|
(a) During the second quarter of 2003, the Company recorded an additional
restructuring charge of approximately $1,024 related to its 2001 restructuring
initiatives. This charge reflected the amount of the judgment in a previously
disclosed arbitration proceeding in excess of the $350 provision initially
provided for by management in connection with its original restructuring plan in
2001 (see note 6). Because the Company’s June 30, 2003 interim financial
statements were not yet filed with the SEC when the Company received
notification of the judgment, the recording of this charge in the second quarter
of 2003 was required pursuant to SFAS No. 5, “Accounting for
Contingencies” and Statement of Auditing Standards No.1, “Codification
of Auditing Standards and Procedures, section 560 — Subsequent
Events.” |
10
(5) 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 and
nine months ended September 30, 2003 was approximately $117 and $317, respectively, and
$96 and $276 for the three and nine months ended September 30, 2002, respectively.
(6) LEGAL PROCEEDINGS
On
or about December 2, 2002, MCI WorldCom Communications, Inc. filed a complaint against the
Company in the United States District Court for the Southern District of New York,
containing claims for unpaid invoices related to a contract with MCI for voice and data
services. The complaint sought to recover approximately $761 plus interest. The District Court
dismissed the action on the Company’s motion on May 29, 2003 because the contract
contained a binding arbitration provision. The matter is presently pending for arbitration
with JAMS in New York City in which the Company has denied liability.
Although
the Company believes it has meritorious defenses and intends to defend vigorously the matter described above, and believes that the
Company has provided adequate reserves in connection with the claim, the Company cannot
assure you that the Company’s defense will be successful and, if it is not, that the
Company’s ultimate liability in connection with this claim will not exceed the
Company’s reserves or have a material adverse effect on the Company’s results of
operations, financial condition, or cash flows.
On
November 16, 2001, Corio, Inc. filed a demand for arbitration against the Company with the
American Arbitration Association in San Francisco County, California. The demand was
related to a hosted software service contract terminated during 2001. Corio was seeking to
recover approximately $1,400 in damages, fees and expenses. On July 24, 2003, the Company
received notification of a judgment dated July 23, 2003 relating to that
arbitration. The arbitrator awarded Corio damages of $1,115 plus pre-judgment
interest from September 21, 2001, which is likely to total approximately $260. In
connection with this matter, the Company previously reserved $350. Accordingly, the
Company recorded an additional restructuring charge of $1,024 in the second quarter of
2003 (see note 4). The Company is evaluating its options in connection with this judgment,
which include a motion to vacate the award.
11
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 ACTUAL FUTURE EVENTS OR RESULTS TO DIFFER MATERIALLY FROM
SUCH STATEMENTS. 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 CAPTIONED “
— RISK FACTORS THAT MAY AFFECT FUTURE RESULTS.”
CRITICAL ACCOUNTING
POLICIES AND ESTIMATES
GENERAL
Our
discussion and analysis of our financial condition and results of operations are based
upon our unaudited interim condensed consolidated financial statements, which are prepared
in conformity with accounting principles generally accepted in the United States of
America. As such, we are required to make certain estimates, judgments and assumptions
that management believes are reasonable based upon the information available. We base
these estimates on our historical experience, future expectations and various other
assumptions that we believe to be reasonable under the circumstances, the results of which
form the basis for our judgments that may not be readily apparent from other sources.
These estimates and assumptions affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the dates of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting
periods. These estimates and assumptions relate to estimates of collectibility of accounts
receivable, the realization of goodwill, the expected term of a client relationship,
accruals and other factors. We evaluate these estimates on an ongoing basis. Actual
results could differ from those estimates under different assumptions or conditions, and
any differences could be material.
The
significant accounting policies which we believe are the most critical to aid in fully
understanding and evaluating the reported consolidated financial results include the
following:
REVENUE
RECOGNITION
The
LivePerson services facilitate real-time sales, marketing and customer service for
companies that conduct business online. We charge a monthly fee for our services based on
usage. Certain of our larger clients, who require more sophisticated implementation and
training, may also pay an initial non-refundable set-up fee.
The initial set-up
fee is intended to recover certain costs (principally customer service, training
and other administrative costs) prior to the deployment of our services. Such
fees are recorded as deferred revenue and recognized ratably over a period of 24
months, representing the estimated term of the client relationships.
12
Although we believe
this estimate is reasonable, this estimate may change in the future. In
instances where we do charge a set-up fee, we typically do not charge an
additional set-up fee if an existing client adds more services. Unamortized
deferred fees, if any, are recognized upon termination of the agreement with the
customer. We recognized $0 and $0 in the three and nine months ended September
30, 2003, respectively, and $0 and $10,000 in the three and nine months ended
September 30, 2002, respectively, of set-up fees due to client attrition.
