Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 1-34761
Autobytel Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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33-0711569
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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18872 MacArthur Boulevard, Suite 200
Irvine, California 92612-1400
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number,
including area code (949) 225-4500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.001 per share
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The Nasdaq Capital Market
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the
Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or
Section 15(d) of the
Act. Yes ☐ No ☒
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Website, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (section 232.405 of
this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☒
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer ☐
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Accelerated filer ☒
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Non-accelerated filer ☐
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Smaller reporting company ☐
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the
Act). Yes ☐ No ☒
Based
on the closing sale price of $13.87 for our common stock on The
Nasdaq Capital Market on June 30, 2016, the aggregate market
value of outstanding shares of common stock held by non-affiliates
was approximately $125 million.
As
of March 6, 2017, 11,021,490 shares of our common stock were
outstanding.
Documents Incorporated by Reference
Portions of our Definitive Proxy Statement for the 2017 Annual
Meeting, expected to be filed within 120 days of our fiscal year
end, are incorporated by reference into Part III of this Annual
Report on Form 10-K.
Autobytel Inc.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
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-i-
FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission
(“SEC”) encourages companies to disclose
forward-looking information so that investors can better understand
a company’s future prospects and make informed investment
decisions. This Annual Report on Form 10-K and our proxy statement,
parts of which are incorporated herein by reference, contain such
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as
“anticipates,” “could,”
“may,” “estimates,”
“expects,” “projects,”
“intends,” “pending,” “plans,”
“believes,” “will” and words of similar
substance, or the negative of those words, used in connection with
any discussion of future operations or financial performance
identify forward-looking statements. In particular, statements
regarding expectations and opportunities, new product expectations
and capabilities, and our outlook regarding our performance and
growth are forward-looking statements. This Annual Report on Form
10-K also contains statements regarding plans, goals and
objectives. There is no assurance that we will be able to carry out
our plans or achieve our goals and objectives or that we will be
able to do so successfully on a profitable basis. These
forward-looking statements are just predictions and involve risks
and uncertainties, many of which are beyond our control, and actual
results may differ materially from these statements. Factors that
could cause actual results to differ materially from those
reflected in forward-looking statements include but are not limited
to, those discussed in “Item 1A. Risk Factors,”
and “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” Investors are
urged not to place undue reliance on forward-looking statements.
Forward-looking statements speak only as of the date on which they
were made. Except as may be required by law, we do not undertake
any obligation, and expressly disclaim any obligation, to update or
alter any forward-looking statements, whether as a result of new
information, future events or otherwise. All forward-looking
statements contained herein are qualified in their entirety by the
foregoing cautionary statements.
PART I
Item 1. Business
Autobytel Inc. was incorporated in 1996 under the
laws of the State of Delaware. Unless specified otherwise, as used
in this Annual Report on Form 10-K, the terms
“we,” “us,” “our,” the “Company” or “Autobytel” refer to Autobytel Inc. and its
subsidiaries.
Overview
We are an automotive marketing services company
that assists automotive retail dealers (“Dealers”) and automotive manufacturers
(“Manufacturers”)
market and sell new and used vehicles to consumers through our
programs for online lead referrals (“Leads”), Dealer marketing products and services,
online advertising, consumer traffic referral programs and mobile
products. Our consumer-facing automotive websites
(“Company
Websites”), including our
flagship website Autobytel.com®,
provide consumers with information and tools to aid them with their
automotive purchase decisions and the ability to submit inquiries
requesting Dealers to contact the consumers regarding purchasing or
leasing vehicles. Our AutoWeb pay-per-click advertising
marketplace program (“AutoWeb
Program”) uses
proprietary technology to refer in-market consumer traffic to
Dealers and Manufacturer websites. The Company’s
mission for consumers is to be “Your Lifetime Automotive
Advisor” ®
by engaging consumers throughout the
entire lifecycle of their automotive needs.
Available Information
Our corporate website is located at
www.autobytel.com.
Information on our website is not incorporated by reference in this
Annual Report on Form 10-K. At or through the Investor Relations
section of our website we make available free of charge our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to these reports as soon as
practicable after this material is electronically filed with or
furnished to the SEC and The Nasdaq Stock Market. Our Code of
Conduct and Ethics is available at the Corporate Governance link of
the Investor Relations section of our website, and a copy of the
code may also be obtained, free of charge, by writing to the
Corporate Secretary, Autobytel Inc., 18872 MacArthur Boulevard,
Suite 200, Irvine, California 92612-1400.
Significant Business Developments
On December 19, 2016, Autobytel and Car.com, Inc.,
a wholly owned subsidiary of Autobytel (“Car.com”), entered into an Asset Purchase and Sale
Agreement, by and among Autobytel, Car.com, and Internet Brands,
Inc., a Delaware corporation (“Internet
Brands”), pursuant to
which Internet Brands acquired substantially all of the assets of
Autobytel’s automotive specialty finance leads group operated
under Car.com. The specialty finance leads program was designed to
provide consumers who may not be able to secure loans through
conventional lending sources the opportunity to obtain vehicle
financing and other services from Dealers or financial institutions
offering vehicle financing to these consumers. The transaction was
completed effective as of December 31, 2016. The transaction
consideration consisted of $3.2 million in cash paid at closing of
the transaction and $1.6 million to be paid over a five year period
pursuant to a Transitional License and Linking Agreement. Revenues
from the specialty finance leads group accounted for 4%, 5% and 7%
of total revenues in 2016, 2015 and 2014, respectively. The Company
recorded a gain on sale of approximately $2.2 million in connection
with the transaction in 2016. See Note 10 of the “Notes to
Consolidated Financial Statements” in Part II, Item 8,
Financial Statements and Supplementary Data of this Annual Report
on Form 10-K.
-1-
Industry
Background
We believe that consumers engaged in the vehicle purchasing process
have adopted the internet, primarily because the internet is one of
the best methods to easily find the information necessary to make
informed buying decisions. Additionally, the internet is a primary
tool for consumers to begin communicating with local Dealers
regarding vehicle pricing, availability, options and financing.
J.D. Power and Associates reported in 2016 that 79% of automotive
consumer buyers surveyed use third party websites for vehicle
research. In addition, we believe that many Dealers and all major
Manufacturers that market their vehicles in the U.S. use the
internet as an efficient way to reach consumers through marketing
programs.
According to Automotive News, U.S. light vehicle sales were 17.5
million in 2016, flat from 17.5 million vehicles sold in
2015. J.D. Power / LMC Automotive are forecasting 2017
U.S. total light vehicle sales and retail light-vehicle sales at
17.6 million and 14.1 million, respectively. J.D. Power
reported continuing trends of elevated inventories and increased
incentive levels. We believe an increase in automotive incentives
should result in increased use of the internet by consumers engaged
in the vehicle purchasing process and increased submission of Leads
by consumers in 2017.
Products and
Services
Leads are internally-generated from our Company
Websites (“Internally-Generated
Leads”) or acquired from
third parties (“Non-Internally-Generated
Leads”) that generate
Leads from their websites (“Non-Company
Websites”). We sell
Internally-Generated Leads and Non-Internally-Generated Leads
directly to Dealers and indirectly to Dealers through a wholesale
market consisting of Manufacturers and other third parties in the
automotive Lead distribution industry. Our AutoWeb
Program links consumers to Dealers and Manufacturer websites when
the consumers click on advertisements on Company Websites as well
as websites operated by third parties that have contracted with the
Company as publishers under the AutoWeb Program. In addition to our
Lead and AutoWeb programs, we also offer Dealers and Manufacturers
other products and services, including our iControl by
Autobytel®,
WebLeads+, Email Manager, Payment Pro®,
TextShield®,
SaleMove and Lead Call products and services, to assist them in
capturing online, in-market customers and selling more vehicles by
improving conversion of Leads to sale
transactions.
Lead Programs
We
provide Dealers and Manufacturers with opportunities to market
their vehicles efficiently to potential vehicle
buyers. Dealers participate in our Lead programs, and
Manufacturers participate in our Lead programs, our display
advertising programs and our direct marketing programs, reaching
consumers that are in the market to acquire a
vehicle. For consumers, we provide, at no cost to the
consumer, an easy way to obtain valuable information to assist them
in their vehicle shopping process. Leads may be submitted by
consumers through our Company Websites or through Non-Company
Websites. For consumers using our Company Websites, we provide
research information, including vehicle specification data, safety
data, pricing data, photos, videos, regional rebate and incentive
data, and additional tools, such as the compare and configuration
tools, to assist them in this process. We also provide
additional content on our Company Websites, including our database
of articles, such as consumer and professional reviews, and other
analyses. Additional automotive information is also
available on our Company Websites to assist consumers with specific
vehicle research, such as the trade-in value of their current
vehicle.
New Vehicle Lead Program. Our Lead program for new vehicles allows consumers
to submit requests for pricing and availability of specific makes
and models. A new vehicle Lead provides information
regarding the make and model of a vehicle, and may also include
additional data regarding the consumer’s needs, including any
vehicle trade-in, whether the consumer wishes to lease or buy, and
other options that are important to the vehicle acquisition
decision. A Lead will usually also include the consumer’s
name, phone number and email address and may include a postal
address.
Our Leads are subject to quality verification that is designed to
maintain the high quality of our Leads and increase the Lead buy
rates for our Lead customers. Quality verification includes the
validation of name, phone number, email address and postal address.
Our quality verification also involves proprietary systems as well
as arrangements with third party vendors specializing in customer
validation. After a Lead has been subjected to quality
verification, if we have placement coverage for the Lead within our
own Dealer network, we send the Lead to Dealers that sell the type
of vehicle requested in the consumer’s geographic area. We
also send an email message to the consumer with the Dealer’s
name and phone number, and if the Dealer has a dedicated internet
manager, the name of that manager. Dealers contact the consumer
with a price quote and availability information for the requested
vehicle. In addition to sales of Leads directly to Dealers in our
network, we also sell Leads wholesale to Manufacturers for delivery
to their Dealers and to third parties that have placement coverage
for the Lead with their own customers.
-2-
Dealers participate in our retail new vehicle Lead program by
entering into contracts directly with us or through major Dealer
groups. Generally, our Dealer contracts may be terminated by either
party on 30 days’ notice and are non-exclusive. The majority
of our retail new vehicle Lead revenues consists of either a
monthly subscription or a per-Lead fee paid by Dealers in our
network; however, under our pay-per-sale program, we offer a
limited number of Dealers in states where we are permitted to
charge on a per transaction basis the opportunity to pay a flat per
transaction fee for a Lead that results in a vehicle sale. We
reserve the right to adjust our fees to retail Dealers upon 30
days’ prior notice at any time during the term of the
contract. Manufacturers (directly or through their marketing
agencies) and other third parties participate in our wholesale new
vehicle Lead programs generally by entering into agreements where
either party has the right to terminate upon prior notice, with the
length of time for the notice varying by contract. Revenues from
retail new vehicle Leads accounted for 22%, 27% and 32% of total
revenues in 2016, 2015 and 2014, respectively. Revenues from
wholesale Leads accounted for 46%, 47% and 44% of total revenues in
2016, 2015 and 2014, respectively.
We measure Lead quality by the conversion of Leads
to actual vehicle sales, which we refer to as the “buy
rate.” Buy rate is the percentage of the consumers submitting
Leads that we delivered to our customers represented by the number
of these consumers who purchased vehicles within ninety days of the
date of the Lead submission. We rely on detailed feedback
from Manufacturers and wholesale customers to confirm the
performance of our Leads. Our Manufacturer and
wholesale customers each match the Leads we deliver to our
customers against vehicle sales to provide us with information
about vehicle purchases by the consumers who submitted Leads that
we delivered to these customers. Autobytel also obtain vehicle registration
data from a third party provider. This information, together with
our internal analysis allows us to estimate the buy rates for the
consumers who submitted the Internally-Generated Leads and
Non-Internally Generated Leads that we delivered to our customers,
and based on these estimates, to estimate an industry average buy
rate. Based on the most current information and our internal
analysis, we have estimated that, on average, consumers who submit
Internally-Generated Leads that we deliver to our customers have an
estimated buy rate of approximately 17%. Buy rates that individual
Dealers may achieve can be impacted by factors such as the strength
of processes and procedures within the dealership to manage
communications and follow up with consumers.
In
addition, we report a number of key metrics to our customers,
allowing them to gain a better understanding of the revenue
opportunities that they may realize by acquiring Leads from
us. We can now optimize the mix of Leads we deliver to
our customers based on multiple sources of quality measurements.
Also, by reporting the buying behavior of potential consumers, the
findings also can help shape improvements to online Lead
management, online advertising and dealership sales process
training. By providing actionable data, we are now
placing useful information in the hands of our
customers.
During
2016, we continued to focus our Dealer acquisition and retention
strategies on dealerships to which we could deliver a higher
percentage of our Internally-Generated Leads. We believe
this will result in increased vehicle sales for our Dealers and
ultimately stronger relationships with us because, based on our
evaluation of the performance data and information
discussed above, we believe our Internally-Generated Leads are
of high quality.
Used Vehicle Lead Program. Our used vehicle Lead program allows
consumers to search for used vehicles according to specific search
parameters, such as the price, make, model, mileage, year and
location of the vehicle. The consumer is able to locate and display
the description, price and, if available, digital images of
vehicles that satisfy the consumer’s search
parameters. The consumer can then submit a Lead for
additional information regarding a specific vehicle that we then
deliver to the Dealer offering the vehicle. In addition to sending
Leads directly to Dealers through our Lead delivery system,
consumers may choose to contact the Dealer using a toll free number
posted next to the vehicle search results. We charge each Dealer
that participates in the used Vehicle Lead program a monthly
subscription or per Lead fee. Revenues from used vehicle
Leads accounted for 10%, 11% and 12% of total revenues in 2016,
2015 and 2014, respectively.
Other Dealer Products and Services
In
addition to Lead and AutoWeb programs, we also offer products and
services that assist Dealers in connecting with in-market consumers
and closing vehicle sales.
iControl by
Autobytel® iControl
by Autobytel®
is our proprietary technology that
allows Dealers many options to filter and control the volume and
source of their Leads. iControl by Autobytel®
can be controlled at the dealership
(or by a representative of Autobytel on behalf of the dealership),
at the Dealer group level from a web-based, easy-to-use console
that makes it quick and simple for dealerships to change their Lead
acquisition strategy to adjust for inventory conditions at their
stores and broader industry patterns (such as changes in gas
prices or changes in consumer demand). From the console,
dealerships can easily contract or expand territories and increase,
restrict or block specific models and Lead web sources, making it
much easier to target inventory challenges and focus marketing
resources more efficiently.
-3-
We currently have over one-half of our new vehicle
Dealers participating in our iControl by
Autobytel®
product.
WebLeads+.
Designed to work in connection with a Dealer’s participation
in our Lead programs, WebLeads+ offers a Dealer multiple coupon
options that display relevant marketing messages to consumers
visiting the Dealer’s website. When a Dealer uses
WebLeads+, consumers visiting the Dealer’s website are
encouraged to take action in two ways. First, while
interacting with the Dealer website, a consumer is presented with a
customized special offer formatted for easy Lead submission. If a
vehicle quote is requested, the Lead goes directly into the
dealership management tool so a salesperson can promptly address
the customer’s questions. Second, if the consumer
leaves the Dealer’s website but remains online, the
WebLeads+ product keeps the coupon active in a new browser,
providing the Dealer a repeat branding opportunity and giving the
consumer an easy way to re-engage with the Dealer’s website
through submission of a Lead. The additional Leads
generated by the coupons are seamlessly integrated into our
Extranet tool.
Email
Manager and Lead Call. Email
Manager provides, on behalf of the Dealers, timely and relevant
follow up emails to consumers who have submitted Leads on scheduled
intervals following a consumer’s Lead
submission. After submission of a Lead, Lead Call
provides a live phone call to the consumer on behalf of the Dealer
and schedules an appointment for the consumer to visit the
dealership regarding the specific vehicle the consumer inquired
about.
Payment
Pro®.
Payment Pro®
is a Dealer website conversion tool
based on a third party product that offers consumers real-time
online monthly payment information based on an instant
qualification process. The payments are based on the
consumer’s credit, the actual vehicle being researched and
the Dealer finance rates without requiring the consumer to provide
personal information, such as date of birth or social security
number. The Lead goes directly into the dealership management tool
so that a salesperson can promptly address the consumer’s
inquiry.
Mobile
Products and Services. We
provide Dealers and Manufacturers mobile technologies that
facilitate communication between Dealers and car buyers on smart
phones and tablets at the time, place and in a manner preferred by
many consumers. At the center of this platform is
Autobytel’s unique TextShield® product that offers
Dealers the ability to connect with consumers using text
communication via a secure platform that protects the
consumer’s privacy. In addition, we offer Dealers
mobile websites designed to drive consumer engagement with Dealers
as well as mobile apps, text message marketing and the ability for
consumers to send information to their mobile devices using our
“send to phone” product.
SaleMove.
Our arrangement with SaleMove, Inc.
(“SaleMove”) allows Autobytel to provide the
automotive industry with innovative technology for enhancing
communications with consumers. SaleMove’s
technology allows Dealers and Manufacturers to enhance the online
shopping experience by interacting with consumers in real time
using the method most comfortable to them including live video,
audio and text based chat or by phone helping Dealers improve the
online car shopping experience for their
customers. Autobytel is providing the tools necessary to
capture the opportunities being created as online shopping becomes
increasingly popular with in-market car buyers.
Advertising Programs
Our Company Websites attract an audience of
prospective automotive buyers that advertisers can target through
display advertising. A primary way advertisers use our Company
Websites to reach consumers is through vehicle content
targeting. This allows automotive marketers to reach
consumers while they are researching one of our comprehensive
automotive segments such as mini-vans or SUVs and offer
Manufacturers sponsorship opportunities to assist in their efforts
both in terms of customer retention and conquest strategies. Our
Company Websites also offer Manufacturers the opportunity to
feature their makes and models within highly contextual content.
Through their advertising placements, Manufacturers can direct
consumers to their respective websites for further information. We
believe this transfer of consumers from our Company Websites to
Manufacturer sites is the most significant action measured by
Manufacturers in evaluating our performance and value for the
Manufacturer’s marketing programs. Through our agreement with
Jumpstart Automotive Group (“Jumpstart”), Jumpstart sells our fixed placement
advertising across our Company Websites to automotive advertisers.
Jumpstart currently reaches approximately 27 million unique
visitors per month and works with every major automotive
Manufacturer across its portfolio of digital
publishers. We also offer a direct marketing platform
that enables Manufacturers to selectively target in-market
consumers during the often-extended vehicle shopping process.
Designed to keep a specific automotive brand in consideration, our
direct marketing programs allow automotive marketers to deliver
specific communication through either email or direct mail formats
to in-market consumers during their purchase
cycle.
-4-
Our
AutoWeb product is our pay-per-click advertising marketplace
program. The AutoWeb Program utilizes proprietary technology to
offer consumers who are shopping targeted offers based on make,
model and geographic location. As these consumers are conducting
research on one of Autobytel’s consumer facing websites or on
the site of one of our network of automotive publishers, they are
presented with relevant offers on a timely basis and, upon the
consumer clicking on the displayed advertisement, are sent to the
appropriate website location of one of our Dealer, Manufacturer or
advertising customers. The AutoWeb network of publisher websites
reaches and engages with millions of potential car buyers each
month, and we believe it provides high intent, quality traffic that
Dealers and other customers cannot typically reach through their
own marketing efforts. The AutoWeb solution is flexible and in
addition to driving traffic to a vehicle detail page, it can also
send website traffic to new vehicle sales, service, used vehicles
or to any other department where a customer wants to engage with
in-market consumers. In addition, we believe that the AutoWeb
solution can be used to conquest competitive shoppers who are
researching another brand more effectively than can typically be
done using other search engines. Advertisers only pay for the
clicks they receive, and are able to structure campaigns with
flexible budgets and no long-term commitments in order to manage
spend versus key performance indicators. Ongoing feedback from our
customers is that this traffic provides excellent time-on-site,
below-average bounce rates, higher-than-average page views and is a
valuable tool to help Dealers sell more vehicles.
Advertising
revenues, including direct marketing, accounted for 16%, 8% and 4%
of total revenues in 2016, 2015 and 2014,
respectively.
Strategy
Our
goal is to garner a larger share of the billions of dollars spent
annually by Dealers and Manufacturers on automotive marketing
services. We plan to achieve this objective through the
following principal strategies:
Increasing The Supply of High-Quality Leads. High-quality Leads are those Leads that result
in high transaction (i.e., purchase) closing rates for our Dealer
customers. Internally-Generated Leads are generally
higher quality than Non-Internally-Generated Leads and increase the
overall quality of our Lead portfolio. Non-Internally-Generated
Leads are of varying quality depending on the source of these
Leads. We plan to increase the supply of high-quality Leads
generated to sell to our customers primarily
by:
●
Increasing
traffic acquisition activities for our Company
Websites. Traffic to our Company Websites is monetized
primarily though the creation of Leads that are delivered to our
Dealer and Manufacturer customers to help them market and sell new
and used vehicles, and through the sale of advertising space on our
Company Websites. We plan to increase the traffic to our Company
Websites through effective SEO and SEM traffic acquisition
activities and enhancements to our Company
Websites.
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SEO and SEM
traffic acquisition activities.
Traffic to our Company Websites is obtained through a variety of
sources and methods, including direct navigation to our Company
Websites, natural search (search engine optimization or
“SEO”, which is the practice of optimizing
keywords in website content to drive traffic to a website), paid
search (search engine marketing, or “SEM,” which is the practice of bidding on
keywords on search engines to drive traffic to a website), direct
marketing and partnering with other website publishers that provide
links to our websites. Our goal is that over time, paid
traffic such as SEM will be balanced by greater visitation from
direct navigation and SEO, which we expect to result in increased
Lead volumes and gross profit margins.
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Continuing
to enhance the quality and user experience of our Company
Websites. We continuously make enhancements to
our Company Websites, including enhancements of the design and
functionality of our Company Websites. These
enhancements are intended to position our Company Websites as
comprehensive best in class destinations for automotive purchase
research by consumers. By doing so, we believe we will increase the
volume of our Internally-Generated Leads.
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Increasing
the conversion rate of visitors to Leads on our Company
Websites. Through
increased SEO and SEM activities and significant content, tools and
user interface enhancements to our websites, we believe we will be
able to increase the number of website visits and improve website
“engagement,” and thereby increase the conversion of
page views into Leads. We believe that an increased
conversion rate of page views into Leads could result in higher
revenue per visitor.
●
Relationships with Suppliers of High-Quality
Non-Internally-Generated Leads. We plan to continue to develop
and maintain strong relationships only with suppliers of
Non-Internally-Generated Leads that consistently provide high
quality Leads.
-5-
Increasing Leads Sales to our Customers. Our principal source of revenue comes from sales
of Leads to our retail and wholesale Lead customers. Our goal is to
increase sales of Leads to our customers primarily
by:
●
Increasing
Lead Sales to Retail Dealers. Sales
of Leads to our Dealer network constitute a significant source of
our revenues. Our goal is to continue to increase the
number of Leads sold to our retail Dealer customers
by:
o
increasing
the quality of the Leads sold to our Dealers,
o
increasing
the number of Dealers in our Dealer network,
o
reducing
Dealer churn in our Dealer network,
o
providing
customizable Lead programs to meet our Dealers’ unique
marketing requirements,
o
providing
additional value added marketing services that help Dealers more
effectively utilize the internet to market and sell new and used
vehicles,
o
increasing
overall Dealer satisfaction by improving all aspects of our
services,
o
increasing
the size of our retail Dealer footprint,
o
focusing
on higher revenue Dealers that are more cost-effective to support,
and
o
enhancing
our internal Lead generation activities by leveraging our expanded
retail lead coverage.
●
Increasing
Lead Sales to Wholesale Customers. We currently have
agreements to sell Leads to 31 Manufacturer Lead programs,
including all mainstream Manufacturers with the exception of one
luxury brand that has yet to launch a Lead
program. Demonstrating how important third-party leads
are to Manufacturers, over the past three years several major
Manufacturers, including two major Japanese manufacturers, launched
corporate Lead programs for the first time. Others have
completely re-launched their programs and some have changed
business rules, pricing or coverage in order to be able to purchase
more of Autobytel’s high quality, organic
Leads.
Continuing to develop the AutoWeb targeted pay-per-click
marketplace for online automotive advertisers and
publishers. Our
merger with AutoWeb allowed us to become the first automotive
publisher to benefit from AutoWeb’s pay-per-click platform
that uses proprietary technology and a unique pay-per-click
business model to analyze web traffic and adjust advertiser costs
accordingly based on traffic quality. This traffic
network is targeted to attract high-intent, high-volume publishers
and is intended to allow them to monetize traffic that has
previously been under-monetized. In-market car shoppers
are presented with highly relevant display advertisements and
benefit from an online experience that delivers information that
consumers use in making their car buying
decisions. Manufacturers benefit from this high-quality
traffic from serious in-market car buyers. Our AutoWeb
program enables Manufacturers and Dealers to optimize their
advertising by driving traffic to appropriate areas of their Tier 1
(Manufacturer national advertising), Tier 2 (Manufacturer and
advertising associations regional advertising) and Tier 3 (Dealer)
websites.
Moving
forward we believe that Manufacturers and Dealers will continue to
see the measureable attribution from this click traffic and will
reallocate marketing spend from traditional channels into this
emerging medium. We also plan to grow the size of this addressable
marketplace by adding high-quality and high volume automotive
publishers to our network, by targeting in market consumers on a
variety of social media platforms and by continuing to optimize
this advertising platform on our consumer facing websites, whose
traffic we believe will continue to scale. In addition, we believe
that the flexibility of our solution combined with high quality
traffic with automotive purchase intent may allow us to increase
the amount charged per click as the network grows and as the level
of attribution from this marketplace is understood by advertising
partners.
Increasing Display Advertising Revenues.
As traffic to, and time spent on, our
Company Websites by consumers increases, we will seek to increase
our advertising revenues. Through our agreement with
Jumpstart we benefit from Jumpstart's relationships with every
major automotive Manufacturer and/or its advertising agencies
by increasing revenue for our traditional display
advertising. It is our belief that if the volume of our
traffic continues to increase, advertisers will recognize this
increased value by agreeing to purchase additional advertising
space available on our Company Websites. Additionally,
we believe that our AutoWeb program provides an opportunity to
increase Autobytel advertising revenue through additional
monetization opportunities for our existing and growing
traffic.
Focusing on Mobile Products. As
consumers increasingly engage with Internet content using mobile
devices, Autobytel will continue to focus on advanced mobile
technologies that facilitate communication between Dealers and
consumers on smart phones and tablets at the time, place, and in a
manner preferred by many consumers. This focus on
the mobile platform is a core part of our strategy moving forward
regarding lead generation, automotive research, website advertising
and traffic generation.
In
addition, we will continue to focus on making mobile tools
available to Dealer and Manufacturer customers. Texting
is increasingly becoming the communication method of choice for
many consumers and Autobytel’s unique TextShield®
platform offers Dealers the ability to connect with consumers using
text communication via a secure platform that protects the
consumer’s privacy. In addition, this platform
offers much of the same oversite and control that is available in
traditional email Lead Management Systems and is essentially a Lead
Management System for text. We plan to integrate this technology
into our consumer facing websites, lead generation and advertising
campaigns so that we can continue to facilitate communication
between consumers and Dealers utilizing whatever mobile
communication platform they choose.
-6-
Continuing to Expand our Products and Services. We
gather significant amounts of data on consumer intent as it relates
to purchasing vehicles. We intend to use these data to
create products and services, including direct business database
offerings, that we believe will ultimately help Manufacturers and
Dealers market and sell more new and used vehicles. Our
objective is to generate revenues from this asset in the most
effective and efficient ways possible.
Strategic Acquisitions,
Investments and Alliances. Our
goal is to grow and advance our business. We may do so, in part,
through strategic acquisitions, investments and alliances. We
continue to review strategic opportunities that may provide
opportunities for growth. We believe that strategic acquisitions,
investments and alliances may allow us to increase market share,
benefit from advancements in technology and strengthen our business
operations by enhancing our product and service
offerings.
Our ability to implement the foregoing strategies and plans is
subject to risks and uncertainties, many of which are beyond our
control. Accordingly, there is no assurance that we will
successfully implement our strategies and plans. See
“Item 1A. Risk Factors” of this Annual Report on Form
10-K.
Seasonality
Our
quarterly revenues and operating results have fluctuated in the
past and may fluctuate in the future due to various factors,
including consumer buying trends, changing economic conditions,
Manufacturer incentive programs and actual or threatened severe
weather events. Excluding the effect of acquisitions in
2015, Lead volume is typically highest in summer (third quarter)
and winter (first quarter) months, followed by spring (second
quarter) and fall (fourth quarter) months.
Intellectual Property
Our intellectual property includes patents and
patent applications related to our innovations, products and
services; trademarks related to our brands, products and services;
copyrights in software and creative content; trade secrets; and
other intellectual property rights and licenses of various kinds.
We seek to protect our intellectual property assets through patent,
copyright, trade secret, trademark and other laws and through
contractual provisions. We enter into confidentiality and invention
assignment agreements with our employees and contractors, and
non-disclosure agreements with third parties with whom we conduct
business in order to secure our proprietary rights and additionally
limit access to, and disclosure of, our proprietary
information. We have registered trademarks with the
United States Patent and Trademark Office, including Autobytel,
Autobytel.com, MyGarage, Your Lifetime Automotive
Advisor®,
iControl by Autobytel®,
TextShield®,
Payment Pro®,
AutoWeb®,
AutoWeb.com®
and the global highway logo. We have
also been issued patents related to methods and systems for
managing a Lead in data center systems and a method and system for
managing Leads and routing them to one or more destinations. We
cannot provide any assurances that any of our patents will be
enforceable by us in litigation.
Additional
information regarding certain risks related to our intellectual
property is included in Part I, Item 1A “Risk
Factors” of this Annual Report on
Form 10-K.
Competition
In
the automotive-related Lead marketing services and advertising
marketplace we compete for Dealer and Manufacturer
customers. Competition with respect to our core Lead
referral programs continued to be impacted by changing industry
conditions in 2016. We continue to compete with several companies
that maintain business models similar to ours, some with greater
resources. In addition, competition has increased from larger
competitors that traditionally have competed only in the used
vehicle market. Dealers continue to invest in their
proprietary websites and traffic acquisition activities, and we
expect this trend to continue as Dealers strive to own and control
more Lead generating assets under their captive
brands. Additionally, all major Manufacturers that
market their vehicles in the U.S. have their own websites that
market their vehicles direct to consumers and generate Leads for
delivery direct to the Manufacturers’ Dealers.
We
believe that third party Leads have been the standard in our
industry for many years. However, we continue to observe new
and emerging business models, including pay-per-sale and consumer
pay models, relating to the generation and delivery of
Leads. From time to time, new products and services are
introduced that take the focus away from third party Lead
generation, which we believe is a profitable way to sell
vehicles to in-market buyers. Dealers and Manufacturers
may decide to pull back on their third party
Lead programs to test these new approaches.
In
the display advertising marketplace, we compete with major internet
portals, transaction based websites, automotive related companies,
numerous lifestyle websites and emerging entrants in the relatively
new automotive click revenue medium. We also compete with
traditional marketing channels such as print, radio and
television.
In the
pay-per-click advertising marketplace, we compete with established
search engine providers as well as with a growing number of digital
marketing platforms focused on generating dealership website
traffic from inventory listings and social media campaigns. In
addition, some industry providers who have historically specialized
in inventory aggregation or on providing SEM agency services to
Dealers are now expanding into the area of website traffic
generation.
-7-
Customers
We
have a concentration of credit risk with our automotive industry
related accounts receivable balances, particularly with Urban
Science Applications (which represents several Manufacturer
programs), General Motors and Ford Direct. During 2016,
approximately 28% of our total revenues were derived from these
three customers, and approximately 36% or $12.6 million of gross
accounts receivable related to these three customers at December
31, 2016. In 2016, Urban Science Applications accounted
for 16% and 19% of total revenues and accounts receivable as of
December 31, 2016, respectively.
Operations and Technology
We
believe that our future success is significantly dependent upon our
ability to continue to deliver high-performance, reliable and
comprehensive websites, enhance consumer and Dealer product and
service offerings, maintain the highest levels of information
privacy and ensure transactional security. Our Company Websites are
hosted at secure third-party data center facilities and public
cloud providers. These data centers and public cloud systems
include redundant power infrastructure, redundant network
connectivity, fire detection and suppression systems and security
systems to prevent unauthorized access. Our network and computer
systems are built on industry standard technology.
System
enhancements are primarily intended to accommodate increased
traffic across our Company Websites, improve the speed in which
Leads and advertisements are processed and introduce new and
enhanced products and services. System enhancements entail the
implementation of sophisticated new technology and system
processes. We plan to continue to make investments in technology as
we believe appropriate.
