivable partially offset by an increase in accounts payable, accrued
expenses, depreciation and amortization expenses, and deferred revenue. Net cash
used in operating activities was $2.5 million for the three months ended March
31, 2000 and consisted primarily of net operating losses, partially offset by an
increase in non-cash compensation expense, accounts payable and accrued
expenses.
Net cash used in investing activities was $1.6 million in the three months
ended March 31, 2001 and was due to the purchase of restricted cash and the
purchase of fixed assets. Net cash used in investing activities was $20.3
million for the three months ended March 31, 2000 and was due to the net
purchase of fixed assets and the purchase of short-term "available-for-sale"
investments.
Net cash provided by financing activities was $38,000 for the three months
ended March 31, 2001 and was attributable to proceeds from the issuance of
common stock in connection with the exercise of options. Net cash provided by
financing activities was $16.8 million for the three months ended March 31, 2000
and was primarily attributable to proceeds from the sale of our convertible
preferred stock.
We lease facilities and certain equipment under agreements accounted for
as operating leases. These leases generally require us to pay all executory
costs such as maintenance and insurance. Rental expense for operating leases for
the three months ended March 31, 2001 and 2000 was approximately $1,172,000 and
$358,000, respectively.
In March 2000, we entered into a lease for an aggregate of approximately
83,500 square feet on two floors at a location in New York City. The lease term
with respect to one floor commenced in April 2000, with rent of approximately
$1.4 million per year in the first three years, $1.5 million per year in years
four through seven and $1.6 million per year in years eight through ten. The
related security deposit is $2.0 million for the first three years, $1.3 million
for years four through seven and $670,000 for years eight through ten. At our
option, we have provided the security deposit by a letter of credit. The lease
term relating to the other floor commenced in March 2001, with rent of
approximately $1.5 million per year in the first three years, $1.6 million per
year in years four through seven and $1.7 million per year in years eight
through ten. The related security deposit is $2.2 million for the first three
years, $1.5 million for years four through seven and $747,000 for years eight
through ten. At our option, we have provided the security deposit by a letter of
credit.
As of March 31, 2001, our principal commitments were approximately $33.7
million under various operating leases, of which $3.6 million is due in 2001. We
do not currently expect that our principal commitments for the year ended
December 31, 2001 will exceed $5.0 million in the aggregate.
Although our revenue has increased from quarter to quarter, we have
incurred significant costs to develop our technology and services, to hire
employees in our customer service, sales, marketing and administration
departments, and for the amortization of goodwill and other intangible assets,
as well as non-cash compensation costs. As a result, we have incurred
significant net losses and negative cash flows from operations since inception,
and as of March 31, 2001, had an accumulated deficit of $79.3 million. These
losses have been funded primarily through the issuance of common stock in our
initial public offering and, prior to the initial public offering, the issuance
of convertible preferred stock.
In the first quarter of 2001, following a review of our business in
connection with our acquisition of HumanClick, we commenced a restructuring plan
in order to streamline our operations. We recorded a charge for severance and
other related expenses due to the
18
restructuring of approximately $3.4 million in the first quarter of 2001, all of
which is expected to be paid or charged against the assets directly by the end
of 2001. We also recognized a non-cash compensation credit in the net amount of
approximately $1.7 million associated with LivePerson employees who were
terminated as part of our restructuring initiatives. The net non-cash
compensation credit represents the reversal of approximately $3.2 million of
previously recognized amortization of deferred compensation related to options
of employees which did not vest due to their termination of employment in
connection with our restructuring initiatives, offset by the acceleration of
vesting of certain other employee options of approximately $1.5 million also in
connection with the restructuring initiatives. Approximately $446,000 of the
$1.5 million represents additional compensation related to the intrinsic value
of options at the date of modification during the first quarter of 2001.
Our restructuring initiatives included the consolidation of our two San
Francisco Bay area offices, a reduction of our workforce by approximately 90
people as of the end of the first quarter of 2001, intensified programs to
reduce our working capital requirements and curtailment of our capital and
marketing expenses, among other initiatives. We cannot assure you that through
these efforts, without increased revenue, we will be able to generate positive
cash flows from operations. Notwithstanding these efforts, we expect to continue
to devote a substantial amount of our capital resources to support our sales,
marketing, product development and customer service departments, our marketing
efforts, and the infrastructure necessary to support the growth in our customer
base and other general corporate activities. As a result, we expect to continue
to incur operating losses and negative cash flows for the foreseeable future.
We anticipate that our current cash and cash equivalents will be
sufficient to satisfy our working capital and capital requirements for at least
the next 12 months. However, we cannot assure you that we will not require
additional funds prior to such time, and we would then seek to sell additional
equity or debt securities through public financings, or seek alternative sources
of financing. We cannot assure you that additional funding will be available on
favorable terms, when needed, if at all. If we are unable to obtain any
necessary additional financing, we may be required to reduce the scope of our
planned sales and marketing and product development efforts, which could
materially adversely affect our business, financial condition and operating
results. In addition, we may require additional funds in order to fund more
rapid expansion, to develop new or enhanced services or products or to invest in
complementary businesses, technologies, services or products.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities" was issued
and, as amended by SFAS No. 137, was adopted by us in the fourth quarter of
2000. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. The adoption of this statement has not impacted our
financial statements as we do not use derivative instruments.
In March 2000, the Emerging Issues Task Force reached a consensus on Issue
00-2, "Accounting for Web Site Development Costs," which provided guidance on
when to capitalize versus expense costs incurred to develop a Web site. The
consensus is effective for Web site development costs in quarters beginning
after June 30, 2000. We initially adopted the guidance as described by Issue
00-2 in 2000, which has not materially impacted our results of operations.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
RISK RELATED TO OUR POSSIBLE DELISTING FROM NASDAQ
WE FACE POSSIBLE NASDAQ DELISTING WHICH WOULD RESULT IN A LIMITED PUBLIC
MARKET FOR OUR COMMON STOCK AND MAKE OBTAINING FUTURE EQUITY FINANCING MORE
DIFFICULT FOR US.