In
the first half of 2001, we began selling certain of the LivePerson services directly via
Internet download. These services are marketed as LivePerson Pro for small and medium
sized businesses, and are paid for almost exclusively by credit card. Credit card payments
accelerate cash flow and reduce our collection risk, subject to the merchant bank’s
right to hold back cash pending settlement of the transactions. Sales executed via
Internet download may occur with or without the assistance of an online sales
representative, rather than through face-to-face or telephone contact that is typically
required for traditional direct sales. Sales of the LivePerson services via Internet
download typically have no set-up fee, because we do not provide the customer with
training and administrative costs are minimal.
We
record revenue for traditional direct sales and Internet download sales based upon a
monthly fee charged for the LivePerson services, provided that no significant Company
obligations remain and collection of the resulting receivable is probable. We recognize
monthly service revenue fees as services are provided. Our service agreements typically
have no termination date and are terminable by either party upon 30 to 90 days’
notice without penalty.
ACCOUNTS
RECEIVABLE
Our
customers are primarily concentrated in the United States. We perform ongoing credit
evaluations of our customers’ financial condition (except for customers who purchase
the LivePerson services via Internet download) and have established an allowance for
doubtful accounts based upon factors surrounding the credit risk of customers, historical
trends and other information that we believe to be reasonable, although they may change in
the future. If there is a deterioration of a customer’s credit worthiness or actual
write-offs are higher than our historical experience, our estimates of recoverability for
these receivables could be adversely affected. Our concentration of credit risk is limited
due to the large number of customers. No single customer accounted for or exceeded 10% of
our total revenue in the three or the nine months ended September 30, 2003 and 2002. One
customer accounted for approximately 11% of accounts receivable at September 30, 2003. One
customer accounted for approximately 16% of accounts receivable at December 31, 2002.
IMPAIRMENT
OF LONG-LIVED ASSETS
Prior
to January 1, 2002, we accounted for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards (“SFAS”) No. 121,
“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.” SFAS No. 121 requires that long-lived assets, including fixed
assets and goodwill, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If
events or changes in circumstances indicate that the carrying amount of an asset to be
held and used may not be recoverable, we estimate the undiscounted future cash flows to
result from the use of the asset and its ultimate disposition. If the sum of the
undiscounted cash flows is less than the carrying value, we recognize an impairment loss,
measured as the amount by which the carrying value exceeds the fair value of the asset. If
such assets are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. The assessment of the recoverability of long-lived assets,
including fixed assets and goodwill, will be impacted if estimated future operating cash
flows are not achieved.
In
August 2001, the Financial Accounting Standards Board (the “FASB”) issued
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets,” which supersedes both SFAS No. 121 and the accounting and reporting
provisions of Accounting Principles Board (“APB”) Opinion No. 30,
“Reporting the Results of Operations—Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions,” for the disposal of a segment of a business (as previously
13
defined in
that Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No. 121
for recognizing and measuring impairment losses on long-lived assets held for use and
long-lived assets to be disposed of by sale, while also resolving significant
implementation issues associated with SFAS No. 121. For example, SFAS No. 144
provides guidance on how a long-lived asset that is used as part of a group should be
evaluated for impairment, establishes criteria for when a long-lived asset is held for
sale, and prescribes the accounting for a long-lived asset that will be disposed of other
than by sale. SFAS No. 144 retains the basic provisions of APB Opinion No. 30 on
how to present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a business).
Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never
result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under
SFAS No. 142, “Goodwill and Other Intangible Assets.”
We
adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 for
long-lived assets held for use did not have a material impact on our financial statements
because the impairment assessment under SFAS No. 144 is largely unchanged from SFAS
No. 121. The provisions of SFAS No. 144 for assets held for sale or other
disposal generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities. Therefore, we cannot determine the potential effects
that adoption of SFAS No. 144 will have on our future financial statements.
RESTRUCTURING
ACTIVITIES
Restructuring
activities are accounted for in accordance with the guidance provided in the consensus
opinion of the Emerging Issues Task Force (“EITF”), in connection with EITF
Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring).” EITF No. 94-3 generally requires, with respect to the recognition of
severance expenses, management approval of the restructuring plan, the determination of
the employees to be terminated and communication of benefit arrangement to employees.
In
July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated
with Exit or Disposal Activities,” which supersedes EITF Issue No. 94-3. SFAS
No. 146 requires that costs associated with an exit or disposal plan be recognized
when incurred rather than at the date of a commitment to an exit or disposal plan. The
adoption of SFAS No. 146, effective January 1, 2003, did not have any impact on our
financial condition or results of operations.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
April 2002, the FASB issued SFAS No. 145, “Rescission of SFAS Nos. 4, 44, and 64,
Amendment of SFAS No. 13, and Technical Corrections.” SFAS No. 4 required all gains
and losses from the extinguishment of debt to be reported as extraordinary items and SFAS
No. 64 related to the same matter. SFAS No. 145 requires gains and losses from certain
debt extinguishment not to be reported as extraordinary items when the use of debt
extinguishment is part of the risk management strategy. SFAS No. 44 was issued to
establish transitional requirements for motor carriers. Those transitions are completed;
therefore SFAS No. 145 rescinds SFAS No. 44. SFAS No. 145 also amends SFAS No. 13
requiring sale-leaseback accounting for certain lease modifications. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. The provisions relating to
sale-leaseback are effective for transactions after May 15, 2002. The adoption of SFAS No.