Government Regulation
We
are subject to laws and regulations generally applicable to
providers of advertising and commerce over the internet, including
federal and state laws and regulations governing data security and
privacy; voice, email and text messaging communications with
consumers; unfair and deceptive acts and practices; advertising;
contests, sweepstakes and promotions; and content regulation. For
additional important information related to government regulation
of our business, including governmental regulations relating to the
marketing and sale of automobiles, see the information set forth in
Part I, Item 1A“Risk Factors” of this Annual
Report on Form 10-K.
Employees
As
of March 6, 2017, we had 254 employees. None of our
employees are represented by labor unions.
-8-
Item 1A. Risk
Factors
The risks described below are not the only risks
that we face. The following risks as well as risks and
uncertainties not currently known to us or that we currently deem
to be immaterial may materially and adversely affect our business,
results of operations, financial condition, earnings per share,
cash flow or the trading price of our stock, individually and
collectively referred to in these Risk Factors as our
“financial
performance.” See also the discussion
of “Forward-Looking Statements” immediately preceding
Part I of this Annual Report on Form 10-K.
We may be unable to increase Lead revenues and could suffer a
decline in revenues due to dealer attrition.
We
derive more than 94% of our Lead revenues from Lead fees paid by
Dealers and Manufacturers participating in our Lead programs. Our
ability to increase revenues from sales of Leads is dependent on a
mix of interrelated factors that include increasing Vehicle Lead
revenues by attracting and retaining Dealers and Manufacturers,
increasing the number of high quality Leads we sell to Dealers and
Manufacturers, and improving margins by increasing the number of
Internally-Generated Leads that we sell to our customers. We are
also focused on higher revenue Dealers that are more cost-effective
to support. Our sales strategy is intended to result in more
profitable relationships with our Dealers both in terms of cost to
supply Leads and to support the Dealers. Dealer churn impacts
our revenues, and if our sales strategy does not mitigate the loss
in revenues by maintaining the overall number of Leads sold by
increasing sales to other Dealers or Manufacturers while
maintaining the overall margins we receive from the Leads sold, our
revenues would decrease. We cannot provide any assurances that we
will be able to prevent Dealer attrition or to offset the revenues
lost due to Dealer attrition by other means, and our failure to do
so could materially and adversely affect our financial
performance.
We may lose customers or quality Lead supplies to our
competitors.
Our
ability to provide increased numbers of high-quality Leads to our
customers is dependent on increasing the number of
Internally-Generated Leads and acquiring high-quality
Non-Internally-Generated Leads from third parties. Originating
Internally-Generated Leads is dependent on our ability to increase
consumer traffic to our Company Websites by providing secure and
easy to use websites with relevant and quality content for
consumers and increasing visibility of our brands to consumers and
by our SEM activities. We compete for Dealer and Manufacturer
customers and for acquisition of Non-Internally-Generated Leads
with companies that maintain automotive Lead referral businesses
that are very similar to ours. Several of these competitors are
larger than us and may have greater financial resources than we
have. If we lose customers or quality Lead supply volume to our
competitors, or if our pricing or cost to acquire Leads is
impacted, our financial performance will be materially and
adversely impacted.
Our financial performance could be materially and adversely
affected by changes in Internet search engine algorithms and
dynamics.
We
use Google to generate a significant portion of the traffic to our
websites, and, to a lesser extent, we use other search engines and
meta-search websites to generate traffic to our websites,
principally through pay-per-click advertising campaigns. The
pricing and operating dynamics on these search engines can
experience rapid change commercially, technically and
competitively. For example, Google frequently updates and changes
the logic that determines the placement and display of results of a
consumer's search, such that the placement of links to our websites
can be negatively affected and our costs to improve or maintain our
placement in search results can increase.
We are affected by general economic and market conditions, and, in
particular, conditions in the automotive industry.
Our
financial performance is affected by general economic and market
factors, conditions in the automotive industry, and the market for
automotive marketing services, including, but not limited to, the
following:
●
The
effect of unemployment on the number of vehicle
purchasers;
●
Pricing
and purchase incentives for vehicles;
●
The
expectation that consumers will be purchasing fewer vehicles
overall during their lifetime as a result of better quality
vehicles and longer warranties;
●
The
impact of fuel prices on demand for the number and types of
vehicles;
●
Increases
or decreases in the number of retail Dealers or in the number of
Manufacturers and other wholesale customers in our customer
base;
●
Volatility
in spending by Manufacturers and others in their marketing budgets
and allocations;
●
The
competitive impact of consolidation in the online automotive
referral industry; and
●
The
effect of changes in transportation policy, including the potential
increase of public transportation options.
-9-
We may acquire other companies, and there are many risks associated
with acquisitions.
As
part of our business strategy we evaluate potential acquisitions
that we believe will complement or enhance our existing business.
We currently do not have any definitive agreements to acquire any
company or business, and we may not be able to identify or complete
any acquisition in the future. Acquisitions involve
numerous risks that include the following, any of which could
materially and adversely affect our financial
performance:
●
We
may not fully realize all of the anticipated benefits of an
acquisition or may not realize them in the timeframe expected,
including due to acquisitions where we expand into product and
service offerings or enter or expand into markets in which we are
not experienced.
●
In
order to complete acquisitions, we may issue common stock or
securities convertible into or exercisable for common stock,
potentially creating dilution for existing stockholders. Issuance
of equity securities may also restrict utilization of net operating
loss carryforwards because of an annual limitation due to ownership
change limitations under the Internal Revenue Code.
●
We
may borrow to finance acquisitions, and the amount and terms of any
potential future acquisition-related or other borrowings may not be
favorable to the Company and could affect our liquidity and
financial condition.
●
Acquisitions
may result in significant costs and expenses and charges to
earnings, including those related to severance pay, early
retirement costs, employee benefit costs, goodwill and asset
impairment charges, charges from the elimination of duplicative
facilities and contracts, assumed litigation and other liabilities,
legal, accounting and financial advisory fees, and required
payments to executive officers and key employees under retention
plans.
●
Our
due diligence process may fail to identify significant issues with
an acquired company that may result in unexpected or increased
costs, expenses or liabilities that could make an acquisition less
profitable or unprofitable.
●
The
failure to further our strategic objectives that may require us to
expend additional resources to develop products, services and
technology internally.
●
An
announced business combination and investment transaction may not
close timely or at all, which may cause our financial results to
differ from expectations in a given quarter.
●
Business
combination and investment transactions may lead to litigation that
can be costly to defend or settle, even if no actual liability
exists.
●
Integration
of acquisitions are often complex, time-consuming and expensive and
if not successfully integrated could materially and adversely
affect our financial performance. The challenges involved with
integration of acquisitions include:
●
Diversion
of management attention to assimilating the acquired business from
other business operations and concerns.
●
Integration
of management information and accounting systems of the acquired
business into our systems, and the failure to fully realize all of
the anticipated benefits of an acquisition.
●
Difficulties
in assimilating the operations and personnel of an acquired
business into our own business.
●
Difficulties
in integrating management information and accounting systems of an
acquired business into our current systems.
●
Convincing
our customers and suppliers and the customers and suppliers of the
acquired business that the transaction will not diminish client
service standards or business focus and that they should not defer
purchasing decisions or switch to other suppliers.
●
Consolidating
and rationalizing corporate IT infrastructure, which may include
multiple legacy systems from various acquisitions and integrating
software code and business processes.
●
Persuading
employees that business cultures are compatible, maintaining
employee morale, retaining key employees and integrating employees
into the Company.
●
Coordinating
and combining administrative, manufacturing, research and
development and other operations, subsidiaries, facilities and
relationships with third parties in accordance with local laws and
other obligations while maintaining adequate standards, controls
and procedures.
●
Managing
integration issues shortly after or pending the completion of other
independent transactions.
Concentration of
credit risk and risks due to significant customers could materially
and adversely affect our financial performance.
Financial
instruments that potentially subject us to concentrations of credit
risk consist primarily of cash and cash equivalents, investments
and accounts receivable. Cash and cash equivalents are primarily
maintained with two financial institutions in the United States.
Deposits held by banks exceed the amount of insurance provided for
such deposits. Generally these deposits may be redeemed upon
demand. Accounts receivable are primarily derived from fees billed
to Dealers and Manufacturers. We have a concentration of credit
risk with our automotive industry related accounts receivable
balances, particularly with Urban Science Applications (which
represents several Manufacturer programs), General Motors and Ford
Direct. During 2016 approximately 28% of the Company’s total
revenues were derived from these customers, and approximately 36%
or $12.6 million of gross accounts receivable are receivable from
them at December 31, 2016. In 2016, Urban Science Applications
accounted for 16% and 19% of total revenues and accounts receivable
as of December 31, 2016, respectively. No collateral is
required to support our accounts receivables, and we maintain an
allowance for bad debts for potential credit losses. If
there is a decline in the general economic environment that
negatively affects the financial condition of our customers or an
increase in the number of customers that are dissatisfied with
their services, additional estimated allowances for bad debts and
customer credits may be required, and the adverse impact on our
financial performance could be material.
-10-
We depend on Manufacturers through our third party sales channel
for a significant amount of our advertising revenues, and we may
not be able to maintain or grow these relationships.
We
depend on Manufacturers through our third party sales channel for a
significant amount of our advertising revenues. A decline in the
level of advertising on our websites, reductions in advertising
rates or any significant failure to develop additional sources of
advertising would cause our advertising revenues to decline, which
could have a material adverse effect on our financial performance.
We periodically negotiate revisions to existing agreements and
these revisions could decrease our advertising revenues in future
periods and a number of our advertising agreements with
Manufacturers may be terminated at any time without cause. We may
not be able to maintain our relationship with Manufacturers on
favorable terms or find alternative comparable relationships
capable of replacing advertising revenues on terms satisfactory to
us. If we cannot do so, our advertising revenues would decline,
which could have a material adverse effect on our financial
performance.
Our
ability to maintain and add to our relationships with advertisers
and thereby increase advertising revenues is dependent on our
ability to attract consumers and acquire traffic to our Company
Websites and monetize that traffic at profitable margins with
advertisers. Our consumer facing websites compete with offerings
from the major internet portals, transaction based sites,
automotive-related verticals (websites with content that is
primarily automotive in nature) and numerous lifestyle websites.
Our advertising business is characterized by minimal barriers to
entry, and new competitors may be able to launch competitive
services at relatively low costs. If our Company Websites do not
provide a compelling, differentiated user experience, we may lose
visitors to competing sites, and if our website traffic declines,
we may lose relevance to our major advertisers who may reduce or
eliminate their advertising buys from us, which could have a
material and adverse effect on our financial
performance.
Uncertainty exists in the application of various laws and
regulations to our business. New laws or regulations applicable to
our business, or expansion or interpretation of existing laws and
regulations to apply to our business, could subject us to
licensing, claims, judgments and remedies, including monetary
liabilities and limitations on our business practices, and could
increase administrative costs or materially and adversely affect
our financial performance.
We
operate in a regulatory climate in which there is uncertainty as to
the application of various laws and regulations to our
business. Our business could be significantly affected
by different interpretations or applications of existing laws or
regulations, future laws or regulations, or actions or rulings by
judicial or regulatory authorities. Our operations may
be subjected to adoption, expansion or interpretation of various
laws and regulations, and compliance with these laws and
regulations may require us to obtain licenses at an undeterminable
and possibly significant initial and annual expense. These
additional expenditures may increase future overhead, thereby
potentially reducing our future results of operations. There can be
no assurances that future laws or regulations or interpretations or
expansions of existing laws or regulations will not impose
requirements on internet commerce that could substantially impair
the growth of e-commerce and adversely affect our financial
performance. The adoption of additional laws or regulations may
decrease the popularity or impede the expansion of e-commerce and
internet marketing, restrict our present business practices,
require us to implement costly compliance procedures or expose us
and/or our customers to potential liability.
We
may be deemed to “operate” or “do business”
in states where our customers conduct their business, resulting in
regulatory action. If any state licensing laws were determined to
be applicable to us, and if we are required to be licensed and we
are unable to do so, or we are otherwise unable to comply with laws
or regulations, we could be subject to fines or other penalties or
be compelled to discontinue operations in those
states. In the event any state’s regulatory
requirements impose state specific requirements on us or include us
within an industry-specific regulatory scheme, we may be required
to modify our marketing programs in that state in a manner that may
undermine the program’s attractiveness to consumers or
Dealers. In the alternative, if we determine that the licensing and
related requirements are overly burdensome, we may elect to
terminate operations in that state. In each case, our financial
performance could be materially and adversely
affected. We have identified below areas of government
regulation, which if changed or interpreted to apply to our
business, we believe could be costly for us.
Automotive
Dealer/ Broker and Vehicle Advertising Laws. All states comprehensively regulate vehicle sales
and lease transactions, including strict licensure requirements for
Dealers (and, in some states, brokers) and vehicle advertising.
Most of these laws and regulations, we believe, specifically
address only traditional vehicle purchase and lease transactions,
not internet-based Lead referral programs such as our programs. If
we determine that the licensing or other regulatory requirements in
a given state are applicable to us or to a particular marketing
services program, we may elect to obtain required licenses and
comply with applicable regulatory requirements. However,
if licensing or other regulatory requirements are overly
burdensome, we may elect to terminate operations or particular
marketing services programs in that state or elect to not operate
or introduce particular marketing services programs in that state.
In some states we have modified our marketing programs or pricing
models to reduce uncertainty regarding our compliance with local
laws. As we introduce new services, we may need to incur additional
costs associated with additional licensing regulations and
regulatory requirements.
Financial
Broker and Consumer Credit Laws. We provide a connection through our websites
that allows consumers to obtain finance information and, through
our display and pay-per-click advertising programs, to be referred
to Dealer, Manufacturer and potential lender websites. All online
applications for quotes are completed on the respective third
party’s websites. We receive marketing fees from financial
institutions and Dealers in connection with this marketing
activity. We do not demand nor do we receive any fees from
consumers for these services. In the event states require us to be
licensed as a financial broker or finder, we may be unable to
comply with a state’s laws or regulations, or we could be
required to incur significant fees and expenses to obtain any
financial broker required license and comply with regulatory
requirements. In addition, the Dodd-Frank Wall Street
Reform and Consumer Protection Act established a new consumer
financial protection bureau with broad regulatory powers, which
could lead to regulation of our advertising business directly or
indirectly through regulation of automotive finance companies and
other financial institutions.
-11-
Insurance
Broker Laws. We provide links
on our websites and referrals from call centers enabling consumers
to be referred to third parties to receive quotes for insurance
from such third parties. All online applications for quotes are
completed on the respective insurance carriers’ or other
third party websites, and all applications for quotes obtained
through call center referrals are conducted by the insurance
carrier or other third party. We receive marketing fees from
participants in connection with this marketing activity. We do not
receive any premiums from consumers nor do we charge consumers fees
for our services.
Changes in the taxation of internet commerce may result in
increased costs.
Because
our business is dependent on the internet, the adoption of new
local, state or federal tax laws or regulations or new
interpretations of existing laws or regulations by governmental
authorities may subject us to additional local, state or federal
sales, use or income taxes and could decrease the growth of
internet usage or marketing or the acceptance of internet commerce
which could, in turn, decrease the demand for our services and
increase our costs. As a result, our financial
performance could be materially and adversely affected. Tax
authorities in a number of states are currently reviewing and
re-evaluating the tax treatment of companies engaged in internet
commerce, including the application of sales taxes to internet
marketing businesses similar to ours. We accrue for tax
contingencies based upon our estimate of the taxes ultimately
expected to be paid, which we update over time as more information
becomes available, new legislation or rules are adopted or taxing
authorities interpret their existing statutes and rules to apply to
internet commerce, including internet marketing businesses similar
to ours. The amounts ultimately paid in resolution of reviews
or audits by taxing authorities could differ materially from the
amounts we have accrued and result in additional tax expense, and
our financial performance could be materially and adversely
affected.
Data Security and Privacy Risks
Our
business is subject to various laws, rules and regulations relating
to data security and privacy. New data security and privacy laws,
rules and regulations may be adopted regarding the internet or
other online services that could limit our business flexibility or
cause us to incur higher compliance costs. In each case,
our financial performance could be materially and adversely
affected. We have identified below some of these risks
that we believe could materially and adversely affect our financial
performance.
Anti-spam
laws, rules and regulations. Various state and federal laws, rules and
regulations regulate email communications and internet advertising
and restrict or prohibit unsolicited email (commonly known as
“spam”). These laws, rules or regulations may adversely
affect our ability to market our services to consumers in a
cost-effective manner. The federal Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2003
(“CAN-SPAM”) imposes complex and often burdensome
requirements in connection with sending commercial emails. In
addition, state laws regulating the sending of commercial emails,
including California’s law regulating the sending of
commercial emails, to the extent found to not be preempted by
CAN-SPAM, may impose requirements or conditions more restrictive
than CAN-SPAM. Violation of these laws, rules or regulations may
result in monetary fines or penalties or damage to our
reputation.
Data
privacy laws, rules and regulations. Various laws, rules and regulations govern the
collection, use, retention, sharing and security of data that we
receive from our users, advertisers and affiliates. In addition, we
have and post on our website our own privacy policies and practices
concerning the collection, use and disclosure of user data and
personal information. Any failure, or perceived failure, by us to
comply with our posted privacy policies, Federal Trade Commission
requirements or orders or other federal or state privacy or
consumer protection-related laws, regulations or industry
self-regulatory principles could result in proceedings or actions
against us by governmental entities or others. Further, failure or
perceived failure by us to comply with our policies, applicable
requirements or industry self-regulatory principles related to the
collection, use, sharing or security of personal information or
other privacy-related matters could result in a loss of user
confidence in us, damage to our brands, and ultimately in a loss of
users, advertisers or Lead referral and advertising affiliates. We
cannot predict whether new legislation or regulations concerning
data privacy and retention issues related to our business will be
adopted, or if adopted, whether they could impose requirements that
may result in a decrease in our user registrations and materially
and adversely affect our financial
performance. Proposals that have or are currently being
considered include restrictions relating to the collection and use
of data and information obtained through the tracking of internet
use, including the possible implementation of a “Do Not
Track” list, that would allow internet users to opt-out of
such tracking.
-12-
Security
risks associated with online Leads collection and referral,
advertising and e-commerce risks associated with other online fraud
and scams. A
significant issue for online businesses like ours is the secure
transmission of confidential and personal information over public
networks. Concerns over the security of transactions conducted on
the internet, consumer identity theft and user privacy issues have
been significant barriers to growth in consumer use of the
internet, online advertising and e-commerce. Despite our
implementation of security measures, our computer systems or those
of our vendors may be susceptible to electronic or physical
computer break-ins, viruses and other disruptive harms and security
breaches. Advances in computer capabilities, new discoveries in the
field of cryptography or other developments may specifically
compromise our security measures. Because the techniques used to
obtain unauthorized access, disable or degrade service, or sabotage
systems change frequently and often are not recognized until
launched against a target, we may be unable to anticipate these
techniques or to implement adequate preventative measures on a
timely basis. Any perceived or actual unauthorized disclosure of
personally identifiable information regarding website visitors,
whether through breach of our network by an unauthorized party,
employee theft or misuse, or otherwise, could harm our reputation
and brands, substantially impair our ability to attract and retain
our audiences, or subject us to claims or litigation arising from
damages suffered by consumers. If consumers experience identity
theft after using any of our websites, we may be exposed to
liability, adverse publicity and damage to our reputation. To the
extent that identity theft gives rise to reluctance to use our
websites or a decline in consumer confidence in financial
transactions over the internet, our business could be adversely
affected. Alleged or actual breaches of the network of one of our
business partners or competitors whom consumers associate with us
could also harm our reputation and brands. In addition, we could
incur significant costs in complying with the multitude of state,
federal and foreign laws regarding the unauthorized disclosure of
personal information. For example, California law requires
companies to inform individuals of any security breaches that
result in their personal information being stolen. Because our
success depends on the acceptance of online services and
e-commerce, we may incur significant costs to protect against the
threat of security breaches or to alleviate problems caused by
those breaches. Internet fraud has been increasing over the past
few years, and the Company has experienced fraudulent use of our
name and trademarks on websites in connection with the purported
sale of vehicles offered on third party websites, with payments to
be handled through an online escrow service purported to be owned
and operated by the Company. These fraudulent online
transactions and scams, should they continue to increase in
prevalence, could affect our reputation with consumers and give
rise to claims by consumers for funds transferred to the fraudulent
accounts, which could materially and adversely affect our financial
performance.
We
are insured for some, but not all, of the foregoing
risks. Even for those risks for which we are insured and
have coverage under the terms and conditions of the applicable
policies, there are no assurances given that the coverage limits
would be sufficient to cover all costs, liabilities or losses we
might incur or experience.
Telemarketing
Risks. We are
subject to various federal and state laws, rules, regulations and
orders regarding telemarketing and privacy, including restrictions
on the use of unsolicited emails and restrictions on marketing
activities conducted through the use of telephonic communications
(including text messaging to mobile telephones). Our financial
performance could be adversely affected by newly-adopted or amended
laws, rules, regulations and orders relating to telemarketing and
increased enforcement of such laws, rules, regulations or orders by
governmental agencies or by private litigants. One example of
regulatory changes that may affect our financial performance are
the regulations under the Telephone Consumer Protection Act
(“TCPA”). Regulations adopted by the Federal
Communications Commission under the TCPA require the prior express
written consent of the called party before a caller can initiate
telemarketing calls (i) to wireless numbers (including text
messaging) using an automatic telephone dialing system or an
artificial or prerecorded voice; or (ii) to residential lines using
an artificial or prerecorded voice. Failure to comply with the TCPA
can result in significant penalties, including statutory
damages. Our efforts to comply with these regulations
may negatively affect conversion rates of leads, and thus, our
revenue or profitability.
Technology Risks
Our
business is dependent on keeping pace with advances in technology.
If we are unable to keep pace with advances in technology,
consumers may stop using our services and our revenues will
decrease. If we are required to invest substantial amounts in
technology, our financial performance will be adversely
impacted. The
internet and electronic commerce markets are characterized by rapid
technological change, changes in user and customer requirements,
frequent new service and product introductions embodying new
technologies, including mobile internet applications, and the
emergence of new industry standards and practices that could render
our existing websites and technology obsolete. These market
characteristics are intensified by the emerging nature of the
market and the fact that many companies are expected to introduce
new internet products and services in the near future. If we are
unable to adapt to changing technologies, our financial performance
could be materially and adversely affected. Our performance will
depend, in part, on our ability to continue to enhance our existing
services, develop new technology that addresses the increasingly
sophisticated and varied needs of our prospective customers,
license leading technologies and respond to technological advances
and emerging industry standards and practices on a timely and
cost-effective basis. The development of our websites, mobile
applications and other proprietary technology entails significant
technical and business risks. We may not be successful in using new
technologies effectively or adapting our websites or other
proprietary technology to customer requirements or to emerging
industry standards. In addition, if we are required to invest
substantial amounts in technology in order to keep pace with
technological advances, our financial performance could be
materially and adversely affected.
-13-
Interruptions
or failures in our information technology platforms, communication
systems or security systems could materially and adversely affect
our financial performance. Our information technology and communications
systems are susceptible to outages and interruptions due to fire,
flood, earthquake, power loss, telecommunications failures, cyber
attacks, terrorist attacks, failure of redundant systems and
disaster recovery plans and similar events. Such outages and
interruptions could damage our reputation and harm our operating
results. Despite our network security measures, our
information technology platforms are vulnerable to computer
viruses, worms, physical and electronic break-ins, sabotage and
similar disruptions from unauthorized tampering, as well as
coordinated denial-of-service attacks. We do not have multiple site
capacity for all of our services. In the event of delays or
disruptions to services we rely on third party providers to perform
disaster recovery planning and services on our behalf. We are
vulnerable to extended failures to the extent that planning and
services are not adequate to meet our continued technology
platform, communication or security systems’
needs. We rely on third party providers for our primary
and secondary internet connections. Our co-location service and
public cloud services that provide infrastructure and platform
services, environmental and power support for our technology
platforms, communication systems and security systems are received
from third party providers. We have little or no control over these
third party providers. Any disruption of the services they provide
us or any failure of these third party providers to effectively
design and implement sufficient security systems or plan for
increases in capacity could, in turn, cause delays or disruptions
in our services. We are insured for some, but not all, of these
events. Even for those events for which we are insured
and have coverage under the terms and conditions of the applicable
policies, there are no assurances given that the coverage limits
would be sufficient to cover all losses we might incur or
experience.
We are
exposed to risks associated with overseas operations and
outsourcing. We
currently maintain website, software development and operations in
Guatemala and receive software development and maintenance services
for some of our systems from contractors located in
Pakistan. These overseas operations and contractor
arrangements are subject to many inherent risks, including but not
limited to:
These risks can significantly impact our overseas operations and
outsourcing. Increases in the cost, or disruptions, of such
operations and outsourcing, could materially and adversely affect
our financial performance. In addition, we are subject
to certain anti-corruption laws, including the U.S. Foreign Corrupt
Practices Act, in addition to the laws of the foreign countries in
which we operate. If we or any of our employees or agents violates
these laws, we could become subject to sanctions or significant
penalties that could negatively affect our reputation and financial
performance.
Securities Market Risks
The public
market for our common stock may be volatile, especially because
market prices for internet-related and technology stocks have often
been unrelated to operating
performance. Our
common stock is currently listed on The Nasdaq Capital Market under
the symbol “ABTL,” but we cannot assure that an active
trading market will be sustained or that the market price of the
common stock will not decline. The stock market in general
periodically experiences significant price fluctuations. The market
price of our common stock is likely to be highly volatile and could
be subject to wide fluctuations in response to factors such
as:
●
Actual
or anticipated variations in our quarterly operating
results;
●
Historical
and anticipated operating metrics such as the number of
participating Dealers, volume of Lead deliveries to Dealers, the
number of visitors to Company Websites and the frequency with which
they interact with Company Websites;
●
Announcements
of new product or service offerings;
●
Technological
innovations;
●
Low
trading volumes;
●
Concentration
of holdings in our common stock resulting in low public float for
our shares;
●
Decisions
by holders of large blocks of our stock to sell their holdings on
accelerated time schedules, including by reason of their decision
to liquidate investment funds that hold our stock;
●
Limited
analyst coverage of the Company;
●
Competitive
developments, including actions by Manufacturers;
●
Changes
in financial estimates by securities analysts or our failure to
meet such estimates;
●
Conditions
and trends in the internet, electronic commerce and automotive
industries;
●
Adoption
of new accounting standards affecting the technology or automotive
industry;
●
Rumors,
whether or not accurate, about us, our industry or possible
transactions or other events;
●
The
impact of open market repurchases of our common stock;
and
●
General
market or economic conditions and other factors.
Further,
the stock markets, and in particular The Nasdaq Capital Market,
have experienced price and volume fluctuations that have
particularly affected the market prices of equity securities of
many technology companies and have often been unrelated or
disproportionate to the operating performance of those companies.
These broad market factors have affected and may adversely affect
the market price of our common stock. In addition, general
economic, political and market conditions, such as recessions,
interest rates, energy prices, international currency fluctuations,
terrorist acts, political revolutions, military actions or wars,
may adversely affect the market price of our common stock. In the
past, following periods of volatility in the market price of a
company’s securities, securities class action litigation has
often been instituted against companies with publicly traded
securities. This litigation could result in substantial costs and a
diversion of management’s attention and resources, which
would have a material adverse effect on our financial
performance.
-14-
Our common stock could be delisted
from The Nasdaq Capital Market if we are not able to satisfy
continued listing requirements, in which case the price of our
common stock and our ability to raise additional capital
and issue equity-based compensation may be adversely affected, and
the ability to buy and sell our stock may be less orderly and
efficient. For our common stock to continue to be listed on
The Nasdaq Capital Market, the Company must satisfy various
continued listing requirements established by
The
Nasdaq Stock Market LLC. In the event the Company were not able to
satisfy these continued listing requirements, we expect that our
common stock would be quoted on an over-the-counter market.
These markets are generally considered to be less efficient and
less broad than The Nasdaq Capital Market. Investors may be
reluctant to invest in the common stock if it is not listed
on The Nasdaq Capital Market or another stock
exchange. Delisting of our common stock could have a material
adverse effect on the price of our common stock and would also
eliminate our ability to rely on the preemption of state securities
registration and qualification requirements afforded by Section 18
of the Securities Act of 1933 for “covered securities.”
The loss of this preemption could result in higher costs for
capital raising, could limit resale of our stock in some states,
and could adversely impact our ability to issue equity-based
compensation to Company
employees.
No assurances can be given that the Company will
continue to be able to meet the continued listing requirements for
listing of our common stock on The Nasdaq Capital
Market.
A
significant number of additional shares of our common stock may be
issued upon the exercise or conversion of existing securities,
which issuances may depress the market price of our common
stock.In connection with
our acquisition of Autoweb, we issued 168,007 shares of Series B
Junior Participating Convertible Preferred Stock (“Series B
Preferred Stock”) and warrants to purchase up to 148,240
shares of Series B Preferred Stock. The shares of Series B
Preferred Stock are convertible, subject to certain limitations,
into ten shares of common stock. All shares of Series B Preferred
Stock will be automatically converted into common stock upon
stockholder approval. In addition, in connection with the
acquisition of AutoUSA, we issued warrants to purchase 69,930
shares of common stock and a convertible subordinated promissory
note for $1.0 million that may be converted into shares of common
stock at a conversion price of $16.34 per share. The issuance of
shares of common stock upon conversion of the Series BPreferred
Stock, exercise of the AutoUSA Warrants and conversion of the
AutoUSA Note will dilute the proportionate ownership and voting
power of existing security holders. In addition the market price of
our common stock may be depressed by the issuance or resales of the
shares of common stock acquired upon exercise or conversion. See
Note 3 of the “Notes to Consolidated Financial
Statements” in Part II, Item 8, Financial Statements and
Supplementary Data of this Annual Report on Form
10-K.
Risks Associated with Litigation
Misappropriation
or infringement of our intellectual property and proprietary
rights, enforcement actions to protect our intellectual property
and claims from third parties relating to intellectual property
could materially and adversely affect our financial
performance. Litigation regarding intellectual property
rights is common in the internet and technology industries. We
expect that internet technologies and software products and
services may be increasingly subject to third party infringement
claims as the number of competitors in our industry segment grows
and the functionality of products in different industry segments
overlaps. Our
ability to compete depends upon our proprietary systems and
technology. While we rely on trademark, trade secret,
patent and copyright law, confidentiality agreements and technical
measures to protect our proprietary rights, we believe that the
technical and creative skills of our personnel, continued
development of our proprietary systems and technology, brand name
recognition and reliable website maintenance are more essential in
establishing and maintaining a leadership position and
strengthening our brands. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy
aspects of our services or to obtain and use information that we
regard as proprietary. Policing unauthorized use of our proprietary
rights is difficult and may be expensive. We have no assurance that
the steps taken by us will prevent misappropriation of technology
or that the agreements entered into for that purpose will be
enforceable. Effective trademark, service mark, patent, copyright
and trade secret protection may not be available when our products
and services are made available online. In addition, if litigation
becomes necessary to enforce or protect our intellectual property
rights or to defend against claims of infringement or invalidity,
this litigation, even if successful, could result in substantial
costs and diversion of resources and management
attention. We also have no assurances that our products
and services do not infringe on the intellectual property rights of
third parties. Claims of infringement, even if unsuccessful, could
result in substantial costs and diversion of resources and
management attention. If we are not successful, we may be subject
to preliminary and permanent injunctive relief and monetary damages
which may be trebled in the case willful
infringements.
Our
financial performance could be adversely affected by actions of
third parties that could subject us to
litigation. We could face
liability for information retrieved or obtained from or transmitted
over the internet by third parties and liability for products sold
over the internet by third parties. We could be exposed to
liability with respect to third party information that may be
accessible through our websites, links or vehicle review
services. These claims might, for example, be made for
defamation, negligence, patent, copyright or trademark
infringement, personal injury, breach of contract, unfair
competition, false advertising, invasion of privacy or other legal
theories based on the nature, content or copying of these
materials. These claims might assert, among other things that, by
directly or indirectly providing links to websites operated by
third parties we should be liable for copyright or trademark
infringement or other wrongful actions by such third parties
through those websites. It is also possible that, if any third
party content provided on our websites contains errors, consumers
could make claims against us for losses incurred in reliance on
such information. Any claims could result in costly litigation,
divert management’s attention and resources, cause delays in
releasing new or upgrading existing services or require us to enter
into royalty or licensing agreements.
We also enter into agreements with
other companies under which any revenues that results from the
purchase or use of services through direct links to or from our
websites or on our websites is shared. In addition,
we
acquire personal information and data in the form of Leads
purchased from third party websites involving consumers who
submitted personally identifiable information and data to the third
parties and not directly to us. These arrangements may expose us to
additional legal risks and uncertainties, including disputes with
these parties regarding revenue sharing, local, state
andfederal
government regulation and potential liabilities to consumers of
these services, even if we do not provide the services ourselves or
have direct contact with the consumer. These liabilities can include liability for
violations by these third parties of laws, rules and regulations,
including those related to data security and privacy laws and
regulations; unsolicited email, text messaging, telephone or
wireless voice marketing; and licensing. We have no assurance that
any indemnification provided to us in our agreements with these
third parties, if available, will be adequate.