We must satisfy a number of requirements to maintain our listing on the
Nasdaq National Market, including maintaining a minimum bid price for our common
stock of $1.00 per share and maintaining a market value for our publicly-held
shares of at least $5 million. A company fails to satisfy these requirements if
its closing bid price remains below $1.00 per share or if the market value for
the publicly-held shares remains below $5 million, in each case, for 30
consecutive business days.
19
On April 30, 2001, we received a letter from The Nasdaq Stock Market,
Inc., notifying us of our failure to maintain a minimum bid price of $1.00 per
share during the preceding 30 consecutive business days. The letter stated that
we must demonstrate compliance with Nasdaq's minimum bid rule by July 30, 2001,
and that if we are not in compliance by that date, Nasdaq will notify us that
our common stock will be delisted from the Nasdaq National Market. If such event
occurs, we may appeal the decision to a Nasdaq Listing Qualifications Panel. We
cannot assure you that our bid price will comply with the requirements for
continued listing of our common stock on the Nasdaq National Market, or that any
appeal of a decision to delist our common stock will be successful.
If our common stock loses its Nasdaq National Market status, shares of our
common stock would likely trade in the over-the-counter market in the so-called
"pink sheets" or the OTC Bulletin Board, which was established for securities
that do not meet the Nasdaq National Market listing requirements. Consequently,
selling our common stock would be more difficult because smaller quantities of
shares would likely be bought and sold, transactions could be delayed, and
security analysts' and news media coverage of us may be reduced. These factors
could result in lower prices and larger spreads in the bid and ask prices for
shares of common stock.
Such delisting from the Nasdaq National Market or further declines in our
stock price could also greatly impair our ability to raise additional necessary
capital through equity or debt financing, and significantly increase the
ownership dilution to stockholders caused by our issuing equity in financing or
other transactions. The price at which we issue shares in such transactions is
generally based on the market price of our common stock and a decline in our
stock price could result in the need for us to issue a greater number of shares
to raise a given amount of funding or acquire a given dollar value of goods or
services.
In addition, if our common stock is not listed on the Nasdaq National
Market, we may become subject to Rule 15g-9 under the Securities and Exchange
Act of 1934, as amended. That rule imposes additional sales practice
requirements on broker-dealers that sell low-priced securities to persons other
than established customers and institutional accredited investors. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
affect the ability of broker-dealers to sell the common stock and affect the
ability of holders to sell their shares of our common stock in the secondary
market.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY AND EXPECT TO ENCOUNTER DIFFICULTIES
FACED BY EARLY STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING MARKETS.
We have only a limited operating history providing the LivePerson services
upon which to base an evaluation of our current business and future prospects.
We began offering our services in November 1998 and we commenced offering the
HumanClick service in October 2000; accordingly, the revenue and income
potential of our business and the related market are unproven. As a result of
our limited operating history as a leading application service provider of
real-time sales and customer service technology for companies doing business on
the Internet, we have only approximately two and one half years of historical
financial data relating to the LivePerson services upon which to forecast
revenue and results of operations.
In addition, because this market is relatively new and rapidly evolving,
we have limited insight into trends that may emerge and affect our business.
Before investing in us, you should evaluate the risks, expenses and problems
frequently encountered by companies such as ours that are in the early stages of
development and that are entering new and rapidly changing markets. These risks
include our ability to:
- attract more clients and retain existing clients;
- sell additional seats for LivePerson Chat, which generate monthly
fees, and other services to our existing clients;
- increase or maintain current pricing levels for our services;
20
- effectively market and maintain our brand name;
- respond effectively to competitive pressures;
- continue to develop and upgrade our technology; and
- attract, integrate, retain and motivate qualified personnel.
If we are unsuccessful in addressing some or all of these risks, our
business, financial condition and results of operations would be materially and
adversely affected.
WE HAVE A HISTORY OF LOSSES, WE HAD AN ACCUMULATED DEFICIT OF $79.3
MILLION AS OF MARCH 31, 2001 AND WE EXPECT TO INCUR SIGNIFICANT LOSSES FOR THE
FORESEEABLE FUTURE.
We have not achieved profitability and, as we expect to continue to incur
significant operating expenses and to make capital expenditures, we expect to
continue to experience significant losses and negative cash flow for the
foreseeable future. We recorded a net loss of $20,000 for the year ended
December 31, 1998 (the year in which we commenced offering the LivePerson
services), $9.8 million for the year ended December 31, 1999, $43.3 million for
the year ended December 31, 2000 and $8.2 million for the quarter ended March
31, 2001. We had total revenue of less than $2.4 million for the quarter ended
March 31, 2001, and less than $6.3 million and $620,000 in the years ended
December 31, 2000 and 1999, respectively. Our net loss for the year ended
December 31, 2000 included a non-cash dividend of $18.0 million. The net
non-cash compensation expense we recorded was a credit of $1.4 million for the
quarter ended March 31, 2001 and a $13.2 million charge for the year ended
December 31, 2000. As of March 31, 2001, our accumulated deficit was
approximately $79.3 million. Even if we do achieve profitability, we cannot
assure you that we can sustain or increase profitability on a quarterly or
annual basis in the future. Failure to achieve or maintain profitability may
materially and adversely affect the market price of our common stock.
WE HAVE AN UNPROVEN BUSINESS MODEL AND MAY NOT GENERATE SUFFICIENT REVENUE
FOR OUR BUSINESS TO SURVIVE.
Our business model is based on the delivery of real-time sales and
customer service technology and related services to companies doing business on
the Internet, a largely untested business. Sales and customer service
historically have been provided primarily in person or by telephone. Our
business model assumes that companies doing business on the Internet will choose
to provide sales and customer service via the Internet. Our business model also
assumes that many companies will recognize the benefits of an outsourced
application, that Internet users will choose to engage a customer service
representative in a live text-based interaction, that this interaction will
maximize sales opportunities and enhance the online shopping experience and that
companies will seek to have their online sales and customer service technology
provided by us. If any of these assumptions is incorrect, our business may be
harmed.
WE EXPECT THAT A SUBSTANTIAL MAJORITY OF OUR REVENUE WILL COME FROM THE
LIVEPERSON CHAT SERVICE FOR THE FORESEEABLE FUTURE AND IF WE ARE NOT SUCCESSFUL
IN SELLING THIS SERVICE, OUR REVENUE WILL NOT INCREASE AND MAY DECLINE.
