REPORT OF INDEPENDENT AUDITORS
To the shareholders of
HUMANCLICK LTD.
We have audited the financial statements of HumanClick Ltd. (an Israeli
corporation in the development stage; hereafter - the Company): balance sheet as
of December 31, 1999 and the related statement of loss, changes in shareholders'
equity and cash flows for the period from June 24, 1999 (date of incorporation)
to December 31, 1999. These financial statements are the responsibility of the
Company's board of directors and management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards,
including those prescribed by the Israeli Auditors (Mode of Performance)
Regulations, 1973. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the board of directors and management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a fair
basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1999
and the results of its operations, changes in shareholders' equity and its cash
flows for the period from June 24, 1999 (date of incorporation) to December 31,
1999, in conformity with accounting principles generally accepted in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of the net
income for the period ended December 31, 1999 and the determination of the
shareholders' equity and financial position at December 31, 1999 to the extent
summarized in note 12 to the financial statements.
Without qualifying our opinion, we draw attention to the Company's being in the
development stage, as described in note 1.
/s/ KESSELMAN & KESSELMAN
Tel-Aviv, Israel
July 13, 2000
Except for notes 1, 8, 12 and 13 for which the date is
November 13, 2000
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Note U.S. dollars
---- -------------
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents 2e 750,401
Accounts receivable 3 29,643
--------
Total current assets 780,044
--------
FIXED ASSETS: 4
Cost 18,058
Less - accumulated depreciation 1,067
--------
16,991
--------
Total assets 797,035
========
Liabilities and shareholders' equity
CURRENT LIABILITIES -
accounts payable and accruals:
Trade 9,898
Other 5 49,808
--------
Total current liabilities 59,706
LIABILITY FOR EMPLOYEE RIGHTS UPON
RETIREMENT 6 23,597
COMMITMENTS 7
--------
Total liabilities 83,303
--------
SHAREHOLDERS' EQUITY:
Share capital - ordinary shares of NIS 0.01 par value* (authorized -
3,800,000 shares; issued and paid - 1,561,800 shares) 8 3,717
Additional paid-in capital 863,285
Deficit accumulated during the development stage (153,270)
--------
Total shareholders' equity 713,732
--------
797,035
========
</TABLE>
* Share numbers are retroactively adjusted to reflect 100% stock split effected
on February 27, 2000.
The accompanying notes are an integral part of the financial Statements.
2
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
STATEMENT OF LOSS
FOR THE PERIOD FROM JUNE 24, 1999* TO DECEMBER 31, 1999
Note U.S. dollars
---- -------------
COSTS AND EXPENSES:
Development costs 9a 97,996
General and administrative expenses 9b 76,227
--------
LOSS FROM OPERATIONS 174,223
FINANCIAL INCOME - net 20,953
--------
LOSS FOR THE PERIOD 153,270
========
* Date of incorporation (see note 1a).
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 24, 1999* TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during the
Share paid-in development
capital capital stage Total
-------- ---------- ----------- --------
U.S. dollars
-----------------------------------------------
<S> <C> <C> <C> <C>
CHANGES DURING THE PERIOD:
Issue of share capital (net of share
issuance expenses of $ 8,758) 3,717 863,285 -- 867,002
Loss for the period (153,270) (153,270)
-------- -------- -------- --------
BALANCE AT DECEMBER 31, 1999 3,717 863,285 (153,270) 713,732
======== ======== ======== ========
</TABLE>
* Date of incorporation (see note 1a).
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 24, 1999*
TO DECEMBER 31, 1999
U.S. dollars
------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period (153,270)
--------
Adjustments required to reflect the cash flows
from operating activities:
Expenses not involving cash flows:
Depreciation 1,067
Liability for employee rights upon retirement 23,597
Changes in operating asset and liability items:
Increase in accounts receivable (29,643)
Increase in accounts payable and accruals 59,365
--------
54,386
--------
Net cash used in operating activities (98,884)
CASH FLOWS FROM INVESTING ACTIVITIES -
purchase of fixed assets (17,717)
CASH FLOWS FROM FINANCING ACTIVITIES -
issue of share capital, net of issuance costs 867,002
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS -
BALANCE OF CASH AND CASH EQUIVALENTS
AT END OF PERIOD 750,401
========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION -
cash paid during the period for interest 482
========
* Date of incorporation (see note 1a).