145 did not have an impact on our financial position or results of operations.
In
December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based
Compensation—Transition and Disclosure.” SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation as originally provided by SFAS No. 123, “Accounting
for Stock-Based Compensation.” Additionally, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosure in both the annual and
interim financial statements about the method of accounting for stock-based compensation
and the effect of the method used on reported results. The transitional requirements of
SFAS No. 148 are effective for all financial statements for fiscal years ending after
December 15, 2002. We adopted the disclosure portion of this statement effective January 1
2003. The application of the disclosure portion of this standard had no impact on our
consolidated financial position or results of operations.
14
In
May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity.” SFAS No. 150 changes the
accounting guidance for certain financial instruments that, under previous guidance, could
have been classified as either a liability or equity. SFAS No. 150 now requires those
instruments to be classified as liabilities (or as assets under some circumstances) in the
statement of financial position. SFAS No. 150 also requires the terms of those instruments
and any settlement alternatives to be disclosed. SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003. Otherwise, it is
effective at the beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 did not have a material impact on our financial position or
results of operations.
OVERVIEW
LivePerson,
a customer relationship management (CRM) application service provider (ASP), delivers
real-time sales, marketing and customer service solutions for companies that conduct
business online. We offer our proprietary real-time interaction technology as outsourced
services. We currently generate revenue from the sale of our LivePerson services, which
enable our clients to communicate directly with Internet users via text-based chat, and to
a lesser extent from related professional services. With the LivePerson chat services, our
clients can respond to Internet user inquiries in real-time, and can thereby enhance their
Internet users’ online shopping experience.
We
were incorporated in the State of Delaware in November 1995 and the initial
LivePerson service was introduced in November 1998.
On
May 28, 2002, our common stock commenced trading on the Nasdaq SmallCap Market,
following approval by The Nasdaq Stock Market, Inc. of our May 14, 2002
application to transfer the listing of our common stock from the Nasdaq National Market to
the Nasdaq SmallCap Market.
In
July 2002, we acquired all of the existing customer contracts of
NewChannel, Inc. and associated rights. The purchase price was based, in part, on
projected revenue from each of the former NewChannel clients at the time of their
successful conversion to the LivePerson software platform. Our acquisition cost was
approximately $1.4 million, including the initial purchase price payment of $600,000 to
NewChannel. The total acquisition cost has been allocated to customer contracts and is
being amortized ratably over a period of 18 months, representing the expected term of
the client relationships. The net amount is included in Other intangibles, net on our
September 30, 2003 consolidated balance sheet.
On
May 21, 2003, we were notified by The Nasdaq Stock Market, Inc. that we had regained
compliance with Nasdaq’s minimum bid requirement for the Nasdaq SmallCap Market.
At
the Annual Meeting of Stockholders of LivePerson held on May 22, 2003, our stockholders
approved separate proposals to amend our Fourth Amended and Restated Certificate of
Incorporation to effect, alternatively, one of three different reverse splits of the
outstanding shares of our common stock, at a ratio of one-for-three, one-for-five and
one-for-seven. Pursuant to authority granted by these proposals, our Board of Directors
will have the discretion, at any time on or prior to May 31, 2004, to decide which reverse
split proposal to implement, or not to effect a reverse split at all. As set forth in the
proxy statement delivered to stockholders in connection with the Annual Meeting, the
principal purpose of each reverse split proposal is to increase the market price of our
common stock above the minimum bid requirement of $1.00 per share required by Nasdaq. We
do not currently intend to effect a reverse split because the bid price for shares of our
common stock satisfies the minimum requirement for quotation on the Nasdaq SmallCap
Market; however, there can be no assurance that we will not need to or choose to effect a
reverse stock split in the future.
REVENUE
Our
clients pay us a monthly fee for our services based on usage. Certain of our larger
clients, who require more sophisticated implementation and training, may also pay an
initial non-refundable set-up fee. 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 term of the client
relationships. As a result of recognizing set-up fees in this manner, combined with the
fact that a small proportion of our clients are charged
15
a set-up fee, revenue attributable
to our monthly service fee accounted for 98% and 98% of total LivePerson services revenue
for the three and nine months ended September 30, 2003, respectively, and 98% and 97% of
total LivePerson services revenue for the three and nine months ended September 30, 2002,
respectively. In addition, because we typically do not charge a set-up fee for sales
generated via Internet download, we expect the set-up fee to continue to represent a small
percentage of total revenue. In instances where we do charge a set-up fee, we typically do
not charge an additional set-up fee if an existing client adds more services. Our service
agreements typically have no termination date and are terminable by either party upon 30
to 90 days’ notice without penalty. We recognize monthly service revenue fees and
professional service fees as services are provided. Professional service fees consist of
additional training and business consulting and analysis provided to customers, both at
the initial launch and over the term of the contract. 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. There is
no lag for sales generated via Internet download, because our services are immediately
available and fully functional upon download. To date, revenue from professional services
has not been material.