The success of our business currently substantially depends, and for the
foreseeable future will continue to substantially depend, on the sale of only
one service, LivePerson Chat. We cannot be certain that there will be client
demand for our services or that we will be successful in penetrating the market
for real-time sales and customer service technology. We have recently
experienced slower revenue growth rates than in the past and we cannot assure
you that we will experience any future revenue growth. A decline in the price
of, or fluctuation in the demand (by existing or potential clients) for, our
services, is likely to cause our revenue to decline.
THE SUCCESS OF OUR BUSINESS REQUIRES THAT CLIENTS CONTINUE TO USE THE
LIVEPERSON SERVICES AND PURCHASE ADDITIONAL SEATS.
Our LivePerson services agreements typically have no termination date and
are terminable upon 30 to 90 days' notice without penalty. If a significant
number of our
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clients, or any one client with a significant number of seats, were to terminate
these services agreements, reduce the number of seats purchased or fail to
purchase additional seats, our results of operations may be negatively and
materially affected. Our client retention rates have recently declined as a
result of a number of factors, including competition, consolidation in the
Internet industry and termination of operations by certain of our clients.
Dissatisfaction with the nature or quality of our services could also lead
clients to terminate our service. We depend on monthly fees from the LivePerson
services for substantially all our revenue. If our retention rate declines
further, our revenue could decline unless we are able to obtain additional
clients or alternate revenue sources. Further, because of the historically small
number of seats sold in initial orders, we depend on sales to new clients and
sales of additional seats to our existing clients.
OUR QUARTERLY REVENUE AND OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS WHICH MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.
We expect our quarterly revenue and operating results to fluctuate
significantly in the future due to a variety of factors, including the following
factors which are in part within our control, and in part outside of our
control:
- market acceptance by companies doing business on the Internet of
real-time sales and customer service technology;
- our clients' business success;
- our clients' demand for seats and our other services;
- our ability to attract and retain clients;
- the amount and timing of capital expenditures and other costs
relating to the expansion of our operations, including those related
to acquisitions;
- the introduction of new services by us or our competitors; and
- changes in our pricing policies or the pricing policies of our
competitors.
Our revenue and results may also fluctuate significantly in the future due to
the following factors that are entirely outside of our control:
- seasonal factors affecting our clients' businesses;
- economic conditions specific to the Internet, electronic commerce
and online media; and
- general economic conditions.
Many of our clients' businesses are seasonal. Our clients' demand for
real-time sales and customer service technology in general and their demand for
seats and our other services, in particular, may be seasonal as well. As a
result, our future revenue and profits may vary from quarter to quarter.
We do not believe that period-to-period comparisons of our operating
results are meaningful. You should not rely upon these comparisons as indicators
of our future performance.
Due to the foregoing factors, it is possible that our results of
operations in one or more future quarters may fall below the expectations of
securities analysts and investors. If this occurs, the trading price of our
common stock could decline.
OUR CLIENTS MAY EXPERIENCE ADVERSE BUSINESS CONDITIONS THAT COULD
ADVERSELY AFFECT OUR BUSINESS.
Some of our clients may experience difficulty in supporting their current
operations and implementing their business plans. These clients may reduce their
spending on our services, or may not be able to discharge their payment and
other obligations to us. The non-payment or late payment of amounts due to us
from a significant number of clients would negatively impact our financial
condition. These circumstances are influenced by general economic and
industry-specific conditions, and could have a material adverse impact on our
22
business, financial condition and results of operations. In addition, as a
result of these conditions, our clients, in particular our Internet-related
clients that may experience (or that anticipate experiencing) difficulty raising
capital, may elect to scale back the resources they devote to customer service
technology, including services such as ours. If the current environment for our
clients, including, in particular, our Internet-related clients, does not
improve, our business, results of operations and financial condition could be
materially adversely affected.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR EXPANDING OPERATIONS.
Since the launch of our services in November 1998, we have grown rapidly,
even in light of our recent restructuring initiatives. This growth has placed a
significant strain on our managerial, operational, technical and financial
resources. In 2000, we replaced our existing accounting and other back-office
systems at a cost of approximately $1.2 million. The new systems are being
integrated with our operations, controls and procedures. If we are not able to
successfully integrate these new systems with our existing systems, or if we
incur significant additional costs in order to achieve such integration, our
business could be harmed. In order to manage our growth, we must also continue
to implement new or upgraded operating and financial systems, procedures and
controls. Our failure to expand our operations in an efficient manner could
cause our expenses to grow, our revenue to decline or grow more slowly than
expected and could otherwise have a material adverse effect on our business,
results of operations and financial condition.
STAFF ATTRITION COULD STRAIN OUR MANAGERIAL, OPERATIONAL, FINANCIAL AND
OTHER RESOURCES.
We had 73 employees at December 31, 1999; 181 employees at December 31,
2000; and 90 employees at March 31, 2001. In the area of technology, we had
19 employees at December 31, 1999; 40 employees at December 31, 2000; and 28
employees at March 31, 2001. Any staff attrition we experience, whether
initiated by the departing employees or by us, could place a significant strain
on our managerial, operational, financial and other resources. To the extent
that we do not initiate or seek any staff attrition that occurs, there can be no
assurance that we will be able to identify and hire adequate replacement staff
promptly, if at all, and even that if such staff is replaced, we will be
successful in integrating these employees. In the first quarter of 2001, in
addition to conducting performance-related terminations, we commenced a
restructuring plan pursuant to which we eliminated a large number of positions
in response to changes in our business needs, such as redundancies in our
research and development and client support functions and the transition of a
portion of our sales efforts from direct sales to more automated Internet-based
sales processes. We expect to evaluate our needs and the performance of our
staff on a periodic basis, and may choose to make further adjustments in the
future. If the size of our staff is significantly reduced, either by our choice
or otherwise, we could face significant management, operational, financial and
other constraints. For example, it may become more difficult for us to manage
existing, or establish new, relationships with clients and other counterparties,
or to expand and improve our service offerings. It may also become more
difficult for us to implement changes to our business plan or to respond
promptly to opportunities in the marketplace. Further, it may become more
difficult for us to devote personnel resources necessary to maintain or improve
existing systems, including our financial and managerial controls, billing
systems, reporting systems and procedures. Thus, any significant amount of staff
attrition could cause our business and financial results to suffer.
