TABLE OF CONTENTS
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and per Share Data)
(4) Capitalization – (continued)
On July 18, 2006, the Company acquired Proficient. Under the terms of the agreement, the Company acquired all of the outstanding capital stock of Proficient in exchange for 1,960,711 shares of the Company’s common stock paid at closing, and an additional 1,127,985 shares based on the achievement of certain revenue targets at of March 31, 2007.
In August 2006, the Company filed a registration statement with the Securities and Exchange Commission that included the registration of the resale of up to 4,050,000 shares of the Company’s common stock by the former shareholders of Proficient Systems, Inc. The Company’s registration of the resale of the shares by the Proficient Systems shareholders was required by the Company’s agreement with Proficient Systems. The shares registered for resale on the registration statement, but not actually issued to Proficient Systems shareholders pursuant to the agreement, are expected to be deregistered. The Company will not receive any proceeds from the sale of the shares of common stock covered by the August 2006 registration statement.
On October 3, 2007, the Company acquired Kasamba. Under the terms of the agreement, the Company acquired all of the outstanding capital stock of Kasamba in exchange for 4,130,776 shares of the Company’s common stock paid at closing.
On March 5, 2009, the Board of Directors approved an extension of the Company’s existing stock repurchase program through the end of the first quarter of 2010. The program, originally announced in February 2007 and first extended on March 10, 2008, was due to expire at the end of the first quarter of 2009.
Under the stock repurchase program, the Company is authorized to repurchase shares of its common stock, in the open market or privately negotiated transactions, at times and prices considered appropriate by them depending upon prevailing market conditions and other corporate considerations, up to an aggregate purchase price of $8,000. As of December 31, 2008, the Company had repurchased 1,374,217 shares of its common stock for an aggregate cost of approximately $4,069.
(5) Stock Options and Employee Stock Purchase Plan
During 1998, the Company established the Stock Option and Restricted Stock Purchase Plan (the “1998 Plan”). Under the 1998 Plan, the Board of Directors could issue incentive stock options or nonqualified stock options to purchase up to 5,850,000 shares of common stock.
The Company established a successor to the 1998 Plan, the 2000 Stock Incentive Plan (the “2000 Plan”). Under the 2000 Plan, the options which had been outstanding under the 1998 Plan were incorporated into the 2000 Plan and the Company increased the number of shares available for issuance under the plan by approximately 4,150,000, thereby reserving for issuance 10,000,000 shares of common stock in the aggregate. Options to acquire common stock granted thereunder have ten-year terms. Pursuant to the provisions of the 2000 Plan, the number of shares of common stock available for issuance thereunder automatically increases on the first trading day in each calendar year by an amount equal to three percent (3%) of the total number of shares of the Company’s common stock outstanding on the last trading day of the immediately preceding calendar year, but in no event shall such annual increase exceed 1,500,000 shares. As of December 31, 2008, approximately 12,385,000 shares of common stock were reserved for issuance under the 2000 Plan (taking into account all option exercises through December 31, 2008). As of December 31, 2008 and 2007, there was approximately $10,385 and $10,900, respectively, of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost, as of December 31, 2008, is expected to be recognized over a weighted average period of approximately 2.2 years. On the first trading day in January 2009, approximately 1,421,000 additional shares of common stock were reserved for issuance under the 2000 Plan pursuant to its automatic increase provisions.
In March 2000, the Company adopted the 2000 Employee Stock Purchase Plan with 450,000 shares of common stock initially reserved for issuance. Pursuant to the provisions of the Employee Stock Purchase Plan,
TABLE OF CONTENTS
LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and per Share Data)
(5) Stock Options and Employee Stock Purchase Plan – (continued)
the number of shares of common stock available for issuance thereunder automatically increases on the first trading day in each calendar year by an amount equal to one-half of one percent (0.5%) of the total number of shares of the Company’s common stock outstanding on the last trading day of the immediately preceding calendar year, but in no event shall such annual increase exceed 150,000 shares. As of December 31, 2008, approximately 1,620,000 shares of common stock were reserved for issuance under the Employee Stock Purchase Plan (taking into account all share purchases through December 31, 2008). On the first trading day in January 2009, 150,000 additional shares of common stock were reserved for issuance under the Employee Stock Purchase Plan pursuant to its automatic increase provisions. Effective October 2001, the Company suspended the Employee Stock Purchase Plan until further notice.