We
also sell certain of the LivePerson services directly via Internet download. These
services are marketed as LivePerson Pro for small and medium sized businesses, and are
paid for almost exclusively by credit card. Credit card payments accelerate cash flow and
reduce our collection risk, subject to the merchant bank’s right to hold back cash
pending settlement of the transactions. Sales executed via Internet download may occur
with or without the assistance of an online sales representative, rather than through
face-to-face or telephone contact which is typically required for traditional direct
sales. Sales of the LivePerson services via Internet download typically have no set-up
fee, because we do not provide the customer with training, and administrative costs are
minimal. We recognize monthly service revenue fees from Internet downloads as services are
provided.
We
also have entered into contractual arrangements that complement our direct sales force and
online sales efforts. 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. To date, revenue from such commissions has not
been material.
OPERATING
EXPENSES
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 primary and backup network 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.
16
In
the nine months ended September 30, 2003, we increased our allowance for doubtful accounts
by $15,000 to approximately $85,000, principally due to an increase in accounts receivable
as a result of increased sales. 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.
RESULTS OF OPERATIONS
Due
to our acquisition of the NewChannel customer contracts and associated rights in
July 2002 and our limited operating history, we believe that comparisons of our
operating results for the three and nine months ended September 30, 2003 and 2002 with
each other, or with 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Revenue. Total revenue increased to $3.1 million and $8.5 million in the three and nine
months ended September 30, 2003 from $2.2 million and $5.9 million in the
comparable periods in 2002. This increase is attributable to the acquisition of
the NewChannel customer contracts and associated rights in July 2002 and to a
combination of revenue from new clients, increased revenue from existing clients
and a greater proportion of new clients purchasing the higher-priced Sales
Edition as a result of increased market acceptance of our services. We cannot
assure you that we will achieve similar revenue 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 $501,000 and $1.5 million in the three and
nine months ended September 30, 2003 from $480,000 and $1.1 million in the comparable
periods in 2002. This increase is primarily related to the acquisition of the NewChannel
customer contracts and associated rights in July 2002, as well as increased usage from
existing clients and the addition of new clients.
Product
Development. Our product development expenses consist primarily of compensation and
related expenses for product development personnel. Product development costs increased to
$419,000 and $1.2 million for the three and nine months ended September 30, 2003 from
$303,000 and $880,000 in the comparable periods in 2002. This increase is attributable to
an increase in the number of LivePerson product development personnel, as well as
increased allocated occupancy costs and related overhead.
Sales
and Marketing. Our sales and marketing expenses consist of compensation and related
expenses for sales and marketing personnel, as well as advertising and public relations
expenses. Sales and marketing expenses increased to $910,000 and $2.5 million in the three
and nine months ended September 30, 2003 from $600,000 and $1.7 million in the comparable
periods in 2002. This increase is primarily attributable to an increase in sales and
marketing personnel as a result of both the acquisition of the NewChannel customer
contracts and associated rights and the expansion of our sales force, and, to a lesser
extent, to an increase in on-line advertising and marketing expenses related to our
increasing efforts to enhance our brand recognition.
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 $916,000 and
$2.5 million in the three and nine months ended September 30, 2003 from $660,000 and $2.1
million in the comparable periods in 2002. This increase is primarily attributable to
increases in professional services and recruitment costs and, to a lesser extent, to
depreciation and bad debt expense related to our allowance for doubtful accounts.
Amortization
of Other Intangibles. Amortization expense was $253,000 and $760,000 in the three and
nine months ended September, 2003 and $125,000 and $125,000 in the comparable periods in
2002 and relates to acquisition costs recorded as a result of our acquisition of the
NewChannel customer contracts and associated rights in July 2002.
17
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, consultants and directors. Deferred compensation has
been amortized over the vesting period of the individual options. We recorded non-cash
compensation expense of $143,000 and $191,000 in the three and nine months ended September
30, 2003 and $47,000 and $265,000 in the comparable periods in 2002.
Restructuring
Charge. In the second quarter of 2003, we recorded an additional restructuring charge
of approximately $1.0 million related to our 2001 restructuring initiatives. This charge
reflected the amount of the judgment in a previously disclosed arbitration proceeding in
excess of the $350,000 provision initially provided for in connection with our original
restructuring plan in 2001. Because our June 30, 2003 interim financial statements were
not yet filed with the SEC when we received notification of the judgment, the recording of
this charge in the three months ended June 30, 2003 was required pursuant to SFAS No. 5,
“Accounting for Contingencies” and Statement of Auditing Standards No.1,
“Codification of Auditing Standards and Procedures, section 560 — Subsequent
Events.” See notes 4 and 6 to our unaudited interim condensed consolidated financial
statements in Part I, Item 1 of this report and Part II, Item 1—“Legal
Proceedings.”