-15-
Our
financial performance could be materially and adversely affected by
other litigation. From time to time, we are involved in
litigation or legal matters not related to intellectual property
rights and arising from the normal course of our business
activities. The actions filed against us and other litigation or
legal matters, even if not meritorious, could result in substantial
costs and diversion of resources and management attention and an
adverse outcome in litigation could materially and adversely affect
our financial performance. Our liability insurance may not cover
all potential claims to which we are exposed and may not be
adequate to indemnify us for all liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in
excess of our insurance coverage could have a material adverse
effect on our financial performance.
Our certificate of incorporation and bylaws, tax benefit
preservation plan and Delaware law contain provisions that could
discourage a third party from acquiring us or limit the price third
parties are willing to pay for our stock.
Provisions
of our amended and restated certificate of incorporation and bylaws
relating to our corporate governance and provisions in our Tax
Benefit Preservation Plan could make it difficult for a third party
to acquire us, and could discourage a third party from attempting
to acquire control of us. These provisions could limit the price
that some investors might be willing to pay in the future for
shares of our common stock and may have the effect of delaying or
preventing a change in control. The issuance of preferred stock
also could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely
affect the rights and powers, including voting rights, of the
holders of the common stock.
Our
amended and restated certificate of incorporation allows us to
issue preferred stock with rights senior to those of the common
stock without any further vote or action by the stockholders. Our
amended and restated certificate of incorporation also provides
that the board of directors is divided into three classes, which
may have the effect of delaying or preventing changes in control or
change in our management because less than a majority of the board
of directors are up for election at each annual meeting. In
addition, provisions in our amended and restated certificate of
incorporation and bylaws:
●
Require
that actions to be taken by our stockholders may be taken only at
an annual or special meeting of our stockholders and not by written
consent;
●
Specify
that special meetings of our stockholders can be called only by our
board of directors, a committee of the board of directors, the
Chairman of our board of directors or our President;
●
Establish
advance notice procedures for stockholders to submit nominations of
candidates for election to our board of directors and other
proposals to be brought before a stockholders meeting;
●
Provide
that our bylaws may be amended by our board of directors without
stockholder approval;
●
Allow
our board of directors to establish the size of our board of
directors;
●
Provide
that vacancies on our board of directors or newly created
directorships resulting from an increase in the number of our
directors may be filled only by a majority of directors then in
office, even though less than a quorum; and
●
Do
not give the holders of our common stock cumulative voting rights
with respect to the election of directors.
These
provisions could make it more difficult for stockholders to effect
corporate actions such as a merger, asset sale or other change of
control of us.
Under our Tax Benefit Preservation Plan, rights to
purchase capital stock of the Company (“Rights”) have been distributed as a dividend at
the rate of five Rights for each share of common
stock. Each Right entitles its holder, upon triggering
of the Rights, to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock of the Company at a price of
$75.00 (as such price may be adjusted under the Tax Benefit
Preservation Plan) or, in certain circumstances, to instead acquire
shares of common stock. The Rights will convert into a right to
acquire common stock or other capital stock of the Company in
certain circumstances and subject to certain
exceptions. The Rights will be triggered upon the
acquisition of 4.90% or more of the Company’s outstanding
common stock or future acquisitions by any existing holders of
4.90% or more of the Company’s outstanding common stock. If a
person or group acquires 4.90% or more of our common stock, all
Rights holders, except the acquirer, will be entitled to acquire at
the then exercise price of a Right that number of shares of our
common stock which, at the time, has a market value of two times
the exercise price of the Right. The Tax Benefit
Preservation Plan authorizes our board of directors to exercise
discretionary authority to deem a person acquiring common stock in
excess of 4.90% not to be an “Acquiring Person” under
the Tax Benefit Preservation Plan, and thereby not trigger the
Rights, if the Board finds that the beneficial ownership of the
shares by the person acquiring the shares will not be likely
to directly or indirectly limit the availability to the Company of
the net operating loss carryovers and other tax attributes that the
plan is intended to preserve or is otherwise in the best
interests of the Company.
We
are also subject to Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly-held
Delaware corporation from engaging in a “business
combination” with an “interested stockholder” for
a period of three years after the date of the transaction in which
the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. For purposes of
Section 203, a “business combination” includes a
merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an “interested
stockholder” is a person who, together with affiliates and
associates, owns or did own 15% or more of the corporation’s
voting stock. Section 203 could discourage a third party from
attempting to acquire control of us.
-16-
If our internal controls and procedures fail, our financial
condition, results of operations and cash flow could be materially
and adversely affected.
Management is responsible for establishing and
maintaining adequate internal control over financial reporting. Our
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. In making its assessment of the effectiveness of our
internal control over financial reporting as of December 31,
2016, management used the criteria described in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission
(“COSO”).
A material weakness is a control deficiency, or combination of
control deficiencies, that results in a more than remote likelihood
that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
Management
determined that we had no material weaknesses in our internal
control over financial reporting as of December 31, 2016. Our
internal controls may not prevent all potential errors and fraud,
because any control system, no matter how well designed, can only
provide reasonable and not absolute assurance that the objectives
of the control system will be achieved. We have had material
weaknesses in our internal control over financial reporting in the
past and there is no assurance that we will not have one or more
material weaknesses in the future resulting from failure of our
internal controls and procedures.
Our
ability to report our financial results on a timely and accurate
basis could be adversely affected by a failure in our internal
control over financial reporting. If our financial statements are
not fairly presented, investors may not have an accurate
understanding of our operating results and financial condition. If
our financial statements are not timely filed with the SEC, we
could be delisted from The Nasdaq Capital Market. If either or both
of these events occur, it could have a material adverse effect on
our ability to operate our business and the market price of our
common stock. In addition, a failure in our internal control over
financial reporting could materially and adversely affect our
financial performance.
If we lose our key personnel or are unable to attract, train and
retain additional highly qualified sales, marketing, managerial and
technical personnel, our business may suffer.
Our
future success depends on our ability to identify, hire, train and
retain highly qualified sales, marketing, managerial and technical
personnel. In addition, as we introduce new services we may
need to hire additional personnel. We may not be able to attract,
assimilate or retain such personnel in the future. The inability to
attract and retain the necessary managerial, technical, sales and
marketing personnel could have a material adverse effect on our
business, results of operations and financial
condition.
Our
business and operations are substantially dependent on the
performance of our executive officers and key
employees. Each of these executive officers would be
difficult to replace. There is no guarantee that these or any
of our other executive officers and key employees will remain
employed with us. The loss of the services of one or more of our
executive officers or key employees could have a material adverse
effect on our business, results of operations and financial
condition.
Unresolved Staff Comments
Not
applicable.
Item 2.
Properties
Our
headquarters are located in Irvine, California. Our headquarters
consist of approximately 40,000 square feet of leased office space
under a lease that expires in July 2017, with two extension
options of one-year each (subject to the landlord’s right to
terminate the second extension option in the event the premises are
to be redeveloped). We are in the process of evaluating a move of
our headquarters to new office space located near our current
headquarters, and we are currently in negotiations for potential
new office space. Our SEM operations located in Tampa, Florida are
in leased office space that consists of approximately 2,800 square
feet under a lease that currently provides for its expiration in
April 2017. Our Tampa SEM operations will be moving in or about
April 2017 to new leased office space in Tampa, Florida consisting
of approximately 13,000 square feet under a lease that expires
seven years after we first occupy the space. Our website
development operations located in Guatemala City, Guatemala occupy
approximately 10,000 square feet of leased office space under
leases that expire in March 2020. We also maintain SEM, direct
marketing and software development operations in Cambridge,
Massachusetts that occupy approximately 5,500 square feet of leased
office space under a lease that expires in November 2017.We believe
that our existing facilities are adequate to meet our needs and
that existing needs and future growth can be accommodated by
leasing alternative or additional space.
Item 3.
Legal Proceedings
From
time to time, we may be involved in litigation matters arising from
the normal course of our business activities. Such
litigation, even if not meritorious, could result in substantial
costs and diversion of resources and management attention, and an
adverse outcome in litigation could materially adversely affect our
business, results of operations, financial
condition, cash flows, earnings per share and stock
price.
Item 4.
Mine Safety Disclosures
Not
applicable.
-17-
PART II
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Our
common stock, par value $0.001 per share, is listed on The Nasdaq
Capital Market and trades under the symbol “ABTL.” The
following table sets forth, for the calendar quarters indicated,
the range of high and low sales prices of our common
stock:
|
Year
|
High
|
Low
|
|
2015
|
|
|
|
First
Quarter
|
$14.78
|
$9.07
|
|
Second
Quarter
|
$17.97
|
$12.68
|
|
Third
Quarter
|
$19.79
|
$14.93
|
|
Fourth
Quarter
|
$24.57
|
$16.30
|
|
|
|
|
|
2016
|
|
|
|
First
Quarter
|
$21.01
|
$14.56
|
|
Second
Quarter
|
$18.74
|
$12.34
|
|
Third
Quarter
|
$17.80
|
$13.49
|
|
Fourth
Quarter
|
$18.28
|
$11.04
|
As
of March 6, 2017, there were 220 holders of record of our common
stock. We have never declared or paid any cash dividends on our
common stock and we do not expect to pay any cash dividends in the
foreseeable future. Payment of any future dividends will
depend on our earnings, cash flows and financial condition and will
be subject to legal and contractual restrictions. As of
March 6, 2017, our common stock closing price was $12.85 per
share.
Performance Graph
The
following graph shows a comparison of cumulative total stockholder
returns for our common stock, the NASDAQ Composite, the S&P
Automobile Manufacturers Index, and the S&P Smallcap 600
Automotive Retail Index. The comparisons reflected in
the graph and table below are not intended to predict the future
performance of our stock and may not be indicative of our future
performance. The data regarding our common stock assume
an investment in our common stock at the closing price of $3.50 per
share of our common stock on December 30, 2011.
|
|
Cumulative Total Return
|
|||||
|
|
12/11
|
12/12
|
12/13
|
12/14
|
12/15
|
12/16
|
|
Autobytel
|
$100.00
|
$113.71
|
$432.29
|
$311.43
|
$644.57
|
$384.29
|
|
NASDAQ
Composite
|
100.00
|
116.41
|
165.47
|
188.69
|
200.32
|
216.54
|
|
S&P
Automobile Manufacturers
|
100.00
|
122.60
|
159.50
|
154.73
|
151.44
|
150.43
|
|
S&P
Smallcap 600 Automotive Retail
|
100.00
|
126.19
|
184.37
|
225.83
|
226.79
|
213.60
|
-18-
Selected Financial
Data
The
tables below set forth our selected consolidated financial
data. We prepared this information using the
consolidated financial statements of Autobytel for the five years
ended December 31, 2016. Certain amounts in the selected
consolidated financial data have been reclassified to conform to
the current year presentation. You should read
these selected consolidated financial data together with the
Consolidated Financial Statements and related Notes to the
Consolidated Financial Statements contained in this Annual Report
on Form 10-K and also Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.”
|
|
Years ended December 31,
|
||||
|
|
2016
|
2015
|
2014
|
2013 (1)
|
2012
|
|
|
(Amounts in thousands, except per-share data)
|
||||
|
RESULTS
OF OPERATIONS:
|
|
|
|
|
|
|
Total
revenues
|
$156,684
|
$133,226
|
$106,278
|
$78,361
|
$66,802
|
|
Income
from continuing operations
|
$3,871
|
$4,646
|
$3,411
|
$38,144
|
$1,387
|
|
Net
income
|
$3,871
|
$4,646
|
$3,411
|
$38,144
|
$1,387
|
|
Basic
earnings per common share
|
$0.36
|
$0.47
|
$0.38
|
$4.29
|
$0.15
|
|
Diluted
earnings per common share
|
$0.29
|
$0.37
|
$0.32
|
$3.61
|
$0.15
|
|
Weighted
average diluted shares
|
13,303
|
12,662
|
11,212
|
10,616
|
9,204
|
(1)
Net
income in 2013 included a one-time benefit of $35.5 million in
connection with the release of a valuation allowance against
deferred tax assets.
|
|
Years ended December 31,
|
||||
|
|
2016
|
2015
|
2014
|
2013
|
2012
|
|
|
(Amounts in thousands)
|
||||
|
FINANCIAL
POSITION (1):
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$38,512
|
$23,993
|
$20,747
|
$18,930
|
$15,296
|
|
Total
assets
|
$165,281
|
$153,588
|
$104,749
|
$88,193
|
$40,767
|
|
Non-current
liabilities
|
$16,500
|
$21,750
|
$11,061
|
$10,450
|
$5,620
|
|
Accumulated
deficit
|
$(230,424)
|
$(234,295)
|
$(238,941)
|
$(242,352)
|
$(280,496)
|
|
Stockholders’
equity
|
$119,609
|
$108,201
|
$69,258
|
$64,828
|
$25,765
|
(1)
See
Part II, Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and
“Notes to the Consolidated Financial Statements” in
Part II, Item 8, of this Annual Report on Form 10-K for information
regarding business combinations and other items that may affect
comparability.
Item 7.
Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
You
should read the following discussion of our results of operations
and financial condition in conjunction with the “Risk
Factors” included in Part I, Item 1A and our
Consolidated Financial Statements and related Notes thereto
included in Part II, Item 8 of this Annual Report on
Form 10-K. See also the discussion of
“Forward-Looking Statements” immediately preceding Part
I of this Annual Report on Form 10-K.
For the year ended December 31, 2016, our
business, results of operations and financial condition were
affected and may continue to be affected in the future by the
events that occurred during or subsequent to year end that are
described in Part I, Item 1 “Business –
Significant
Business Developments” of
this Annual report on Form 10-K.
-19-
Results of Operations
The
following table sets forth our results of operations as a
percentage of total revenues:
|
|
Years Ended December 31,
|
||
|
|
2016
|
2015
|
2014
|
|
Revenues:
|
|
|
|
|
Lead
fees
|
83.4%
|
90.6%
|
94.8%
|
|
Advertising
|
15.6
|
7.9
|
3.9
|
|
Other
revenues
|
1.0
|
1.5
|
1.3
|
|
Total
revenues
|
100.0
|
100.0
|
100.0
|
|
Cost
of revenues
|
63.0
|
61.2
|
60.7
|
|
Gross
margin
|
37.0
|
38.8
|
39.3
|
|
Operating
expenses:
|
|
|
|
|
Sales
and marketing
|
11.6
|
12.0
|
13.5
|
|
Technology
support
|
8.9
|
8.8
|
7.5
|
|
General
and administrative
|
9.4
|
9.9
|
10.9
|
|
Depreciation
and amortization
|
3.2
|
2.3
|
1.7
|
|
Litigation
settlements
|
—
|
(0.1)
|
(0.1)
|
|
Total
operating expenses
|
33.1
|
32.9
|
33.5
|
|
Operating
income
|
3.9
|
5.8
|
5.8
|
|
Interest
and other income (expense), net
|
0.4
|
0.2
|
(0.7)
|
|
Income
tax provision
|
1.8
|
2.5
|
1.9
|
|
Net
income
|
2.5%
|
3.5%
|
3.2%
|
-20-
Revenues
by groups of similar services and gross profits are as follows
(dollars in thousands):
|
|
|
Years Ended
December 31,
|
|
|
2016 vs. 2015
Change
|
|
2015 vs. 2014
Change
|
|
||||||||||||||||||||
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
$
|
|
|
|
%
|
|
$
|
|
|
|
%
|
|
||||||||
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Lead
fees
|
|
$
|
130,684
|
|
|
$
|
120,678
|
|
|
$
|
100,744
|
|
|
$
|
10,006
|
|
|
|
8
|
%
|
|
$
|
19,934
|
|
|
|
20
|
%
|
|
Advertising
|
|
|
24,508
|
|
|
|
10,534
|
|
|
|
4,171
|
|
|
|
13,974
|
|
|
|
133
|
|
|
|
6,363
|
|
|
|
153
|
|
|
Other
revenues
|
|
|
1,492
|
|
|
|
2,014
|
|
|
|
1,363
|
|
|
|
(522
|
)
|
|
|
(26
|
)
|
|
|
651
|
|
|
|
48
|
|
|
Total
revenues
|
|
|
156,684
|
|
|
|
133,226
|
|
|
|
106,278
|
|
|
|
23,458
|
|
|
|
18
|
|
|
|
26,948
|
|
|
|
25
|
|
|
Cost
of revenues
|
|
|
98,771
|
|
|
|
81,586
|
|
|
|
64,465
|
|
|
|
17,185
|
|
|
|
21
|
|
|
|
17,121
|
|
|
|
27
|
|
|
Gross
profit
|
|
$
|
57,913
|
|
|
$
|
51,640
|
|
|
$
|
41,813
|
|
|
$
|
6,273
|
|
|
|
12
|
%
|
|
$
|
9,827
|
|
|
|
24
|
%
|
2016 Compared to 2015
Lead fees. Lead fees increased $10.0 million or 8% in 2016
compared to 2015. The increase in Lead fees was primarily due to
increased lead volume associated with the acquisitions of Dealix
Corporation and Autotegrity, Inc. (collectively,
“Dealix/Autotegrity”)
in May 2015.
Advertising. The
$14.0 million or 133% increase in advertising revenues in 2016
compared to 2015 was primarily due to an increase in click revenue
as a result of both increased click volume and pricing. Increased
click volume is a result of increased investments in traffic
acquisition activity.
Other
revenues. Other
revenues decreased $0.5 million or 26% in 2016 compared to
2015. The decrease in other revenues was primarily due
to the discontinuation of a Manufacturer’s brand using other
non-Lead products.
Cost of Revenues.
Cost of revenues consists of Lead and
traffic acquisition costs and other costs. Lead and traffic
acquisition costs consist of payments made to our third party Lead
providers, including internet portals and online automotive
information providers, as well as search engine marketing
(“SEM”) costs. Other cost of revenues consists of
fees paid to third parties for data and content, including search
engine optimization (“SEO”) activity, included on our properties,
connectivity costs, development costs related to our websites,
compensation related expense and technology license fees, server
equipment depreciation and technology amortization directly related
to the Company Websites. SEM, sometimes referred to as paid search
marketing, is the practice of bidding on keywords on search engines
to drive traffic to a website.
The
$17.2 million or 21% increase in cost of revenues in 2016 compared
to 2015 was primarily due to increased lead volume from the
Dealix/Autotegrity acquisition in May 2015 together with increased
intangible amortization costs from both the Dealix/Autotegrity and
AutoWeb acquisitions, and an increased investment in additional
traffic acquisition methodologies.
2015 Compared to 2014
Lead fees. Lead fees increased $19.9 million or 20% in 2015
compared to 2014. The increase in Lead fees was primarily due to
the higher lead volume associated with the increase in incremental
and overlapping Dealers from the Dealix/Autotegrity acquisition in
May 2015 paired with increased spend by certain OEM/wholesale
partners.
Advertising. The
$6.4 million or 153% increase in advertising revenues in 2015
compared to 2014 was primarily due to increases in click revenue
coupled with increased revenue associated with higher page views as
well as increased direct marketing revenue.
Other
revenues. Other
revenues increased $0.7 million or 48% in 2015 compared to
2014. The increase in other revenues was due to an
increase in mobile product sales as a result of our acquisition of
substantially all of the assets of Advanced Mobile, LLC and
Advanced Mobile Solutions Worldwide, Inc. (collectively,
“Advanced
Mobile”).
Cost of Revenues.
The $17.1 million or 27% increase in
cost of revenues in 2015 compared to 2014 was primarily due to a
corresponding increase in revenue as a result of the
Dealix/Autotegrity acquisition in May 2015.
-21-
Operating
expenses were as follows (dollars in thousands):
|
|
|
Years Ended December 31,
|
|
|
2016 vs. 2015
Change
|
|
2015 vs. 2014
Change
|
|
||||||||||||||||||||
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
$
|
|
|
|
%
|
|
$
|
|
|
|
%
|
|
||||||||
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Sales
and marketing
|
|
$
|
18,118
|
|
|
$
|
15,956
|
|
|
$
|
14,404
|
|
|
$
|
2,162
|
|
|
|
14
|
%
|
|
$
|
1,552
|
|
|
|
11
|
%
|
|
Technology
support
|
|
|
13,986
|
|
|
|
11,740
|
|
|
|
8,014
|
|
|
|
2,246
|
|
|
|
19
|
|
|
|
3,726
|
|
|
|
46
|
|
|
General
and administrative
|
|
|
14,663
|
|
|
|
13,189
|
|
|
|
11,538
|
|
|
|
1,474
|
|
|
|
11
|
|
|
|
1,651
|
|
|
|
14
|
|
|
Depreciation
and amortization
|
|
|
5,068
|
|
|
|
3,106
|
|
|
|
1,858
|
|
|
|
1,962
|
|
|
|
63
|
|
|
|
1,248
|
|
|
|
67
|
|
|
Litigation
settlements
|
|
|
(50
|
)
|
|
|
(108
|
)
|
|
|
(143
|
)
|
|
|
58
|
|
|
|
(54
|
)
|
|
|
35
|
|
|
|
(24
|
)
|
|
Total
operating expenses
|
|
$
|
51,785
|
|
|
$
|
43,883
|
|
|
$
|
35,671
|
|
|
$
|
7,902
|
|
|
|
18
|
%
|
|
$
|
8,212
|
|
|
|
23
|
%
|
2016 Compared to 2015
Sales and Marketing.
Sales and marketing expense includes
costs for developing our brand, personnel costs, and other costs
associated with Dealer sales, website advertising, Dealer support
and bad debt expense.
Sales
and marketing expense for the year ended December 31, 2016
increased by $2.2 million or 14% compared to the prior year, due to
increased headcount related costs associated with the
Dealix/Autotegrity and AutoWeb acquisitions coupled with severance
expense of $0.6 million and accelerated stock compensation expense
of $0.3 million associated with the termination of two executive
officers.
Technology
Support. Technology
support includes compensation, benefits, software licenses and
other direct costs incurred by the Company to enhance, manage,
maintain, support, monitor and operate the Company's websites and
related technologies, and to operate the Company's internal
technology infrastructure.
Technology
support expense for the year ended December 31, 2016 increased by
$2.2 million or 19% compared to the prior year, primarily due to
increased headcount related costs associated with the
Dealix/Autotegrity and AutoWeb acquisitions coupled with severance
expense of $0.3 million and accelerated stock compensation expense
of $0.2 million associated with the termination of an executive
officer.
General and
Administrative. General and
administrative expense consists of certain executive, financial,
human resources, legal and facilities personnel expenses and costs
related to being a publicly-traded company.
General
and administrative expense for the year ended December 31,
2016 increased by $1.5 million or 11% compared to the prior year.
The increase was due to increased headcount costs and facility
fees, offset with a reduction in professional fees all associated
with the Dealix/Autotegrity and AutoWeb acquisitions, together with
$0.3 million in severance expense and $0.2 million in accelerated
stock compensation expense for a terminated executive
officer.
Depreciation and
Amortization. Depreciation and amortization expense for the year
ended December 31, 2016 increased $2.0 million or 63% from the year
ended December 31, 2015 primarily due to the addition of intangible
assets associated with the Dealix/Autotegrity and AutoWeb
acquisitions.
Litigation
Settlements. Payments
received primarily from 2010 settlements of patent infringement
claims against third parties relating to the third parties’
methods of Lead delivery for 2016 were $50,000 compared to $108,000
in 2015. We also paid $41,000 related to settlement of claims
alleged under the Controlling the Assault of Non-Solicited
Pornography And Marketing Act of 2003 inherited in connection with the acquisition of
Dealix/Autotegrity in 2016.
Interest and Other Income
(Expense), net. Interest and
other income was $0.6 million for the year ended December 31, 2016
compared to interest and other income of $0.3 million for the year
ended December 31, 2015. Interest expense was $0.9
million and $0.8 million for the years ended December 31, 2016 and
2015, respectively. The year ended December 31, 2016
also included gain on disposal of the finance leads product of $2.2
million offset by a $0.8 million reserve related to our investment
in GoMoto, Inc (“GoMoto’).
Income tax
provision. Income
tax expense was $2.8 million for the year ended December 31, 2016
compared to income tax expense of $3.4 million for the year ended
December 31, 2015. The Company’s effective tax
rate of 42.1% for the year ended December 31, 2016 differed from
the federal statutory rate principally as a result of deferred tax
asset adjustments and state income taxes and permanent
non-deductible tax items. The Company’s effective
tax rate of 42.5% for the year ended December 31, 2015 differed
from the federal statutory rate principally as a result of deferred
tax asset adjustments and state income taxes.
-22-
2015 Compared to 2014
Sales and Marketing.
Sales and marketing expense for the
year ended December 31, 2015 increased by $1.6 million or 11%
compared to the prior year, due to increased headcount related
costs associated with the Dealix/Autotegrity acquisition in May
2015 coupled with increased marketing costs.
Technology
Support. Technology
support expense for the year ended December 31, 2015 increased by
$3.7 million or 46% compared to the prior year, primarily due to an
increase in headcount related costs associated with the
Dealix/Autotegrity acquisition in May 2015.
General and
Administrative. General and
administrative expense for the year ended December 31, 2015
increased by $1.7 million or 14% compared to the prior year. The
increase was due to increased professional fees associated with the
Dealix/Autotegrity acquisition in May 2015 and AutoWeb
acquisition in October 2015.
Depreciation and
Amortization. Depreciation and amortization expense for the year
ended December 31, 2015 increased $1.2 million or 67% from the year
ended December 31, 2014 primarily due to the addition of intangible
assets associated with the Dealix/Autotegrity and AutoWeb
acquisitions.
Litigation
Settlements. Litigation
settlements decreased to $108,000 for the year ended December 31,
2015 compared to $143,000 for the year ended December 31,
2014. These payments primarily relate to a settlement of
patent infringement claims against third parties relating to the
third party’s method of Lead delivery.
Interest and Other Income
(Expense), net. Interest and
other income was $0.3 million for the year ended December 31, 2015
compared to interest and other expense of $0.7 million for the year
ended December 31, 2014. Interest expense was $0.8
million and $0.7 million for the years ended December 31, 2015 and
2014, respectively. The year ended December 31, 2015
included $0.6 million related to a gain on investment recognized
from the acquisition of AutoWeb and $0.5 million related to the
Company’s recovery of short-swing profits from a stockholder
pursuant to Section 16(b) of the Securities Exchange Act of
1934.
Income tax
provision. Income
tax expense was $3.4 million for the year ended December 31, 2015
compared to income tax expense of $2.0 million for the year ended
December 31, 2014. The Company’s effective tax
rate of 42.5% for the year ended December 31, 2015 differed from
the federal statutory rate principally as a result of deferred tax
asset adjustments and state income taxes and permanent
non-deductible tax items. The Company’s effective
tax rate of 37.4% for the year ended December 31, 2014 differed
from the federal statutory rate principally as a result of deferred
tax asset adjustments and state income taxes.
Segment Information
We
conduct our business within one business segment, which is defined
as providing automotive marketing services. Our
operations are aggregated into a single reportable operating
segment based upon similar economic and operating characteristics
as well as similar markets.
Liquidity and Capital Resources
The
table below sets forth a summary of our cash flow for the years
ended December 31, 2016, 2015 and 2014 (dollars in
thousands):
|
|
Years Ended December31,
|
||
|
|
2016
|
2015
|
2014
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
$18,242
|
$12,200
|
$7,890
|
|
Net
cash used in investing activities
|
(2,774)
|
(28,105)
|
(12,548)
|
|
Net
cash (used in) provided by financing activities
|
(949)
|
19,151
|
6,475
|
-23-
Our
principal sources of liquidity are our cash and cash equivalents
and accounts receivable balances. Our cash and cash equivalents
totaled $38.5 million as of December 31, 2016 compared to
$24.0 million as of December 31, 2015.
On
June 7, 2012, the Company announced that its board of directors had
authorized the Company to repurchase up to $2.0 million of Company
common stock, and on September 17, 2014 the Company announced that
the board of directors had approved the repurchase of up to an
additional $1.0 million of Company common stock. The authorization
may be increased or otherwise modified, renewed, suspended or
terminated by the Company at any time, without prior notice. We may
repurchase common stock from time to time on the open market or in
private transactions. Shares repurchased under this
program have been retired and returned to the status of authorized
and unissued shares. We funded repurchases and anticipate that we
would fund future repurchases through the use of available cash.
The repurchase authorization does not obligate the Company to
repurchase any particular number of shares. The timing and actual
number of repurchases of additional shares, if any, under the
Company’s stock repurchase program will depend upon a variety
of factors, including price, market conditions, release of
quarterly and annual earnings and other legal, regulatory and
corporate considerations at the Company's sole discretion. The
impact of repurchases on the Tax Benefit Preservation Plan and on
the Company’s use of its net operating loss carryovers and
other tax attributes if the Company were to experience an
“ownership change,” as defined in Section 382 of the
Internal Revenue Code is also a factor that the Company considers
in connection with share repurchases. No repurchases were made in
2016. As of December 31, 2016, approximately $1.2
million remained available for the repurchase of Company common
stock under this program.
On June 1, 2016, the Company entered into a Fourth
Amendment to Loan Agreement (“Credit Facility
Amendment”) with MUFG
Union Bank, N.A., formerly Union Bank, N.A.
(“Union Bank”), amending the Company’s existing
Loan Agreement with Union Bank initially entered into on February
26, 2013, as amended on September 10, 2013, January 13, 2014 and
May 20, 2015 (the existing Loan Agreement, as amended to date, is
referred to collectively as the “Credit Facility
Agreement”). The Credit Facility Agreement
provided for a $9.0 million term loan (“Term Loan 1”). The Credit Facility Amendment
provides for (i) a $15.0 million term loan
(“Term
Loan 2”); (ii) the
amendment of certain financial covenants in the Credit Facility
Agreement; and (iii) amendments to the Company’s existing
$8.0 million working capital revolving line of credit
(“Revolving
Loan”).
Term Loan 1 is amortized over a period of four
years, with fixed quarterly principal payments of $562,500.
Borrowings under Term Loan 1 bear interest at either (i) the
bank’s Reference Rate (prime rate) minus 0.50% or (ii) the
London Interbank Offering Rate (“LIBOR”) plus 2.50%, at the option of the Company.
Interest under Term Loan 1 adjusts (i) at the end of each LIBOR
rate period (1, 2, 3, 6 or 12 months terms) selected by the
Company, if the LIBOR rate is selected; or (ii) with changes in
Union Bank’s Reference Rate, if the Reference Rate is
selected. Borrowings under Term Loan 1 are secured by a
first priority security interest on all of the Company’s
personal property (including, but not limited to, accounts
receivable) and proceeds thereof. Term Loan 1 matures on December
31, 2017. Borrowing under Term Loan 1 was limited to use
for the acquisition of AutoUSA, and the Company drew down the
entire $9.0 million of Term Loan 1, together with $1.0 million
under the Revolving Loan, in financing this
acquisition. The outstanding balance of Term Loan 1 as
of December 31, 2016 was $2.8 million.
Term
Loan 2 is amortized over a period of five years, with fixed
quarterly principal payments of $750,000. Borrowings under Term
Loan 2 bear interest at either (i) LIBOR plus 3.00% or (ii) the
bank’s Reference Rate (prime rate), at the option of the
Company. Borrowings under the Revolving Loan bear interest at
either (i) the LIBOR plus 2.50% or (ii) the bank’s Reference
Rate (prime rate) minus 0.50%, at the option of the Company.
Interest under both Term Loan 2 and the Revolving Loan adjust (i)
at the end of each LIBOR rate period (1, 2, 3, 6 or 12 months
terms) selected by the Company, if the LIBOR rate is selected; or
(ii) with changes in Union Bank’s Reference Rate, if the
Reference Rate is selected. The Company paid an upfront fee of
0.10% of the Term Loan 2 principal amount upon drawing upon Term
Loan 2 and also pays a commitment fee of 0.10% per year on the
unused portion of the Revolving Loan, payable quarterly in arrears.
Borrowings under Term Loan 2 and the Revolving Loan are secured by
a first priority security interest on all of the Company’s
personal property (including, but not limited to, accounts
receivable) and proceeds thereof. Term Loan 2 matures June 30,
2020, and the maturity date of the Revolving Loan was extended
from March 31, 2017 to April 30, 2018. Borrowings under the
Revolving Loan may be used as a source to finance working capital,
capital expenditures, acquisitions and stock buybacks and for other
general corporate purposes. Borrowing under Term Loan 2 was limited
to use for the acquisition of Dealix/Autotegrity, and the Company
drew down the entire $15.0 million of Term Loan 2, together with
$2.75 million under the Revolving Loan and $6.76 million from
available cash on hand, in financing this
acquisition. The outstanding balances of Term Loan 2 and
the Revolving Loan as of December 31, 2016 were $11.3 million and
$8.0 million, respectively.