A summary of the Company’s stock option activity and weighted average exercise prices follows:
 | | | | |
| | Options | | Weighted
Average Exercise
Price |
| Options outstanding at December 31, 2005 | | | 8,300,053 | | | $ | 2.16 | |
| Options granted | | | 1,238,000 | | | | 5.26 | |
| Options exercised | | | (1,138,174 | ) | | | 0.88 | |
| Options cancelled | | | (384,375 | ) | | | 2.65 | |
| Options outstanding at December 31, 2006 | | | 8,015,504 | | | | 2.78 | |
| Options granted and assumed | | | 3,280,934 | | | | 5.54 | |
| Options exercised | | | (1,429,962 | ) | | | 1.77 | |
| Options cancelled | | | (561,200 | ) | | | 5.32 | |
| Options outstanding at December 31, 2007 | | | 9,305,276 | | | | 3.72 | |
| Options granted | | | 2,487,900 | | | | 3.10 | |
| Options exercised | | | (849,106 | ) | | | 1.01 | |
| Options cancelled | | | (1,005,025 | ) | | | 4.59 | |
| Options outstanding at December 31, 2008 | | | 9,939,045 | | | $ | 3.67 | |
| Options exercisable at December 31, 2006 | | | 4,754,754 | | | $ | 2.07 | |
| Options exercisable at December 31, 2007 | | | 4,956,193 | | | $ | 2.50 | |
| Options exercisable at December 31, 2008 | | | 5,467,794 | | | $ | 3.14 | |
The total intrinsic value of stock options exercised during the years ended December 31, 2008, 2007 and 2006 was approximately $1,782, $4,900 and $5,300, respectively. The total intrinsic value of options exercisable at December 31, 2008, 2007 and 2006 was approximately $1,300, $13,800 and $15,000, respectively. The total intrinsic value of options expected to vest at December 31, 2008, 2007 and 2006 is approximately $3, $3,200 and $4,600, respectively. A summary of the status of the Company’s nonvested shares as of December 31, 2006, and changes during the years ended December 31, 2007 and 2008 is as follows:
| | | | |
| | Shares | | Weighted Average Grant-Date Fair Value |
| Nonvested Shares at January 1, 2007 | | | 3,260,750 | | | $ | 3.81 | |
| Granted and Assumed | | | 2,917,982 | | | | 3.76 | |
| Vested | | | (1,303,949 | ) | | | 2.80 | |
| Cancelled | | | (525,700 | ) | | | 3.23 | |
| Nonvested Shares at December 31, 2007 | | | 4,349,083 | | | $ | 3.18 | |
| Nonvested Shares at January 1, 2008 | | | 4,349,083 | | | $ | 3.18 | |
| Granted | | | 2,487,900 | | | | 1.84 | |
| Vested | | | (1,644,945 | ) | | | 2.86 | |
| Cancelled | | | (720,787 | ) | | | 2.83 | |
| Nonvested Shares at December 31, 2008 | | | 4,471,251 | | | $ | 2.59 | |
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LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and per Share Data)
(6) Valuation and Qualifying Accounts
| | | | | | | | |
| | Balance at Beginning of Period | | Additions Charged to Costs and Expenses | | Deductions/
Write-offs | | Balance at End of Period |
| For the year ended December 31, 2008 Allowance for doubtful accounts | | $ | 208 | | | $ | 148 | | | $ | (16 | ) | | $ | 340 | |
| For the year ended December 31, 2007 Allowance for doubtful accounts | �� | $ | 105 | | | $ | 103 | | | $ | — | | | $ | 208 | |
| For the year ended December 31, 2006 Allowance for doubtful accounts | | $ | 67 | | | $ | 38 | | | $ | — | | | $ | 105 | |
(7) Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s use of its federal net operating loss (“NOL”) carryforwards may be limited if the Company has experienced an ownership change, as defined in Section 382. Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization. As of December 31, 2008 and 2007, the Company had approximately $12,277 and $6,215, respectively, of federal NOL carryforwards available to offset future taxable income. Included in these amounts at December 31, 2008, are $8,116 and $2,660 of federal NOL carryovers from the Company’s acquisition of Proficient and Kasamba, respectively. These carryforwards expire in various years through 2027.