OUR BUSINESS IS DEPENDENT ON A FEW KEY EMPLOYEES, INCLUDING OUR CHIEF
EXECUTIVE OFFICER, ROBERT P. LOCASCIO.
Our future success depends to a significant extent on the continued
services of our senior management team, including Robert P. LoCascio, our
founder and Chief Executive Officer. The loss of the services of any member of
our senior management team, in particular Mr. LoCascio, could have a material
and adverse effect on our business, results of operations and financial
condition. In addition, in the past six months, four of the members of our
senior management team (our Chief Technology Officer, Chief Operating Officer,
Executive Vice President for Worldwide Sales and Strategic Alliances, and our
President/Chief Operating Officer) left LivePerson. Timothy E. Bixby, our Chief
Financial Officer, has assumed the additional position of President. Although we
do not believe that recent changes in our senior management team have materially
harmed our business, they have distracted us from other important tasks, and we
cannot assure you that we will be able to
23
successfully hire senior managers who can be integrated, and who will work
together successfully, with our existing management team.
IF WE DO NOT SUCCESSFULLY INTEGRATE POTENTIAL FUTURE ACQUISITIONS, OUR
BUSINESS COULD BE HARMED.
In the future, we may acquire or invest in complementary companies,
products or technologies. Acquisitions and investments involve numerous risks to
us, including:
- difficulties in integrating operations, technologies, products and
personnel with LivePerson;
- diversion of financial and management resources from efforts related
to the LivePerson services or other then-existing operations; risks
of entering new markets beyond providing real-time sales and
customer service technology for companies doing business on the
Internet;
- potential loss of either our existing key employees or key employees
of any companies we acquire; and
- our inability to generate sufficient revenue to offset acquisition
or investment costs.
These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our results
of operations. Furthermore, we may incur debt or issue equity securities to pay
for any future acquisitions. The issuance of equity securities could be dilutive
to our existing stockholders.
WE COULD FACE ADDITIONAL REGULATORY REQUIREMENTS, TAX LIABILITIES AND
OTHER RISKS AS WE EXPAND INTERNATIONALLY.
In July 2000, we commenced operations in the United Kingdom. In addition,
in October 2000, we acquired HumanClick Ltd., an Israeli-based provider of
real-time online customer service applications with more than 100,000 customers
around the world and 27 employees at the date of acquisition. There are risks
related to doing business in international markets, such as changes in
regulatory requirements, tariffs and other trade barriers, fluctuations in
currency exchange rates, more stringent rules relating to the privacy of
Internet users and adverse tax consequences. In addition, there are likely to be
different consumer preferences and requirements in specific international
markets. Furthermore, we may face difficulties in staffing and managing any
foreign operations. One or more of these factors could harm any future
international operations.
IF WE DO NOT SUCCEED IN ATTRACTING NEW PERSONNEL OR RETAINING AND
MOTIVATING OUR CURRENT PERSONNEL, OR IF WE ARE UNABLE TO OUTSOURCE CERTAIN
FUNCTIONS, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WILL BE
MATERIALLY AND ADVERSELY AFFECTED.
We may be unable to retain our key employees or attract, integrate or
retain other highly qualified employees in the future. We have experienced, and
expect to continue to experience, difficulty in hiring and retaining
highly-skilled senior managers and other employees with appropriate
qualifications, such as employees combining customer service backgrounds with
technical aptitude, and employees with experience developing scalable computer
networks. Also, our recently announced workforce reductions may adversely affect
the morale of, and our ability to retain, those employees who were not
terminated. Because our stock price has suffered a significant decline, the
stock options held by our employees and other equity-based compensation may have
diminished effectiveness as employee retention devices. If our retention efforts
are ineffective, employee turnover could increase and our ability to provide
services to our clients would be materially and adversely affected.
OUR REPUTATION DEPENDS, IN PART, ON FACTORS WHICH ARE ENTIRELY OUTSIDE OF
OUR CONTROL.
Our services appear as a LivePerson-branded, a HumanClick-branded or a
custom-created icon on our clients' Web sites. The customer service operators
who respond to the inquiries of our clients' Internet users are employees or
agents of our clients; they are not our employees. As a result, we have no way
of controlling the actions of these operators. In addition, an Internet user may
not know that the operator is an employee or agent of our client, rather than a
LivePerson employee. If an Internet user were to have a negative
24
experience in a LivePerson-powered or HumanClick-powered real-time dialogue, it
is possible that this experience could be attributed to us, which could diminish
our brand and harm our business. Finally, we believe the success of our services
depend on the prominent placement of the icon on the client's Web site, over
which we also have no control.
WE MAY BE UNABLE TO CONTINUE TO BUILD AWARENESS OF THE LIVEPERSON BRAND
NAME.
Building recognition of our brand is critical to establishing the
advantage of being among the first application service providers to provide
real-time sales and customer service and to attracting new clients. If we fail
to successfully promote and maintain our brand or incur significant expenses in
promoting our brand without an associated increase in our revenue, our business,
results of operations and financial condition may be materially and adversely
affected.
WE ARE DEPENDENT ON TECHNOLOGY SYSTEMS THAT ARE BEYOND OUR CONTROL.
The success of the LivePerson services depends in part on our clients'
online services as well as the Internet connections of visitors to their Web
sites, both of which are outside of our control. As a result, it may be
difficult to identify the source of problems if they occur. In the past, we have
experienced problems related to connectivity which have resulted in slower than
normal response times to Internet user chat requests and messages and
interruptions in service. The LivePerson services rely both on the Internet and
on our connectivity vendors for data transmission. Therefore, even when
connectivity problems are not caused by the LivePerson services, our clients or
Internet users may attribute the problem to us. This could diminish our brand
and harm our business, divert the attention of our technical personnel from our
product development efforts or cause significant client relations problems.
In addition, we rely on two Web hosting service providers for Internet
connectivity to deliver our services, power, security and technical assistance.
Such providers have, in the past, experienced problems that have resulted in
slower than normal response times and interruptions in service. If we are unable
to continue utilizing the services of our existing Web hosting providers or if
our Web hosting services experience interruptions or delays, it is possible that
our business could be harmed.