The
Credit Facility Agreement contains certain customary affirmative
and negative covenants and restrictive and financial covenants,
including that the Company maintain specified levels of minimum
consolidated liquidity and quarterly and annual earnings before
interest, taxes and depreciation and amortization, which the
Company was in compliance with as of December 31,
2016.
We
believe our current cash and cash equivalent balances together with
anticipated cash flows from operations will be sufficient to
satisfy our working capital and capital expenditure requirements
for at least the next 12 months.
-24-
Net Cash Provided by Operating
Activities. Net cash
provided by operating activities in 2016 of $18.2 million resulted
primarily from net income of $3.9 million, adjustments for non-cash
charges of to earnings of $13.4 million and an increase in working
capital.
Net cash provided by operating
activities in 2015 of $12.2 million resulted primarily from net
income of $4.6 million, as adjusted for non-cash charges to
earnings, offset by a decrease in working capital, primarily from a
decrease in accrued expenses and other liabilities of $1.4
million.
Net Cash Used in Investing
Activities. Net cash
used in investing activities of $2.8 million in 2016 primarily
consisted of a $0.4 million investment in GoMoto, a $0.3 million in
a short-term investment and $2.1 million in purchases of property
and equipment and expenditures related to capitalized internal use
software.
Net
cash used in investing activities of $28.1 million in 2015
primarily consisted of $25.0 million used to acquire
Dealix/Autotegrity, a $0.4 million investment in GoMoto and $2.7
million in purchases of property and equipment and expenditures
related to capitalized internal use software.
Net Cash (Used in) Provided by
Financing Activities. Net cash
used in financing activities of $0.9 million in 2016 consisted of
payments on term loan borrowings of $3.9 million. Stock
options for 386,001 shares of the Company’s common stock were
exercised in the year ended December 31, 2016 resulting in $3.1
million of cash
inflow.
Net cash provided by financing activities of $19.2
million in 2015 consisted of borrowings of $15.0 million and $2.8 million against the Term
Loan and Revolving Loan, respectively, to fund the purchase of
Dealix/Autotegrity in the year ended December 31,
2015. Stock options for 145,979 shares of the
Company’s common stock were exercised in the year ended
December 31, 2015 resulting in $1.2 million of cash
inflow. Payments of $3.8 million were made
against the Term Loan borrowings in the year ended December 31,
2015. We also received $1.9 million of proceeds related
to the exercise of the Cyber Warrant by Auto Holdings and $2.1
million related to the acquisition of AutoWeb.
Contractual Obligations
The
following table provides aggregated information about our
outstanding contractual obligations as of December 31, 2016
(in thousands):
|
|
Total
|
Less than 1 year
|
1-3 years
|
3-5 years
|
More than 5 years
|
|
Long-term
Debt Obligations (a)
|
$23,063
|
$6,563
|
$15,000
|
$1,500
|
$—
|
|
Operating
Lease Obligations (b)
|
5,414
|
1,767
|
1,669
|
961
|
1,017
|
|
Total
|
$28,477
|
$8,330
|
$16,669
|
$2,461
|
$1,017
|
(a)
Long-term
debt obligations as defined by FASB Topic, “Debt,” and
disclosed in Note 5 and 6 of the consolidated
financial statements included in Part II, Item 8 of this Annual
Report on Form 10-K.
(b)
Operating
lease obligations as defined by FASB Topic, “Accounting for
Leases,” and disclosed in Note 5 of the consolidated
financial statements included in Part II, Item 8 of this
Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We
do not have any material off-balance sheet
arrangements.
Critical
Accounting Policies and Estimates
We prepare our financial statements in conformity
with accounting principles generally accepted in the United States
of America (“U.S. GAAP”), which require us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. We believe the
following critical accounting policies, among others, require
significant judgment in determining estimates and assumptions used
in the preparation of our consolidated financial
statements. Accordingly, actual results could differ
materially from our estimates. To the extent that there are
material differences between these estimates and our actual
results, our financial condition or results of operations may be
affected. For a detailed discussion of the application of these and
other accounting policies, see Note 2 of the “Notes to
Consolidated Financial Statements” in Part II, Item 8
“Financial Statements and Supplementary Data” of this
Annual Report on Form 10-K.
-25-
Revenue Recognition.
Leads consist of vehicle buying Leads
for new and used vehicles and finance request fees. Fees
paid by Dealers and Manufacturers participating in our Lead
programs are comprised of monthly transaction and/or subscription
fees. Advertising revenues represent fees for display
advertising on our websites.
We
recognize revenues when evidence of an arrangement exists, pricing
is fixed and determinable, collection is reasonably assured, and
delivery or performance of service has occurred. Leads are
generally recognized as revenues in the period the service is
provided. Advertising revenues are generally recognized in the
period the advertisements are displayed on our websites. Fees
billed prior to providing services are deferred, as they do not
satisfy all U.S. GAAP revenue recognition criteria. Deferred
revenues are recognized as revenue over the periods services are
provided.
Investments. We make strategic
investments because we believe that they may allow us to
increase market share, benefit from advancements in technology and
strengthen our business operations by enhancing our product and
service offerings.
Allowances for Bad Debt and
Customer Credits. We
estimate and record allowances for potential bad debts and customer
credits based on factors such as the write-off percentages, the
current business environment and known concerns within our accounts
receivable balances.
The
allowance for bad debts is our estimate of bad debt expense that
could result from the inability or refusal of our customers to pay
for our services. Additions to the estimated allowance for bad
debts are recorded as an increase in sales and marketing expenses
and are based on factors such as historical write-off percentages,
the current business environment and the known concerns within the
current aging of accounts receivable. Reductions in the estimated
allowance for bad debts due to subsequent cash recoveries are
recorded as a decrease in sales and marketing expenses. As specific
bad debts are identified, they are written-off against the
previously established estimated allowance for bad debts and have
no impact on operating expenses.
The
allowance for customer credits is our estimate of adjustments for
services that do not meet our customers’ requirements.
Additions to the estimated allowance for customer credits are
recorded as a reduction in revenues and are based on historical
experience of: (i) the amount of credits issued; (ii) the
length of time after services are rendered that the credits are
issued; (iii) other factors known at the time; and (iv) future
expectations. Reductions in the estimated allowance for customer
credits are recorded as an increase in revenues. As specific
customer credits are identified, they are written-off against the
previously established estimated allowance for customer credits and
have no impact on revenues.
If
there is a decline in the general economic environment that
negatively affects the financial condition of our customers or an
increase in the number of customers that are dissatisfied with our
services, additional estimated allowances for bad debts and
customer credits may be required and the impact on our business,
results of operations or financial condition could be
material. We generally do not require collateral to
support our accounts receivables.
Contingencies. From
time to time we may be subject to proceedings, lawsuits and other
claims. We assess the likelihood of any adverse judgments or
outcomes of these matters as well as potential ranges of probable
losses. We record a loss contingency when an unfavorable outcome is
probable and the amount of the loss can be reasonably estimated.
The amount of allowances required, if any, for these contingencies
is determined after analysis of each individual case. The amount of
allowances may change in the future if there are new material
developments in each matter.
Fair Value of Financial
Instruments. We record our
financial assets and liabilities at fair value, which is defined
under the applicable accounting standards as the exchange price
that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market
participants on the measure date. We use valuation
techniques to measure fair value, maximizing the use of observable
outputs and minimizing the use of unobservable
inputs. The standard describes a fair value hierarchy
based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used
to measure fair value which are the following:
Level
1 – Quoted prices in active markets for identical assets or
liabilities.
Level
2 – Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level
3 – Inputs include management’s best estimate of what
market participants would use in pricing the asset or liability at
the measurement date. The inputs are unobservable in the
market and significant to the instrument’s
valuation.
Cash
equivalents, accounts receivable, net of allowance, accounts
payable and accrued liabilities, are carried at cost, which
management believes approximates fair value because of the
short-term maturity of these instruments.
Our
investments at December 31, 2016 and 2015 consist primarily of
investments in SaleMove and GoMoto and are accounted for under the
cost method. Although there is no established market for these
investments, we evaluated the investments for impairment by
comparing them to an estimated fair value and determined that there
is no impairment.
-26-
The following table presents the Company’s investment
activity for 2016 and 2015(dollars in thousands):
|
|
Note
|
Note
|
|
|
|
receivable-
|
receivable-
|
|
|
Description
|
long-term
|
current
|
Investments
|
|
|
|
|
|
|
Balance
at December 31, 2014
|
$—
|
$150
|
$3,880
|
|
Total
gains, realized or unrealized
|
—
|
—
|
636
|
|
Purchases,
(sales), issuances and (settlements), net
|
375
|
(150)
|
(3,836)
|
|
Balance
at December 31, 2015
|
375
|
—
|
680
|
|
Purchases,
(sales), issuances and (settlements), net
|
(375)
|
750
|
—
|
|
Balance
at December 31, 2016
|
—
|
750
|
680
|
|
Reserve
for notes receivable
|
—
|
(750)
|
—
|
|
Net
balance at December 31, 2016
|
$—
|
$—
|
$680
|
The
Company recorded a reserve against the current notes receivable
related to GoMoto as of December 31, 2016 because the Company
believes the amounts may not be recoverable.
Variable Interest
Entities. We have an
investment in an entity that is considered a variable interest
entity (“VIE”)
under U.S. GAAP. We have concluded that our investment
in SaleMove qualifies as a variable interest and SaleMove is a VIE.
VIEs are legal entities in which the equity investors do not have
sufficient equity at risk for the entity to independently finance
its activities or the collective holders do not have the power
through voting or similar rights to direct the activities of the
entity that most significantly impacts its economic performance,
the obligation to absorb the expected losses of the entity, or the
right to receive expected residual returns of the entity.
Consolidation of a VIE is considered appropriate if a reporting
entity is the primary beneficiary, the party that has both
significant influence and control over the VIE. Management
periodically performs a qualitative analysis to determine if the
Company is the primary beneficiary of a VIE. This analysis includes
review of the VIEs’ capital structures, contractual terms,
and primary activities, including the Company’s ability to
direct the activities of the VIEs and obligations to absorb losses,
or the right to receive benefits, significant to the
VIEs. Additionally, changes in our various equity
investments have in the past resulted in a reconsideration
event
Based
on our analysis, Autobytel is not the primary beneficiary of
SaleMove. Accordingly, SaleMove does not meet the criteria for
consolidation. The SaleMove Advances are classified as an other
long-term asset on the consolidated balance sheet as of December
31, 2016. The carrying value and maximum potential loss
exposure from SaleMove totaled $0.6 million and $0.7 million as of
December 31, 2016 and 2015, respectively.
Property and
Equipment. Property
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line
method over the estimated useful lives of the respective assets,
generally three years. Amortization of leasehold improvements is
provided using the straight-line method over the shorter of the
remaining lease term or the estimated useful lives of the
improvements. Repair and maintenance costs are charged to operating
expenses as incurred. Gains or losses resulting from the retirement
or sale of property and equipment are recorded as operating income
or expenses, respectively.
Capitalized Internal Use
Software and Website Development
Costs. We capitalize
costs to develop internal use software in accordance with the
Internal-Use Software and the Website Development Costs Topics,
which require the capitalization of external and internal computer
software costs and website development costs, respectively,
incurred during the application development stage. The application
development stage is characterized by software design and
configuration activities, coding, testing and installation.
Training and maintenance costs are expensed as incurred while
upgrades and enhancements are capitalized if it is probable that
such expenditures will result in additional functionality.
Capitalized internal use software development costs are amortized
using the straight-line method over an estimated useful life of
three years. Capitalized website development costs, once placed in
service are amortized using the straight-line method over the
estimated useful lives of the related websites.
Share-Based Compensation
Expense. We account for
our share-based compensation using the fair value method in
accordance with the Stock Compensation Topic of the
Codification. Under these provisions, we recognize
share-based compensation net of an estimated forfeiture rate and
therefore only recognize compensation cost for those shares
expected to vest over the service period of the award. The
fair value of each stock option award is estimated on the date of
grant using the Black-Scholes option pricing model based on the
underlying common stock closing price as of the date of grant, the
expected term, expected stock price volatility and expected
risk-free interest rates.
-27-
Calculating
share-based compensation expense requires the input of highly
subjective assumptions, including the expected term of the
share-based awards, expected stock price volatility and expected
pre-vesting option forfeitures. We estimate the expected life
of options granted based on historical experience, which we believe
is representative of future behavior. We estimate the
volatility of the price of our common stock at the date of grant
based on historical volatility of the price of our common stock for
a period equal to the expected term of the awards. We have
used historical volatility because we have a limited number of
options traded on our common stock to support the use of an implied
volatility or a combination of both historical and implied
volatility. The assumptions used in calculating the fair value of
share-based awards represent our best estimates, but these
estimates involve inherent uncertainties and the application of
management judgment. As a result, if factors change and we use
different assumptions, our share-based compensation expense could
be materially different in the future. In addition, we are
required to estimate the expected forfeiture rate and only
recognize expense for those shares expected to vest. We
estimate the forfeiture rate based on historical experience of our
share-based awards that are granted, exercised or
cancelled. If our actual forfeiture rate is materially
different from our estimate, the share-based compensation expense
could be significantly different from what we have recorded in the
current period.
Income Taxes.
We account for income taxes under the
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. 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. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. We record a valuation allowance, if
necessary, to reduce deferred tax assets to an amount we believe is
more likely than not to be realized.
As
of December 31, 2016, we had $0.5 million of unrecognized tax
benefits. There was a reduction of $0.1 million of
uncertain tax positions due to the settlement of a prior period tax
position during the current period. Our policy is to recognize
interest and penalties accrued on any unrecognized tax benefits as
a component of income tax expense. As of December 31, 2016, we
did not accrue interest associated with our unrecognized tax
benefits, and no interest expense was recognized in
2016.
Goodwill. Goodwill
represents the excess of the purchase price for business
acquisitions over the fair value of identifiable assets and
liabilities acquired. We evaluate the carrying value of enterprise
goodwill for impairment. Testing for impairment of goodwill is a
two-step process. The first step requires us to compare the
enterprise’s carrying value to its fair value. If the fair
value is less than the carrying value, enterprise goodwill is
potentially impaired and we then complete the second step to
measure the impairment loss, if any. The second step requires the
calculation of the implied fair value of goodwill by deducting the
fair value of all tangible and intangible net assets from the fair
value of the reporting unit. If the implied fair value of goodwill
is less than the carrying amount of enterprise goodwill, an
impairment loss is recognized equal to the difference. We evaluate
enterprise goodwill, at a minimum, on an annual basis in the fourth
quarter of each year or whenever events or changes in circumstances
suggest that the carrying amount of goodwill may be
impaired. During 2015 we recognized $22.0 million in
goodwill related to the acquisitions of Dealix/Autotegrity and
AutoWeb. As of December 31, 2016, we adjusted goodwill
by $82,000 as a result of purchase price allocation adjustments and
no goodwill impairment was recorded during the
year.
Impairment of Long-Lived
Assets and Intangible Assets. We periodically review long-lived assets to
determine if there is any impairment of these assets. We assess the
impairment of these assets, or the need to accelerate amortization,
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Our judgments regarding the
existence of impairment indicators are based on legal factors,
market conditions and operational performance of our long-lived
assets and other intangibles. Future events could cause us to
conclude that impairment indicators exist and that the assets
should be reviewed to determine their fair value. We assess the
assets for impairment based on the estimated future undiscounted
cash flows expected to result from the use of the assets and their
eventual disposition. If the carrying amount of an asset exceeds
its estimated future undiscounted cash flows, an impairment loss is
recorded for the excess of the asset’s carrying amount over
its fair value. Fair value is generally determined based on a
valuation process that provides an estimate of a fair value of
these assets using a discounted cash flow model, which includes
many assumptions and estimates. Once the valuation is determined,
we will write-down these assets to their determined fair value, if
necessary. Any write-downs could have a material adverse effect on
our financial condition and results of operations. We did not
record any impairment of long-lived assets in 2016, 2015 and
2014.
Indefinite-lived intangible
assets. Indefinite-lived
intangible assets consists of a domain name, which was acquired as
part of the Dealix/Autotegrity acquisition in 2015, which is tested
for impairment annually, or more frequently if an event occurs or
circumstances changes that would indicate that impairment may
exist. When evaluating indefinite-lived intangible assets for
impairment, we may first perform a qualitative analysis to
determine whether it is more likely than not that the
indefinite-lived intangible assets is impaired. If we do not
perform the qualitative assessment, or if we determine that it is
more likely than not that the fair value of the indefinite-lived
intangible asset exceeds its carrying amount, we will calculate the
estimated fair value of the indefinite-lived intangible asset. Fair
value is the price a willing buyer would pay for the
indefinite-lived intangible asset and is typically calculated using
an income approach. If the carrying amount of the indefinite-lived
intangible asset exceeds the estimated fair value, an impairment
charge is recorded to reduce the carrying value to the estimated
fair value. We did not record any impairment of indefinite-lived
intangible assets in 2016 and 2015.
-28-
Recent Accounting Pronouncements
Accounting Standards
Codification 606 “Revenue from Contracts with
Customers.” In
May 2014, Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from
Contracts with Customers (Topic 606)” was
issued. This ASU requires an entity to recognize the
amount of revenue to which it expects to be entitled for the
transfer of promised goods or services to customers. The standard
will replace most existing revenue recognition guidance in U.S.
GAAP when it becomes effective. Early application is not
permitted. The standard permits the use of either the retrospective
or cumulative effect transition method. In August 2015,
the Financial Accounting Standards Board voted to defer the
effective date and it is now effective for public entities for
annual periods ending after December 15, 2017. Early adoption
of the standard is permitted. This update permits the use of either
the retrospective or cumulative effect transition method.
In April 2016, ASU No. 2016-10, “Identifying
Performance Obligations and Licensing” was
issued. This ASU clarifies 1) the identification of
performance obligations and, 2) licensing implementation guidance
as it relates to Topic 606, Revenue from Contracts with
Customers. The amendments in this ASU affect the
guidance in ASU 2014-09, which is effective for public entities for
annual periods ending after December 15, 2017. In May 2016, ASU No.
2016-12, “Narrow-Scope Improvements and Practical
Expedients” was issued. This ASU addresses certain
issues as it relates to assessing collectability, presentation of
sales taxes, noncash consideration, and completed contracts and
contract modifications at transition as it relates to Topic 606,
Revenue from Contracts with Customers. The amendments in
this ASU affect the guidance in ASU 2014-09, which is effective for
public entities for annual periods beginning after December 15,
2017. The Company is continuing to evaluate the effect this
guidance will have on the consolidated financial statements and
related disclosures.
Accounting Standards
Codification 740 “Income
Taxes.” In November 2015, ASU No. 2015-17,
“Balance Sheet Classification of Deferred Taxes” was
issued. This ASU requires that deferred tax liabilities
and assets be classified as noncurrent in a classified statement of
financial position. The amendments in this update apply
to all entities that present a classified statement of financial
position. The amendments in this ASU are effective for
fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. Once adopted, the Company
will reclassify $4.7 million of current deferred tax assets to
long-term deferred tax assets.
Accounting Standards
Codification 842
“Leases.” In February 2016, ASU No. 2016-02, “Leases
(Topic 842)” was issued. This ASU will require
lessees to recognize on the balance sheet the assets and
liabilities for the rights and obligations created by those leases
of terms more than 12 months. The ASU will require both
capital and operating leases to be recognized on the balance
sheet. Qualitative and quantitative disclosures will
also be required to help investors and other financial statement
users better understand the amount, timing and uncertainty of cash
flows arising from leases. The ASU will take effect for
public companies for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. The
Company continues to assess whether this ASU will be material to
the consolidated financial statements.
Accounting Standards
Codification 323 “Investments-Equity Method and Joint
Ventures.” In
March 2016, ASU No. 2016-07, “Simplifying the Transition to
the Equity Method of Accounting” was issued. This
ASU eliminates the requirement that when an investment qualifies
for use of the equity method as a result of an increase in the
level of ownership interest or degree of influence, an investor
must adjust the investment, results of operations, and retained
earnings retroactively on a step-by-step basis as if the equity
method had been in effect during all previous periods that the
investment was held. The amendments require that the
equity method investor add the cost of acquiring the additional
interest in the investee to the current basis of the
investor’s previously held interest and adopt the equity
method of accounting as of the date the investment becomes
qualified for equity method accounting. Thus, upon
qualifying for the equity method of accounting, no retroactive
adjustment of the investment is required. The amendments
in this ASU are effective for all entities for fiscal years, and
interim periods within those fiscal years, beginning after December
15, 2016. The Company does not believe this ASU will have a
material effect on the consolidated financial
statements.
Accounting Standards
Codification 718 “Compensation-Stock
Compensation.” In March 2016, ASU No. 2016-09,
“Improvements to Employee Share-Based Payment
Accounting” was issued. This ASU provides for
areas of simplification for several aspects of the accounting for
share-based payment transactions, including the income tax
consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash
flows. The amendments in this ASU are effective for
annual periods beginning after December 15, 2016, and interim
periods within those annual
periods. Once adopted, the Company will recognize $1.9
million of deferred tax assets relating to unrealized stock option
benefits, resulting in a cumulative $1.9 million adjustment to
retained earnings . The new guidance increases income
statement volatility by requiring all excess tax benefits and
deficits to be recognized in “Income taxes,” and
treated as discrete items in the period in which they occur.
The Company believes this ASU may have a material effect on the
consolidated financial statements.
Accounting Standards
Codification 230 “Statement of Cash
Flows.” In
August 2016, ASU No. 2016-15, “Classification of Certain Cash
Receipts and Cash Payments” was issued. This ASU
provides guidance on eight specific cash flow issues with the
objective of reducing the existing diversity in practice for those
issues. The amendments in this ASU are effective for
annual periods beginning after December 15, 2017, and interim
periods within those annual periods. The Company does
not believe this ASU will have a material effect on the
consolidated financial statements.
Accounting Standards
Codification 810
“Consolidation.” In October 2016, ASU No. 2016-17, “Interests
Held through Related Parties That Are Under Common Control”
was issued. This ASU amends the consolidation guidance
on how a reporting entity that is the single decision maker of a
VIE should treat indirect interests in the entity held through
related parties that are under common control with the reporting
entity when determining whether it is the primary beneficiary of
that VIE. The amendments in this ASU are effective for
annual periods beginning after December 15, 2016, and interim
periods within those annual periods. The Company does
not believe this ASU will have a material effect on the
consolidated financial statements.
-29-
Accounting Standards
Codification 205-40 “Presentation of Financial Statements
– Going Concern.” In August 2014, ASU No. 2014-15, “Disclosure
of Uncertainties about an Entities Ability to Continue as a Going
Concern” was issued. This ASU provides guidance in
GAAP about management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to
continue as a going concern and to provide related footnote
disclosures. The amendments in this ASU are effective
for annual periods ending after December 15, 2016, and for annual
and interim periods thereafter. The Company adopted this
ASU for the year ended December 31, 2016. This ASU did
not have a material effect on the consolidated financial
statements.
The
Company does not use financial instruments for
trading. Our primary exposure to market risk is interest
rate sensitivity related to our Credit Facility
Agreement. The effect of a hypothetical 10% change in
interest rates would have increased our interest expense by $81,000
in the year ended December 31, 2016.
Item 8.
Financial
Statements and Supplementary Data
Our
Consolidated Balance Sheets as of December 31, 2016 and 2015
and our Consolidated Statements of Income and Comprehensive Income,
Stockholders’ Equity and Cash Flows for each of the years in
the three-year period ended December 31, 2016, together with
the report of our independent registered public accounting firm,
begin on page F-1 of this Annual Report on Form 10-K and are
incorporated herein by reference.
Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Disclosure Controls and Procedures
We have established and maintain disclosure
controls and procedures that are designed to ensure that material
information relating to the Company and its subsidiaries required
to be disclosed by us in the reports that are filed under the
Securities Exchange Act of 1934, as amended
(“Exchange Act”), is recorded, processed, summarized and
reported in the time periods specified in the SEC’s rules and
forms, and that this information is accumulated and communicated to
our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions
regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any
controls and procedures, no matter how well designed and operated,
can provide only a reasonable assurance of achieving the desired
control objectives, and management was necessarily required to
apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Under
the supervision and with the participation of our management,
including our chief executive officer and chief financial officer,
we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of
December 31, 2016. Based on this evaluation, the chief
executive officer and chief financial officer concluded that the
Company’s disclosure controls and procedures were effective
as of December 31, 2016.
Management’s Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as
such term is defined in Rules 13a-15(f) under the Exchange Act.
Under the supervision and with the participation of management,
including the Company’s chief executive officer and chief
financial officer, management conducted an evaluation of the
effectiveness of the Company’s internal control over
financial reporting as of December 31, 2016. Because of its
inherent limitations, internal control over financial reporting may
not prevent or detect misstatements or fraud. In making this
assessment, management used the criteria set forth in the framework
issued by the COSO entitled Internal
Control—Integrated Framework (2013). Based on this evaluation, management has
concluded that the Company’s internal control over financial
reporting was effective as of December 31, 2016. Management
reviewed the results of its assessment with the audit committee of
the board of directors.
Changes in Internal Control Over Financial Reporting
There
have been no changes in internal controls over financial reporting
identified in connection with the evaluation required by paragraph
(d) of Rules 13a-15 of the Exchange Act that have occurred during
the fourth quarter of fiscal year 2016 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
The
effectiveness of the Company’s internal control over
financial reporting as of December 31, 2016 has been audited by
Moss Adams LLP, the Company’s independent registered public
accounting firm, as stated in their report, which is included
below.
Not
applicable.
-30-
PART III
Information called for by the Items included under this Part III is
incorporated by reference to the sections listed below of our
definitive Proxy Statement for our 2017 Annual Meeting of
Stockholders that will be filed not later than 120 days after
December 31, 2016 (“2017 Proxy
Statement”).
Item 10
Directors, Executive
Officers and Corporate Governance
The
information called for by this Item 10 is incorporated by reference
to the following sections of the 2017 Proxy Statement:
“Proposal 1-Nomination and Election of Directors;”
“Board of Directors;” “Executive Officers;”
“Section 16(a) Beneficial Ownership Reporting
Compliance;” and the following paragraphs under the section
“Corporate Governance Matters” “--Committees of
the Board of Directors—Audit Committee,” and
“--Code of Conduct and Ethics.”
Item 11
Executive
Compensation
The
information called for in this Item 11 is incorporated by reference
to the following sections of the 2017 Proxy Statement:
“Executive Compensation,” “Corporate Governance
Matters--Compensation Committee Interlocks and Insider
Participation” and “--Board’s Role in Oversight
of Risk,” and “Executive Compensation--Compensation
Discussion and Analysis” and “--Compensation Committee
Report.”
Item 12
Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
The
information called for in this Item 12 is incorporated by reference
to the following sections of the 2017 Proxy Statement:
“Security Ownership of Certain Beneficial Owners and
Management” and “Executive Compensation-- Equity
Compensation Plans.”
Item 13
Certain Relationships and Related Transactions, and
Director Independence
The
information called for in this Item 13 is incorporated by reference
to the following sections of the 2017 Proxy Statement:
“Corporate Governance Matters--Certain Relationships and
Related Party Transactions” and “--Director
Independence.”
Item 14
Principal Accountant Fees
and Services
The
information called for in this Item 14 is incorporated by reference
to the following sections of the 2017 Proxy Statement:
“Independent Registered Public Accounting Firm and Audit
Committee Report--Principal Accountant Fees and Services,”
“--Audit Fees,” “--Audit Related Fees,”
“--All Other Fees,” and “--Pre-Approval Policy
for Services.”
-31-
PART IV
Item 15.
Exhibits and Financial
Statement Schedules
(a) The following documents are filed as a part of this Annual
Report on Form 10-K:
(1)
Financial Statements:
|
|
|
Page
|
|
|
|
Index
|
|
|
F-1
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
Consolidated
Balance Sheets
|
|
|
F-3
|
|
|
Consolidated
Statements of Income and Comprehensive Income
|
|
|
F-4
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
|
|
F-5
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
F-7
|
|
(2)
Financial Statement Schedules:
|
Schedule II-
Valuation Qualifying Accounts
|
|
|
F-28
|
|
All other schedules have been omitted since
the required information is presented in the financial statements
and the related notes or is not applicable.
(3)
Exhibits:
The
exhibits filed or furnished as part of this Annual Report on Form
10-K are listed in the Exhibit Index immediately preceding such
exhibits, which Exhibit Index is incorporated herein by
reference.
None
-32-
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized, on the 9th day of March, 2017.
|
|
AUTOBYTEL INC.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ JEFFREY H. COATS
|
|
|
|
|
Jeffrey H. Coats
|
|
|
|
|
President, Chief Executive Officer and Director
|
|
POWER OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each of Autobytel Inc., a
Delaware corporation, and the undersigned Directors and Officers of
Autobytel Inc. hereby constitute and appoint Jeffrey H. Coats,
Kimberly Boren or Glenn E. Fuller as its or his true and lawful
attorneys-in-fact and agents, for it or him and in its or his name,
place and stead, in any and all capacities, with full power to act
alone, to sign any and all amendments to this report, and to file
each such amendment to this report, with all exhibits thereto, and
any and all documents in connection therewith, with the Securities
and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite
and necessary to be done in connection therewith, as fully to all
intents and purposes as it or he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by
virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
|
|
/s/ MICHAEL J.
FUCHS
Michael J. Fuchs
|
Chairman
of the Board and Director
|
March 9, 2017
|
|
|
|
|
|
|
|
/s/ JEFFREY
H. COATS
Jeffrey H. Coats
|
President,
Chief Executive Officer and Director (Principal Executive
Officer)
|
March 9, 2017
|
|
|
|
|
|
|
|
/s/ KIMBERLY
BOREN
Kimberly Boren
|
Executive
Vice President and Chief Financial Officer (Principal Financial
Officer)
|
March 9, 2017
|
|
|
|
|
|
|
|
/s/ WESLEY
OZIMA
Wesley Ozima
|
Senior
Vice President and Controller (Principal
Accounting
Officer)
|
March 9, 2017
|
|
|
|
|
|
|
|
/s/ MICHAEL
A. CARPENTER
Michael A. Carpenter
|
Director
|
March 9, 2017
|
|
|
|
|
|
|
|
/s/ MARK
N. KAPLAN
Mark N. Kaplan
|
Director
|
March 9, 2017
|
|
|
|
|
|
|
|
/s/ ROBERT
J. MYLOD, JR.
Robert J. Mylod, Jr.
|
Director
|
March 9, 2017
|
|
|
|
|
|
|
|
/s/ JEFFREY
M. STIBEL
Jeffrey M. Stibel
|
Director
|
March 9, 2017
|
|
|
|
|
|
|
|
/s/ MATIAS
DE TEZANOS
Matias de Tezanos
|
Director
|
March 9, 2017
|
|
|
|
|
|
|
|
/s/ JANET
M. THOMPSON
Janet M. Thompson
|
Director
|
March 9, 2017
|
|
|
|
|
|
|
|
/s/ JOSE
VARGAS
Jose Vargas
|
Director
|
March 9, 2017
|
|
-33-
|
|
|
|
|
AUTOBYTEL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
|
F-6
|
|
|
|
|
|
F-7
|
|
F-1
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Autobytel Inc.
We have audited the accompanying consolidated balance sheets of
Autobytel Inc. (the “Company”) as of December 31, 2016
and 2015, and the related consolidated statements of income and
comprehensive income, stockholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2016.
We also have audited the Company’s internal control over
financial reporting as of December 31, 2016, based on criteria
established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for these
consolidated financial statements, 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 Report on Internal Control
over Financial Reporting appearing under Item 9A. Our
responsibility is to express an opinion on these consolidated
financial statements and an opinion on the Company’s internal
control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all
material respects. Our audits of the consolidated financial
statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall consolidated financial statement presentation. Our audit of
internal control over financial reporting 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 audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable
basis for our opinions.