At December 31, 2007, management determined that it is more likely than not that the Company would realize the benefits of its deductible differences and tax loss carryforwards. Accordingly, the Company released its valuation allowance and recorded a deferred tax benefit in the amount of $4,267 for the year ended December 31, 2007. In addition, excess tax deductions resulting from employee stock option exercises reduced the Company’s taxes payable by $1,717 and $3,102 in 2008 and 2007, respectively. The related tax benefits were recorded as an increase in additional paid-in capital.
The domestic and foreign components of (loss) income before provision for (benefit from) income taxes consist of the following:
| | | | | | |
| | Year Ended December 31, |
| | | 2008 | | 2007 | | 2006 |
| United States | | $ | (23,877 | ) | | $ | 3,858 | | | $ | 1,577 | |
| Foreign | | | 1,205 | | | | 252 | | | | 187 | |
| | | $ | (22,672 | ) | | $ | 4,110 | | | $ | 1,764 | |
No additional provision has been made for U.S. income taxes on the undistributed earnings of its Israeli subsidiary, LivePerson Ltd (formerly HumanClick Ltd.); as such earnings have been taxed in the U.S. Accumulated earnings of the Company’s other foreign subsidiaries are immaterial through December 31, 2008.
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LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and per Share Data)
(7) Income Taxes – (continued)
The provision for (benefit from) income taxes consists of the following:
| | | | | | |
| | Year Ended December 31, |
| | | 2008 | | 2007 | | 2006 |
Current income taxes:
| | | | | | | | | | | | |
| U.S. Federal | | $ | 1,421 | | | $ | 2,544 | | | $ | 1,697 | |
| State and local | | | 369 | | | | 599 | | | | 346 | |
| Foreign | | | 466 | | | | 126 | | | | 100 | |
| Total current income taxes | | | 2,256 | | | | 3,269 | | | | 2,143 | |
Deferred income taxes:
| | | | | | | | | | | | |
| U.S. Federal | | | (1,200 | ) | | | (3,985 | ) | | | (2,132 | ) |
| State and local | | | 255 | | | | (938 | ) | | | (449 | ) |
| Foreign | | | (146 | ) | | | (57 | ) | | | — | |
| Total deferred income taxes | | | (1,091 | ) | | | (4,980 | ) | | | (2,581 | ) |
| Total income taxes | | $ | 1,165 | | | $ | (1,711 | ) | | $ | (438 | ) |
The difference between the total income taxes computed at the federal statutory rate and the benefit from income taxes consists of the following:
| | | | | | |
| | Year Ended December 31, |
| | | 2008 | | 2007 | | 2006 |
| Federal Statutory Rate | | | (34.00 | )% | | | 34.00 | % | | | 34.00 | % |
| State taxes, net of federal benefit | | | 0.44 | % | | | 8.00 | % | | | 15.31 | % |
| Goodwill impairment | | | 35.24 | % | | | — | | | | — | |
| Non-deductible expenses – ISO | | | 2.38 | % | | | 16.89 | % | | | 23.73 | % |
| Non-deductible expenses – Other | | | 0.22 | % | | | 0.83 | % | | | 8.56 | % |
| Change in state effective rate | | | 1.84 | % | | | — | | | | 23.45 | % |
| Release of valuation allowance | | | — | | | | (103.82 | )% | | | (133.59 | )% |
| Foreign taxes | | | (0.34 | )% | | | 1.68 | % | | | 5.67 | % |
| Other | | | (0.64 | )% | | | 0.79 | % | | | (1.97 | )% |
| Total provision (benefit) | | | 5.14 | % | | | (41.63 | )% | | | (24.84 | )% |
The difference between the statutory federal income tax rate and the Company’s effective tax rate in 2008 is principally due to a goodwill impairment charge.
The difference between the statutory federal income tax rate and the Company’s effective tax rate in 2007 and 2006 is principally due to the release of the Company’s valuation allowance against deferred tax assets which resulted in a deferred tax benefit from income taxes in the amount of $4,267 and $2,356, respectively.