Our service also depends on many third parties for hardware and software,
which products could contain defects. Problems arising from our use of such
hardware or software could require us to incur significant costs or divert the
attention of our technical personnel from our product development efforts. To
the extent any such problems require us to replace such hardware or software, we
may not be able to do so on acceptable terms, if at all.
TECHNOLOGICAL DEFECTS COULD DISRUPT OUR SERVICES, WHICH COULD HARM OUR
BUSINESS AND REPUTATION.
We face risks related to the technological capabilities of the LivePerson
services. We expect the number of simultaneous chats between our clients'
operators and Internet users over our system to increase significantly as we
expand our client base. Our network hardware and software may not be able to
accommodate this additional volume. Additionally, we must continually upgrade
our software to improve the features and functionality of the LivePerson
services in order to be competitive in our market. If future versions of our
software contain undetected errors, our business could be harmed. As a result of
major software upgrades at LivePerson, our client sites have, from time to time,
experienced slower than normal response times and interruptions in service. If
we experience system failures or degraded response times, our reputation and
brand could be harmed. We may also experience technical problems in the process
of installing and initiating the LivePerson services on new Web hosting
services. These problems, if unremedied, could harm our business.
The LivePerson services also depend on complex software which may contain
defects, particularly when we introduce new versions onto our servers. We may
not discover software defects that affect our new or current services or
enhancements until after they are deployed. It is possible that, despite testing
by us, defects may occur in the software. These defects could result in:
- damage to our reputation;
25
- lost sales;
- delays in or loss of market acceptance of our products; and
- unexpected expenses and diversion of resources to remedy errors.
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE AND CHANGING
CLIENT PREFERENCES IN THE ONLINE SALES AND CUSTOMER SERVICE INDUSTRY AND THIS
MAY HARM OUR BUSINESS.
If we are unable, for technological, legal, financial or other reasons, to
adapt in a timely manner to changing market conditions in the online sales and
customer service industry or our clients' or Internet users' requirements, our
business, results of operations and financial condition would be materially and
adversely affected. Business on the Internet is characterized by rapid
technological change. In addition, the market for online sales and customer
service technology is relatively new. Sudden changes in client and Internet user
requirements and preferences, frequent new product and service introductions
embodying new technologies, such as broadband communications, and the emergence
of new industry standards and practices could render the LivePerson services and
our proprietary technology and systems obsolete. The rapid evolution of these
products and services will require that we continually improve the performance,
features and reliability of our services. Our success will depend, in part, on
our ability to:
- enhance the features and performance of the LivePerson services;
- develop and offer new services that are valuable to companies doing
business on the Internet and Internet users; and
- respond to technological advances and emerging industry standards
and practices in a cost-effective and timely manner.
If any of our new services, including upgrades to our current services, do not
meet our clients' or Internet users' expectations, our business may be harmed.
Updating our technology may require significant additional capital expenditures
and could materially and adversely affect our business, results of operations
and financial condition.
IF WE ARE NOT COMPETITIVE IN THE MARKET FOR REAL-TIME SALES AND CUSTOMER
SERVICE TECHNOLOGY, OUR BUSINESS COULD BE HARMED.
There are no substantial barriers to entry in the real-time sales and
customer service technology market, other than the ability to design and build
scalable software and, with respect to outsourced solution providers, the
ability to design and build scalable network architecture. Established or new
entities may enter this market in the near future, including those that provide
real-time interaction online, with or without the user's request.
We compete directly with companies focused on technology that facilitates
real-time sales and customer service interaction. Our competitors include
customer service enterprise software providers such as eGain Communications
Corp., eShare Technologies, Inc., Kana Communications, Inc., RightNow
Technologies, Inc. and WebLine Communications (a part of Cisco Systems'
applications technology group), some of which offer hosted solutions.
Furthermore, many of our competitors offer a broader range of customer
relationship management products and services than we currently offer. We may be
disadvantaged and our business may be harmed if companies doing business on the
Internet choose sales and customer service technology from such providers.
We also face potential competition from larger enterprise software
companies such as Oracle Corporation and Siebel Systems. In addition,
established technology companies, including IBM, Hewlett-Packard and Microsoft,
may also leverage their existing relationships and capabilities to offer
real-time sales and customer service applications.
Finally, we face competition from clients and potential clients that
choose to provide a real-time sales and customer service solution in-house as
well as, to a lesser extent, traditional offline customer service solutions,
such as telephone call centers.
26
We believe that competition will increase as our current competitors
increase the sophistication of their offerings and as new participants enter the
market. Many of our current and potential competitors have:
- longer operating histories;
- larger client bases;
- greater brand recognition;
- more diversified lines of products and services; and
- significantly greater financial, marketing and other resources.
These competitors may enter into strategic or commercial relationships
with larger, more established and better-financed companies. These competitors
may be able to:
- undertake more extensive marketing campaigns;
- adopt more aggressive pricing policies; and
- make more attractive offers to businesses to induce them to use
their products or services.
Any delay in the general market acceptance of the real-time sales and
customer service solution business model would likely harm our competitive
position. Delays would allow our competitors additional time to improve their
service or product offerings, and would also provide time for new competitors to
develop real-time sales and customer service applications and solicit
prospective clients within our target markets. Increased competition could
result in pricing pressures, reduced operating margins and loss of market share.
OUR BUSINESS AND PROSPECTS WOULD SUFFER IF WE ARE UNABLE TO PROTECT AND
ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
Our success and ability to compete depend, in part, upon the protection of
our intellectual property rights relating to the technology underlying the
LivePerson services. We currently have a U.S. patent application pending
relating to such technology and have not filed applications outside the U.S. The
U.S. Patent and Trademark Office has issued a non-final office action rejecting
our initial patent application. We have responded to the office action; however,
it is possible that:
- our pending patent application may not result in the issuance of a
patent;
- any patent issued may not be broad enough to protect our
intellectual property rights;
- any patent issued could be successfully challenged by one or more
third parties, which could result in our loss of the right to
prevent others from exploiting the invention claimed in the patent;
- current and future competitors may independently develop similar
technology, duplicate our service or design around any patent we may
have; and
- effective patent protection may not be available in every country in
which we do business.