Other
Income. Interest income was $9,000 and $28,000 for the three and nine months ended
September 30, 2003 and $26,000 and $97,000 in the comparable periods in 2002, and consists
of interest earned on cash and cash equivalents generated by the receipt of proceeds from
our initial public offering in 2000 and preferred stock issuances in 2000 and 1999. Other
expense was $0 and $8,000 for the three and nine months ended September 30, 2003 and was
related to the write-off, in the first quarter of 2003, of our accumulated other
comprehensive loss in connection with the closing of our operations in the United Kingdom.
Cumulative
Effect of Accounting Change. On January 1, 2002, we were required to adopt the full
provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142
requires that goodwill and certain indefinite-lived intangibles no longer be amortized,
but instead be tested for impairment at least annually. This testing requires the
identification of reporting units and comparison of the reporting units’ carrying
value to their fair value and, when appropriate, requires the reduction of the carrying
value of impaired assets to their fair value.
The
transitional impairment analysis required upon adoption of SFAS No. 142 was completed
during the first quarter of 2002, and we determined that there was an impairment of the
carrying value of goodwill. As part of this analysis, we determined that we continued to
operate in one operating segment and that we did not have any separate reporting units
under SFAS No. 142; accordingly, the impairment analysis was performed on an
enterprise-wide basis. This process included obtaining an independent appraisal of our
fair value as a whole and of our individual assets. Fair value was determined from the
same cash flow forecasts used in December 2001 for the evaluation of our carrying value
under SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of,” which was the accounting rule for impairment of
goodwill that preceded SFAS No. 142 and was effective through December 31, 2001. The
valuation methodology required by SFAS No. 142 is different than that required by SFAS No.
121. An impairment is more likely to result under SFAS No. 142 because it requires, among
other items, the discounting of forecasted cash flows as compared to the undiscounted cash
flow valuation method under SFAS No. 121.
The
allocation of fair values to identifiable tangible and intangible assets as of January 1,
2002, resulted in an implied valuation of the goodwill of $0. The implied fair value of
goodwill was determined in the same manner as determining the amount of goodwill that
would have been required to be recognized in a business combination. That is, under SFAS
No. 142, an entity is required to allocate the fair value of a reporting unit to all of
the assets and liabilities of that unit (including any unrecognized intangible assets) as
if the reporting unit had been acquired in a business combination and the fair value of
the reporting unit was the price paid to acquire it. Comparing this implied value to the
carrying value resulted in an impairment of $5.3 million, with no income tax effect. This
impairment was recorded as a cumulative effect of accounting change on our statement of
operations as of January 1, 2002.
18
Net
Income (Loss). We had net income of $9,000 and a net loss of $1.1 million for the
three and nine months ended September 30, 2003 compared to a net loss of $28,000 and $5.5
million in the comparable periods in 2002. The net loss for the nine months ended
September 30, 2003 is primarily related to the additional restructuring charge of
approximately $1.0 million recorded in the second quarter of 2003 described above under
“Restructuring Charge.” The net loss for the nine months ended September 30,
2002 is primarily attributable to the cumulative effect of an accounting change of $5.3
million related to the impairment of goodwill described above.
LIQUIDITY AND CAPITAL
RESOURCES
As
of September 30, 2003, we had approximately $9.6 million in cash and cash equivalents, an
increase of $1.6 million from December 31, 2002. This increase is primarily attributable
to net cash provided by operating activities during the nine months ended September 30,
2003 and to proceeds from the issuance of common stock in connection with the exercise of
options. We regularly invest excess funds in short-term money market funds.
Net
cash provided by operating activities was approximately $923,000 for the nine months ended
September 30, 2003 and consisted primarily of a net loss offset by increases in accrued
expenses, deferred revenue and amortization of intangibles, partially offset by an
increase in prepaid expenses. Net cash used in operating activities was approximately $1.2
million for the nine months ended September 30, 2002 and consisted primarily of a net loss
offset by the cumulative effect of an accounting change related to the impairment of
goodwill and to a lesser extent, an increase in accrued expenses and a decrease in
accounts receivable, depreciation and amortization expenses partially offset by a decrease
in deferred revenue.
Net
cash used in investing activities was $32,000 in the nine months ended September 30, 2003
and was due to the purchase of fixed assets. Net cash used in investing activities was
approximately $1.3 million in the nine months ended September 30, 2002 and was due
primarily to the acquisition of the NewChannel customer contracts and associated rights,
and to a lesser extent, to the purchase of fixed assets.
Net
cash provided by financing activities was $741,000 and $18,000 for the nine months ended
September 30, 2003 and 2002, respectively, and consisted of proceeds from the issuance of
common stock in connection with the exercise of options.
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 nine months ended September 30,
2003 and 2002 was approximately $317,000 and $276,000, respectively.
As
of September 30, 2003, our principal commitments were approximately $513,000 under various
operating leases, of which approximately $110,000 is due in 2003. We do not currently
expect that our principal commitments for the year ended December 31, 2003 will exceed
$200,000 in the aggregate. Our capital expenditures are not currently expected to exceed
$200,000 in 2003.