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LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and per Share Data)
(7) Income Taxes – (continued)
The effects of temporary differences and tax loss carryforwards that give rise to significant portions of federal deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 are presented below:
| | | | |
| | 2008 | | 2007 |
Deferred tax assets:
| | | | | | | | |
| Net operating loss carryforwards(1) | | $ | 4,336 | | | $ | 10,800 | |
| Accounts payable and accrued expenses | | | 350 | | | | 225 | |
| Non-cash compensation | | | 3,348 | | | | 2,610 | |
| Goodwill and intangibles amortization | | | 2,336 | | | | 2,953 | |
| Allowance for doubtful accounts | | | 132 | | | | 99 | |
| Plant and equipment, principally due to differences in depreciation | | | 59 | | | | 79 | |
| Other | | | — | | | | 79 | |
| Total deferred tax assets | | | 10,561 | | | | 16,845 | |
| Less: valuation allowance | | | — | | | | (9,898 | ) |
| Net deferred tax assets | | | 10,561 | | | | 6,947 | |
Deferred tax liabilities:
| | | | | | | | |
| Intangibles related to the Proficient acquisition | | | (165 | ) | | | (532 | ) |
| Intangibles related to the Kasamba acquisition | | | (1,294 | ) | | | (2,364 | ) |
| Total deferred tax liabilities | | | (1,459 | ) | | | (2,896 | ) |
| Net deferred assets | | $ | 9,102 | | | $ | 4,051 | |
| (1) | In 2008, the Company recorded deferred tax assets in the amounts of $3,025 and $699 with corresponding decreases in goodwill related to the acquired net operating loss carryforwards of Proficient and Kasamba, respectively. The net operating loss carryforward related to Proficient was limited due to changes in control. |
(8) 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 years ended December 31, 2008, 2007 and 2006 was approximately $3,297, $1,662 and $1,081, respectively.
Future minimum lease payments under non-cancelable operating leases (with an initial or remaining lease terms in excess of one year) are as follows:
| | |
| Year ending December 31, | | Operating Leases |
| 2009 | | | 3,723 | |
| 2010 | | | 2,879 | |
| 2011 | | | 825 | |
| 2012 | | | — | |
| Total minimum lease payments | | $ | 7,427 | |
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LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and per Share Data)
(8) Commitments and Contingencies – (continued)
Capital Expenditures
During 2007, the Company began to build a collocation facility in the eastern U.S. to host the LivePerson and Consumer services. Through December 31, 2008, the Company spent approximately $6,700 for servers, network components and related hardware and software. This amount is included in “Assets - Property and equipment, net” on our December 31, 2008 balance sheet. The Company expects to incur additional significant costs in 2009, but its total capital expenditures are not currently expected to exceed $8,000 million in 2009.
(9) Legal Matters
On July 31, 2007, the Company was served with a complaint filed in the United States District Court for the Southern District of New York by the Shareholders’ Representative of Proficient Systems, Inc. In connection with the July 2006 acquisition of Proficient, the Company was contingently required to issue up to 2,050,000 shares of common stock based on the terms of an earn-out provision in the merger agreement. In accordance with the terms of the earn-out provision, the Company issued 1,127,985 shares of LivePerson common stock in the second quarter of 2007 to the former shareholders of Proficient. The complaint filed by the Shareholders’ Representative sought certain documentation relating to calculation of the earn-out consideration, and demands payment of damages on the grounds that substantially all of the remaining contingently issuable earn-out shares should have been paid. The Company believes the claims are without merit, intends to vigorously defend against this lawsuit, and does not currently expect that the calculation of the total shares issued will differ significantly from the amount issued to date.
On January 29, 2008, the Company filed a complaint in the United States District Court for the District of Delaware against NextCard, LLC and Marshall Credit Strategies, LLC, seeking a declaratory judgment that a patent purportedly owned by the defendants is invalid and not infringed by the Company’s products. Monetary relief is not sought. On April 30, 2008, NextCard, LLC filed a complaint in the United States District Court for the Eastern District of Texas, asserting infringement of these same two patents by the Company, and seeking monetary damages and an injunction. The Company believes the claims are without merit, and intends to vigorously defend against this lawsuit. Trial in the Texas proceeding is set for December 5, 2011. The Company is presently unable to estimate the likely costs of the litigation of these legal proceedings. The Company expects its operations to continue without interruption during the period of litigation.