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, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Autobytel Inc. as of December 31, 2016 and
2015, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31,
2016, in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, Autobytel
Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2016, based on
criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
/s/ MOSS ADAMS LLP
Los Angeles, CA
March 9, 2017
F-2
AUTOBYTEL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per-share and share data)
|
|
December 31,
2016
|
December 31,
2015
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$38,512
|
$23,993
|
|
Short-term
investment
|
251
|
—
|
|
Accounts
receivable, net of allowances for bad debts and customer credits of
$1,015 and $1,045 at December 31, 2016 and 2015,
respectively
|
33,634
|
28,091
|
|
Deferred
tax asset
|
4,669
|
3,642
|
|
Prepaid
expenses and other current assets
|
901
|
1,276
|
|
Total
current assets
|
77,967
|
57,002
|
|
Property
and equipment, net
|
4,430
|
4,296
|
|
Investments
|
680
|
680
|
|
Intangible
assets, net
|
23,783
|
29,515
|
|
Goodwill
|
42,821
|
42,903
|
|
Long-term
deferred tax asset
|
14,799
|
17,820
|
|
Other
assets
|
801
|
1,372
|
|
Total
assets
|
$165,281
|
$153,588
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$9,764
|
$7,643
|
|
Accrued
employee-related benefits
|
4,530
|
3,945
|
|
Other
accrued expenses and other current liabilities
|
8,315
|
6,799
|
|
Current
portion of term loan payable
|
6,563
|
5,250
|
|
Total
current liabilities
|
29,172
|
23,637
|
|
Convertible
note payable
|
1,000
|
1,000
|
|
Long-term
portion of term loan payable
|
7,500
|
12,750
|
|
Borrowings
under revolving credit facility
|
8,000
|
8,000
|
|
Total
liabilities
|
45,672
|
45,387
|
|
Commitments
and contingencies (Note 7)
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred
stock, $0.001 par value; 11,445,187 shares authorized
|
|
|
|
Series A Preferred stock, none issued and
outstanding
|
—
|
—
|
|
Series B Preferred stock, 168,007 shares issued
and outstanding
|
—
|
—
|
|
Common
stock, $0.001 par value; 55,000,000 shares authorized; 11,012,625
and 10,626,624 shares issued and outstanding at December 31,
2016 and 2015, respectively
|
11
|
11
|
|
Additional
paid-in capital
|
350,022
|
342,485
|
|
Accumulated
deficit
|
(230,424)
|
(234,295)
|
|
Total
stockholders’ equity
|
119,609
|
108,201
|
|
Total
liabilities and stockholders’ equity
|
$165,281
|
$153,588
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
AUTOBYTEL
INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per-share data)
|
|
Years Ended December 31,
|
||
|
|
2016
|
2015
|
2014
|
|
Revenues:
|
|
|
|
|
Lead
fees
|
$130,684
|
$120,678
|
$100,744
|
|
Advertising
|
24,508
|
10,534
|
4,171
|
|
Other
revenues
|
1,492
|
2,014
|
1,363
|
|
Total
revenues
|
156,684
|
133,226
|
106,278
|
|
Cost
of revenues
|
98,771
|
81,586
|
64,465
|
|
Gross
profit
|
57,913
|
51,640
|
41,813
|
|
Operating
expenses:
|
|
|
|
|
Sales
and marketing
|
18,118
|
15,956
|
14,404
|
|
Technology
support
|
13,986
|
11,740
|
8,014
|
|
General
and administrative
|
14,663
|
13,189
|
11,538
|
|
Depreciation
and amortization
|
5,068
|
3,106
|
1,858
|
|
Litigation
settlements
|
(50)
|
(108)
|
(143)
|
|
Total
operating expenses
|
51,785
|
43,883
|
35,671
|
|
Operating
income
|
6,128
|
7,757
|
6,142
|
|
Interest
and other income (expense), net
|
558
|
322
|
(694)
|
|
Income
before income tax provision
|
6,686
|
8,079
|
5,448
|
|
Income
tax provision
|
2,815
|
3,433
|
2,037
|
|
Net
income and comprehensive income
|
$3,871
|
$4,646
|
$3,411
|
|
|
|
|
|
|
Basic
earnings per common share
|
$0.36
|
$0.47
|
$0.38
|
|
Diluted
earnings per common share
|
$0.29
|
$0.37
|
$0.32
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
AUTOBYTEL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
|
|
Common
Stock
|
Preferred
Stock
|
|
|
|
||
|
|
Number
of Shares
|
Amount
|
Number
of Shares
|
Amount
|
Additional
Paid-In-Capital
|
Accumulated
Deficit
|
Total
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2013
|
8,909,737
|
$9
|
-
|
$-
|
$307,171
|
$(242,352)
|
$64,828
|
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
1,426
|
-
|
1,426
|
|
Issuance
of common stock upon exercise of stock options
|
134,668
|
-
|
-
|
-
|
562
|
-
|
562
|
|
Issuance
of warrants
|
-
|
-
|
-
|
-
|
510
|
-
|
510
|
|
Premium
on convertible note
|
-
|
-
|
-
|
-
|
300
|
-
|
300
|
|
Repurchase
of common stock
|
(164,028)
|
-
|
-
|
-
|
(1,779)
|
-
|
(1,779)
|
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
3,411
|
3,411
|
|
Balance
at December 31, 2014
|
8,880,377
|
9
|
-
|
-
|
308,190
|
(238,941)
|
69,258
|
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
2,563
|
-
|
2,563
|
|
Issuance
of common stock upon exercise of stock options
|
145,979
|
-
|
-
|
-
|
1,197
|
-
|
1,197
|
|
Issuance
of AutoWeb warrants
|
-
|
-
|
-
|
-
|
2,542
|
-
|
2,542
|
|
Issuance
of AutoWeb preferred shares
|
-
|
-
|
168,007
|
-
|
21,133
|
-
|
21,133
|
|
Issuance
of restricted stock
|
125,000
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Exercise
of warrants
|
400,000
|
1
|
-
|
-
|
1,860
|
-
|
1,861
|
|
Conversion
of note payable
|
1,075,268
|
1
|
-
|
-
|
5,000
|
-
|
5,001
|
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
4,646
|
4,646
|
|
Balance
at December 31, 2015
|
10,626,624
|
11
|
168,007
|
-
|
342,485
|
(234,295)
|
108,201
|
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
4,486
|
-
|
4,486
|
|
Issuance
of common stock upon exercise of stock options
|
386,001
|
-
|
-
|
-
|
3,051
|
-
|
3,051
|
|
Net
income
|
-
|
-
|
-
|
-
|
|
3,871
|
3,871
|
|
Balance
at December 31, 2016
|
11,012,625
|
$11
|
168,007
|
$-
|
$350,022
|
$(230,424)
|
$119,609
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
AUTOBYTEL INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(in thousands)
|
|
Years Ended December 31,
|
||
|
|
2016
|
2015
|
2014
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net
income
|
$3,871
|
$4,646
|
$3,411
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
Depreciation
and amortization
|
7,303
|
4,021
|
2,227
|
|
Provision
for bad debt
|
344
|
379
|
354
|
|
Provision
for customer credits
|
592
|
803
|
1,037
|
|
Share-based
compensation
|
4,412
|
2,557
|
1,421
|
|
Write-down
of assets
|
115
|
—
|
—
|
|
Gain
on sale of business
|
(2,183)
|
—
|
—
|
|
(Gain)/loss
on long-term strategic investment
|
777
|
(636)
|
—
|
|
Change
in deferred tax assets
|
1,994
|
2,996
|
1,758
|
|
Changes
in assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
(3,229)
|
(381)
|
(2,590)
|
|
Prepaid
expenses and other current assets
|
(402)
|
(121)
|
(261)
|
|
Other
non-current assets
|
946
|
147
|
(625)
|
|
Accounts
payable
|
2,121
|
(586)
|
137
|
|
Accrued
expenses and other current liabilities
|
1,581
|
(1,352)
|
1,847
|
|
Non-current
liabilities
|
—
|
(273)
|
(826)
|
|
Net
cash provided by operating activities
|
18,242
|
12,200
|
7,890
|
|
Cash
flows from investing activities:
|
|
|
|
|
Purchase
of AutoUSA
|
—
|
—
|
(10,044)
|
|
Purchase
of Dealix/Autotegrity
|
—
|
(25,011)
|
—
|
|
Investment
in AutoWeb
|
—
|
—
|
(880)
|
|
Investment
in SaleMove
|
—
|
—
|
(400)
|
|
Investment
in GoMoto
|
(375)
|
(375)
|
(100)
|
|
Investment
in short-term investment
|
(251)
|
—
|
—
|
|
Purchases
of property and equipment
|
(2,148)
|
(2,719)
|
(1,124)
|
|
Net
cash used in investing activities
|
(2,774)
|
(28,105)
|
(12,548)
|
|
Cash
flows from financing activities:
|
|
|
|
|
Repurchase
of common stock
|
—
|
—
|
(1,779)
|
|
Borrowings
under credit facility
|
—
|
2,750
|
1,000
|
|
Borrowings
under term loan
|
—
|
15,000
|
9,000
|
|
Payments
on term loan borrowings
|
(3,937)
|
(3,750)
|
(2,250)
|
|
Net
proceeds from stock option exercises
|
3,051
|
1,197
|
567
|
|
Proceeds
from exercise of warrants
|
—
|
1,860
|
—
|
|
Proceeds
from issuance of preferred shares
|
—
|
2,132
|
—
|
|
Payment
of contingent fee arrangement
|
(63)
|
(38)
|
(63)
|
|
Net
cash (used in) provided by financing activities
|
(949)
|
19,151
|
6,475
|
|
Net
increase in cash and cash equivalents
|
14,519
|
3,246
|
1,817
|
|
Cash
and cash equivalents, beginning of period
|
23,993
|
20,747
|
18,930
|
|
Cash
and cash equivalents, end of period
|
$38,512
|
$23,993
|
$20,747
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
Cash
paid for income taxes
|
$760
|
$552
|
$355
|
|
Cash
paid for interest
|
$717
|
$884
|
$697
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|
|
|
|
Purchase
of AutoWeb
|
$—
|
$21,543
|
$—
|
|
Conversion
of Cyber Note
|
$—
|
$5,000
|
$—
|
|
Sale
of specialty finance leads product
|
$3,168
|
$—
|
$—
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
AUTOBYTEL INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1.
Organization and Operations of Autobytel
Autobytel Inc. (“Autobytel” or the “Company”) is an automotive marketing services
company that assists automotive retail dealers
(“Dealers”) and automotive manufacturers
(“Manufacturers”)
market and sell new and used vehicles through its programs for
online lead referrals (“Leads”), Dealer marketing products and services,
online advertising and consumer traffic referral
programs and mobile products.
The Company’s consumer-facing automotive
websites (“Company
Websites”), including its
flagship website Autobytel.com®, provide consumers with
information and tools to aid them with their automotive purchase
decisions and the ability to submit inquiries requesting Dealers to
contact the consumers regarding purchasing or leasing vehicles
(“Leads”). The Company’s mission for
consumers is to be “Your Lifetime Automotive
Advisor®” by engaging consumers throughout the entire
lifecycle of their automotive needs.
The
Company was incorporated in Delaware on May 17, 1996. Its
principal corporate offices are located in Irvine, California. The
Company’s common stock is listed on The Nasdaq Capital Market
under the symbol ABTL.
On December 19, 2016, Autobytel and Car.com, Inc.,
a wholly owned subsidiary of Autobytel (“Car.com”), entered into an Asset Purchase and Sale
Agreement, by and among Autobytel, Car.com, and Internet Brands,
Inc., a Delaware corporation (“Internet
Brands”), in which
Internet Brands acquired substantially all of the assets of the
automotive specialty finance leads group of Car.com. The
transaction was completed effective as of December 31, 2016. The
transaction consideration consisted of $3.2 million in cash and
$1.6 million to be paid over a five year period pursuant to a
Transitional License and Linking Agreement. The Company recorded a
gain on sale of approximately $2.2 million in connection with the
transaction in the fourth quarter of 2016. See Note 10.
On October 1, 2015 (“AutoWeb Merger
Date”), Autobytel entered
into and consummated an Agreement and Plan of Merger by and among
Autobytel, New Horizon Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Autobytel
(“Merger Sub”), AutoWeb, Inc., a Delaware corporation
(“AutoWeb”), and Jose Vargas, in his capacity as
Stockholder Representative. On the AutoWeb Merger Date,
Merger Sub merged with and into AutoWeb, with AutoWeb continuing as
the surviving corporation and as a wholly owned subsidiary of
Autobytel. AutoWeb was a privately-owned company
providing an automotive search engine that enables Manufacturers
and Dealers to optimize advertising campaigns and reach
highly-targeted car buyers through an auction-based click
marketplace. Prior to the acquisition, the Company
previously owned approximately 15% of the outstanding shares of
AutoWeb, on a fully converted and diluted basis, and accounted for
the investment on the cost basis. See Note
3.
On May 21, 2015 (“Dealix/Autotegrity Acquisition
Date”), Autobytel and CDK
Global, LLC, a Delaware limited liability company
(“CDK”), entered into and consummated a Stock
Purchase Agreement in which Autobytel acquired all of the issued
and outstanding shares of common stock in Dealix Corporation, a
California corporation and subsidiary of CDK, and Autotegrity,
Inc., a Delaware corporation and subsidiary of CDK (collectively,
“Dealix/Autotegrity”). Dealix
Corporation provides new and used car Leads to automotive
dealerships, Dealer groups and Manufacturers, and Autotegrity, Inc.
is a consumer Leads acquisition and analytics
business. See Note 3.
On April 27, 2015, Auto Holdings Ltd.
(“Auto
Holdings”) acquired from
Cyber Ventures, Inc. and Autotropolis, Inc. the $5.0 million
convertible subordinated promissory note and the warrant to
purchase 400,000 shares of Autobytel common stock issued by the
Company to Cyber Ventures and Autotropolis in September 2010 in
connection with Autobytel’s acquisition of substantially all
of the assets of Cyber Ventures and Autotropolis (collectively
referred to as “Cyber”). Concurrent with the
acquisition of the Cyber convertible note
(“Cyber Note”) and warrant (“Cyber
Warrant”), Auto Holdings
converted the Cyber Note and fully exercised the Cyber Warrant at
its conversion price of $4.65 per share. As required
under the terms of the conversion for the Cyber Note, Autobytel
issued 1,075,268 shares of its common stock and under the terms of
exercise for the Cyber Warrant, it issued an additional 400,000
shares of its common stock.
On January 13, 2014 (“AutoUSA Acquisition
Date”), Autobytel,
AutoNation, Inc., a Delaware corporation
(“Seller
Parent”), and
AutoNationDirect.com, Inc., a Delaware corporation and subsidiary
of Seller Parent (“Seller”), entered into and consummated a
Membership Interest Purchase Agreement in which Autobytel acquired
all of the issued and outstanding membership interests in AutoUSA,
LLC, a Delaware limited liability company and a subsidiary of
Seller (“AutoUSA”). AutoUSA was a competitor to
the Company and at the time of the acquisition was a (i) lead
aggregator purchasing internet-generated automotive consumer leads
from third parties and reselling those consumer leads to automotive
dealers; and (ii) reseller of third party products and services to
automotive Dealers. See Note 3.
2.
Summary of Significant Accounting Policies
Basis of
Presentation. The
accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in
consolidation. Certain prior year amounts have been
reclassified for consistency with the current period
presentation. These reclassifications had no effect on
the reported results of operations.
Use of Estimates in the
Preparation of Financial Statements. The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) requires the Company to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant
estimates include, but are not limited to, allowances for bad debts
and customer credits, useful lives of depreciable assets and
capitalized software costs, long-lived asset impairments, goodwill
and purchased intangible asset valuations, accrued liabilities,
contingent payment provisions, debt valuation and valuation
allowance for deferred tax assets, warrant valuation and
stock-based compensation expense. Actual results could differ from
those estimates.
F-7
Cash and Cash
Equivalents. For
purposes of the Consolidated Balance Sheets and the Consolidated
Statements of Cash Flows, the Company considers all highly liquid
investments with an original maturity of 90 days or less at the
date of purchase to be cash equivalents. Cash and cash equivalents
represent amounts held by the Company for use by the Company
and are recorded at cost, which approximates fair
value.
Investments. In
September 2013, the Company entered into a Convertible Note
Purchase Agreement with SaleMove in which Autobytel invested
$150,000 in SaleMove in the form of an interest bearing,
convertible promissory note. In November 2014, the Company
invested an additional $400,000 in SaleMove in the form of an
interest bearing, convertible promissory note. Upon
closing of a preferred stock financing by SaleMove in July 2015,
these two notes were converted in accordance with their terms into
an aggregate of 190,997 Series A Preferred Stock, which shares are
classified as a long-term investment on the consolidated balance
sheet as of December 31, 2016.
In
October 2013, the Company entered into a Reseller Agreement with
SaleMove to become a reseller of SaleMove’s technology for
enhancing communications with
consumers. SaleMove’s technology allows Dealers
and Manufacturers to enhance the online shopping experience by
interacting with consumers in real-time, including live video,
audio and text-based chat or by phone. The Company and SaleMove
will equally share in revenues from automotive-related sales of the
SaleMove products and services. In connection with this reseller
arrangement, the Company advanced to SaleMove $1.0
million to fund SaleMove’s 50% share of various product
development, marketing and sales costs and expenses, with the
advanced funds to be recovered by the Company from SaleMove’s
share of sales revenue. As of December 31, 2016, the net
advances due from SaleMove totaled $552,000 and are classified as
an other long-term asset on the consolidated balance
sheet.
In December 2014, the Company entered
into a Series Seed Preferred Stock Purchase Agreement with GoMoto
in which the Company paid $100,000 for 317,460 shares of Series
Seed Preferred Stock, $0.001 par value per share. The
$100,000 investment in GoMoto was recorded at cost because the
Company does not have significant influence over
GoMoto. In October 2015 and May 2016, the Company
invested an additional $375,000 and $375,000, respectively, in
GoMoto in the form of convertible promissory notes
(“GoMoto Notes”). As of December 31, 2016, the
Company recorded a reserve of $0.8 million related to the GoMoto
Notes and related interest receivable because the Company believes
the amounts may not be recoverable.
Accounts
Receivable. Credit
is extended to customers based on an evaluation of the
customer’s financial condition, and when credit is extended,
collateral is generally not required. Interest is not normally
charged on receivables.
Allowances for Bad Debts and
Customer Credits. The allowance for bad debts is an estimate of bad
debt expense that could result from the inability or refusal of
customers to pay for services. Additions to the estimated allowance
for bad debts are recorded to sales and marketing expenses and are
based on factors such as historical write-off percentages, the
current business environment and known concerns within the current
aging of accounts receivable. Reductions in the estimated allowance
for bad debts due to subsequent cash recoveries are recorded as a
decrease in sales and marketing expenses. As specific bad debts are
identified, they are written-off against the previously established
estimated allowance for bad debts with no impact on operating
expenses.
The
allowance for customer credits is an estimate of adjustments for
services that do not meet the customer requirements. Additions to
the estimated allowance for customer credits are recorded as a
reduction of revenues and are based on the Company’s
historical experience of: (i) the amount of credits issued;
(ii) the length of time after services are rendered that the
credits are issued; (iii) other factors known at the time; and
(iv) future expectations. Reductions in the estimated allowance for
customer credits are recorded as an increase in revenues. As
specific customer credits are identified, they are written-off
against the previously established estimated allowance for customer
credits with no impact on revenues.
If
there is a decline in the general economic environment that
negatively affects the financial condition of the Company’s
customers or an increase in the number of customers that are
dissatisfied with their services, additional estimated allowances
for bad debts and customer credits may be required, and the impact
on the Company’s business, results of operations, financial
condition, earnings per share, cash flow or the trading price of
our stock could be material.
Contingencies. From
time to time the Company may be subject to proceedings, lawsuits
and other claims. The Company assesses the likelihood of
any adverse judgments or outcomes of these matters as well as
potential ranges of probable losses. The Company records a loss
contingency when an unfavorable outcome is probable and the amount
of the loss can be reasonably estimated. The amount of allowances
required, if any, for these contingencies is determined after
analysis of each individual case. The amount of allowances may
change in the future if there are new material developments in each
matter. Gain contingencies are not recorded until all
elements necessary to realize the revenue are present. Any legal
fees incurred in connection with a contingency are expensed as
incurred.
F-8
Fair Value of Financial
Instruments. The
Company records its financial assets and liabilities at fair value,
which is defined under the applicable accounting standards as the
exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measure
date. The Company uses valuation techniques to measure
fair value, maximizing the use of observable outputs and minimizing
the use of unobservable inputs. The standard describes a
fair value hierarchy based on three levels of inputs, of which the
first two are considered observable and the last unobservable, that
may be used to measure fair value which are the
following:
Level
1 – Quoted prices in active markets for identical assets or
liabilities.
Level
2 – Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level
3 – Inputs include management’s best estimate of what
market participants would use in pricing the asset or liability at
the measurement date. The inputs are unobservable in the
market and significant to the instrument’s
valuation.
Cash
equivalents, accounts receivable, net of allowance, accounts
payable and accrued liabilities, are carried at cost, which
management believes approximates fair value because of the
short-term maturity of these instruments.
The
Company’s investments at December 31, 2016 and 2015 consist
primarily of investments in SaleMove and GoMoto and are accounted
for under the cost method. Although there is no established market
for these investments, we evaluated the investments for impairment
by comparing them to an estimated fair value and determined that
there is no impairment.
Variable Interest
Entities. The
Company has an investment in an entity that is considered a
variable interest entity (“VIE”) under U.S.
GAAP. The Company has concluded that their investment in
SaleMove qualifies as a variable interest and SaleMove is a VIE.
VIEs are legal entities in which the equity investors do not have
sufficient equity at risk for the entity to independently finance
its activities or the collective holders do not have the power
through voting or similar rights to direct the activities of the
entity that most significantly impacts its economic performance,
the obligation to absorb the expected losses of the entity, or the
right to receive expected residual returns of the entity.
Consolidation of a VIE is considered appropriate if a reporting
entity is the primary beneficiary, the party that has both
significant influence and control over the VIE. Management
periodically performs a qualitative analysis to determine if the
Company is the primary beneficiary of a VIE. This analysis includes
review of the VIEs’ capital structures, contractual terms,
and primary activities, including the Company’s ability to
direct the activities of the VIEs and obligations to absorb losses,
or the right to receive benefits, significant to the
VIEs. Additionally, changes in our various equity
investments have in the past resulted in a reconsideration
event.
Based
on Autobytel’s analysis for the periods presented in this
report, it is not the primary beneficiary of SaleMove. Accordingly,
SaleMove does not meet the criteria for consolidation.
The SaleMove Advances are classified as an other long-term asset on
the consolidated balance sheet as of December 31, 2016 and December
31, 2015. The carrying value and maximum potential loss
exposure from SaleMove totaled $0.6 million as of December 31,
2016, and $0.7 million as of December 31, 2015.
Concentration of Credit Risk
and Risks Due to Significant
Customers. Financial
instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents,
investments and accounts receivable. Cash and cash equivalents are
primarily maintained with two financial institutions in the United
States. Deposits held by banks exceed the amount of insurance
provided for such deposits. Generally these deposits may be
redeemed upon demand. Accounts receivable are primarily derived
from fees billed to automotive Dealers and automotive
Manufacturers.
The
Company has a concentration of credit risk with its automotive
industry related accounts receivable balances, particularly with
Urban Science Applications (which represents several Manufacturer
programs), General Motors and Ford Direct. During 2016,
approximately 28% of the Company’s total revenues were
derived from these three customers, and approximately 36% or $12.6
million of gross accounts receivable related to these three
customers at December 31, 2016. In 2016, Urban Science
Applications accounted for 16% and 19% of total revenues and total
accounts receivable as of December 31, 2016,
respectively.
During
2015, approximately 28% of the Company’s total revenues were
derived from Urban Science Applications, General Motors and Ford
Direct, and approximately 37% or $10.7 million of gross accounts
receivable related to these three customers at December 31,
2015. In 2015, Urban Science Applications accounted for
16% of total revenues and accounts receivable as of December 31,
2015, respectively.
F-9
Property and
Equipment. Property
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line
method over the estimated useful lives of the respective assets,
generally three years. Amortization of leasehold improvements is
provided using the straight-line method over the shorter of the
remaining lease term or the estimated useful lives of the
improvements. Repair and maintenance costs are charged to operating
expenses as incurred. Gains or losses resulting from the retirement
or sale of property and equipment are recorded as operating income
or expenses, respectively.
Operating
Leases. The Company
leases office space and certain office equipment under operating
lease agreements which expire on various dates through 2024, with
options to renew on expiration of the original lease
terms.
Reimbursed
tenant improvements are considered in determining straight-line
rent expense and are amortized over the shorter of their estimated
useful lives or the lease term. The lease term begins on the date
of initial possession of the leased property for purposes of
recognizing rent expense on a straight-line basis over the term of
the lease. Lease renewal periods are considered on a lease-by-lease
basis and are generally not included in the initial lease
term.
Capitalized Internal Use
Software and Website Development
Costs. The Company
capitalizes costs to develop internal use software in accordance
with the Internal-Use Software and the Website Development Costs
Topics, which require the capitalization of external and internal
computer software costs and website development costs,
respectively, incurred during the application development stage.
The application development stage is characterized by software
design and configuration activities, coding, testing and
installation. Training and maintenance costs are expensed as
incurred while upgrades and enhancements are capitalized if it is
probable that such expenditures will result in additional
functionality. Capitalized internal use software development costs
are amortized using the straight-line method over an estimated
useful life of three to five years. Capitalized website development
costs, once placed in service, are amortized using the
straight-line method over the estimated useful life of the related
websites. The Company capitalized $1.7 million, $1.5
million and $0.6 million of such costs for the years ended December
31, 2016, 2015 and 2014, respectively.
Impairment of Long-Lived
Assets and Intangible Assets. The Company periodically reviews long-lived assets
to determine if there is any impairment of these assets. The
Company assesses the impairment of these assets, or the need to
accelerate amortization, whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. Judgments regarding the existence of impairment
indicators are based on legal factors, market conditions and
operational performance of the long-lived assets and other
intangibles. Future events could cause the Company to conclude that
impairment indicators exist and that the assets should be reviewed
to determine their fair value. The Company assesses the assets for
impairment based on the estimated future undiscounted cash flows
expected to result from the use of the assets and their eventual
disposition. If the carrying amount of an asset exceeds its
estimated future undiscounted cash flows, an impairment loss is
recorded for the excess of the asset’s carrying amount over
its fair value. Fair value is generally determined based on a
valuation process that provides an estimate of a fair value of
these assets using a discounted cash flow model, which includes
many assumptions and estimates. Once the valuation is determined,
the Company would write-down these assets to their determined fair
value, if necessary. Any write-down could have a material adverse
effect on the Company’s financial condition and results of
operations. The Company did not record any impairment of long-lived
assets in 2016, 2015 and 2014.
Indefinite-lived intangible
assets. Indefinite-lived
intangible assets consists of a domain name, which was acquired as
part of the Dealix/Autotegrity acquisition in 2015, which is tested
for impairment annually, or more frequently if an event occurs or
circumstances changes that would indicate that impairment may
exist. When evaluating indefinite-lived intangible assets for
impairment, we may first perform a qualitative analysis to
determine whether it is more likely than not that the
indefinite-lived intangible assets is impaired. If we do not
perform the qualitative assessment, or if we determine that it is
more likely than not that the fair value of the indefinite-lived
intangible asset exceeds its carrying amount, we will calculate the
estimated fair value of the indefinite-lived intangible asset. Fair
value is the price a willing buyer would pay for the
indefinite-lived intangible asset and is typically calculated using
an income approach. If the carrying amount of the indefinite-lived
intangible asset exceeds the estimated fair value, an impairment
charge is recorded to reduce the carrying value to the estimated
fair value. We did not record any impairment of indefinite-lived
intangible assets in 2016 and 2015.
Goodwill. Goodwill
represents the excess of the purchase price for business
acquisitions over the fair value of identifiable assets and
liabilities acquired. The Company evaluates the carrying value of
enterprise goodwill for impairment. Testing for impairment of
goodwill is a two-step process. The first step requires the Company
to compare the enterprise’s carrying value to its fair value.
If the fair value is less than the carrying value, enterprise
goodwill is potentially impaired and the Company then completes the
second step to measure the impairment loss, if any. The second step
requires the calculation of the implied fair value of goodwill by
deducting the fair value of all tangible and intangible net assets
from the fair value of the reporting unit. If the implied fair
value of goodwill is less than the carrying amount of enterprise
goodwill, an impairment loss is recognized equal to the difference.
The Company evaluates enterprise goodwill, at a minimum, on an
annual basis, in the fourth quarter of each year or whenever events
or changes in circumstances suggest that the carrying amount of
goodwill may be impaired.
Revenue
Recognition. Lead
fees consist of fees from the sale of Leads for new and used
vehicles and Leads for vehicle financing. Fees paid by
customers participating in the Company’s Lead programs are
comprised of monthly transaction and/or subscription
fees. Advertising revenues represent fees for display
advertising on Company’s Websites.
F-10
The
Company recognizes revenues when evidence of an arrangement exists,
pricing is fixed and determinable, collection is reasonably assured
and delivery or performance of service has occurred. Lead fees are
generally recognized as revenues in the period the service is
provided. Advertising revenues are generally recognized in the
period the advertisements are displayed on Company Websites. Fees
billed prior to providing services are deferred, as they do not
satisfy all U.S. GAAP revenue recognition criteria. Deferred
revenues are recognized as revenue over the periods services are
provided.
Cost of Revenues.
Cost of revenues consists of Lead and
traffic acquisition costs and other cost of revenues. Lead and
traffic acquisition costs consist of payments made to the
Company’s Lead providers, including internet portals and
on-line automotive information providers. Other cost of revenues
consists of search engine marketing (“SEM”) and fees paid to third parties for data
and content, including search engine optimization
(“SEO”) activity, included on the Company’s
properties, connectivity costs and development costs related to the
Company Websites, compensation related expense and technology
license fees, server equipment depreciation and technology
amortization directly related to Company Websites. SEM,
sometimes referred to as paid search marketing, is the practice of
bidding on keywords on search engines to drive traffic to a
website.
Income
Taxes. The Company
accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. 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. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company
records a valuation allowance, if necessary, to reduce deferred tax
assets to an amount it believes is more likely than not to be
realized.
Computation of Basic and
Diluted Net Earnings per Share. Basic net earnings per share is computed using the
weighted average number of common shares outstanding during the
period. Diluted net earnings per share is computed using
the weighted average number of common shares, and if dilutive,
potential common shares outstanding, as determined under the
treasury stock and if-converted method, during the period.
Potential common shares consist of common shares issuable upon the
exercise of stock options, common shares issuable upon the exercise
of warrants described below and common shares issuable upon
conversion of the shares described in Note 3.
The
following are the share amounts utilized to compute the basic and
diluted net earnings per share for the years ended
December 31:
|
|
2016
|
2015
|
2014
|
|
Basic
Shares:
|
|
|
|
|
Weighted
average common shares outstanding
|
10,673,015
|
9,907,066
|
8,998,035
|
|
Weighted
average common shares repurchased
|
—
|
—
|
(18,138)
|
|
Basic
Shares
|
10,673,015
|
9,907,066
|
8,979,897
|
|
|
|
|
|
|
Diluted
Shares:
|
|
|
|
|
Basic
Shares
|
10,673,015
|
9,907,066
|
8,979,897
|
|
Weighted
average dilutive securities
|
2,630,194
|
2,755,258
|
2,232,011
|
|
Dilutive
Shares
|
13,303,209
|
12,662,324
|
11,211,908
|
For
the years ended December 31, 2016 and 2015, weighted average
dilutive securities included dilutive options, warrants and
convertible preferred shares. For the year ended
December 31, 2014, weighted average dilutive securities included
dilutive options, warrants and convertible debt.
Potentially
dilutive securities representing approximately 1.9 million,
1.4 million and 1.1 million shares of common stock for the
years ended December 31, 2016, 2015 and 2014, respectively,
were excluded from the computation of diluted income per share for
these periods because their effect would have been
anti-dilutive.
F-11
Share-Based
Compensation. The
Company grants restricted stock and stock option awards (the
“Awards”) under several of its share-based
compensation Plans (the “Plans”), that are more fully described in Note
9. The Company recognizes share-based compensation based
on the Awards’ fair value, net of estimated forfeitures on a
straight line basis over the requisite service periods, which is
generally over the awards’ respective vesting period, or on
an accelerated basis over the estimated performance periods for
options with performance conditions.
Restricted
stock fair value is measured on the grant date based on the quoted
market price of the Company’s common stock, and the stock
option fair value is estimated on the grant date using the
Black-Scholes option pricing model based on the underlying common
stock closing price as of the date of grant, the expected term,
stock price volatility and risk-free interest rates.
Business Segment.
The Company conducts its business
within the United States and within one business segment which is
defined as providing automotive and marketing
services. The Company’s operations are aggregated
into a single reportable operating segment based upon similar
economic and operating characteristics as well as similar
markets.
Advertising
Expense. Advertising
costs are expensed in the period incurred and the majority of
advertising expense is recorded in sales and marketing expense.
Advertising expense in the years ended December 31, 2016, 2015 and
2014 was $1.4 million, $2.0 million and $1.6 million,
respectively.
Recent
Accounting Pronouncements
Accounting Standards
Codification 606 “Revenue from Contracts with
Customers.” In
May 2014, Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from
Contracts with Customers (Topic 606)” was
issued. This ASU requires an entity to recognize the
amount of revenue to which it expects to be entitled for the
transfer of promised goods or services to customers. The standard
will replace most existing revenue recognition guidance in U.S.
GAAP when it becomes effective. Early application is not
permitted. The standard permits the use of either the retrospective
or cumulative effect transition method. In August 2015,
the Financial Accounting Standards Board voted to defer the
effective date and it is now effective for public entities for
annual periods ending after December 15, 2017. Early adoption
of the standard is permitted. This update permits the use of either
the retrospective or cumulative effect transition method.