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL:
a. HumanClick Ltd. ("the Company" or "HumanClick") - an Israeli
corporation in the development stage - was incorporated on June 24,
1999 and commenced operations in August 1999. The Company is a
software company developing a program which will enable the users to
talk for free to the visitors on their web sites and monitor the
traffic on their web sites in real time.
b. On October 12, 2000, all the Company's shares were acquired by
LivePerson, Inc. in exchange for LivePerson, Inc. shares.
c. On July 13, 2000, the Company published its audited financial
statements as of December 31, 1999 and for the period from June 24,
1999 to December 31, 1999. These financial statements include
reconciliation to U.S. GAAP, see note 12.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies, applied on a consistent basis, are as
follows:
a. General:
1) Functional currency
Most of the revenues of the Company are expected to be
received outside Israel, in U.S. dollars ("dollars") and most
of the fixed assets were purchased in U.S dollars. Thus, the
functional currency of the Company is the dollar.
Transactions and balances originally denominated in dollars
are presented at their original amounts. Currency transaction
gains and losses arising from non-dollar balances and
transactions are included in the determination of net income
or loss.
2) Accounting principles
Accounting principles generally accepted in Israel vary in
certain significant respects from accounting principles
generally accepted in the United States. The application of
the latter would have affected the determination of the net
income for the period ended December 31, 1999 and the
determination of the shareholders' equity and financial
position at December 31, 1999, as described in note 12.
3) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
to disclose contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
6
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
b. Development costs
Represent software development costs (see note 1a), which are
carried to operations as incurred.
c. Fixed assets:
1) These assets are stated at cost.
2) The assets are depreciated by the straight-line method, on
basis of their estimated useful life.
Annual rates of depreciation are as follows:
%
--
Computers and peripheral equipment 33
Furniture and office equipment 6-15
d. Deferred taxes
Deferred taxes are computed in respect of differences between the
amounts presented in these statements and those taken into account
for tax purposes, see also note 10c.
e. Cash equivalents
The Company considers all highly liquid investments, which include
short-term bank deposits (up to three months from date of deposit)
that are not restricted as to withdrawal or use, to be cash
equivalents.
NOTE 3 - ACCOUNTS RECEIVABLE - OTHER:
U.S. dollars
------------
VAT refundable 6,058
Prepaid expenses 20,859
Other 2,726
-------
29,643
=======
7
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4 - FIXED ASSETS
Composition of assets, grouped by major classifications, is as follows:
Accumulated Depreciated
Cost depreciation balance
---- ------------ -----------
U.S. dollars
-----------------------------------
Computers and peripheral
Equipment 15,208 998 14,210
Furniture and office
equipment 2,850 69 2,781
------- ------- -------
18,058 1,067 16,991
======= ======= =======
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUALS - OTHER:
U.S. dollars
------------
Employees and employee institutions 35,260
Accrued expenses 9,548
Sundry 5,000
-------
49,808
=======
NOTE 6 - EMPLOYEE RIGHTS UPON RETIREMENT:
a. Israeli law generally requires payment of severance pay upon
dismissal of an employee or upon termination of employment in
certain other circumstances. The Company's severance pay liability
to its employees, based upon the number of years of service and the
latest monthly salary, is partly covered by certain insurance
policies. Under labor agreements, these insurance policies are,
subject to certain limitations, the property of the employees.
b. The severance pay expense in the period from June 24, 1999 (date of
incorporation) to December 31, 1999 was $ 23,597.