The Company is not currently party to any other legal proceedings. From time to time, the Company may be subject to various claims and legal actions arising in the ordinary course of business.
(10) Unaudited Supplementary Financial Information — Quarterly Results of Operations
The following table sets forth, for the periods indicated, the Company’s financial information for the eight most recent quarters ended December 31, 2008. In the Company’s opinion, this unaudited information has been prepared on a basis consistent with the annual consolidated financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the unaudited information for the periods presented. This information should be read in conjunction with the consolidated financial statements, including the related notes, included herein.
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LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and per Share Data)
(10) Unaudited Supplementary Financial Information — Quarterly Results of Operations – (continued)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Quarter Ended |
| | | Dec. 31, 2008 | | Sept. 30, 2008 | | June 30, 2008 | | Mar. 31, 2008 | | Dec. 31, 2007 | | Sept. 30, 2007 | | June 30, 2007 | | Mar. 31, 2007 |
| Revenue | | $ | 19,607 | | | $ | 19,375 | | | $ | 18,588 | | | $ | 17,085 | | | $ | 16,775 | | | $ | 12,823 | | | $ | 11,661 | | | $ | 10,969 | |
Operating expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of revenue | | | 4,961 | | | | 5,226 | | | | 5,234 | | | | 4,886 | | | | 4,335 | | | | 3,305 | | | | 3,105 | | | | 2,789 | |
| Product development | | | 3,023 | | | | 3,299 | | | | 3,503 | | | | 3,074 | | | | 2,999 | | | | 2,169 | | | | 2,044 | | | | 1,820 | |
| Sales and marketing | | | 7,259 | | | | 6,624 | | | | 6,443 | | | | 5,798 | | | | 5,654 | | | | 3,556 | | | | 3,512 | | | | 3,402 | |
| General and administrative | | | 3,008 | | | | 3,399 | | | | 3,455 | | | | 3,180 | | | | 2,857 | | | | 2,274 | | | | 2,057 | | | | 2,020 | |
| Amortization of intangibles | | | 273 | | | | 352 | | | | 391 | | | | 391 | | | | 390 | | | | 242 | | | | 242 | | | | 242 | |
| Goodwill impairment | | | 23,501 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Total operating expenses | | | 42,025 | | | | 18,900 | | | | 19,026 | | | | 17,329 | | | | 16,235 | | | | 11,546 | | | | 10,960 | | | | 10,273 | |
| (Loss) income from operations | | | (22,418 | ) | | | 475 | | | | (438 | ) | | | (244 | ) | | | 540 | | | | 1,277 | | | | 701 | | | | 696 | |
Other (expense) income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financial (expense) income | | | (251 | ) | | | (123 | ) | | | 37 | | | | (40 | ) | | | (25 | ) | | | 26 | | | | (27 | ) | | | 6 | |
| Interest income | | | 59 | | | | 79 | | | | 71 | | | | 121 | | | | 178 | | | | 283 | | | | 239 | | | | 216 | |
| Total other (expense) income, net | | | (192 | ) | | | (44 | ) | | | 108 | | | | 81 | | | | 153 | | | | 309 | | | | 212 | | | | 222 | |
| (Loss) income before (provision for) benefit from income taxes | | | (22,610 | ) | | | 431 | | | | (330 | ) | | | (163 | ) | | | 693 | | | | 1,586 | | | | 913 | | | | 918 | |
| (Provision for) benefit from income taxes | | | (1,234 | ) | | | (21 | ) | | | 139 | | | | (49 | ) | | | 1,711 | | | | — | | | | — | | | | — | |
| Net (loss) income | | $ | (23,844 | ) | | $ | 410 | | | $ | (191 | ) | | $ | (212 | ) | | $ | 2,404 | | | $ | 1,586 | | | $ | 913 | | | $ | 918 | |
| Basic net (loss) income per common share | | $ | (0.50 | ) | | $ | 0.01 | | | $ | (0.00 | ) | | $ | (0.00 | ) | | $ | 0.05 | | | $ | 0.04 | | | $ | 0.02 | | | $ | 0.02 | |
| Diluted net (loss) income per common share | | $ | (0.50 | ) | | $ | 0.01 | | | $ | (0.00 | ) | | $ | (0.00 | ) | | $ | 0.05 | | | $ | 0.03 | | | $ | 0.02 | | | $ | 0.02 | |
| Weighted average shares outstanding used in basic net (loss) income per common share calculation | | | 47,411,354 | | | | 47,229,252 | | | | 47,182,068 | | | | 47,892,703 | | | | 47,336,618 | | | | 43,080,475 | | | | 43,011,309 | | | | 41,297,515 | |
| Weighted average shares outstanding used in diluted net (loss) income per common share calculation | | | 47,411,354 | | | | 48,678,016 | | | | 47,182,068 | | | | 47,892,703 | | | | 50,384,112 | | | | 46,328,876 | | | | 46,726,357 | | | | 44,761,279 | |
In the fourth quarter of 2008, the Company recorded an impairment charge related to goodwill in the amount of $23,501.