In April 2016, ASU No. 2016-10, “Identifying
Performance Obligations and Licensing” was
issued. This ASU clarifies 1) the identification of
performance obligations and, 2) licensing implementation guidance
as it relates to Topic 606, Revenue from Contracts with
Customers. The amendments in this ASU affect the
guidance in ASU 2014-09, which is effective for public entities for
annual periods ending after December 15, 2017. In May 2016, ASU No.
2016-12, “Narrow-Scope Improvements and Practical
Expedients” was issued. This ASU addresses certain
issues as it relates to assessing collectability, presentation of
sales taxes, noncash consideration, and completed contracts and
contract modifications at transition as it relates to Topic 606,
Revenue from Contracts with Customers. The amendments in
this ASU affect the guidance in ASU 2014-09, which is effective for
public entities for annual periods beginning after December 15,
2017. The Company is continuing to evaluate the effect this
guidance will have on the consolidated financial statements and
related disclosures.
Accounting Standards
Codification 740 “Income
Taxes.” In November 2015, ASU No. 2015-17,
“Balance Sheet Classification of Deferred Taxes” was
issued. This ASU requires that deferred tax liabilities
and assets be classified as noncurrent in a classified statement of
financial position. The amendments in this update apply
to all entities that present a classified statement of financial
position. The amendments in this ASU are effective for
fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. Once adopted, the Company
will reclassify $4.7 million of current deferred tax assets to
long-term deferred tax assets.
Accounting Standards
Codification 842
“Leases.” In February 2016, ASU No. 2016-02, “Leases
(Topic 842)” was issued. This ASU will require
lessees to recognize on the balance sheet the assets and
liabilities for the rights and obligations created by those leases
of terms more than 12 months. The ASU will require both
capital and operating leases to be recognized on the balance
sheet. Qualitative and quantitative disclosures will
also be required to help investors and other financial statement
users better understand the amount, timing and uncertainty of cash
flows arising from leases. The ASU will take effect for
public companies for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. The
Company continues to assess whether this ASU will be material to
the consolidated financial statements.
Accounting Standards
Codification 323 “Investments-Equity Method and Joint
Ventures.” In
March 2016, ASU No. 2016-07, “Simplifying the Transition to
the Equity Method of Accounting” was issued. This
ASU eliminates the requirement that when an investment qualifies
for use of the equity method as a result of an increase in the
level of ownership interest or degree of influence, an investor
must adjust the investment, results of operations, and retained
earnings retroactively on a step-by-step basis as if the equity
method had been in effect during all previous periods that the
investment was held. The amendments require that the
equity method investor add the cost of acquiring the additional
interest in the investee to the current basis of the
investor’s previously held interest and adopt the equity
method of accounting as of the date the investment becomes
qualified for equity method accounting. Thus, upon
qualifying for the equity method of accounting, no retroactive
adjustment of the investment is required. The amendments
in this ASU are effective for all entities for fiscal years, and
interim periods within those fiscal years, beginning after December
15, 2016. The Company does not believe this ASU will have a
material effect on the consolidated financial
statements.
Accounting Standards
Codification 718 “Compensation-Stock
Compensation.” In March 2016, ASU No. 2016-09,
“Improvements to Employee Share-Based Payment
Accounting” was issued. This ASU provides for
areas of simplification for several aspects of the accounting for
share-based payment transactions, including the income tax
consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash
flows. The amendments in this ASU are effective for
annual periods beginning after December 15, 2016, and interim
periods within those annual periods. Once
adopted, the Company will recognize $1.9 million of deferred tax
assets relating to unrealized stock option benefits, resulting in a
cumulative $1.9 million adjustment to retained earnings . The
new guidance increases income statement volatility by requiring all
excess tax benefits and deficits to be recognized in “Income
taxes,” and treated as discrete items in the period in which
they occur. The Company believes this ASU may have a material
effect on the consolidated financial
statements.
F-12
Accounting Standards
Codification 230 “Statement of Cash
Flows.” In
August 2016, ASU No. 2016-15, “Classification of Certain Cash
Receipts and Cash Payments” was issued. This ASU
provides guidance on eight specific cash flow issues with the
objective of reducing the existing diversity in practice for those
issues. The amendments in this ASU are effective for
annual periods beginning after December 15, 2017, and interim
periods within those annual periods. Early adoption is
permitted in any interim or annual period. The Company
does not believe this ASU will have a material effect on the
consolidated financial statements.
Accounting Standards
Codification 810
“Consolidation.” In October 2016, ASU No. 2016-17, “Interests
Held through Related Parties That Are Under Common Control”
was issued. This ASU amends the consolidation guidance
on how a reporting entity that is the single decision maker of a
VIE should treat indirect interests in the entity held through
related parties that are under common control with the reporting
entity when determining whether it is the primary beneficiary of
that VIE. The amendments in this ASU are effective for
annual periods beginning after December 15, 2016, and interim
periods within those annual periods. The Company
does not believe this ASU will have a material effect on the
consolidated financial statements.
Accounting Standards
Codification 205-40 “Presentation of Financial Statements
– Going Concern.” In August 2014, ASU No. 2014-15, “Disclosure
of Uncertainties about an Entities Ability to Continue as a Going
Concern” was issued. This ASU provides guidance in
GAAP about management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to
continue as a going concern and to provide related footnote
disclosures. The amendments in this ASU are effective
for annual periods ending after December 15, 2016, and for annual
and interim periods thereafter. The Company adopted this
ASU for the year ended December 31, 2016. This ASU did
not have a material effect on the consolidated financial
statements.
3.
Acquisitions
Acquisition of AutoWeb
On
the AutoWeb Merger Date, Merger Sub merged with and into AutoWeb,
with AutoWeb continuing as the surviving corporation and as a
wholly owned subsidiary of Autobytel.
The AutoWeb Merger Date fair value of the
consideration transferred totaled $23.8 million consisting of (i)
168,007 newly issued shares of Series B Junior Participating
Convertible Preferred Stock, par value $0.001 per share, of
Autobytel (“Series B Preferred
Stock”); (ii) warrants to
purchase up to 148,240 shares of Series B Preferred Stock
“AutoWeb
Warrant”), at an exercise
price of $184.47 (reflecting 10 times the $16.77 closing price of a
share of the Company’s common stock, $0.001 par value per
share (“Common Stock”), plus a ten percent (10%) premium); and
(iii) $0.3 million in cash to cancel vested, in-the-money options
to acquire shares of AutoWeb common stock. As a result
of accounting for the transaction as a business combination
achieved in stages, the Company also recorded $0.6 million as a
gain to the pre-merger investment in AutoWeb. The
results of operations of AutoWeb have been included in the
Company’s results of operations since the AutoWeb Merger
Date.
|
|
(in thousands)
|
|
Series
B Preferred Stock
|
$20,989
|
|
Series
B Preferred warrants to purchase 148,240 shares of Series B
Preferred Stock
|
2,542
|
|
Cash
|
279
|
|
Fair
value of prior ownership in AutoWeb
|
4,016
|
|
|
$27,826
|
The
shares of Series B Preferred Stock are convertible, subject to
certain limitations, into ten (10) shares of Common
Stock. All shares will be automatically converted upon
stockholder approval.
The AutoWeb Warrant was valued at $1.72 per share
underlying the warrant for a total value of $2.5
million. The Company used a Monte Carlo simulation model
to determine the value of the AutoWeb Warrant. Key
assumptions used by the Company’s outside valuation
consultants in valuing the AutoWeb Warrant are as follows:
risk-free rate of 1.9%, stock price volatility of 74.0% and a term
of 7.0 years. The AutoWeb Warrant becomes exercisable on
October 1, 2018, subject to the following vesting conditions: (i)
with respect to the first one-third (1/3) of the warrant shares, if
at any time after the issuance date of the AutoWeb Warrant and
prior to the expiration date of the AutoWeb Warrant the weighted
average closing price of the Common Stock for the preceding 30
trading days (adjusted for any stock splits, stock dividends,
reverse stock splits or combinations of the Common Stock occurring
after the issuance date) (“Weighted Average Closing
Price”) is at or above
$30.00; (ii) with respect to the second one-third (1/3) of the
warrant shares, if at any time after the issuance date of the
AutoWeb Warrant and prior to the expiration date the Weighted
Average Closing Price is at or above $37.50; and (iii) with respect
to the last one-third (1/3) of the warrant shares, if at any time
after the issuance date of the AutoWeb Warrant and prior to the
expiration date the Weighted Average Closing Price is at or above
$45.00. The AutoWeb Warrant expires on October 1,
2022.
F-13
The
following table summarizes the fair values of the assets acquired
and liabilities assumed as of the AutoWeb Merger
Date.
|
|
(in thousands)
|
|
Net
identifiable assets acquired:
|
|
|
Total
tangible assets acquired
|
$4,456
|
|
Total
liabilities assumed
|
543
|
|
Net
identifiable assets acquired
|
3,913
|
|
|
|
|
Definite-lived
intangible assets acquired
|
17,690
|
|
Goodwill
|
5,954
|
|
|
$27,557
|
The
fair value of the acquired intangible assets was determined using
the below valuation approaches. In estimating the fair value of the
acquired intangible assets, the Company utilized the valuation
methodology determined to be most appropriate for the individual
intangible asset being valued as described below. The intangible
assets related to the AutoWeb acquisition include the
following:
|
|
Valuation Method
|
Estimated
Fair Value
|
Estimated
Useful Life (1)
|
|
|
|
(in thousands)
|
(years)
|
|
|
|
|
|
|
Customer
relationships
|
Excess
of earnings (2)
|
$7,470
|
4
|
|
Trademark/trade
names
|
Relief
from Royalty (3)
|
2,600
|
6
|
|
Developed
technology
|
Excess
of earnings (4)
|
7,620
|
7
|
|
Total
purchased intangible assets
|
|
$17,690
|
|
|
(1)
|
Determination of the estimated useful lives of the individual
categories of purchased intangible assets was based on the nature
of the applicable intangible asset and the expected future cash
flows to be derived from such intangible asset. Amortization of
intangible assets with definite lives is recognized over the
shorter of the respective life of the agreement or the period of
time the assets are expected to contribute to future cash
flows.
|
|
|
(2)
|
The excess of earnings method estimates a purchased intangible
asset's value based on the present value of the prospective net
cash flows (or excess earnings) attributable to it. The value
attributed to these intangibles was based on projected net cash
inflows from existing contracts or relationships.
|
|
|
(3)
|
The relief from royalty method is an earnings approach which
assesses the royalty savings an entity realizes since it owns the
asset and isn’t required to pay a third party a license fee
for its use.
|
|
|
(4)
|
The excess of earnings method estimates a purchased intangible
asset's value based on the present value of the prospective net
cash flows (or excess earnings) attributable to it. The method
takes into account technological and economic obsolescence of the
technology.
|
|
Additionally,
in connection with the acquisition of AutoWeb, the Company entered
into non-compete agreements with key executives of Auto
Web. The fair value of the AutoWeb non-compete
agreements was $270,000 and was derived by calculating the
difference between the present value of the Company’s
forecasted cash flows with the agreements in place and without the
agreements in place. The Company will amortize the value
of the AutoWeb non-compete agreement over two years.
Some
of the more significant estimates and assumptions inherent in the
estimate of the fair value of the identifiable purchased intangible
assets include all assumptions associated with forecasting cash
flows and profitability. The primary assumptions used for the
determination of the preliminary fair value of the purchased
intangible assets were generally based upon the discounted present
value of anticipated cash flows. Estimated years of projected
earnings generally follow the range of estimated remaining useful
lives for each intangible asset class.
The
goodwill recognized of $6.0 million was attributable primarily to
expected synergies and the assembled workforce of
AutoWeb. The Company incurred approximately $1.1 million
of acquisition-related costs related to the AutoWeb
acquisition.
F-14
Acquisition of Dealix/Autotegrity
On
the Dealix/Autotegrity Acquisition Date, Autobytel acquired all of
the issued and outstanding shares of common stock of Dealix and
Autotegrity. Dealix provides new and used car leads to
automotive dealerships, Dealer groups and Manufacturers, and
Autotegrity is a consumer leads acquisition and analytics
business. The Company acquired Dealix/Autotegrity to
further expand its reach and influence in the industry by
increasing its Dealer network.
The
Dealix/Autotegrity Acquisition Date fair value of the consideration
transferred totaled $25.0 million in cash (plus a working capital
adjustment of $11,000). The results of operations of
Dealix/Autotegrity have been included in the Company’s
results of operations since the Dealix/Autotegrity Acquisition
Date.
The
following table summarizes the estimated fair values of the assets
acquired and liabilities assumed as of the Dealix/Autotegrity
Acquisition Date. During the year ended December 31,
2016, the Company made adjustments to the purchase price allocation
due to changes in accounts receivable and sales tax payable
acquired.
|
|
(in thousands)
|
|
Net
identifiable assets acquired:
|
|
|
Total
tangible assets acquired
|
$9,778
|
|
Total
liabilities assumed
|
2,520
|
|
Net
identifiable assets acquired
|
7,258
|
|
|
|
|
Definite-lived
intangible assets acquired
|
7,655
|
|
Indefinite-lived
intangible assets acquired
|
2,200
|
|
Goodwill
|
7,358
|
|
|
$24,471
|
The
fair value of the acquired intangible assets was determined using
the below valuation approaches. In estimating the fair value of the
acquired intangible assets, the Company utilized the valuation
methodology determined to be most appropriate for the individual
intangible asset being valued as described below. The intangible
assets related to the Dealix/Autotegrity acquisition include the
following:
|
|
Valuation Method
|
Estimated
Fair Value
|
Estimated
Useful Life (1)
|
|
|
|
(in thousands)
|
(years)
|
|
|
|
|
|
|
Customer
relationships
|
Excess
of earnings (2)
|
$7,020
|
10
|
|
Trademark/trade
names – Autotegrity
|
Relief
from Royalty (3)
|
120
|
3
|
|
Trademark/trade
names – UsedCars.com
|
Relief
from Royalty (3)
|
2,200
|
Indefinite
|
|
Developed
technology
|
Cost
Approach (4)
|
515
|
3
|
|
Total
purchased intangible assets
|
|
$9,855
|
|
|
(1)
|
Determination of the estimated useful lives of the individual
categories of purchased intangible assets was based on the nature
of the applicable intangible asset and the expected future cash
flows to be derived from such intangible asset. Amortization of
intangible assets with definite lives is recognized over the
shorter of the respective life of the agreement or the period of
time the assets are expected to contribute to future cash
flows.
|
|
|
(2)
|
The excess of earnings method estimates a purchased intangible
asset's value based on the present value of the prospective net
cash flows (or excess earnings) attributable to it. The value
attributed to these intangibles was based on projected net cash
inflows from existing contracts or relationships.
|
|
|
(3)
|
The relief from royalty method is an earnings approach which
assesses the royalty savings an entity realizes since it owns the
asset and isn’t required to pay a third party a license fee
for its use.
|
|
|
(4)
|
The cost approach estimates the cost required to repurchase or
reproduce the intangible assets. The method takes into account
technological and economic obsolescence of the
technology.
|
|
F-15
Additionally,
in connection with the acquisition of Dealix/Autotegrity, the
Company entered into non-compete agreements with CDK and a key
executive of Dealix/Autotegrity. The fair value of the
non-compete agreements with CDK and the key executive from
Dealix/Autotegrity was $0.5 million and $40,000,
respectively, and was derived by calculating the difference between
the present value of the Company’s forecasted cash flows with
the agreements in place and without the agreements in
place. The Company will amortize the value of the
non-compete agreement with CDK and the key executive from
Dealix/Autotegrity over two and one year(s),
respectively.
Some
of the more significant estimates and assumptions inherent in the
estimate of the fair value of the identifiable purchased intangible
assets include all assumptions associated with forecasting cash
flows and profitability. The primary assumptions used for the
determination of the preliminary fair value of the purchased
intangible assets were generally based upon the discounted present
value of anticipated cash flows. Estimated years of projected
earnings generally follow the range of estimated remaining useful
lives for each intangible asset class.
The
goodwill recognized of $7.3 million was attributable primarily to
expected synergies and the assembled workforce of
Dealix/Autotegrity. The Company incurred approximately
$1.7 million of acquisition-related costs related to the
Dealix/Autotegrity acquisition.
Acquisition of AutoUSA
On
the AutoUSA Acquisition Date, Autobytel acquired all of the issued
and outstanding membership interests in AutoUSA. The Company
acquired AutoUSA to expand its reach and influence in the industry
by increasing its Dealer network.
The
AutoUSA Acquisition Date fair value of the consideration
transferred totaled $11.9 million, which consisted of the
following:
|
|
(in thousands)
|
|
Cash
(including a working capital adjustment of $44)
|
$10,044
|
|
Convertible
subordinated promissory note
|
1,300
|
|
Warrant
to purchase Company common stock
|
510
|
|
|
$11,854
|
As part of the consideration paid for the
acquisition, the Company issued a convertible subordinated
promissory note for $1.0 million (“AutoUSA Note”)
to the Seller. The fair value of the AutoUSA Note as of the
AutoUSA Acquisition Date was $1.3 million. This valuation was
estimated using a binomial option pricing method. Key
assumptions used by the Company's outside valuation
consultants in valuing the AutoUSA Note include a market yield of
1.6% and stock price volatility of 65.0%. As the AutoUSA Note
was issued with a substantial premium, the Company recorded the
premium as additional paid-in capital. Interest is payable at
an annual interest rate of 6% in quarterly installments. The
entire outstanding balance of the AutoUSA Note is to be paid in
full on January 31, 2019. At any time after January 31, 2017,
the holder of the AutoUSA Note may convert all or any part, but at
least 30,600 shares, of the then outstanding and unpaid principal
of the AutoUSA Note into fully paid shares of the Company's common
stock at a conversion price of $16.34 per share (as adjusted for
stock splits, stock dividends, combinations and other similar
events). The right to convert the AutoUSA Note into common
stock of the Company is accelerated in the event of a change in
control of the Company. In the event of default, the entire
unpaid balance of the AutoUSA Note will become immediately due and
payable and will bear interest at the lower of 8% per year and the
highest legal rate permissible under applicable
law.
The warrant to purchase 69,930 shares of Company
common stock issued in connection with the acquisition
("AutoUSA Warrant")
was valued as of the AutoUSA Acquisition Date at $7.35 per share
for a total value of $0.5 million. The Company used an option
pricing model to determine the value of the AutoUSA Warrant.
Key assumptions used by the Company's outside valuation consultants
in valuing the AutoUSA Warrant are as follows: risk-free rate of
1.6%, stock price volatility of 65.0% and a term of 5.0
years. The AutoUSA Warrant was valued based on long-term
stock price volatilities of the Company. The exercise price
of the AutoUSA Warrant is $14.30 per share (as adjusted for stock
splits, stock dividends, combinations and other similar
events). The AutoUSA Warrant becomes exercisable on the third
anniversary of the issuance date and expires on the fifth
anniversary of the issuance date. The right to exercise the
AutoUSA Warrant is accelerated in the event of a change in control
of the Company.
F-16
The
following table summarizes the fair values of the assets acquired
and liabilities assumed as of December 31, 2015.
|
|
(in thousands)
|
|
Net
identifiable assets acquired
|
$758
|
|
Long-lived
intangible assets acquired
|
3,660
|
|
Goodwill
|
7,346
|
|
|
$11,764
|
The
preliminary fair value of the acquired intangible assets was
determined using the below valuation approaches. In estimating the
preliminary fair value of the acquired intangible assets, the
Company utilized the valuation methodology determined to be most
appropriate for the individual intangible asset being valued as
described below. The acquired intangible assets include the
following:
|
|
Valuation Method
|
Estimated
Fair Value
|
Estimated
Useful Life (1)
|
|
|
|
(in thousands)
|
(years)
|
|
|
|
|
|
|
Customer
relationships
|
Excess
of earnings(2)
|
$2,660
|
5
|
|
Trademark/trade
names
|
Relief
from Royalty(3)
|
1,000
|
5
|
|
Total
purchased intangible assets
|
|
$3,660
|
|
|
(1)
|
Determination of the estimated useful lives of the individual
categories of purchased intangible assets was based on the nature
of the applicable intangible asset and the expected future cash
flows to be derived from such intangible asset. Amortization of
intangible assets with definite lives are recognized over the
shorter of the respective lives of the agreement or the period of
time the assets are expected to contribute to future cash
flows.
|
|
(2)
|
The excess of earnings method estimates a purchased intangible
asset's value based on the present value of the prospective net
cash flows (or excess earnings) attributable to it. The value
attributed to these intangibles was based on projected net cash
inflows from existing contracts or relationships.
|
|
(3)
|
The relief from royalty method is an earnings approach which
assesses the royalty savings an entity realizes since it owns the
asset and isn’t required to pay a third party a license fee
for its use.
|
Additionally,
in connection with the acquisition of AutoUSA, the Company entered
into a non-compete agreement with a key executive of
AutoUSA. The fair value of the AutoUSA non-compete
agreement was $90,000 and was derived by calculating the difference
between the present value of the Company’s forecasted cash
flows with the agreement in place and without the agreement in
place. The Company will amortize the value of the
AutoUSA non-compete agreement over two years.
Some
of the more significant estimates and assumptions inherent in the
estimate of the fair value of the identifiable purchased intangible
assets include all assumptions associated with forecasting cash
flows and profitability. The primary assumptions used for the
determination of the preliminary fair value of the purchased
intangible assets were generally based upon the discounted present
value of anticipated cash flows. Estimated years of projected
earnings generally follow the range of estimated remaining useful
lives for each intangible asset class.
The
goodwill recognized of $7.3 million is attributable primarily to
expected synergies and the assembled workforce of AutoUSA.
The full amount is expected to be amortizable for income tax
purposes.
The
Company incurred approximately $1.1 million of acquisition-related
costs related to AutoUSA in 2014, all of which were
expensed.
4.
Investments
Investments. The
Company’s investments at December 31, 2016 and 2015 consist
primarily of investments in SaleMove and GoMoto and are recorded at
cost.
F-17
The
following table presents the Company’s investment activity
for 2016 and 2015 (in thousands):
|
|
Note
|
Note
|
|
|
|
receivable-
|
receivable-
|
|
|
Description
|
long-term
|
current
|
Investments
|
|
|
|
|
|
|
Balance
at December 31, 2014
|
$—
|
$150
|
$3,880
|
|
Total
gains, realized or unrealized
|
—
|
—
|
636
|
|
Purchases,
(sales), issuances and (settlements), net
|
375
|
(150)
|
(3,836)
|
|
Balance
at December 31, 2015
|
375
|
—
|
680
|
|
Purchases,
(sales), issuances and (settlements), net
|
(375)
|
750
|
—
|
|
Balance
at December 31, 2016
|
—
|
750
|
680
|
|
Reserve
for notes receivable
|
—
|
(750)
|
—
|
|
Net
balance at December 31, 2016
|
$—
|
$—
|
$680
|
In
September 2013, the Company entered into a Convertible Note
Purchase Agreement with SaleMove in which Autobytel invested
$150,000 in SaleMove in the form of an interest bearing,
convertible promissory note. In November 2014, the Company
invested an additional $400,000 in SaleMove in the form of an
interest bearing, convertible promissory note. Upon
closing of a preferred stock financing by SaleMove in July 2015,
these two notes were converted in accordance with their terms into
an aggregate of 190,997 Series A Preferred Stock, which shares are
classified as a long-term investment on the consolidated balance
sheet as of December 31, 2016.
In
October 2013, the Company entered into a Reseller Agreement with
SaleMove to become a reseller of SaleMove’s technology for
enhancing communications with
consumers. SaleMove’s technology allows Dealers
and Manufacturers to enhance the online shopping experience by
interacting with consumers in real-time, including live video,
audio and text-based chat or by phone. The Company and SaleMove
equally share in revenues from automotive-related sales of the
SaleMove products and services. In connection with this reseller
arrangement, the Company advanced to SaleMove $1.0
million to fund SaleMove’s 50% share of various product
development, marketing and sales costs and expenses, with the
advanced funds to be recovered by the Company from SaleMove’s
share of sales revenue. SaleMove advances are repaid to
the Company from SaleMove’s share of net revenues from the
Reseller Agreement. As of December 31, 2016, the net
advances due from SaleMove totaled $552,000.
In December 2014, the Company entered
into a Series Seed Preferred Stock Purchase Agreement with GoMoto
in which the Company paid $100,000 for 317,460 shares of Series
Seed Preferred Stock, $0.001 par value per share. The
$100,000 investment in GoMoto was recorded at cost because the
Company does not have significant influence over
GoMoto. In October 2015 and May 2016, the Company
invested an additional $375,000 and $375,000 for each period in
GoMoto in the form of convertible promissory notes
(“GoMoto Notes”). The GoMoto Notes accrued
interest at an annual rate of 4.0% and are due and payable in full
on or after October 28, 2017 upon demand or at GoMoto’s
option ten days’ written notice unless converted prior to the
maturity date. As of December 31, 2016, the Company
recorded a reserve of $0.8 million related to the GoMoto Notes and
related interest receivable because the Company believes the
amounts may not be recoverable.
5.
Selected Balance Sheet Accounts
Property and Equipment
Property
and equipment consists of the following:
|
|
As of December 31,
|
|
|
|
2016
|
2015
|
|
|
(in thousands)
|
|
|
Computer
software and hardware
|
$12,027
|
$12,998
|
|
Capitalized
internal use software
|
5,359
|
2,743
|
|
Furniture
and equipment
|
1,332
|
1,419
|
|
Leasehold
improvements
|
1,139
|
1,424
|
|
|
19,857
|
18,584
|
|
Less—Accumulated
depreciation and amortization
|
(15,427)
|
(14,288)
|
|
Property
and Equipment, net
|
$4,430
|
$4,296
|
As
of December 31, 2016 and 2015, capitalized internal use
software, net of amortization, was $2.7 million and $2.1 million,
respectively. Depreciation and amortization expense
related to property and equipment was $1.6 million for the year
ended December 31, 2016. Of this amount, $0.7
million was recorded in cost of revenues and $0.8 million was
recorded in operating expenses for the year ended December 31,
2016. Depreciation and amortization expense related to property and
equipment was $1.0 million for the year ended December 31,
2015. Of this amount, $0.4 million was recorded in cost
of revenues and $0.6 million was recorded in operating expenses for
the year ended December 31, 2015.
F-18
Intangible
Assets. The Company
amortizes specifically identified definite-lived intangible assets
using the straight-line method over the estimated useful lives of
the assets. The Company’s intangible assets will
be amortized over the following estimated useful lives (in
thousands):
|
|
|
December
31, 2016
|
December
31, 2015
|
||||
|
Intangible
Asset
|
Estimated
Useful Life
|
Gross
|
Accumulated
Amortization
|
Net
|
Gross
|
Accumulated
Amortization
|
Net
|
|
Trademarks/trade
names/licenses/domains
|
3
– 6 years
|
$9,294
|
$(6,756)
|
$2,538
|
$9,294
|
$(6,071)
|
$3,223
|
|
Tradename
|
Indefinite
|
2,200
|
—
|
2,200
|
2,200
|
—
|
2,200
|
|
Software
and publications
|
3
years
|
1,300
|
(1,300)
|
—
|
1,300
|
(1,300)
|
—
|
|
Customer
relationships
|
2 -
10 years
|
19,563
|
(7,454)
|
12,109
|
19,563
|
(4,341)
|
15,222
|
|
Employment/non-compete
agreements
|
1-5
years
|
1,510
|
(1,273)
|
237
|
1,510
|
(849)
|
661
|
|
Developed
technology
|
5-7
years
|
8,955
|
(2,256)
|
6,699
|
8,955
|
(746)
|
8,209
|
|
|
$42,822
|
$(19,039)
|
$23,783
|
$42,822
|
$(13,307)
|
$29,515
|
|
Amortization
expense is included in “Depreciation and amortization”
in the Statements of Income. Amortization expense was
$5.7 million, $3.0 million and $1.5 million in 2016, 2015 and 2014,
respectively. Amortization expense for intangible assets for the
next five years is as follows:
|
Year
|
Amortization
Expense
|
|
|
(in thousands)
|
|
|
|
|
2017
|
$5,366
|
|
2018
|
5,028
|
|
2019
|
3,655
|
|
2020
|
2,224
|
|
2021
|
2,116
|
|
|
$18,389
|
Goodwill. Goodwill
represents the excess of the purchase price over the fair value of
net assets acquired. Goodwill is not amortized and is
assessed annually for impairment or whenever events or
circumstances indicate that the carrying value of such assets may
not be recoverable. The Company did not record any
impairment related to goodwill as of December 31, 2016 and
2015. As of December 31, 2016 and 2015, goodwill
consisted of the following:
|
|
(in thousands)
|
|
Goodwill
as of December 31, 2014
|
$20,948
|
|
Acquisition
of Dealix/Autotegrity
|
11,215
|
|
Acquisition
of AutoWeb
|
10,740
|
|
Goodwill
as of December 31, 2015
|
42,903
|
|
Purchase
price allocation adjustments from Dealix/Autotegrity
acquisition
|
(82)
|
|
Goodwill
as December 31, 2016
|
$42,821
|
During the year ended December
31, 2016, the Company made adjustments to the Dealix/Autotegrity
purchase price allocation due to changes in accounts receivable and
sales tax payable acquired, and adjusted goodwill
accordingly.
Accrued Expenses and Other Current Liabilities
As
of December 31, 2016 and 2015, accrued expenses and other
current liabilities consisted of the following:
|
|
As of December 31,
|
|
|
|
2016
|
2015
|
|
|
(in thousands)
|
|
|
Accrued
employee-related benefits
|
$4,530
|
$3,945
|
|
Other
accrued expenses and other current liabilities:
|
|
|
|
Other
accrued expenses
|
7,278
|
5,751
|
|
Amounts
due to customers
|
466
|
486
|
|
Other
current liabilities
|
571
|
562
|
|
Total
other accrued expenses and other current liabilities
|
8,315
|
6,799
|
|
|
|
|
|
Total
accrued expenses and other current liabilities
|
$12,845
|
$10,744
|
F-19
Convertible Notes
Payable. In
connection with the acquisition of Cyber, the Company issued the
Cyber Note to the sellers. The fair value of the Cyber
Note as of the Cyber Acquisition Date was $5.9
million. This valuation was estimated using a binomial
option pricing method. Key assumptions used by the
Company's outside valuation consultants in valuing the Cyber Note
included a market yield of 15.0% and stock price volatility of
77.5%. As the Cyber Note was issued with a substantial
premium, the Company recorded the premium as additional paid-in
capital. Interest is payable at an annual interest rate
of 6% in quarterly installments. The Cyber Note was
acquired by Auto Holdings and was converted into 1,075,268 shares
of Company common stock on April 27, 2015, as discussed in Note
1. Upon conversion of the Cyber Note, the Company
removed the liability from the Consolidated Balance
Sheet.
In
connection with the acquisition of AutoUSA, the Company issued the
AutoUSA Note to the Seller. For information concerning the
fair value of the AutoUSA Note, see Note 3.
6.
Credit Facility
On June 1, 2016, the Company entered into a Fourth
Amendment to Loan Agreement (“Credit Facility
Amendment”) with MUFG
Union Bank, N.A., formerly Union Bank, N.A.
(“Union Bank”), amending the Company’s existing
Loan Agreement with Union Bank initially entered into on February
26, 2013, as amended on September 10, 2013, January 13, 2014 and
May 20, 2015 (the existing Loan Agreement, as amended to date, is
referred to collectively as the “Credit Facility
Agreement”). The Credit Facility Agreement
provided for a $9.0 million term loan (“Term Loan 1”). The Credit Facility Amendment
provides for (i) a $15.0 million term loan
(“Term
Loan 2”); (ii) the
amendment of certain financial covenants in the Credit Facility
Agreement; and (iii) amendments to the Company’s existing
$8.0 million working capital revolving line of credit
(“Revolving
Loan”).
Term Loan 1 is amortized over a period of four
years, with fixed quarterly principal payments of $562,500.
Borrowings under Term Loan 1 bear interest at either (i) the
bank’s Reference Rate (prime rate) minus 0.50% or (ii) the
London Interbank Offering Rate (“LIBOR”) plus 2.50%, at the option of the Company.
Interest under Term Loan 1 adjusts (i) at the end of each LIBOR
rate period (1, 2, 3, 6 or 12 months terms) selected by the
Company, if the LIBOR rate is selected; or (ii) with changes in
Union Bank’s Reference Rate, if the Reference Rate is
selected. Borrowings under Term Loan 1 are secured by a
first priority security interest on all of the Company’s
personal property (including, but not limited to, accounts
receivable) and proceeds thereof. Term Loan 1 matures on December
31, 2017. Borrowing under Term Loan 1 was limited to use
for the acquisition of AutoUSA, and the Company drew down the
entire $9.0 million of Term Loan 1, together with $1.0 million
under the Revolving Loan, in financing this
acquisition. The outstanding balance of Term Loan 1 as
of December 31, 2016 was $2.8 million.