Further, to the extent that the invention described in our U.S. patent
application was made public prior to the filing of the application, we may not
be able to obtain patent protection in certain foreign countries. We also rely
upon copyright, trade secret and trademark law, written agreements and common
law to protect our proprietary technology, processes and other intellectual
property, to the extent that protection is sought or secured at all. We
currently have a common law trademark, "LivePerson", and three pending U.S.
trademark applications. The U.S. Patent and Trademark Office has issued
non-final office actions with respect to our trademark applications, requesting
additional information and making refusals. However, no final determinations as
to the registrability of the marks have been made. We have responded to the
various office actions and as a
27
result, our trademark application for "LivePerson Give Your Site A Pulse" has
been approved for publication on the principal register. One of our other
applications is for the use of the "LivePerson" trademark in the category of
services. We have modified this application for registration on the supplemental
register. Our remaining application is an "intent-to-use" application for the
"LivePerson" trademark in the category of software. We have determined not to
further pursue this application. Ultimately we may not be able to secure
registration of any of our trademarks. In addition, we do not have any
trademarks registered outside the U.S., nor do we have any trademark
applications pending outside the U.S. We cannot assure you that any steps we
might take will be adequate to protect against infringement and misappropriation
of our intellectual property by third parties. Similarly, we cannot assure you
that third parties will not be able to independently develop similar or superior
technology, processes or other intellectual property. The unauthorized
reproduction or other misappropriation of our intellectual property rights could
enable third parties to benefit from our technology without paying us for it. If
this occurs, our business, results of operations and financial condition would
be materially and adversely affected. In addition, disputes concerning the
ownership or rights to use intellectual property could be costly and
time-consuming to litigate, may distract management from operating our business
and may result in our loss of significant rights.
OUR PRODUCTS AND SERVICES MAY INFRINGE UPON INTELLECTUAL PROPERTY RIGHTS
OF THIRD PARTIES AND ANY INFRINGEMENT COULD REQUIRE US TO INCUR SUBSTANTIAL
COSTS AND MAY DISTRACT OUR MANAGEMENT.
Although we attempt to avoid infringing known proprietary rights of third
parties, we are subject to the risk of claims alleging infringement of
third-party proprietary rights. If we infringe upon the rights of third parties,
we may not be able to obtain licenses to use those rights on commercially
reasonable terms. In that event, we would need to undertake substantial
reengineering to continue offering our services. Any effort to undertake such
reengineering might not be successful. In addition, any claim of infringement
could cause us to incur substantial costs defending against the claim, even if
the claim is invalid, and could distract our management from our business.
Furthermore, a party making such a claim could secure a judgment that requires
us to pay substantial damages. A judgment could also include an injunction or
other court order that could prevent us from selling our products. If any of
these events occurred, our business, results of operations and financial
condition would be materially and adversely affected.
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS TO EXECUTE OUR BUSINESS
STRATEGY AND WE MAY NOT BE ABLE TO SECURE ADDITIONAL FINANCING.
We believe that our current cash and cash equivalents and cash generated
from operations, if any, will be sufficient to fund our working capital and
capital expenditure requirements for at least the next 12 months. To the extent
that we require additional funds to support our operations or the expansion of
our business, or to pay for acquisitions, we may need to sell additional equity,
issue debt or convertible securities or obtain credit facilities through
financial institutions. In the past, we have obtained financing principally
through the sale of preferred stock, common stock and warrants. If additional
funds are raised through the issuance of debt or preferred equity securities,
these securities could have rights, preferences and privileges senior to holders
of common stock. The terms of any debt securities could impose restrictions on
our operations. If additional funds are raised through the issuance of
additional equity or convertible securities, our stockholders could suffer
dilution. We cannot assure you that additional funding, if required, will be
available to us in amounts or on terms acceptable to us. If sufficient funds are
not available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of acquisition opportunities, develop or enhance our
services or products, or otherwise respond to competitive pressures would be
significantly limited. Those limitations would materially and adversely affect
our business, results of operations and financial condition.
WE MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE PERSONAL INFORMATION
BELONGING TO OUR CLIENTS' INTERNET USERS.
We maintain dialogue transcripts of the text-based chats between our
clients and Internet users and store on our servers information supplied
voluntarily by these Internet users in exit surveys which follow the chats. We
provide this information to our clients to allow them to perform Internet user
analyses and monitor the effectiveness of our services. Some of the information
we collect in text-based chats and exit surveys may include personal
information, such as contact and demographic information. If third parties were
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able to penetrate our network security or otherwise misappropriate personal
information relating to our clients' Internet users or the text of customer
service inquiries, we could be subject to liability. We could be subject to
negligence claims or claims for misuse of personal information. These claims
could result in litigation which could have a material adverse effect on our
business, results of operations and financial condition. We may incur
significant costs to protect against the threat of security breaches or to
alleviate problems caused by such breaches.
RISKS RELATED TO OUR RECENT ACQUISITION OF HUMANCLICK LTD. AND ITS BUSINESS
IF WE DO NOT SUCCESSFULLY INTEGRATE HUMANCLICK OR THE MERGER'S BENEFITS DO
NOT MEET THE EXPECTATIONS OF FINANCIAL OR INDUSTRY ANALYSTS, THE MARKET PRICE
FOR OUR COMMON STOCK MAY DECLINE.
On October 12, 2000, we acquired HumanClick with the expectation that this
merger will result in significant benefits. We have no experience in managing a
customer base as large as HumanClick's and very little direct experience in
offering real-time, online customer service applications to small and mid-sized
businesses. Furthermore, HumanClick's principal offices are located in Israel
while our principal offices are located in New York; managing the business in a
coordinated fashion may therefore require additional management resources. We
will need to overcome these significant issues, among others, in order to
realize any benefits or synergies from the mergers. Our successful execution of
these post-merger events will involve considerable risk and may not be
successful.
The market price of our common stock may decline, and we may lose key
personnel and customers as a result of this merger if:
- we do not successfully integrate operations and personnel of
HumanClick;
- we do not achieve the perceived benefits of the merger as rapidly or
to the extent anticipated by financial or industry analysts; or
- the effect of the merger on our financial results is not consistent
with the expectations of financial or industry analysts.
IF THE COSTS ASSOCIATED WITH THE HUMANCLICK ACQUISITION EXCEED THE
BENEFITS REALIZED, WE MAY EXPERIENCE INCREASED LOSSES.