In the fourth quarter of 2007, the Company released its valuation allowance against deferred tax assets resulting in a net benefit from income taxes of $1,711.
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LIVEPERSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and per Share Data)
(10) Unaudited Supplementary Financial Information — Quarterly Results of Operations – (continued)
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rule 13a-15(f) promulgated under the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. Our management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2008 based on the framework established in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management’s evaluation described above, our management concluded that our internal control over financial reporting was effective as of December 31, 2008.
The effectiveness of our internal control over financial reporting as of December 31, 2008 has been audited by BDO Seidman, LLP, an independent registered public accounting firm. Their attestation is included herein.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, have been detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2008 identified in connection with the evaluation thereof by our management, including the Chief Executive Officer and Chief Financial Officer, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
Our management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e) promulgated under the Exchange Act, as of December 31, 2008. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2008 to ensure that the information we are required to disclose 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 Securities and Exchange Commission’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
LivePerson, Inc.
New York, New York
We have audited LivePerson, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). LivePerson, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, LivePerson, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of LivePerson, Inc.’s as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008 and our report dated March 6, 2009 expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
New York, New York
March 6, 2009
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Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 is incorporated by reference to the sections captioned to “Election of Directors,” “Executive Officers,” “Board Committees and Meetings — Audit Committee,” “Corporate Governance Documents” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive proxy statement for our 2009 Annual Meeting of Stockholders.
There have been no changes to the procedures by which stockholders may recommend nominees to our Board of Directors since our last disclosure of such procedures, which appeared in the definitive proxy statement for our 2008 Annual Meeting of Stockholders.
We have adopted a Code of Ethics that applies to our Chief Executive Officer and Senior Financial Officers.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated by reference to the sections captioned “Compensation Discussion and Analysis”, “Compensation Committee Report” (which information shall be deemed furnished in this Annual Report on Form 10-K), “Executive and Director Compensation” and “Compensation Committee Interlocks and Insider Participation” in the definitive proxy statement for our 2009 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 with respect to the security ownership of certain beneficial owners and management is incorporated by reference to the section captioned “Ownership of Securities” in the definitive proxy statement for our 2009 Annual Meeting of Stockholders.
The following table provides certain information regarding the common stock authorized for issuance under our equity compensation plans, as of December 31, 2008:
| | | | | | |
| Plan Category | | Number of Securities
to Be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights
(a) | | Weighted-Average
Exercise Price
of Outstanding
Options, Warrants
and Rights
(b) | | Number of Securities
Remaining Available
for Future Issuance Under Equity Compensation Plans(2)
(c) |
| Equity compensation plans approved by stockholders(1) | | | 9,840,859 | | | $ | 3.67 | | | | 2,543,700 | |
| Equity compensation plans not approved by stockholders | | | — | | | | — | | | | — | |
| Total | | | 9,840,859 | | | $ | 3.67 | | | | 2,543,700 | |
| (1) | Our equity compensation plans which were approved by our stockholders are the 2000 Stock Incentive Plan, as amended and restated, and the Employee Stock Purchase Plan. |
| (2) | Excludes securities reflected in column (a). The number of shares of common stock available for issuance under the 2000 Stock Incentive Plan automatically increases on the first trading day in each calendar year by an amount equal to three percent (3%) of the total number of shares of our common stock outstanding on the last trading day of the immediately preceding calendar year, but in no event shall such annual increase exceed 1,500,000 shares. The number of shares of common stock available for issuance under our Employee Stock Purchase Plan automatically increases on the first trading day in each calendar year by an amount equal to one-half of one percent (0.5%) of the total number of shares of our common stock outstanding on the last trading day of the immediately preceding calendar year, but in no event shall such annual increase exceed 150,000 shares. Effective October 2001, we suspended our Employee Stock Purchase Plan until further notice. Also see Note 5 to our consolidated financial statements. |
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Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated by reference to the sections captioned “Certain Relationships and Related Transactions” and “Director Independence” in the definitive proxy statement for our 2009 Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services
The information required by this Item 14 is incorporated by reference to the section captioned “Independent Registered Public Accounting Firm Fees and Pre-Approval Policies and Procedures” in the definitive proxy statement for our 2009 Annual Meeting of Stockholders.