Term
Loan 2 is amortized over a period of five years, with fixed
quarterly principal payments of $750,000. Borrowings under Term
Loan 2 bear interest at either (i) LIBOR plus 3.00% or (ii) the
bank’s Reference Rate (prime rate), at the option of the
Company. Borrowings under the Revolving Loan bear interest at
either (i) the LIBOR plus 2.50% or (ii) the bank’s Reference
Rate (prime rate) minus 0.50%, at the option of the Company.
Interest under both Term Loan 2 and the Revolving Loan adjust (i)
at the end of each LIBOR rate period (1, 2, 3, 6 or 12 months
terms) selected by the Company, if the LIBOR rate is selected; or
(ii) with changes in Union Bank’s Reference Rate, if the
Reference Rate is selected. The Company paid an upfront fee of
0.10% of the Term Loan 2 principal amount upon drawing upon Term
Loan 2 and also pays a commitment fee of 0.10% per year on the
unused portion of the Revolving Loan, payable quarterly in arrears.
Borrowings under Term Loan 2 and the Revolving Loan are secured by
a first priority security interest on all of the Company’s
personal property (including, but not limited to, accounts
receivable) and proceeds thereof. Term Loan 2 matures June 30,
2020, and the maturity date of the Revolving Loan was extended
from March 31, 2017 to April 30, 2018. Borrowings under the
Revolving Loan may be used as a source to finance working capital,
capital expenditures, acquisitions and stock buybacks and for other
general corporate purposes. Borrowing under Term Loan 2 was limited
to use for the acquisition of Dealix/Autotegrity, and the Company
drew down the entire $15.0 million of Term Loan 2, together with
$2.75 million under the Revolving Loan and $6.76 million from
available cash on hand, in financing this
acquisition. The outstanding balances of Term Loan 2 and
the Revolving Loan as of December 31, 2016 were $11.3 million and
$8.0 million, respectively.
The
Credit Facility Agreement contains certain customary affirmative
and negative covenants and restrictive and financial covenants,
including that the Company maintain specified levels of minimum
consolidated liquidity and quarterly and annual earnings before
interest, taxes and depreciation and amortization, which the
Company was in compliance with as of December 31,
2016.
F-20
7.
Commitments and Contingencies
Operating Leases
The
Company leases its facilities and certain office equipment under
operating leases which expire on various dates through
2024. The Company’s future minimum lease payments
on leases with non-cancelable terms in excess of one year were as
follows (in thousands):
|
Years Ending December 31,
|
|
|
2017
|
$1,767
|
|
2018
|
1,004
|
|
2019
|
665
|
|
2020
|
515
|
|
2021
|
446
|
|
Thereafter
|
1,017
|
|
|
$5,414
|
Rent
expense included in operating expenses was $2.0 million, $1.2
million and $0.7 million for the years ended December 31,
2016, 2015 and 2014, respectively.
Employment Agreements
The
Company has employment agreements and retention agreements with
certain key employees. A number of these agreements require
severance payments, continuation of certain insurance benefits and
acceleration of vesting of stock options in the event of a
termination of employment without cause or for good
reason.
Litigation
From
time to time, the Company may be involved in litigation matters
arising from the normal course of its business
activities. Such litigation, even if not meritorious,
could result in substantial costs and diversion of resources and
management attention, and an adverse outcome in litigation could
materially adversely affect its business, results of operations,
financial condition and cash flows.
8.
Retirement Savings Plan
The Company has a retirement savings plan which
qualifies as a deferred salary arrangement under
Section 401(k) of the Internal Revenue Code of 1986, as
amended (“IRC”) (the “401(k) Plan”). The 401(k) Plan covers all
employees of the Company who are over 21 years of age and is
effective on the first day of the month following date of hire.
Under the 401(k) Plan, participating employees are allowed to defer
up to 100% of their pretax salaries not to exceed the maximum IRC
deferral amount. The Company contributions to the 401(k) Plan are
discretionary. The Company contribution in the years ended December
31, 2016, 2015 and 2014 was $0.4 million, $0.4 million and $0.2
million, respectively.
9.
Stockholders’ Equity
Stock-Based Incentive Plans
The Company has established several plans that
provide for stock-based awards (“Awards”) primarily in the form of stock options
and restricted stock awards (“RSAs”). Certain of these plans provide for
awards to employees, the Company’s Board of Directors and
independent consultants. The Awards were granted under the 1998
Stock Option Plan, the 1999 Stock Option Plan, the 1999 Employee
and Acquisition Related Stock Option Plan, the 2000 Stock Option
Plan, the Amended and Restated 2001 Restricted Stock and Option
Plan, the 2004 Restricted Stock and Option Plan, the 2006
Inducement Stock Option Plan, 2010 Equity Incentive Plan and the
2014 Amended and Restated Equity Incentive Plan. As of
June 19, 2014, awards may only be granted under the 2014 Equity
Incentive Plan. An aggregate of 1.5 million shares
of Company common stock are reserved for future issuance under the
2014 Amended and Restated Equity Incentive Plan at
December 31, 2016.
In addition to Awards under the foregoing plans,
(i) during the year ended December 31, 2015, the Company granted
40,000 inducement stock options (“2015 Inducement
Options”) to a new
employee; (ii) during the year ended December 31, 2014 in
connection with the acquisition of AutoUSA, the Company granted
40,000 performance-based inducement stock options
(“2014
AutoUSA Inducement Options”) to a new employee; and (iii) during the
year ended December 31, 2013 in connection with the acquisition of
Advanced Mobile, the Company granted 88,641 performance-based
inducement stock options (“2013 Advanced Mobile Inducement
Options”) to a new
employee. The 2013 Advanced Mobile Inducement Options
were allocated in three equal grants of 29,547 options each, with
the actual amount of each grant that may be awarded being
determined based upon the revenues and gross profit achievement of
the Autobytel Mobile business for the years 2014, 2015 and 2016,
respectively.
F-21
Share-based
compensation expense is included in costs and expenses in the
Consolidated Statements of Income and Comprehensive Income
as follows:
|
|
Years Ended December 31,
|
||
|
|
2016
|
2015
|
2014
|
|
|
(in thousands)
|
||
|
Share-based
compensation expense:
|
|
|
|
|
Cost
of revenues
|
$67
|
$150
|
$69
|
|
Sales
and marketing
|
1,777
|
713
|
544
|
|
Technology
support
|
601
|
518
|
251
|
|
General
and administrative
|
1,982
|
1,185
|
562
|
|
Share-based
compensation expense
|
4,427
|
2,566
|
1,426
|
|
|
|
|
|
|
Amount
capitalized to internal use software
|
15
|
9
|
5
|
|
|
|
|
|
|
Total
share-based compensation expense
|
$4,412
|
$2,557
|
$1,421
|
As
of December 31, 2016, December 31, 2015 and December 31, 2014,
there was approximately $4.9 million, $2.9 million and $2.3
million, respectively, of unrecognized compensation expense related
to unvested stock options. This expense is expected to be
recognized over a weighted average period of approximately 2.1
years.
Stock Options
The
fair value of stock options is estimated on the grant date using
the Black-Scholes option pricing model based on the underlying
common stock closing price as of the date of grant, the expected
term, stock price volatility and risk-free interest rates. The
expected risk-free interest rate is based on United States treasury
yield for a term consistent with the expected life of the stock
option in effect at the time of grant. Expected volatility is based
on the Company’s historical experience for a period equal to
the expected life. The Company has used historical volatility
because it has limited or no options traded on its common stock to
support the use of an implied volatility or a combination of both
historical and implied volatility. The Company estimates the
expected life of options granted based on historical experience,
which it believes is representative of future
behavior. The dividend yield is not considered in the
option-pricing formula since the Company has not paid dividends in
the past and has no current plans to do so in the future. The
estimated forfeiture rate used is based on historical experience
and is adjusted based on actual experience.
The
Company grants its options at exercise prices that are not less
than the fair market value of the Company’s common stock on
the date of grant. Stock options generally have a seven or ten year
maximum contractual term and generally vest one-third on the first
anniversary of the grant date and ratably over twenty-four months,
thereafter. The vesting of certain stock options is accelerated
under certain conditions, including upon a change in control of the
Company, termination without cause of an employee and voluntary
termination by an employee with good reason.
Awards
granted under the Company’s stock option plans, the 2013
Advanced Mobile Inducement Options, 2014 AutoUSA Inducement Options
and 2015 Inducement Options were estimated to have a weighted
average grant date fair value per share of $7.04, $5.73 and $6.86
for the years ended December 31, 2016, 2015 and 2014,
respectively, based on the Black-Scholes option-pricing model on
the date of grant using the following weighted average
assumptions:
|
|
Years Ended December 31,
|
||
|
|
2016
|
2015
|
2014
|
|
Expected
volatility
|
58%
|
56%
|
56%
|
|
Expected
risk-free interest rate
|
1.2%
|
1.3%
|
1.4%
|
|
Expected
life (years)
|
4.4
|
4.4
|
4.3
|
A
summary of the Company’s outstanding stock options as of
December 31, 2016, and changes during the year then ended is
presented below:
|
|
Number of
Options
|
Weighted
Average
Exercise Price
per Share
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|
|
|
|
(years)
|
(thousands)
|
|
Outstanding
at December 31, 2015
|
2,351,941
|
$8.70
|
4.2
|
|
|
Granted
|
933,900
|
16.29
|
|
|
|
Exercised
|
(386,001)
|
7.91
|
|
|
|
Forfeited
or expired
|
(157,309)
|
12.76
|
|
|
|
Outstanding
at December 31, 2016
|
2,742,531
|
$11.15
|
4.3
|
$10,215
|
|
Vested
and expected to vest at December 31, 2016
|
2,637,620
|
$10.97
|
4.2
|
$10,177
|
|
Exercisable
at December 31, 2016
|
1,719,255
|
$8.49
|
3.2
|
$9,876
|
Service-Based
Options. During the
years ended December 31, 2016, 2015 and 2014, the Company granted
833,900, 606,750 and 473,750 service-based stock options, which had
weighted average grant date fair values of $7.71, $5.73 and $6.92,
respectively.
F-22
Performance-Based
Options. During the
year ended December 31, 2014, the Company granted the 2014 AutoUSA
Inducement Options, which had a weighted average grant date fair
value of $6.08, using a Black-Scholes option pricing model and
weighted average exercise price of $13.62. The 2014
AutoUSA Inducement Options are subject to two vesting requirements
and conditions: (i) level of achievement of performance goals based
on revenue and gross margin of the Company’s retail dealer
services group for 2014 and (ii) service vesting. Based
on the performance of the Company’s retail dealer services
group for 2014, all 40,000 of the 2014 AutoUSA Inducement Options
were awarded under the performance vesting conditions, with
one-third of these options vested on January 21, 2015 and the
remainder vesting ratably over twenty four months from that date
thereafter.
During
the year ended December 31, 2013, the Company also granted the 2013
Advanced Mobile Inducement Options, which had a weighted average
grant date fair value of $3.21, using a Black-Scholes option
pricing model and weighted average exercise price of
$7.17. The 2013 Advanced Mobile Inducement Options are
subject to two vesting requirements and conditions: (i) percentage
achievement of 2014, 2015 and 2016 revenues and gross profit goals
for the Autobytel Mobile business and (ii) time
vesting. Of the 29,547 2013 Advanced Mobile Inducement
Options originally granted and allocated to the 2014 revenues and
gross profit performance of the Autobytel Mobile business, 2,955 of
these options were awarded based on the revenues and gross profit
achieved by the business for 2014. The remaining 26,592 of the 2013
Advanced Mobile Inducement Options allocated to 2014 performance
were canceled. Of the 29,547 2013 Advanced Mobile
Inducement Options originally granted and allocated to the 2015
revenues and gross profit performance of the Autobytel Mobile
business, 2,955 of these options were awarded based on the revenues
and gross profit achieved by the business for 2015. The remaining
26,592 of the 2013 Advanced Mobile Inducement Options allocated to
2015 performance were canceled. Of the 29,547 2013 Advanced Mobile
Inducement Options originally granted and allocated to the 2016
revenues and gross profit performance of the Autobytel Mobile
business, 2,955 of these options were awarded based on the revenues
and gross profit achieved by the business for 2016. The remaining
26,592 of the 2013 Advanced Mobile Inducement Options allocated to
2016 performance were canceled.
Market Condition
Options. On January 21, 2016,
the Company granted 100,000 stock options to its chief executive
officer with an exercise price of $17.09 and grant date fair value
of $1.47 per option, using a Monte Carlo simulation model
(“CEO
Market Condition Options”). The CEO Market Condition
Options were previously valued at $2.94 per option but were
revalued when the requisite stockholder approval for the
Company’s Amended and Restated 2014 Equity Incentive Plan was
obtained in June 2016. The CEO Market Condition Options are subject
to both stock price-based and service-based vesting requirements
that must be satisfied for the CEO Market Condition Options to vest
and become exercisable. The CEO Market Condition Options provide
that the stock price-based vesting condition will be met (i) with
respect to the first one-third (1/3) of the CEO Market Condition
Options, if at any time after the grant date and prior to the
expiration date of the CEO Market Condition Options the weighted
average closing price of the Company’s common stock on The
Nasdaq Capital Market for the preceding thirty (30) trading days
(adjusted for any stock splits, stock dividends, reverse stock
splits or combinations occurring after the issuance date)
(“Weighted Average Closing
Price”) is at or above
$30.00; (ii) with respect to the second one-third (1/3) of the CEO
Market Condition Options, if at any time after the grant date and
prior to the expiration date the Weighted Average Closing Price is
at or above $37.50; and (iii) with respect to the last one-third
(1/3) of the CEO Market Condition Options, if at any time after the
grant date and prior to the expiration date the Weighted Average
Closing Price is at or above $45.00. With respect to any of the CEO
Market Condition Options for which the stock price-based
requirements are met, these options are also subject to the
following service-based vesting schedule: (i) thirty-three and
one-third percent (33 1/3%) of these options will vest and become
exercisable on January 21, 2017 and (ii) one thirty-sixth (1/36th)
of these options will vest and become exercisable on each
successive monthly anniversary thereafter for the following
twenty-four months ending on January 21, 2019.
Restricted Stock
Awards. The Company
granted an aggregate of 125,000 restricted stock awards
(“RSAs”) on April 23, 2015 in connection with the
promotion of one of its executive officers. Of the
125,000 RSAs, 25,000 were service-based (“Service-Based RSA
Award”) and the
forfeiture restrictions lapse with respect to one-third of the
restricted stock on each of the first, second and third
anniversaries of the date of the award. The
Service-Based RSA Award had a fair market value of $15.37 per
share. This executive officer was also awarded
100,000 shares of the Company’s common stock in the form of
performance-based restricted stock (“Performance-Based RSA
Award”). The
Performance-Based RSA Award had a fair market value of $5.23 per
share. The shares are subject to forfeiture upon the
earlier of (such earliest date being referred to as the
“Termination
Date”) (i) a termination
of the executive officer’s employment with the Company; (ii)
March 31, 2018; and (iii) other events of forfeiture set forth in
the award agreement, subject to the following: (i) the forfeiture
restrictions with respect to 50,000 of the restricted shares will
lapse if any time prior to the Termination Date the weighted
average closing price of the Company’s common stock for the
preceding 30 trading days is at or above $30.00 per share, and (ii)
the forfeiture restrictions with respect to any of the restricted
shares that remain subject to forfeiture restrictions will lapse if
any time prior to the Termination Date the weighted average closing
price of the Company’s common stock for the preceding 30
trading days is at or above $45.00 per share. None of
the forfeiture restrictions had lapsed during
2016.
Stock option
exercises. During 2016, 386,001
options were exercised, with an aggregate weighted average exercise
price of $7.91. During 2015, 145,979 options were exercised, with
an aggregate weighted average exercise price of
$8.19. During 2014, 134,668 options were exercised, with
an aggregate weighted average exercise price of $4.18. The
total intrinsic value of options exercised during 2016, 2015 and
2014 was $3.2 million, $1.9 million and $1.3 million,
respectively.
F-23
Tax Benefit Preservation Plan
The Company’s Tax Benefit Preservation Plan
dated as of May 26, 2010 between Autobytel and Computershare Trust
Company, N.A., as rights agent, as amended by Amendment No. 1 to
Tax Benefit Preservation Plan dated as of April 14, 2014
(collectively, the “Tax Benefit Preservation
Plan”) was adopted by the
Company’s Board of Directors to protect stockholder value by
preserving the Company’s net operating loss carryovers and
other tax attributes that the Tax Benefit Preservation Plan is
intended to preserve (“Tax Benefits”). Under the Tax Benefit
Preservation Plan, rights to purchase capital stock of the Company
(“Rights”) have been distributed as a dividend at
the rate of five Rights for each share of common
stock. Each Right entitles its holder, upon triggering
of the Rights, to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock of the Company at a price of
$75.00 (as such price may be adjusted under the Tax Benefit
Preservation Plan) or, in certain circumstances, to instead acquire
shares of common stock. The Rights will convert into a right to
acquire common stock or other capital stock of the Company in
certain circumstances and subject to certain
exceptions. The Rights will be triggered upon the
acquisition of 4.9% or more of the Company’s outstanding
common stock or future acquisitions by any existing holder of 4.9%
or more of the Company’s outstanding common stock. If a
person or group acquires 4.9% or more of the Company’s common
stock, all rights holders, except the acquirer, will be entitled to
acquire, at the then exercise price of a Right, that number of
shares of the Company common stock which, at the time, has a market
value of two times the exercise price of the Right. The Rights will
expire upon the earliest of: (i) the close of business on May
26, 2017 unless that date is advanced or extended, (ii) the
time at which the Rights are redeemed or exchanged under the Tax
Benefit Preservation Plan, (iii) the repeal of
Section 382 or any successor statute if the Board determines
that the Tax Benefit Preservation Plan is no longer necessary for
the preservation of the Company’s Tax Benefits, (iv) the
beginning of a taxable year of the Company to which the Board
determines that no Tax Benefits may be carried forward, or (v) such
time as the Board determines that a limitation on the use of the
Tax Benefits under Section 382 would no longer be material to the
Company. The Tax Benefit Preservation Plan was reapproved by the
Company’s stockholders at the Company’s 2014 Annual
Meeting of Stockholders.
Series B Preferred Stock
On
the AutoWeb Merger Date, the Company issued the Series B Preferred
Stock. The shares of Series B Preferred Stock are
convertible, subject to certain limitations, into 10 shares of
Common Stock (with such conversion ratio subject to adjustment as
set forth in the certificate of designations for the Series B
Preferred Stock). All shares of Series B Preferred Stock will
be automatically converted if stockholder approval required by
Section 5635 of The Nasdaq Stock Market continued listing rules is
obtained. The Series B Preferred Stock was valued at $124.93
per share on the AutoWeb Merger Date, which was based on ten times
the closing price of the Company’s stock on September 30,
2015, discounted using a discount rate of 25.5%.
Warrant
On September 17, 2010 (“Cyber Acquisition
Date”), the Company
acquired substantially all of the assets of
Cyber. In connection with the acquisition of
Cyber, the Company issued to the sellers the Cyber Warrant. The
Cyber Warrant was valued at $3.15 per share on the Cyber
Acquisition Date using an option pricing model with the following
key assumptions: risk-free rate of 2.3%, stock price volatility of
77.5% and a term of 8.04 years. The Cyber Warrant was
valued based on historical stock price volatilities of the Company
and comparable public companies as of the Cyber Acquisition
Date. The exercise price of the Cyber Warrant was $4.65
per share (as adjusted for stock splits, stock dividends,
combinations and other similar events). The Cyber
Warrant was acquired by Auto Holdings and exercised on April 27,
2015, as discussed in Note 1. Based upon the terms of
exercise of the Cyber Warrant, the Company issued 400,000 shares of
Company Common stock and received approximately $1.9 million in
cash.
The
AutoUSA Warrant issued in connection with the acquisition described
in Note 3 was valued at $7.35 per share for a total value of $0.5
million. The Company used an option pricing model to
determine the value of the AutoUSA Warrant. Key
assumptions used in valuing the AutoUSA Warrant are as follows:
risk-free rate of 1.6%, stock price volatility of 65.0% and a term
of 5.0 years. The AutoUSA Warrant was valued based on
long-term stock price volatilities of the Company. The
exercise price of the AutoUSA Warrant is $14.30 per share (as
adjusted for stock splits, stock dividends, combinations and other
similar events). The AutoUSA Warrant becomes exercisable
on January 13, 2017 and expires on January 13, 2019. The
right to exercise the AutoUSA Warrant is accelerated in the event
of a change in control of the Company.
The AutoWeb Warrant issued in connection with the
acquisition described in Note 3 was valued at $1.72 per share for a
total value of $2.5 million. The Company used an option
pricing model to determine the value of the AutoWeb
Warrant. Key assumptions used in valuing the AutoWeb
Warrant are as follows: risk-free rate of 1.9%, stock price
volatility of 74.0% and a term of 7.0 years. The AutoWeb
Warrant was valued based on long-term stock price volatilities of
the Company’s Common Stock. The exercise price of
the AutoWeb Warrant is $184.47 per share (as adjusted for stock
splits, stock dividends, combinations and other similar
events). The AutoWeb Warrant becomes exercisable on
October 1, 2018, subject to the following vesting conditions: (i)
with respect to the first one-third (1/3) of the warrant shares, if
at any time after the issuance date of the AutoWeb Warrant and
prior to the expiration date of the AutoWeb Warrant the weighted
average closing price of the Common Stock for the preceding 30
trading days (adjusted for any stock splits, stock dividends,
reverse stock splits or combinations of the Common Stock occurring
after the issuance date) (“Weighted Average Closing
Price”) is at or above
$30.00; (ii) with respect to the second one-third (1/3) of the
warrant shares, if at any time after the issuance date of the
AutoWeb Warrant and prior to the expiration date the Weighted
Average Closing Price is at or above $37.50; and (iii) with respect
to the last one-third (1/3) of the warrant shares, if at any time
after the issuance date of the AutoWeb Warrant and prior to the
expiration date the Weighted Average Closing Price is at or above
$45.00. The AutoWeb Warrant expires on October 1,
2022.
F-24
Shares Reserved for Future Issuance
The
Company had the following shares of common stock reserved for
future issuance upon the exercise or issuance of equity instruments
as of December 31, 2016:
|
|
Number
of Shares
|
|
Stock
options outstanding
|
2,742,531
|
|
Authorized
for future grants under stock-based incentive plans
|
1,470,155
|
|
Reserved
for conversion of preferred shares issued in relation to
AutoWeb
|
1,680,070
|
|
Reserved
for exercise of warrants
|
1,552,330
|
|
Reserved
for conversion of promissory notes
|
61,200
|
|
Total
|
7,506,286
|
10.
Disposal of Specialty Finance Leads Product
On December 19, 2016, Autobytel and Car.com
entered into an Asset Purchase and Sale Agreement, by and among
Autobytel, Car.com, and Internet Brands, in which Internet Brands
acquired substantially all of the assets of the automotive
specialty finance leads group of Car.com
(“Acquired
Group”). The transaction
was completed effective as of December 31, 2016. The transaction
consideration consisted of $3.2 million in cash paid at closing and
$1.6 million to be paid over a five year period pursuant to a
Transitional License and Linking Agreement
(“License
Agreement”). The Company
recorded a gain on sale of approximately $2.2 million in connection
with the transaction in 2016.
In
connection with the transaction, Internet Brands, Car.com and
Autobytel entered into an agreement pursuant to which Car.com and
Autobytel will provide to Internet Brands certain transition
services and arrangements. Pursuant to the License Agreement, (i)
Internet Brands will pay Autobytel $1.6 million in fees over the
five-year term of the License Agreement, and (ii) Car.com will (1)
grant Internet Brands a limited, non-exclusive, non-transferable
license to use the Car.com logo and name solely for sales and
marketing purposes in Internet Brand’s automotive specialty
finance leads business; and (2) provide certain redirect linking of
consumer traffic from the Acquired Group’s current specialty
finance leads application forms to a landing page designated by
Internet Brands.
The
disposal of the automotive specialty finance leads product did not
qualify for presentation and disclosure as a discontinued operation
because it did not represent a strategic shift that had or will
have a major effect on the Company’s operations. The pretax
profit of the finance leads product for 2016, 2015 and 2014 was
$0.3 million, $0.4 million and $0.7 million,
respectively.
11.
Income Taxes
Income
tax expense from continuing operations consists of the following
for the years ended December 31:
|
|
2016
|
2015
|
2014
|
|
|
|
(in thousands)
|
|
|
Current:
|
|
|
|
|
Federal
|
$244
|
$212
|
$129
|
|
State
|
508
|
226
|
150
|
|
Foreign
|
69
|
—
|
—
|
|
|
821
|
438
|
279
|
|
Deferred:
|
|
|
|
|
Federal
|
1,726
|
2,997
|
1,714
|
|
State
|
1,040
|
586
|
385
|
|
Foreign
|
—
|
—
|
—
|
|
|
2,766
|
3,583
|
2,099
|
|
|
|
|
|
|
Valuation
allowance release
|
(772)
|
(588)
|
(341)
|
|
|
|
|
|
|
Total
income tax expense (benefit)
|
$2,815
|
$3,433
|
$2,037
|
The
reconciliations of the U.S. federal statutory rate to the effective
income tax rate for the years ended December 31, 2016, 2015
and 2014 are as follows:
|
|
2016
|
2015
|
2014
|
|
Tax
provision at U.S. federal statutory rates
|
34.0%
|
34.0%
|
34.0%
|
|
State
income taxes net of federal benefit
|
3.1
|
2.3
|
2.6
|
|
Deferred
tax asset adjustments – NOL related
|
16.1
|
6.8
|
6.4
|
|
Non-deductible
permanent items
|
—
|
0.7
|
0.4
|
|
Acquisition
costs
|
—
|
7.0
|
—
|
|
Other
|
0.4
|
(1.0)
|
0.3
|
|
Change
in valuation allowance
|
(11.5)
|
(7.3)
|
(6.3)
|
|
Effective
income tax rate
|
42.1%
|
42.5%
|
37.4%
|
F-25
Deferred
income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company’s deferred
taxes as of December 31, 2016 and 2015 are as
follows:
|
|
2016
|
2015
|
|
|
(in thousands)
|
|
|
Deferred
tax assets:
|
|
|
|
Allowance
for doubtful accounts
|
$381
|
$394
|
|
Accrued
liabilities
|
1,596
|
1,266
|
|
Net
operating loss carry-forwards
|
25,563
|
31,325
|
|
Fixed
assets
|
—
|
16
|
|
Intangible
assets
|
—
|
—
|
|
Share-based
compensation expense
|
3,225
|
2,422
|
|
Other
|
1,191
|
613
|
|
Total
gross deferred tax assets
|
31,956
|
36,036
|
|
Valuation
allowance
|
(4,656)
|
(5,427)
|
|
|
27,300
|
30,609
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
Fixed
assets
|
(114)
|
—
|
|
Intangible
assets
|
(7,698)
|
(9,147)
|
|
Unremitted
foreign earnings
|
(20)
|
—
|
|
Total
gross deferred tax liabilities
|
(7,832)
|
(9,147)
|
|
Net
deferred tax assets
|
$19,468
|
$21,462
|
During 2016, management assessed the available
positive and negative evidence to estimate if sufficient future
taxable income will be generated to utilize the existing deferred
tax assets. Significant pieces of objective positive
evidence evaluated were the cumulative earnings generated over the
three-year period ended December 31, 2016 and the Company’s
strong future earnings projections. Based on this
evaluation, as of December 31, 2016, the Company reversed $0.8
million of its valuation allowance. We believe, however,
that it is more likely than not that $0.1 million in state net
operating loss carryforwards will not be
realized. Accordingly, a valuation allowance has been
maintained on these state net operating losses. In
addition, included in the net operating loss carry-forward deferred
tax asset above is approximately $13.5 million of federal deferred
tax assets attributable to excess stock option
deductions. Due to a provision within ASC Topic 718,
Compensation – Stock Compensation (“ASC 718”) concerning when tax benefits related to
excess stock option deductions can be credited to paid-in-capital,
the related valuation allowance of $4.6 million cannot be reversed,
even if the facts and circumstances indicate that it is more likely
than not that the deferred tax asset can be
realized. The valuation allowance will only be reversed
as the related deferred tax asset is applied to reduce taxes
payable. The Company follows ASC 740 ordering to
determine when such NOL has been realized.
At December 31, 2016, the Company had federal
and state net operating loss carry-forwards
(“NOLs”) of approximately $75.8 million and $30.5
million, respectively. The federal NOLs expire through
2035 as follows (in millions):
|
2025
|
$5.9
|
|
2026
|
25.5
|
|
2027
|
15.5
|
|
2028
|
5.2
|
|
2029
|
7.7
|
|
2030
|
10.6
|
|
2031
|
1.3
|
|
2032
|
—
|
|
2033
|
0.1
|
|
2034
|
2.5
|
|
2035
|
1.5
|
|
|
$75.8
|
F-26
The
state NOLs expire through 2035 as follows (in
millions):
|
2017
|
$3.1
|
|
2028
|
2.7
|
|
2029
|
5.8
|
|
2030
|
11.0
|
|
2034
|
2.0
|
|
2035
|
0.8
|
|
California
NOLs
|
25.4
|
|
Other
State NOLs
|
5.1
|
|
Total
State NOLs
|
$30.5
|
Utilization
of the net operating loss and tax credit carry-forwards may be
subject to a substantial annual limitation due to ownership change
limitations that may have occurred or that could occur in the
future, as required by Section 382 of the IRC, as well as similar
state provisions. These ownership changes may limit the amount of
NOLs and research and development credit carry-forwards that can be
utilized annually to offset future taxable income and tax,
respectively. A Section 382 ownership change occurred in
2006 and any changes have been reflected in the NOLs presented
above as of December 31, 2016. As a result of an
acquisition in 2001, approximately $9.9 million of the NOLs are
subject to an annual limitation of approximately $0.5 million per
year.
The
federal and state NOLs begin to expire in 2025 and 2017,
respectively. Approximately $10.8 million and $5.0 million,
respectively, of the federal and state NOLs were incurred by
subsidiaries prior to the date of the Company’s acquisition
of such subsidiaries. The Company established a valuation allowance
of $4.1 million at the date of acquisitions related to these
subsidiaries. During 2013, the valuation allowance has been
reversed. The tax benefits associated with the
realization of such NOLs will be credited to the provision for
income taxes. In addition, federal NOLs of approximately $13.5
million relate to stock option deductions. Therefore, once the
stock option deductions reduce income taxes payable in the future
in accordance with ASC 718, approximately $4.6 million will be
credited to stockholders’ equity rather than to income tax
benefit.
At
December 31, 2016, deferred tax assets exclude approximately
$1.7 million and $0.4 million of tax-effected federal and state
NOLs pertaining to tax deductions from stock-based compensation.
Upon future realization of these benefits, the Company expects to
increase additional paid-in capital and reduce income taxes
payable. The benefit of excess stock option deductions is not
recorded until such time that the deductions reduce income taxes
payable. For purposes of determining when the stock options reduce
income taxes payable, the Company has adopted the “with and
without” approach whereby the Company considers NOLs arising
from continuing operations prior to NOLs attributable to excess
stock option deductions.
At
December 31, 2016, the Company has federal and state research and
development tax credit carry-forwards of $0.3 million and $0.2
million, respectively. The federal credits begin to
expire in 2021. The state credits do not
expire.
As
of December 31, 2016 and 2015, the Company had unrecognized tax
benefits of approximately $0.5 million and $0.5 million,
respectively, all of which, if subsequently recognized, would have
affected the Company’s tax rate. A reconciliation
of the beginning and ending amount of unrecognized tax benefits is
as follows:
|
|
2016
|
2015
|
|
|
(in thousands)
|
|
|
Balance
at January 1,
|
$527
|
$636
|
|
Reductions
based on tax positions related to prior years and
settlements
|
(63)
|
—
|
|
Reductions
based on the lapse of the statutes of limitations
|
—
|
(109)
|
|
Balance
at December 31,
|
$464
|
$527
|
The
Company is subject to taxation in the United States and various
foreign and state jurisdictions. In general, the Company is no
longer subject to U.S. federal and state income tax examinations
for years prior to 2012 (except for the use of tax losses generated
prior to 2012 that may be used to offset taxable income in
subsequent years). The Company does not anticipate a significant
change to the total amount of unrecognized tax benefits within the
next twelve months.
The
Company’s policy is to recognize interest and penalties
accrued on any unrecognized tax benefits as a component of income
tax expense. The Company accrued $0 and $10,000 of interest,
respectively, associated with its unrecognized tax benefits in the
years ended December 31, 2016 and 2015.