We cannot assure you that we will ever generate sufficient revenue from
the sale of HumanClick's services, which have only recently begun to generate
revenue, to offset expenses associated with the acquisition. Accordingly, if the
benefits of this acquisition do not exceed the costs associated with it,
including dilution to our stockholders resulting from the issuance of up to
approximately 4.5 million shares of our common stock in the acquisition, our
financial results could be adversely affected.
POLITICAL, ECONOMIC AND MILITARY CONDITIONS IN ISRAEL COULD NEGATIVELY
IMPACT OUR HUMANCLICK BUSINESS.
Our HumanClick facilities are located in Israel. Although substantially
all of our sales are being made to customers outside Israel, we are directly
influenced by the political, economic and military conditions affecting Israel.
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, which varies in degree and intensity, has caused security and
economic problems in Israel. Any major hostilities involving Israel or the
interruption or curtailment of trade between Israel and its present trading
partners could adversely affect our operations. We cannot assure you that
ongoing or revived hostilities related to Israel will not have a material
adverse effect on our business. Several Arab countries still restrict business
with Israeli companies. We could be adversely affected by restrictive laws or
policies directed towards Israel and Israeli businesses.
RISKS RELATED TO OUR INDUSTRY
WE ARE DEPENDENT ON CONTINUED GROWTH IN THE USE OF THE INTERNET AS A
MEDIUM FOR COMMERCE.
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We cannot be sure that a sufficiently broad base of consumers will adopt,
and continue to use, the Internet as a medium for commerce. Our long-term
viability depends substantially upon the widespread acceptance and development
of the Internet as an effective medium for consumer commerce. Use of the
Internet to effect retail transactions is at an early stage of development.
Convincing our clients to offer real-time sales and customer service technology
may be difficult.
Demand for recently introduced services and products over the Internet is
subject to a high level of uncertainty. Few proven services and products exist.
The development of the Internet into a viable commercial marketplace is subject
to a number of factors, including:
- continued growth in the number of users;
- concerns about transaction security;
- continued development of the necessary technological infrastructure;
- development of enabling technologies;
- uncertain and increasing government regulation; and
- the development of complementary services and products.
WE DEPEND ON THE CONTINUED VIABILITY OF THE INFRASTRUCTURE OF THE
INTERNET.
To the extent that the Internet continues to experience growth in the
number of users and frequency of use by consumers resulting in increased
bandwidth demands, we cannot assure you that the infrastructure for the Internet
will be able to support the demands placed upon it. The Internet has experienced
outages and delays as a result of damage to portions of its infrastructure.
Outages or delays could adversely affect online sites, email and the level of
traffic on the Internet. We also depend on Internet service providers that
provide our clients and Internet users with access to the LivePerson services.
In the past, users have experienced difficulties due to system failures
unrelated to our service. In addition, the Internet could lose its viability due
to delays in the adoption of new standards and protocols required to handle
increased levels of Internet activity. Insufficient availability of
telecommunications services to support the Internet also could result in slower
response times and negatively impact use of the Internet generally, and our
clients' sites (including the LivePerson or HumanClick pop-up dialogue windows)
in particular. If the use of the Internet fails to grow or grows more slowly
than expected, if the infrastructure for the Internet does not effectively
support growth that may occur or if the Internet does not become a viable
commercial marketplace, we may not achieve profitability and our business,
results of operations and financial condition will suffer.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. Recently, the United
States Congress enacted Internet legislation relating to issues such as
children's privacy, copyright and taxation. The children's privacy legislation
imposes restrictions on the collection, use and distribution of personal
identification information obtained online from children under the age of 13.
The copyright legislation establishes rules governing the liability of Internet
service providers and Web site publishers for the copyright infringement of
Internet users. The tax legislation places a moratorium on certain forms of
Internet taxes for three years; however, this moratorium does not apply to sales
and use taxes. Additionally, the European Union recently adopted a directive
addressing data privacy which imposes restrictions on the collection, use and
processing of personal data. Existing legislation and any new legislation could
hinder the growth in use of the Internet generally and decrease the acceptance
of the Internet as a medium for communication, commerce and advertising. The
laws governing the Internet remain largely unsettled, even in areas where
legislation has been enacted. It may take several years to determine whether and
how existing laws such as those governing intellectual property, taxation and
personal privacy apply to the Internet and Internet services. In addition, the
growth and development of the market for Internet commerce may prompt calls for
more stringent consumer protection laws, both in the U.S. and abroad, which may
impose additional burdens on companies conducting business online. Our business,
results of operations and financial condition could be materially and adversely
30
affected if we do not comply with recent legislation or laws or regulations
relating to the Internet that are adopted or modified in the future.
For example, the LivePerson services allow our clients to capture and save
information about Internet users, possibly without their knowledge.
Additionally, our service uses a tool, commonly referred to as a "cookie," to
uniquely identify each of our clients' Internet users. To the extent that
additional legislation regarding Internet user privacy is enacted, such as
legislation governing the collection and use of information regarding Internet
users through the use of cookies, the effectiveness of the LivePerson services
could be impaired by restricting us from collecting information which may be
valuable to our clients. The foregoing could harm our business, results of
operations and financial condition.
SECURITY CONCERNS COULD HINDER COMMERCE ON THE INTERNET.
User concerns about the security of confidential information online has
been a significant barrier to commerce on the Internet and online
communications. Any well-publicized compromise of security could deter people
from using the Internet or other online services or from using them to conduct
transactions that involve the transmission of confidential information. If
Internet commerce is inhibited as a result of such security concerns, our
business would be harmed.
OTHER RISKS
OUR EXECUTIVE OFFICERS, DIRECTORS AND 5% OR GREATER STOCKHOLDERS WILL BE
ABLE TO INFLUENCE MATTERS REQUIRING A STOCKHOLDER VOTE.
Our executive officers, directors and stockholders who each own greater
than 5% of the outstanding common stock and their affiliates, in the aggregate,
beneficially own approximately 38.0% of our outstanding common stock. As a
result, these stockholders, if acting together, will be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership could also have the effect of delaying or preventing
a change in control.
THE FUTURE SALE OF SHARES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR
STOCK PRICE.