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this Annual Report on Form 10-K:
Incorporated by reference to the index of consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
| 2. | Financial Statement Schedules. |
None.
Incorporated by reference to the Exhibit Index immediately preceding the exhibits attached to this Annual Report on Form 10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 13, 2009.
| | |
| | LIVEPERSON, INC. |
| | | By: /s/ Robert P. LoCascio
Name: Robert P. LoCascio
Title: Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 13, 2009.
| | |
| Signature | | Title(s) |
/s/ Robert P. LoCascio
Robert P. LoCascio | | Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) |
/s/ Timothy E. Bixby
Timothy E. Bixby | | President, Chief Financial Officer and Director
(Principal Financial and Accounting Officer) |
/s/ Steven Berns
Steven Berns | | Director |
/s/ Emmanuel Gill
Emmanuel Gill | | Director |
/s/ Kevin C. Lavan
Kevin C. Lavan | | Director |
/s/ William G. Wesemann
William G. Wesemann | | Director |
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EXHIBIT INDEX
| | |
| Number | | Description |
| 2.1 | | Agreement and Plan of Merger, dated as of June 22, 2006, among LivePerson, Inc., Soho Acquisition Corp., Proficient Systems, Inc. and Gregg Freishtat as Shareholders’ Representative (incorporated by reference to the identically numbered exhibit in the Current Report on Form 8-K filed on June 22, 2006) |
| 3.1 | | Fourth Amended and Restated Certificate of Incorporation (incorporated by reference to the identically-numbered exhibit to LivePerson’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and filed March 30, 2001 (the “2000 Form 10-K”)) |
| 3.2 | | Second Amended and Restated Bylaws, as amended (incorporated by reference to the identically-numbered exhibit to the 2000 Form 10-K) |
| 4.1 | | Specimen common stock certificate (incorporated by reference to the identically-numbered exhibit to LivePerson’s Registration Statement on Form S-1, as amended (Registration No. 333-96689) (“Registration No. 333-96689”)) |
| 4.2 | | Second Amended and Restated Registration Rights Agreement, dated as of January 27, 2000, by and among LivePerson, the several persons and entities named on the signature pages thereto as Investors, and Robert LoCascio (incorporated by reference to the identically-numbered exhibit to Registration No. 333-96689) |
| 4.3 | | See Exhibits 3.1 and 3.2 for further provisions defining the rights of holders of common stock of LivePerson |
| 10.1 | | Employment Agreement between LivePerson and Robert P. LoCascio, dated as of January 1, 1999 (incorporated by reference to the identically-numbered exhibit to Registration No. 333-96689)* |
| 10.2 | | Employment Agreement between LivePerson and Timothy E. Bixby, dated as of June 23, 1999 (incorporated by reference to Exhibit 10.3 to Registration No. 333-96689)* |
| 10.2.1 | | Modification to Employment Agreement between LivePerson, Inc. and Timothy E. Bixby, dated as of April 1, 2003 (incorporated by reference to the identically-numbered exhibit to LivePerson’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and filed August 13, 2003)* |
| 10.3 | | Amended and Restated 2000 Stock Incentive Plan, amended as of April 21, 2005 (incorporated by reference to the identically-numbered exhibit to LivePerson’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and filed August 8, 2005)* |
| 10.4 | | Employee Stock Purchase Plan (incorporated by reference to the identically-numbered exhibit to the 2000 Form 10-K)* |
| 21.1 | | Subsidiaries |
| 23.1 | | Consent of BDO Seidman, LLP |
| 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 |
| * | Management contract or compensatory plan or arrangement |