12. Quarterly Financial Data
(Unaudited)
Below
is a summary table of the Company’s quarterly data for the
years ended December 31, 2016 and December 31, 2015.
|
|
Quarter Ended
|
|||||||
|
|
Dec 31,
2016
|
Sep 30,
2016
|
Jun 30,
2016
|
Mar 31,
2016
|
Dec 31,
2015
|
Sep 30,
2015
|
Jun 30,
2015
|
Mar 31,
2015
|
|
|
(in thousands, except per-share amounts)
|
|||||||
|
Total
net revenues
|
$40,378
|
$43,911
|
$36,148
|
$36,247
|
$36,421
|
$40,175
|
$30,387
|
$26,243
|
|
Gross
profit
|
$14,601
|
$15,755
|
$13,921
|
$13,635
|
$14,474
|
$15,297
|
$11,770
|
$10,098
|
|
Net
income (loss)
|
$1,378
|
$2,738
|
$430
|
$(676)
|
$1,386
|
$1,615
|
$871
|
$773
|
|
Basic
earnings (loss) per share
|
$0.13
|
$0.26
|
$0.04
|
$(0.06)
|
$0.13
|
$0.16
|
$0.09
|
$0.09
|
|
Diluted
earnings (loss) per share
|
$0.10
|
$0.21
|
$0.03
|
$(0.06)
|
$0.10
|
$0.14
|
$0.08
|
$0.07
|
F-27
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
|
|
Years Ended December 31,
|
||
|
|
2016
|
2015
|
2014
|
|
|
|
(in thousands)
|
|
|
Allowance
for bad debts:
|
|
|
|
|
Beginning
balance
|
$605
|
$490
|
$294
|
|
Additions
|
344
|
379
|
354
|
|
Write-offs
|
(306)
|
(264)
|
(158)
|
|
Ending
balance
|
$643
|
$605
|
$490
|
|
Allowance
for customer credits:
|
|
|
|
|
Beginning
balance
|
$439
|
$280
|
$111
|
|
Additions
|
592
|
803
|
1,037
|
|
Write-offs
|
(660)
|
(644)
|
(868)
|
|
Ending
balance
|
$371
|
$439
|
$280
|
|
Tax
valuation allowance:
|
|
|
|
|
Beginning
balance
|
$5,427
|
$6,015
|
$6,356
|
|
Charged
(credited) to tax expense
|
(771)
|
(588)
|
(341)
|
|
Ending
balance
|
$4,656
|
$5,427
|
$6,015
|
F-28
EXHIBIT INDEX
|
Number
|
Description
|
|
|
|
|
|
|
2.1‡
|
Membership Interest Purchase
Agreement dated as of January 13, 2014 by and among Autobytel,
AutoNation, Inc., a Delaware corporation, and AutoNationDirect.com,
Inc., a Delaware corporation, which is incorporated herein by
reference to Exhibit 2.1 to the Current Report on Form 8-K filed
with the SEC on January 17, 2014 (SEC File No. 001-34761)
(“January 2014 Form
8-K”)
|
|
|
|
|
|
|
2.2 ‡
|
Stock Purchase Agreement dated as of May 21, 2015 by and among
Autobytel, CDK Global, LLC, a Delaware limited liability company,
Dealix Corporation, a California corporation, and Autotegrity,
Inc., a Delaware corporation incorporated by reference to Exhibit
2.1 to the Current Report on Form 8-K filed with the SEC on May 27,
2015 (SEC File No. 001-34761) (“May 2015 Form
8-K”)
|
|
|
|
|
|
|
2.3 ‡
|
Agreement and Plan of Merger dated as of October 1, 2015 by and
among Autobytel, New Horizon Acquisition Corp., a Delaware
corporation, AutoWeb, Inc., a Delaware corporation, and José
Vargas, which is incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K filed with the SEC on October 6, 2015
(SEC File No. 001-34761) (“October 2015
Form 8-K”)
|
|
|
|
|
|
|
2.4‡
|
Asset Purchase and Sale Agreement dated as of December 19, 2016 by
and among Autobytel, Car.com, Inc., a Delaware corporation, and
Internet Brands, Inc., a Delaware corporation, incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K filed
with the SEC on December 21, 2016 (SEC File No. 001-34761)
(“December 2016 Form
8-K”)
|
|
|
|
|
|
|
3.1
|
Fifth Amended and Restated Certificate of Incorporation of
Autobytel (formerly Autobytel.com Inc.) certified by the Secretary
of State of Delaware (filed December 14, 1998), as amended by
Certificate of Amendment dated March 1, 1999, Second Certificate of
Amendment of the Fifth Amended and Restated Certificate of
Incorporation of Autobytel dated July 22, 1999, Third Certificate
of Amendment of the Fifth Amended and Restated Certificate of
Incorporation of Autobytel dated August 14, 2001, Certificate of
Designation of Series A Junior Participating Preferred Stock dated
July 30, 2004, and Amended Certificate of Designation of Series A
Junior Participating Preferred Stock dated April 24, 2009, which
are incorporated herein by reference to Exhibit 3.1 to the
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2009 filed with the SEC on April 24, 2009 (SEC File No.
000-22239); Fourth Certificate of Amendment to Fifth Amended and
Restated Certificate of Incorporation of Autobytel dated July 10,
2012, which is incorporated herein by reference to Exhibit 3.1 to
the Current Report on Form 8-K filed with the SEC on July 12, 2012;
and Fifth Certificate of Amendment to Fifth Amended and Restated
Certificate of Incorporation of Autobytel dated July 3, 2013, which
is incorporated herein by reference to Exhibit 3.3 to the Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2013
filed with the SEC on August 1, 2013 (SEC File No. 001-34761); and
Certificate of Designations of Series B Junior Participating
Convertible Preferred Stock of Autobytel dated October 1, 2015,
which is incorporated herein by reference to Exhibit 3.1 to the
October 2015 Form 8-K
|
|
|
|
|
|
|
3.2
|
Fifth Amended and Restated Bylaws of Autobytel dated October 1,
2015, which is incorporated herein by reference to Exhibit 3.2 to
the October 2015 Form 8-K
|
|
|
|
|
|
|
4.1
|
Form of Common Stock Certificate of Autobytel, which is
incorporated herein by reference to Exhibit 4.1 to the Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
2001 filed with the SEC on November 14, 2001 (SEC File No.
000-22239)
|
|
|
|
|
|
|
4.2
|
Tax Benefit Preservation Plan dated as of May 26, 2010 between
Autobytel and Computershare Trust Company, N.A., as rights agent,
together with the following exhibits thereto: Exhibit A –
Form of Right Certificate; and Exhibit B – Summary of Rights
to Purchase Shares of Preferred Stock of Autobytel, which is
incorporated herein by reference to Exhibit 4.1 to the Current
Report on Form 8-K filed with the SEC on June 2, 2010 (SEC File No.
000-22239), as amended by Amendment No. 1 to Tax Benefit
Preservation Plan dated as of April 14, 2014, between Autobytel and
Computershare Trust Company, N.A., as rights agent, which is
incorporated herein by reference to Exhibit 4.1 to the Current
Report on Form 8-K filed with the SEC on April 16, 2014 (SEC File
No. 001-34761)
|
|
|
|
|
|
|
4.3
|
Certificate of Adjustment Under Section 11(m) of the Tax Benefit
Preservation Plan, which is incorporated herein by reference to
Exhibit 4.3 to the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2012 filed with the SEC on November 8,
2012 (SEC File No. 001-34761)
|
|
|
|
|
|
|
10.1■
|
Autobytel.com Inc. 1998 Stock Option Plan, which is incorporated
herein by reference to Exhibit 10.8 to Amendment No. 1 to S-1
Registration Statement, as amended by Amendment No. 1 dated
September 22, 1999, which is incorporated herein by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1999 filed with the SEC on November 12,
1999 (SEC File No. 000-22239) and Amendment No. 2 dated December 5, 2001, which is
incorporated herein by reference to Exhibit (d)(5) to Schedule TO
filed with the SEC on December 14, 2001 (SEC File No. 005-58067)
(“Schedule TO”); and Form of Stock Option
Agreement pursuant to Autobytel.com Inc. 1998 Stock Option Plan,
which is incorporated herein by reference to Exhibit (d)(14) to the
Schedule TO
|
|
F-29
|
|
|
|
|
10.2■
|
Autobytel.com Inc. 1999 Stock Option Plan, which is incorporated
herein by reference to Exhibit 10.30 to Amendment No. 1 to S-1
Registration Statement, as amended by Amendment No. 1 dated
September 22, 1999, which is incorporated herein by reference to
Exhibit 10.1 to Form 10-Q for the quarterly period ended September
30, 1999 filed with the SEC on November 12, 1999 (SEC
File No. 000-22239); and Amendment No. 2 to the
Autobytel.com Inc. 1999 Stock Option Plan, which is incorporated
herein by reference to Exhibit (d)(8) to the Schedule TO; Form of
Stock Option Agreement pursuant to Autobytel.com Inc. 1999 Stock
Option Plan, which is incorporated
herein by reference to Exhibit (d)(15) to the Schedule TO; Form of
Performance Stock Option Agreement pursuant to Autobytel.com Inc.
1999 Stock Option Plan, which is incorporated herein by reference
to Exhibit (d)(18) to the Schedule TO; and Form of Outside
Director Stock Option Agreement pursuant to the Autobytel.com Inc.
1999 Stock Option Plan, which is incorporated herein by reference
to Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on November 3, 2004 (SEC File No. 000-22239)
(“November 2004 Form
8-K”)
|
|
|
|
|
|
|
10.3■
|
Autobytel.com Inc. 1999 Employee and Acquisition Related Stock
Option Plan, which is incorporated herein by reference to Exhibit
10.1 to the Registration Statement on Form S-8 filed
with the SEC on November 1, 1999 (SEC File No.
333-90045), as amended by Amendment No. 1 to the
Autobytel.com Inc. 1999 Employee and Acquisition Related Stock
Option Plan, which is incorporated herein by reference to Exhibit
(d)(10) to the Schedule TO and
Amendment No. 2 to the Autobytel.com Inc. 1999 Employee and
Acquisition Related Stock Option Plan dated May 1, 2009, which is
incorporated herein by reference to Exhibit 10.86 to the Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2009
filed with the SEC on July 24, 2009 (SEC File No. 000-22239)
(“Second Quarter 2009 Form
10-Q”); and Form
of Stock Option Agreement pursuant to Autobytel.com Inc. 1999
Employee and Acquisition Related Stock Option Plan, which is
incorporated herein by reference to Exhibit (d)(16) to the Schedule
TO
|
|
|
|
|
|
|
10.4■
|
Form of Employee Stock Option Agreement pursuant to the
Autobytel.com Inc. 1998 Stock Option Plan, the Autobytel.com
Inc. 1999 Employee and Acquisition Related Stock Option Plan and
the Autobytel.com Inc. 1999 Stock Option Plan, which is incorporated herein by reference to
Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC
on October 3, 2008 (SEC File No. 000-22239)
(“October 2008 Form
8-K”)
|
|
|
|
|
|
|
10.5■
|
Autobytel.com Inc. 2000 Stock Option Plan, which is incorporated
herein by reference to Exhibit 99.1 to the Registration Statement
on Form S-8 filed with the SEC on June 15, 2000 (SEC File No.
333-39396), as amended by Amendment No. 1 to the
Autobytel.com Inc. 2000 Stock Option Plan, which is incorporated
herein by reference to Exhibit (d)(12) to the Schedule
TO, Amendment No. 2 to the
Autobytel.com Inc. 2000 Stock Option Plan, which is incorporated
herein by reference to Exhibit 10.46 to the Annual Report on Form
10-K for the Year Ended December 31, 2001 filed with the SEC on
March 22, 2002 (SEC File No. 000-22239) and Amendment No. 3
to the Autobytel.com Inc. 2000 Stock Option Plan dated May 1, 2009,
which is incorporated herein by reference to Exhibit 10.87 to the
Second Quarter 2009 Form 10-Q; and Form of Stock Option Agreement
pursuant to Autobytel.com Inc. 2000
Stock Option Plan, which is incorporated herein by reference to
Exhibit (d)(17) to the Schedule TO
|
|
|
|
|
|
|
10.6■
|
Autobytel Inc. Amended and Restated 2001 Restricted Stock and
Option Plan, which is incorporated herein by reference to Exhibit
4.7 to the Post-Effective Amendment to Registration Statement on
Form S-8 filed with the SEC on July 31, 2003 (SEC
File No. 333-67692), as amended by Amendment No. 1 to the
Autobytel Inc. Amended and Restated 2001 Restricted Stock and
Option Plan dated May 1, 2009, which is incorporated herein by
reference to Exhibit 10.88 to the Second Quarter 2009 Form 10-Q;
and Form of Restricted Stock Award
Agreement under the Autobytel Inc. Amended and Restated 2001
Restricted Stock and Option Plan, which is incorporated herein by
reference to Exhibit 10.1 to the October 2008 Form 8-K (SEC File
No. 000-22239)
|
|
|
|
|
|
|
10.7■
|
Form of Employee Stock Option Agreement under the Autobytel Inc.
Amended and Restated 2001 Restricted Stock and Option Plan, which
is incorporated herein by reference to Exhibit 10.8 to the Annual
Report on Form 10-K for the Year Ended December 31, 2014 filed with
the SEC on February 26, 2015 (SEC File No. 001-34761)
|
|
|
|
|
|
|
10.8■
|
Autobytel Inc. 2004 Restricted Stock and Option Plan, which is
incorporated herein by reference to Exhibit 4.8 to the Registration
Statement on Form S-8 filed with the SEC on June 28, 2004 (SEC
File No. 333-116930) (“2004 Form
S-8”), as amended
by Amendment No. 1 to the Autobytel Inc. 2004 Restricted Stock and
Option Plan dated May 1, 2009, which is incorporated herein by
reference to Exhibit 10.89 to the Second Quarter 2009 Form 10-Q;
Form of Employee Stock Option
Agreement pursuant to the Autobytel Inc. 2004 Restricted Stock and
Option Plan, which is incorporated herein by reference to Exhibit
4.9 to the 2004 Form S-8; Form of Outside Director Stock
Option Agreement pursuant to the Autobytel Inc. 2004 Restricted
Stock and Option Plan, which is incorporated herein by reference to
Exhibit 10.2 to the November 2004 Form 8-K; Form of Stock Option
Agreement pursuant to the Autobytel Inc. 2004 Restricted Stock and
Option Plan, which is incorporated herein by reference to Exhibit
10.65 to the Annual Report on Form 10-K for the Year Ended December
31, 2004 filed with the SEC on May 31, 2005 (SEC File No.
000-22239); Form of Outside Director Stock Option Agreement
pursuant to the 2004 Restricted Stock and Option Plan, which is
incorporated herein by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the SEC on September 14, 2005 (SEC
File No. 000-22239) (“September 2005 Form 8-K”);
and Form of Letter Agreement (amending
certain stock option agreements with Outside Directors), which is
incorporated herein by reference to Exhibit 10.2 to the September
2005 Form 8-K
|
|
F-30
|
|
|
|
|
10.9■
|
Autobytel Inc. 2006 Inducement Stock Option Plan, which is
incorporated herein by reference to Exhibit 4.9 to the Registration
Statement on Form S-8 filed with the SEC on June 16, 2006
(SEC File No. 333-135076) (“2006 Form S-8”), as amended by
Amendment No. 1 to the Autobytel Inc. 2006 Inducement Stock Option
Plan dated May 1, 2009, which is incorporated herein by reference
to Exhibit 10.90 to the Second Quarter 2009 Form 10-Q; and Form of
Employee Inducement Stock Option Agreement, which is incorporated
herein by reference to Exhibit 4.10 to the 2006 Form
S-8
|
|
|
|
|
|
|
10.10■
|
Autobytel Inc. 2010 Equity Incentive Plan, which is incorporated
herein by reference to Exhibit 10.2 to the Current Report on Form
8-K filed with the SEC on June 25, 2010 (SEC File No.
001-34761); Form of Employee Stock Option Award Agreement
pursuant to the Autobytel Inc. 2010 Equity Incentive Plan, which is
incorporated herein by reference to Exhibit 10.58 to the Annual
Report on Form 10-K for the Year Ended December 31, 2011 filed with
the SEC on March 1, 2012 (SEC File No. 001-34761)
(“2011 Form
10-K”); Form of 2013 Performance-Based Stock Option
Award Agreement pursuant to the Autobytel Inc. 2010 Equity
Incentive Plan, which is incorporated herein by reference to
Exhibit 10.79 to the Annual Report on Form 10-K for the Year Ended
December 31, 2012 filed with the SEC on February 28, 2013 (SEC File
No. 001-34761) (“2012 Form
10-K”); Form of 2012 Performance-Based Stock Option
Award Agreement pursuant to the Autobytel Inc. 2010 Equity
Incentive Plan, which is incorporated herein by reference to
Exhibit 10.59 to the 2011 Form 10-K; Form of Non-Employee Director
Stock Option Award Agreement pursuant to the Autobytel Inc. 2010
Equity Incentive Plan, which is incorporated herein by reference to
Exhibit 10.60 to the 2011 Form 10-K; and Form of (Management)
Employee Stock Option Award Agreement pursuant to the Autobytel
Inc. 2010 Equity Incentive Plan, which is incorporated herein by
reference to Exhibit 10.61 to the 2011 Form 10-K
|
|
|
|
|
|
|
10.11■
|
Autobytel Inc. 2014 Equity Incentive Plan, which is incorporated
herein by reference to Exhibit 10.1 to the Current Report on Form
8-K filed with the SEC on June 23, 2014 (SEC File No. 001-34761),
as amended and restated by the Autobytel Inc. Amended and Restated
2014 Equity Incentive Plan, which is incorporated herein by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed
with the SEC on June 23, 2016 (SEC File No. 001-34761); and
Form of Stock Option Award Agreement pursuant to the Autobytel Inc.
Amended and Restated 2014 Equity Incentive Plan, which is
incorporated herein by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2016
filed with the SEC on August 4, 2016 (SEC File No.
001-34761)
|
|
|
|
|
|
|
10.12■
|
Letter Agreement dated October 10, 2006 between Autobytel and Glenn
E. Fuller, as amended by Memorandum dated April 18, 2008,
Memorandum dated as of December 8, 2008, and Memorandum dated as of
March 1, 2009, which are incorporated herein by reference to
Exhibit 10.77 to the Annual Report on Form 10-K for the Year Ended
December 31, 2008 filed with the SEC on March 13, 2009 (SEC File
No. 000-22239) (“2008 Form
10-K”)
|
|
|
|
|
|
|
10.13■*
|
Memorandum dated January 31, 2017, amending Letter Agreement dated
October 10, 2006 between Autobytel and Glenn E.
Fuller
|
|
|
|
|
|
|
10.14■
|
Amended and Restated Severance Agreement dated as of September 29,
2008 between Autobytel and Glenn E. Fuller, which is incorporated
herein by reference to Exhibit 10.4 to the October 2008 Form
8-K, as amended by Amendment No. 1 dated December 14, 2012,
which is incorporated herein by reference to Exhibit 10.73 to the
2012 Form 10-K
|
|
|
|
|
|
|
10.15■
|
Letter Agreement dated August 6, 2004 between Autobytel and Wesley
Ozima, as amended by Memorandum dated March 1, 2009, which
are incorporated herein by reference to Exhibit 10.81 to the 2008
Form 10-K
|
|
|
|
|
|
|
10.16 ■*
|
Memorandums dated January 22, 2016 and January 31, 2017, amending
Letter Agreement dated August 6, 2004 between Autobytel and Wesley
Ozima
|
|
|
|
|
|
|
10.17■
|
Amended and Restated Severance Agreement dated as of
November 15, 2008 between Autobytel and Wesley Ozima, which is
incorporated herein by reference to Exhibit 10.82 to the 2008 Form
10-K, as amended by Amendment No. 1 dated October 16, 2012,
which is incorporated herein by reference to Exhibit 10.74 to the
2012 Form 10-K
|
|
|
|
|
|
|
10.18■
|
Autobytel Inc. 2000 Stock Option Plan, Stock Option Award Agreement
dated effective as of April 3, 2009 between Autobytel and Jeffrey
H. Coats, which is incorporated herein by reference to
Exhibit 10.92
to the Second Quarter 2009 Form
10-Q
|
|
F-31
|
|
|
|
|
10.19■
|
Autobytel Inc. Amended and Restated 2001 Restricted Stock and
Option Plan, Stock Option Award Agreement dated effective as of
April 3, 2009 between Autobytel and Jeffrey H. Coats, which is
incorporated herein by reference to Exhibit 10.93
to the Second Quarter 2009 Form
10-Q
|
|
|
|
|
|
|
10.20■
|
Autobytel Inc. 2004 Restricted Stock and Option Plan, Stock Option
Award Agreement dated effective as of April 3, 2009 between
Autobytel and Jeffrey H. Coats, which is incorporated herein by
reference to Exhibit 10.94 to
the Second Quarter 2009 Form 10-Q
|
|
|
|
|
|
|
10.21■
|
Second
Amended and Restated Employment Agreement dated as of April 3, 2014
between Autobytel and Jeffrey H. Coats, which is incorporated by
reference to Exhibit 99.1 to the Current Report on Form 8-K filed
with the SEC on April 8, 2014 (SEC File No. 001-34761), as amended
by Amendment No. 1 dated January 21, 2016, incorporated by
reference to Exhibit 10.1 to the
Current Report on Form 8-K filed with the SEC January 27, 2016 (SEC
File No. 001-34761) (“January 2016 Form
8-K”); and as amended by
Amendment No. 2 dated September 21, 2016, which is incorporated
herein by reference to Exhibit 10.3 to the Form 8-K filed with the
SEC on September 26, 2016 (SEC File No. 001-34761)
(“September 2016 Form
8-K”)
|
|
|
|
|
|
|
10.22■
|
Autobytel Inc. Amended and Restated 2014 Equity Incentive Plan,
Employee Stock Option Award Agreement dated as of January 21, 2016
between Autobytel and Jeffrey H. Coats, which is incorporated
herein by reference to Exhibit 10.2 to the January 2016 Form 8-K
|
|
|
|
|
|
|
10.23■
|
Autobytel Inc. Amended and Restated 2014 Equity Incentive Plan,
Employee Stock Option Award Agreement dated as of January 21, 2016
between Autobytel and Jeffrey H. Coats, which is incorporated
herein by reference to Exhibit 10.3 to the January 2016 Form 8-K
|
|
|
|
|
|
|
10.24■
|
Form of Amended and Restated Indemnification Agreement between
Autobytel and its directors and officers, which is incorporated
herein by reference to Exhibit 99.1 to the Current Report on Form
8-K filed with the SEC on July 22, 2010 (SEC File No.
001-34761)
|
|
|
|
|
|
|
10.25■
|
Form of Indemnification Agreement between Autobytel and its
directors and officers, incorporated herein by reference to Exhibit
10.24 to the Annual Report on Form 10-K for the Year Ended December
31, 2015 filed with the SEC on March 10, 2016 (SEC File No.
001-34761) (“2015 Form
10-K”)
|
|
|
|
|
|
|
10.26■
|
Letter
Agreement dated March 9, 2010 between Autobytel and Kimberly Boren,
as amended by Memorandum dated December 21, 2010 and Memorandum
dated as of December 1, 2011, which is incorporated herein by
reference to Exhibit 10.73 to the 2011 Form 10-K, as amended by
Memorandum dated September 21, 2016, which is incorporated herein
by reference to Exhibit 10.4 to the September 2016 Form
8-K
|
|
|
|
|
|
|
10.27■
|
Amended and Restated Severance Benefits Agreement dated as of
February 25, 2011 between Autobytel and Kimberly Boren, which is
incorporated herein by reference to Exhibit 10.74 to the 2011 Form
10-K, as amended by Amendment No. 1 dated November 14, 2012,
which is incorporated herein by reference to Exhibit 10.70 to the
2012 Form 10-K
|
|
|
|
|
|
|
10.28■
|
Letter Agreement dated May 21, 2007 between Autobytel and John
Steerman, as amended by Memorandum dated March 20, 2009, Memorandum
dated September 30, 2009 and Memorandum dated December 1, 2011,
which are incorporated herein by reference to Exhibit 10.77 to the
2011 Form 10-K
|
|
|
|
|
|
|
10.29■*
|
Memorandum dated January 22, 2016, amending Letter Agreement dated
May 21, 2007 between Autobytel and John Steerman
|
|
|
|
|
|
|
10.30■
|
Severance Agreement dated as of October 1, 2009 between Autobytel
and John Steerman, which is incorporated herein by reference to
Exhibit 10.78 to the 2011 Form 10-K, as amended by Amendment No. 1
dated September 19, 2012, which is incorporated herein by reference
to Exhibit 10.75 to the 2012 Form 10-K, and Amendment No. 2 dated
November 7, 2012, which is incorporated herein by reference to
Exhibit 10.76 to the 2012 Form 10-K
|
|
|
|
|
|
|
10.31‡
|
Transitional
License and Linking Agreement, made as of January 1, 2017, by and
among Internet Brands, Inc., a Delaware corporation, Car.com, Inc.,
a Delaware corporation, and Autobytel, which is incorporated herein
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
January 6, 2017 (SEC File No. 001-34761)
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F-32
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10.32
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Lease Agreement dated April 6, 1997 between The Provider Fund
Partners, The Colton Company (n/k/a: GFE MacArthur Investments,
LLC, as successor-in-interest to The Provider Fund Partners, The
Colton Company) and Autobytel (“Irvine Lease”), as amended by Amendment No. 12 to Irvine
Lease dated February 6, 2009, Amendment No. 13 to Irvine Lease
dated March 5, 2009, and Amendment No. 14 to Irvine Lease dated
November 29, 2010, which are incorporated herein by reference to
Exhibit 10.79 to the 2011 Form 10-K, Amendment No. 15 to Irvine
Lease dated October 31, 2012, which is incorporated herein by
reference to Exhibit 10.69 to the 2012 Form 10-K, and as amended by
Amendment No. 16 dated August 7, 2015, which is incorporated herein
by reference to Exhibit 10.32 to the 2015 Form
10-K
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10.33*
|
Contract for Lease and Deposit dated June 1, 2016 between AW GUA,
Limitada, and Mertech, Sociedad Anonima, for office No.
1101
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10.34*
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Contract for Lease and Deposit dated June 1, 2016 between AW GUA,
Limitada, and Mertech, Sociedad Anonima, for office No.
1102
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10.35*
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Office Lease dated December 9, 2015 between Rivergate Tower Owner,
LLC, a Delaware limited liability company, and Autobytel, as
amended by the First Amendment of Lease dated November 21,
2016
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10.36
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Convertible Subordinated Promissory Note dated as of January 13,
2014 (Principal Amount $1,000,000.00) issued by Autobytel to
AutoNationDirect.com, Inc., a Delaware corporation, which is
incorporated herein by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the SEC January 17, 2014 (SEC File
No. 001-34761) (“January 2014 Form
8-K”)
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10.37
|
Warrant to Purchase 69,930 Shares of Autobytel Common Stock dated
as of January 13, 2014 issued by Autobytel to AutoNationDirect.com,
Inc., a Delaware corporation, which is incorporated herein by
reference to Exhibit 10.2 to the January 2014 Form 8-K
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10.38
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Shareholder Registration Rights Agreement dated as of January 13,
2014 by and between Autobytel and AutoNationDirect.com, Inc., a
Delaware corporation, which is incorporated herein by reference to
Exhibit 10.3 to the January 2014 Form 8-K
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10.39
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Form of Warrant to Purchase Series B Junior Participating
Convertible Preferred Stock dated as of October 1, 2015 issued by
Autobytel to the persons listed on Schedule A thereto, which is
incorporated herein by reference to Exhibit 10.1 to the October
2015 Form 8-K
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10.40
|
Amended and Restated Stockholder Agreement dated as of October 1,
2015 by and among Autobytel, Auto Holdings Ltd., a British Virgin
Islands business company, Manatee Ventures Inc., a British Virgin
Islands business company, Galeb3 Inc., a Florida
corporation, Matías de Tezanos, and José Vargas, and the
other parties set forth on the signature pages thereto, which is
incorporated herein by reference to Exhibit 10.2 to the October
2015 Form 8-K, as amended by Second Amended and Restated
Stockholder Agreement dated as of October 19, 2016, which is
incorporated herein by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the SEC on October 21, 2016 (SEC File
No. 001-34761) (“October 2016 Form
8-K”), as amended by
Third Amended and Restated Stockholder Agreement dated as of
November 30, 2016, which is incorporated herein by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC
on December 2, 2016, and as amended by Fourth Amended and Restated
Stockholder Agreement dated as of March 1, 2017, which is
incorporated herein by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the SEC on March 2, 2017 (SEC File
No. 001-34761)
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10.41
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Autobytel Inc. Amended and Restated 2014 Equity Incentive Plan,
Stock Option Award Agreement dated as of September 21, 2016 between
Autobytel and José Vargas, which is incorporated herein by
reference to Exhibit 10.2 to the October 2016 Form 8-K
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10.42■
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Employment Offer Letter dated February 23, 2016 between Autobytel
and José Vargas, incorporated by reference to Exhibit 10.54 to
the 2015 Form 10-K
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10.43■
|
Restricted Stock Award Agreement dated as of April 23, 2015 between
Autobytel and William Ferriolo pursuant to Autobytel Inc. 2014
Equity Incentive Plan, which is incorporated herein by reference to
Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC
on April 29, 2015 (SEC File No. 001-34761)
(“April 2015 Form
8-K”)
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10.44■
|
Restricted Stock Award Agreement dated as of April 23, 2015 between
Autobytel and William Ferriolo pursuant to Autobytel Inc. 2014
Equity Incentive Plan, which is incorporated herein by reference to
Exhibit 10.4 to the April 2015 Form 8-K
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F-33
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10.45■
|
Amended and Restated Letter Agreement dated as of April 23, 2015
between Autobytel and William Ferriolo, incorporated by reference
to Exhibit 10.5 to the April 2015 Form 8-K, as amended by Amendment
No. 1 dated January 22, 2016, incorporated by reference to Exhibit
10.4 to the January 2016 Form 8-K and, as amended by Amendment No.
2 dated December 15, 2016, which is incorporated herein by
reference to Exhibit 10.1 to the December 2016 Form
8-K
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10.46■
|
Severance Benefits Agreement dated as of September 17, 2010 between
Autobytel and William Ferriolo, which is incorporated herein by
reference to Exhibit 10.76 to the 2011 Form 10-K, as amended by
Amendment No. 1 dated November 30, 2012, which is incorporated
herein by reference to Exhibit 10.77 to the 2012 Form
10-K
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10.47■*
|
Employment Offer Letter Agreement dated September 17, 2010 between
Autobytel and Ralph Smith, as amended by Memorandum dated January
1, 2013, Memorandum dated July 1, 2013, and Memorandum dated
January 28, 2016
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10.48■*
|
Amended and Restated Severance Benefits Agreement dated July 1,
2013 between Autobytel and Ralph Smith
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10.49■*
|
Employment Offer Letter dated February 14, 2014 between Autobytel
and Taren Peng, as amended by Memorandum dated January 31,
2017
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10.50■*
|
Severance Benefits Agreement dated August 25, 2014 between
Autobytel and Taren Peng
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10.51■*
|
Amended and Restated Letter Agreement dated April 24, 2013 between
Autobytel and John Skocilic Jr., as amended by Memorandum dated
January 22, 2016 and Memorandum dated January 31, 2017
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10.52■
|
Amended and Restated Severance Benefits Agreement dated May 1, 2013
between Autobytel and John Skocilic Jr., which is incorporated
herein by reference to Exhibit 10.49 to the 2015 Form
10-K
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21.1*
|
Subsidiaries of Autobytel Inc.
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23.1*
|
Consent of Independent Registered Public Accounting Firm, Moss
Adams LLP
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24.1*
|
Power of Attorney (included in the signature page
hereto)
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31.1*
|
Chief Executive Officer Section 302 Certification of Periodic
Report dated March 9, 2017
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31.2*
|
Chief Financial Officer Section 302 Certification of Periodic
Report dated March 9, 2017
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32.1*
|
Chief Executive Officer and Chief Financial Officer Section 906
Certification of Periodic Report dated March 9, 2017
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101.INS††
|
XBRL
Instance Document
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101.SCH††
|
XBRL
Taxonomy Extension Schema Document
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101.CAL††
|
XBRL
Taxonomy Calculation Linkbase Document
|
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101.DEF††
|
XBRL
Taxonomy Extension Definition Document
|
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101.LAB††
|
XBRL
Taxonomy Label Linkbase Document
|
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101.PRE††
|
XBRL
Taxonomy Presentation Linkbase Document
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*
|
Filed
herewith.
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■
|
Management Contract or
Compensatory Plan or Arrangement.
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‡
|
Certain schedules in this Exhibit have been
omitted in accordance with Item 601(b)(2) of Regulation
S-K. Autobytel Inc. will furnish supplementally a copy
of any omitted schedule or exhibit to the Securities and Exchange
Commission upon request; provided, however, that Autobytel Inc. may
request confidential treatment pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended, for any schedule or
exhibit so furnished.
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††
|
Furnished with this
report. In accordance with Rule 406T of Regulation S-T,
the information in these exhibits shall not be deemed to be
“filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or otherwise subject to liability
under that section, and shall not be incorporated by reference into
any registration statement or other document filed under the
Securities Act of 1933, as amended, except as expressly set forth
by specific reference in such filing.
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F-34