8
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 - COMMITMENTS:
a. The Company has entered into operating lease agreements for the cars
it uses. The leases will expire in the year 2002. The lease payments
for the next three years, at rates in effect at December 31, 1999,
are as follows:
$
-
2000 24,938
2001 24,938
2002 22,260
-------
72,136
=======
Lease expenses totaled $ 1,781 in the period ended December 31,
1999.
b. On May 31, 1999, a Release Agreement was signed between the Company
and Elemental Software Ltd. ("Elemental"), under which the Company
has undertaken not to offer for sale any CRM (customer relationship
management) product for a period of two years from May 31, 1999. The
Company further agreed that, within such two year period, it will
offer its program only in the form of a free service.
NOTE 8 - SHARE CAPITAL AND STOCK OPTIONS, see also note 12:
a. Share capital
On February 27, 2000, the Company's shareholders resolved to perform
a stock split of its ordinary shares, so that each share of NIS 1
par value would be split into 100 shares of NIS 0.01 par value. The
number of shares in these financial statements, have been restated
to give retroactive effect to this split.
b. Stock options:
1) The Company granted 35,124 options to employees at exercise
prices of $ 0.77 - $ 2.24. Each option can be exercised to
purchase one ordinary share of NIS 0.01 par value. Most of the
options will vest ratably over a period of three years from
the date of beginning of employment of each employee, or the
grant date, as determined by the board committee, provided
that the employee is still in HumanClick's employ.
The options were granted at fair value at the grant date.
After December 31, 1999, the Company granted 37,754 options to
employees at exercise prices of $ 0.77 - $ 3.12.
9
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 - SHARE CAPITAL AND STOCK OPTIONS, see also note 12 (continued):
2) On August 1, 1999, HumanClick issued 9,100 options to
consultants for the purchase of ordinary shares at an exercise
price per share of NIS 0.01. These options expire in August
2006 and vest ratably over a six month service period. On
December 1, 1999, the Company issued 15,600 options to a
consultant to purchase ordinary shares at an exercise price of
$ 2.24. These options expire in December 2006 and vest ratably
over a two year service period.
After December 31, 1999, the Company granted additional 20,092
options to a consultant at an exercise prices of $ 2.24. The
options can be exercised to purchase one ordinary share of NIS
0.01 par value of the Company and vest ratably over a period
of three years.
NOTE 9 - SUPPLEMENTARY STATEMENT OF LOSS INFORMATION:
a. Development costs:
U.S. dollars
------------
Salaries and employee benefits 81,186
Rent and maintenance 5,534
Communication 2,161
Depreciation 825
Other 8,290
-------
97,996
=======
b. General and administrative expenses:
Salaries and employee benefits 51,837
Advertising 7,956
Professional fees 14,545
Depreciation 242
Office supplies and printing 600
Other 1,047
-------
76,227
=======
NOTE 10 - TAXES ON INCOME:
a. Measurement of results for tax purposes under the Income Tax
(Inflationary Adjustments) Law, 1985
Under this law, results for tax purposes are measured in real terms,
in accordance with the changes in the Israeli consumer price index
(CPI). The Company is taxed under this law.
The Company is taxed at the rate of 36%.
10
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 10 - TAXES ON INCOME (continued):
b. Carryforward tax losses
The Company has carryforward tax losses in the amount of
approximately $ 78,000 which can be utilized without any time
limits. Under the inflationary adjustments law, the carryforward
losses are linked to the Israeli CPI.
c. Deferred taxes
The deferred tax asset, computed at the tax rate of 36%, amounted to
approximately $60,000 at December 31, 1999. A full valuation
allowance has been provided against the deferred tax asset because
of the Company's lack of earnings and the uncertainty relating to
the utilization of these losses in the foreseeable future.
d. Tax assessments
The Company has not been assessed for tax purposes since
incorporation.
NOTE 11 - TRANSACTIONS WITH INTERESTED PARTIES
The salaries and employee benefits to interested parties employed by
the Company aggregated $ 82,049.
NOTE 12 - EFFECT OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN ISRAEL AND IN THE UNITED STATES:
The Company prepares its financial statements in conformity with
Israeli GAAP.