If our stockholders sell substantial amounts of our common stock,
including shares issuable upon the exercise of outstanding options and warrants
in the public market, or if the our stockholders are perceived by the market as
intending to sell substantial amounts of our common stock, the market price of
our common stock could fall. These sales also might make it more difficult for
us to sell equity securities in the future at a time and price that we deem
appropriate. "Affiliates" of LivePerson may not sell their shares of our common
stock except pursuant to:
- an effective registration statement under the Securities Act
covering the resale of those shares;
- an exemption under Rule 144 of the Securities Act; or
- another applicable exemption under the Securities Act.
Persons who may be deemed to be affiliates of LivePerson include those
persons or entities who directly or indirectly control LivePerson, such as our
directors, executive officers and significant stockholders.
OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE AND MAY EXPERIENCE EXTREME PRICE
AND VOLUME FLUCTUATIONS IN THE FUTURE WHICH COULD REDUCE THE VALUE OF YOUR
INVESTMENT AND SUBJECT US TO LITIGATION.
Fluctuations in market price and volume are particularly common among
securities of Internet and other technology companies. The market price of our
common stock has fluctuated significantly in the past and may continue to be
highly volatile, with extreme price and volume fluctuations, in response to the
following factors, some of which are beyond our control:
- variations in our quarterly operating results;
31
- changes in market valuations of Internet and other technology
companies;
- our announcements of significant client contracts, acquisitions and
our ability to integrate these acquisitions, strategic partnerships,
joint ventures or capital commitments;
- our failure to complete significant sales;
- additions or departures of key personnel;
- future sales of our common stock; and
- changes in financial estimates by securities analysts.
In the past, companies that have experienced volatility in the market
price of their stock have been the subject of securities class action
litigation. We may in the future be the target of similar litigation, which
could result in substantial costs and distract management from other important
aspects of operating our business.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY
MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
Provisions of our amended and restated certificate of incorporation, such
as our staggered board of directors, the manner in which director vacancies may
be filled and provisions regarding the calling of stockholder meetings, could
make it more difficult for a third party to acquire us, even if doing so might
be beneficial to our stockholders. In addition, provisions of our amended and
restated bylaws, such as advance notice requirements for stockholder proposals,
and applicable provisions of Delaware law, such as the application of business
combination limitations, could impose similar difficulties. Further, provisions
of our amended and restated certificate of incorporation relating to directors,
stockholder meetings, limitation of director liability, indemnification and
amendment of the certificate of incorporation and bylaws may not be amended
without the affirmative vote of not less than 66.67% of the outstanding shares
of our capital stock entitled to vote generally in the election of directors
(considered for this purpose as a single class) cast at a meeting of our
stockholders called for that purpose. Our amended and restated bylaws may not be
amended without the affirmative vote of at least 66.67% of our board of
directors or without the affirmative vote of not less than 66.67% of the
outstanding shares of our capital stock entitled to vote generally in the
election of directors (considered for this purpose as a single class) cast at a
meeting of our stockholders called for that purpose.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CURRENCY RATE FLUCTUATIONS
Though March 31, 2001, our results of operations, financial position and
cash flows have not been materially affected by changes in the relative values
of non-U.S. currencies to the U.S. dollar. The functional currency for our
operations in the United Kingdom is the U.K. pound (sterling) and the functional
currency of our wholly-owned Israeli subsidiary, HumanClick Ltd., is the U.S.
dollar. We do not use derivative financial instruments to limit our foreign
currency risk exposure.
COLLECTION RISK
Our accounts receivable are subject, in the normal course of business, to
collection risks. We regularly assess these risks and have established policies
and business practices to protect against the adverse effects of collection
risks. As a result, we do not anticipate any material losses in this area.
INTEREST RATE RISK
Our investments consist of cash and cash equivalents and short-term
marketable securities. Therefore, changes in the market's interest rates do not
affect the value of the investments as recorded by us.
32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Use of Proceeds from Registered Securities
On April 12, 2000, we consummated our initial public offering of 4,000,000
shares of common stock, for which trading on the Nasdaq National Market
commenced on April 7, 2000, pursuant to the Registration Statement on Form S-1,
file number 333-95689, which was declared effective by the Securities and
Exchange Commission on April 6, 2000. The managing underwriters of the offering
were Chase Securities Inc., Thomas Weisel Partners LLC and PaineWebber
Incorporated. The offering did not terminate until after the sale of all
securities registered. The aggregate price of the offering shares was $32.0
million and our net proceeds were approximately $28.1 million after
underwriters' discounts and commissions of approximately $2.2 million and other
expenses of approximately $1.7 million. Except for salaries, and reimbursements
for travel expenses and other out-of-pocket costs incurred in the ordinary
course of business, none of the proceeds from the offering have been paid by us,
directly or indirectly, to any of our directors or officers or any of their
associates, or to any persons owning ten percent or more of our outstanding
stock or to any of our affiliates. As of March 31, 2001, we have used
approximately $14.9 million of the net proceeds from the offering for product
development costs, sales and marketing activities and working capital, including
$4.2 million of restricted cash in connection with the security deposits for our
office leases, and invested the remainder in cash and cash equivalents and
short-term marketable securities pending its use for other purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) No exhibits are filed as part of this report.
(b) Reports on Form 8-K
We filed a current report on Form 8-K (Items 5 and 7), dated January 11,
2001 and filed January 12, 2001, containing a press release which announced a
restructuring initiative to streamline our operations. We filed a current report
on Form 8-K (Item 5), dated February 5, 2001 and filed February 20, 2001,
announcing the departure of our Executive Vice President (Worldwide Sales and
Strategic Alliances). We filed a current report on Form 8-K (Item 5), dated
March 8, 2001 and filed March 12, 2001, announcing the departure of our
President and Chief Operating Officer.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
LIVEPERSON, INC.
(Registrant)
Date: May 15, 2001 By: /s/ ROBERT P. LOCASCIO
--------------------------------------
Name: Robert P. LoCascio
Title: Chief Executive Officer
(duly authorized officer)
Date: May 15, 2001 By: /s/ TIMOTHY E. BIXBY
--------------------------------------
Name: Timothy E. Bixby
Title: President, Chief Financial Officer
and Secretary
(principal financial and accounting
officer)