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. Although revenue increased in each of the three quarters of 2003 compared to the
fourth quarter of 2002, our annual revenue growth in 2002 was lower than in 2001, and our
annual revenue growth in 2001 was lower than in 2000. As a result, we have incurred
significant net losses from inception through June 30, 2003, significant negative cash
flows from operations in the periods from inception through December 31, 2002, and as
of September 30, 2003, we had an accumulated deficit of approximately $106.3 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.
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 further 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.
19
RISK FACTORS THAT MAY
AFFECT FUTURE RESULTS
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 acquired HumanClick in October 2000 and the NewChannel
customer contracts and associated rights in July 2002; accordingly, the revenue and
income potential of our business and the related market are unproven. As a result of our
limited operating history as an application service provider of real-time sales and
customer service technology for companies doing business on the Internet, we have only
four 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 operator access accounts for LivePerson’s chat services, which
generate monthly fees, and other services to our existing clients;
- increase or
maintain current pricing levels for our services;
- 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 $106.3 million as of September
30, 2003 and we may incur losses in the future.
Although
we achieved profitability in the three months ended September 30, 2003, we may, in the
future, incur losses and experience negative cash flow, either or both of which may be
significant. We recorded a net loss of $9.8 million for the year ended December 31, 1999,
$61.3 million for the year ended December 31, 2000, $27.3 million for the year ended
December 31, 2001, $6.8 million for the year ended December 31, 2002 and $1.1 million for
the nine months ended September 30, 2003. We had total revenue of approximately $8.5
million for the nine months ended September 30, 2003, $8.2 million, $7.8 million and $6.3
million for the years ended December 31, 2002, 2001 and 2000, respectively, and less than
$615,000 in the year ended December 31, 1999. Our net loss for the year ended December 31,
2000 included a non-cash dividend of $18.0 million. As of September 30, 2003, our
accumulated deficit was approximately $106.3 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.
20
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 twelve 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, and could have terms that 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 any
potential 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
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. In addition, we began offering the LivePerson
services via Internet download in 2001, which is an unproven model for the delivery of our
services.
We
expect that a substantial majority of our revenue will come from the LivePerson services
for the foreseeable future and if we are not successful in selling these services, 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 our services. 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. Our revenue
declined in each of the second and third quarters of 2001, and did not increase materially
in the first and fourth quarters of 2001, each quarter of 2002 and each of the first three
quarters of 2003. The increase in revenue in the third and fourth quarters of 2002 was
primarily attributable to the acquisition of the NewChannel customer contracts and
associated rights. The increase in revenue in each of the first three quarters of 2003 was
attributable to the acquisition of the NewChannel customer contracts and associated rights
and to a combination of revenue from new clients, increased revenue from existing clients
and a greater proportion of new clients purchasing the higher-priced Sales Edition. We
cannot assure you that we will experience any revenue growth in the future. 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.
21
The
success of our business requires that clients continue to use the LivePerson services and
purchase additional services.
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 clients,
or any one client to whom we provide a significant amount of services, were to terminate
these services agreements, or reduce the amount of services purchased or fail to purchase
additional services, our results of operations may be negatively and materially affected.
Dissatisfaction with the nature or quality of our services, including our new software
application platform introduced in the third quarter of 2001, 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 amount of services sold in initial orders, we
depend on sales to new clients and sales of additional services 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 our 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 and
political 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 our 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.
22
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. These
circumstances are influenced by general economic and industry-specific conditions, and
could have a material adverse impact on our 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. In
addition, the non-payment or late payment of amounts due to us from a significant number
of clients would negatively impact our financial condition. We increased our allowance for
doubtful accounts by $15,000 to approximately $85,000 in the nine months ended September
30, 2003, principally due to an increase in accounts receivable as a result of increased
sales. We did not increase our allowance for doubtful accounts in the year ended
December 31, 2002. This is attributable to the fact that our accounts receivable
collections improved in 2002, due primarily to the significantly larger percentage of our
total outstanding accounts receivable now comprised of businesses with more established
and proven operating histories, and to a lesser extent, to the fact that an increased
number of our clients now pay us by credit card.
We
may not be able to effectively manage our changing operations.
Since
the launch of our services in November 1998, we have grown rapidly, even in light of
our 2001 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. In 2001, in connection with our restructuring initiatives, we
implemented a less expensive accounting system. The cost of this new system was
immaterial. 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; 68
employees at December 31, 2001; 60 employees at December 31, 2002 and 73
employees at September 30, 2003. In the area of technology, we had 19 employees at
December 31, 1999; 40 employees at December 31, 2000; 12 employees at
December 31, 2001; 14 employees at December 31, 2002 and 18 employees at
September 30, 2003. 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 both the first and third quarters
of 2001, in addition to conducting regularly-occurring performance-related terminations,
we commenced restructuring plans 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 further 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 counter-parties, 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.
23
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. We cannot assure you that we would be able to successfully
integrate newly-hired senior managers who would 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
October 2000, we acquired HumanClick, an Israeli-based provider of real-time online
customer service applications. In addition, during a portion of 2000 and 2001, we
conducted operations in the United Kingdom. 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 difficulty in hiring and retaining
highly-skilled senior managers and other employees with appropriate qualifications. Also,
our workforce reductions announced in the first and third quarters of 2001 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.