Accounting principles generally accepted in Israel vary in certain
significant respects from accounting principles generally accepted
in the United States. The application of the latter affected the
determination of the net income for the period ended December 31,
1999 and the determination of the shareholders' equity, as follows:
a. Stock options granted to employees and consultants (see note 8):
1) Stock options granted to employees
Under Israeli GAAP, HumanClick did not account for its
employee stock option plan using the treatment prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") as permitted by FAS 123.
Under APB 25, compensation cost for employee stock option
plans is measured using the intrinsic value based method of
accounting.
The options were granted at exercise prices which represent
the fair value of the ordinary shares at the date of issuance.
Since the options granted to HumanClick employees have no
intrinsic value at their grant dates, no compensation cost
should be recorded under U.S. GAAP.
11
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 12 - EFFECT OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN ISRAEL AND IN THE UNITED STATES (continued):
Had compensation cost for the plan been determined based on
the fair value at the grant dates, consistent with the method
of FAS 123, the Company's net income (loss) would have
decreased by $ 897.
The following weighted average assumptions were used for
estimating the fair value of the options under the
Black-Scholes option-pricing model: weighted average dividend
yield of 0% for all grants; expected volatility of 50% for all
grants; risk-free interest rate (in dollar terms) of 6% for
the 26,700 options granted in November 1999 and the 3,124
options granted in December 1999 and of 5.5% for the 5,300
options granted in September 1999.
2) Stock options granted to consultants
Under Israeli GAAP HumanClick did not account for the options
granted to consultants in exchange for services received using
the fair value based method of accounting, as prescribed by
FAS 123, based on the fair value of the equity instruments
issued, which is more reliability measurable than the value of
the services received, since such data were unavailable.
Service costs - $ 6,392 - were not charged to income in
respect of equity instruments granted to consultants,
according to FAS 123.
The following weighted average assumptions were used for
estimating the fair value of the options under the
Black-Scholes options-pricing model: weighted average dividend
yield of 0% for all grants; expected volatility of 50% for all
grants; risk-free interest rate (in dollar terms) of 5.5% for
the 9,100 options granted in August 1999 for the 15,600
options granted in December 1999.
3) The effect of applying APB 25 and FAS123 on the financial
statements for the period ended December 31, 1999, is as
follows:
U.S. dollars
------------
Loss for the period as reported
in the statement of loss 153,270
Effect of applying APB 25 -,-
Effect of applying FAS 123 7,289
-------
Loss under U.S. GAAP 160,559
=======
12
<PAGE>
HUMANCLICK LTD.
(An Israeli Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 12 - EFFECT OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN ISRAEL AND IN THE UNITED STATES (continued):
b. Impairment of long-lived assets
In March 1995, the FASB issued SFAS No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of" ("SFAS 121"), to be effective for financial statements
for fiscal years beginning after December 15, 1995. SFAS 121
requires that long-lived assets, identifiable intangibles and
goodwill related to those assets to be held and used by an entity
will be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may
not be recoverable. Under SFAS 121, if the sum of the expected
future cash flows (undiscounted and without interest charges) of the
long-lived assets is less than the carrying amount of such assets,
an impairment loss would be recognized. Adopting this statement in
1999 is not expected to have a material impact on the Company's
results of operations or financial position.
c. Liability for employee rights upon retirement
Under Israeli GAAP, amounts funded by purchase of insurance
policies, as above, are deducted from the related severance pay
liability. Under U.S. GAAP, the amounts funded should be presented
as a long-term investment among the Company's assets. No amounts
were funded through December 31, 1999.
NOTE 13 - SUBSEQUENT EVENTS:
a. On August 30, 2000 and September 19, 2000, the Company signed
agreements for strategic cooperation with two U.S. companies that
provide a variety of internet services to small companies. Under
those agreements, the U.S. companies will offer the Company's
product to their customers and share the profits from resulting
sales with the Company.
b. As to options granted to employees and consultants, see note 8.
c. As to an agreement to sell the Company shares, see note 1c.
d. As to stock split, see note 8.
13