24
Our
reputation depends, in part, on factors which are entirely outside of our control.
Our
services appear as a LivePerson-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 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 a third-party Web hosting service provider for Internet connectivity
and network infrastructure hosting, security and maintenance. The provider has, 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 provider 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.
25
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;
- 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 KANA and RightNow Technologies, 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
and Siebel Systems. In addition, established technology companies, including Avaya,
Genesys, Aspect Communications, IBM and Microsoft, may also leverage their existing
relationships and capabilities to offer real-time sales and customer service applications.
26
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.
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 one U.S. patent issued to us relating to such technology and have not filed
applications outside the U.S. It is possible that:
- our issued patent or
any patent issued in the future may not be broad enough to protect our
intellectual property rights;
our issued patent or any patent issued in the future 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.
27
Further,
to the extent that the invention described in our U.S. patent was made public prior to the
filing of the patent 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 two U.S. trademarks – “LivePerson Give Your Site A Pulse”
and “HumanClick” – registered on the U.S. Patent and Trademark Office
primary register. We currently have one U.S. trademark – “LivePerson”
– registered on the U.S. Patent and Trademark Office supplemental register. 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
could 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 do not
conduct comprehensive patent searches to determine whether our services and technology
infringe patents held by others, and 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
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 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.
The
need to physically secure and securely transmit confidential information online has been a
significant barrier to electronic commerce and online communications. Any well-publicized
compromise of security could deter people from using online services such as the ones we
offer, or from using them to conduct transactions, which involve transmitting confidential
information. Because our success depends on the general acceptance of our services and
electronic commerce, we may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by these breaches.
Political,
economic and military conditions in Israel could negatively impact our Israeli operations.
Our product
development staff, help desk and online sales personnel are located in Israel.
As of September 30, 2003, we had 21 full-time employees in Israel and as of
December 31, 2002, we had 19 full-time employees in Israel. Although
substantially all of our sales to date have been made to customers outside
Israel, we are directly
28
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. A state of hostility, varying
in degree and intensity, has caused security and economic problems in Israel.
Further, since September 2000, there has been a significant deterioration in the
relationship between Israel and the Palestinian Authority and serious violence
has ensued, the peace process between the parties has stagnated, and Israel’s
relationship with several Arab countries has been adversely affected. Moreover,
hostilities during 2002 and 2003 have escalated significantly, with increased
attacks in Israel and an armed conflict between Israel and the Palestinians in
the West Bank and Gaza. Efforts to resolve the conflict have failed to result in
an agreeable solution. Continued hostilities between the Palestinian community
and Israel and any failure to settle the conflict could adversely affect our
operations in Israel and our business. Further deterioration of the situation
into a full-scale armed conflict might require more widespread military reserve
service by some of our Israeli employees and might result in a significant
downturn in the economic or financial condition of Israel, either of which could
have a material adverse effect on our operations in Israel and our business. In
addition, several Arab countries still restrict business with Israeli companies.
Our operations in Israel 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.
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 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.
29
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. The United States Congress has 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 exempted certain types of sales transactions conducted
over the Internet from multiple or discriminatory state and local taxation through
November 1, 2003. Additional legislation is pending to make the tax exemption permanent.
Additionally, the European Union has 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 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 stockholders who each own greater than 5% of the
outstanding common stock 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 35.5% 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.
30
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 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, or an exemption under the Securities Act,
including Rule 144.
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;
- changes in market valuations of publicly-traded companies in general and Internet and other technology companies
in particular;
- 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;
- changes in financial estimates by securities analysts; and
terrorist attacks against the United States or in Israel, the engagement in hostilities or
an escalation of hostilities by or against the United States or Israel, or the declaration
of war or national emergency by the United States or Israel.
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.
31
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currency
Rate Fluctuations
Through
September 30, 2003, 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 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. We increased our allowance for
doubtful accounts by $15,000 to approximately $85,000 in the nine months ended September
30, 2003, principally due to an increase in accounts receivable as a result of increased
sales. We did not increase our allowance for doubtful accounts in the year ended
December 31, 2002. This is attributable to the fact that our accounts receivable
collections improved in 2002, due primarily to the significantly larger percentage of our
total outstanding accounts receivable now comprised of businesses with more established
and proven operating histories, and to a lesser extent, to the fact that an increased
number of our clients now pay us by credit card.
Interest
Rate Risk
Our
investments consist of cash and cash equivalents. Therefore, changes in the market’s
interest rates do not affect in any material respect the value of the investments as
recorded by us.
ITEM 4. CONTROLS AND
PROCEDURES
Our
management, including the Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of LivePerson’s “disclosure controls and procedures,” as
that term is defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act
of 1934, as amended (the “Exchange Act”), as of September 30, 2003. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that
the disclosure controls and procedures are effective to ensure that information required
to be disclosed by LivePerson in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms, and to ensure that such information is accumulated and
communicated to LivePerson’s management, including the Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
There
were no changes in LivePerson’s internal control over financial reporting during the
quarter ended September 30, 2003 identified in connection with the evaluation thereof by
our management, including the Chief Executive Officer and Chief Financial Officer, that
has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER
INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On
or about December 2, 2002, MCI WorldCom Communications, Inc. filed a complaint against us
in the United States District Court for the Southern District of New York, containing
claims for unpaid invoices related to our contract with MCI for voice and data services.
The complaint sought to recover approximately $761,000 plus interest. The District Court dismissed
the action on our motion on May 29, 2003 because the contract contained a binding
arbitration provision. The matter is presently pending for arbitration with JAMS in New
York City in which we have denied liability.
Although
we believe we have meritorious defenses and intend to defend vigorously the matter described above, and believe that we have
provided adequate reserves in connection with the claim, we cannot assure you that our
defense will be successful and, if it is not, that our ultimate liability in connection
with this claim will not exceed our reserves or have a material adverse effect on our
results of operations, financial condition, or cash flows.
On
November 16, 2001, Corio, Inc. filed a demand for arbitration against us with the American
Arbitration Association in San Francisco County, California. The demand was related to a
hosted software service contract terminated during 2001. Corio was seeking to recover
approximately $1.4 million in damages, fees and expenses. On July 24, 2003, we received
notification of a judgment dated July 23, 2003 relating to that arbitration. The
arbitrator awarded Corio damages of approximately $1.1 million plus pre-judgment interest
from September 21, 2001, which is likely to total approximately $260,000. In
connection with this matter, we previously reserved $350,000. Accordingly, we recorded an
additional restructuring charge of approximately $1.0 million in the second quarter of
2003. (See note 4 to our unaudited interim condensed consolidated financial statements in
Part I, Item 1 of this report.) We are evaluating our options in connection with this
judgment, which include a motion to vacate the award.
32
ITEM 2. CHANGES IN
SECURITIES AND USE OF PROCEEDS
(a)
Not applicable.
(b)
Not applicable.
(c)
Recent Sales of Unregistered Securities
We
issued an aggregate of 98,302 shares of Common Stock on September 19, 2003 upon the
exercise of a warrant by FG-LP, in consideration of the termination of the right to
purchase an additional 77,479 shares of Common Stock, pursuant to the warrant’s net
exercise provision. The shares were issued to the partners of FG-LP. The issuance was made
under the exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended, because the issuances did not involve any public offering.
(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 September 30, 2003, we have used
approximately $20.1 million of the net proceeds from the offering for product development
costs, sales and marketing activities and working capital and invested the remainder in
cash and cash equivalents 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
REPORTS ON FORM 8-K
(a)
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
|
31.1 |
Certification by Chief Executive Officer pursuant to Exchange Act Rule
13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
33
|
31.2 |
Certification by Chief Financial Officer pursuant to Exchange Act Rule
13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
Certification by Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
|
32.2 |
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
(b) Current
Reports on Form 8-K filed or furnished during the quarter ended September
30, 2003:
Item
5 – dated and filed July 24, 2003, announcing the Company’s notification of a
judgment dated July 23, 2003 relating to an arbitration proceeding with Corio, Inc.
Items
5, 7, 9 and 12 – dated July 23, 2003 and filed and furnished July 28, 2003,
announcing (i) the issuance of a press release with regard to the Company’s results
of operations and financial condition for the quarter ended June 30, 2003; and (ii) the
recording of a charge of approximately $1.0 million in the quarter ended June 30, 2003 as
a result of the award in the Corio arbitration. The information contained in Item 9 of the
Current Report on Form 8-K was intended to be furnished under Item 12, “Results of
Operations and Financial Condition,” and was provided under Item 9 pursuant to
interim guidance issued by the Securities and Exchange Commission in Release Nos. 33-8216
and 34-47583. As such, the information thereunder shall not be deemed to be
“filed” for the purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), or otherwise subject to the liabilities of that
section, nor shall it be incorporated by reference into a filing under the Securities Act
of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by
specific reference in such a filing.
Item
5 – dated and filed September 26, 2003, announcing that Company director Richard L.
Fields, together with Allen & Company Incorporated, had advised the Company that they
had jointly entered into a written plan for selling shares of LivePerson’s stock
designed to comply with Rule 10b5-1 under the Exchange Act and in accordance with
LivePerson’s Insider Trading Policy.
34
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: November 14, 2003 |
By: /s/ ROBERT P. LOCASCIO
|
|
Name: Robert P. LoCascio |
|
Title: Chief Executive Officer (duly authorized officer) |
|
|
|---|
Date: November 14, 2003 |
By: /s/ TIMOTHY E. BIXBY
|
|
Name: Timothy E. Bixby |
|
Title: President, Chief Financial Officer and Secretary
(principal financial and accounting officer) |
35
EXHIBIT INDEX
EXHIBIT
31.1 |
Certification by Chief Executive Officer pursuant to Exchange Act Rule
13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 |
Certification by Chief Financial Officer pursuant to Exchange Act Rule
13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 |
Certification by Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
32.2 |
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
36