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, 2020
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
AutoWeb, 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 or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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400 North Ashley Drive, Suite 300
Tampa, Florida 33602
(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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Trading Symbol
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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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AUTO
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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 every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T
(§232.405
of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company,” and
“emerging growth 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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Emerging growth company☐
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If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant has
filed a report on and attestation to its management’s
assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act
(15 U.S.C. 7262(b)) by registered public accounting firm that
prepared or issued its audit report.
Yes ☐ No ☒
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 $1.29 for our common stock on The
Nasdaq Capital Market on June 30, 2020, the aggregate market
value of outstanding shares of common stock held by non-affiliates
was approximately $11 million.
As
of March 8, 2021, there were 13,169,204 shares of our common stock
outstanding.
Documents Incorporated by Reference
Portions of our Definitive Proxy Statement for the 2021 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.
AutoWeb, Inc.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
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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
AutoWeb, Inc. was incorporated on May 17, 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 “AutoWeb” refer to AutoWeb, Inc. and its
subsidiaries.
Available Information
Our corporate website is located at
www.autoweb.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 our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and other filings with the SEC.
Overview
We are
a digital marketing company for the automotive industry 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 and traffic referrals, Dealer marketing products and services,
online advertising and mobile products.
Our
consumer-facing automotive websites (“Company Websites”) 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”). 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”). Our click
traffic referral program provides consumers who are shopping for
vehicles online with targeted offers based on make, model and
geographic location. As these consumers conduct online research on
our Company 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.
Products and Services
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. The click traffic 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 click traffic program. In addition to our Leads and click
traffic programs, we also offer Dealers and Manufacturers other
products and services, including WebLeads+ and Payment
Pro®,
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 and Manufacturers participate in our
Lead programs, display advertising programs and direct marketing
programs, reaching consumers who are in the market to acquire a
vehicle. For consumers, we provide, at no cost to the consumer, an
easy way to obtain useful 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 Leads Program. Our Leads program for new vehicles allows
consumers to submit requests for pricing and availability of
specific makes and models. A new vehicle Lead provides a
Dealer with information regarding the make and model of a vehicle
in which the consumer is interested and the consumer’s name,
email address and/or phone number, and may also include the
consumer’s postal address.
Dealers participating in our new vehicle Leads
program are provided with iControl
®,
our proprietary technology that allows Dealers many options to
filter and control the volume and source of their
Leads. iControl can be controlled at the dealership (or
by a representative of AutoWeb 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
dealerships 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.
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.
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 generation paid by Dealers in our
network. We reserve the right to adjust our fees to 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 approximately 17%, 17% and
18% of total revenues in 2020, 2019 and 2018, respectively.
Revenues from wholesale Leads accounted for approximately 58%, 57%
and 52% of total revenues in 2020, 2019 and 2018,
respectively.
Used Vehicle Leads 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 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 Leads program a monthly
subscription or per Lead fee. Revenues from used vehicle
Leads accounted for 4%, 5% and 7% of total revenues in 2020, 2019
and 2018, respectively.
Other Dealer Products and Services
In
addition to Leads and AutoWeb traffic programs, we also offer
products and services that assist Dealers in connecting with
in-market consumers and closing vehicle sales.
WebLeads+.
Designed to work in connection with a
Dealer’s participation in our Lead programs, WebLeads+ is a
third-party product that 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.
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 evaluation
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 Dealer’s management tool so that
a salesperson can promptly address the consumer’s
inquiry.
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 automotive segments
such as mini-vans or SUVs and offers 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 focused, interested
consumers 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 a third party, the third party sells our fixed
placement advertising across our Company Websites to automotive
advertisers. 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.
Our click traffic program is our
pay-per-click advertising program. The click traffic 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 AutoWeb’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, high-quality traffic that Dealers and other customers
cannot typically reach through their own marketing
efforts. The click traffic program 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 click traffic
program 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 highly targeted marketing opportunities and is a
valuable tool to help Dealers sell more
vehicles.
Advertising
revenues, including direct marketing, accounted for 20%, 20% and
22% of total revenues in 2020, 2019 and 2018,
respectively.
Strategy
Our
goal is to garner a larger and more profitable 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., vehicle acquisition) 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 or 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 search engine optimization
(“SEO”) and search engine marketing
(“SEM”) traffic acquisition activities and
enhancements to our Company Websites. SEO is the practice of
optimizing keywords in website content to drive traffic to a
website through natural search, and SEM is the practice of bidding
on keywords on search engines to drive traffic to a
website
o 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, SEO, SEM, 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.
o 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 as well as adding new and
compelling features for consumers to engage with. 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.
●
Increasing
the conversion rate of visitors to Leads on our Company
Websites. Through
increased and optimized 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 with suppliers of Non-Internally
Generated Leads that consistently provide high-quality
Leads.
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 Dealers. Sales of Leads to our Dealer network
constitute a significant source of our revenues. During
2020, 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. Our
goal is 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 most Manufacturer Lead programs. We intend to
continue to demonstrate the value of third-party leads to
Manufacturers by utilizing close rate and cross sell data that
demonstrate that third-party leads result in incremental sales for
the Manufacturers. Our intention is to increase revenue by
having Manufacturers enhance business rules, program capacity,
pricing and coverage so that each Manufacturer can purchase more of
our Internally Generated Leads.
● Focus
on Internal Traffic Acquisition Processes. We are continuing to focus on prioritizing our
internal traffic acquisition processes, by obtaining higher quality
impressions for both Dealers and wholesale customers, which we
believe would yield increased gross profit margins, as opposed to a
prior focus on raw lead volume.
Continuing to develop the click traffic program for online
automotive advertisers and publishers. Our
click traffic program uses proprietary technology and a
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 click traffic 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.
We believe that Manufacturers and Dealers will see
the measurable 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. In
addition, we believe that the flexibility of our solution combined
with high-quality traffic with automotive purchase intent may allow
us to grow our click advertiser
base as the level of attribution from this product is understood by
advertising partners.
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 a
third party, we benefit from the third party’s
relationships with major automotive Manufacturers and/or the
third party’s advertising agencies by increasing revenues for
our traditional display advertising.
Focus on Mobile Technologies. As
consumers increasingly engage with internet content using mobile
devices, AutoWeb will continue to focus on 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.
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 this 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 enhance 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 and the discussion of “Forward-Looking Statements”
immediately preceding Part I 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. Lead volume is typically highest in
summer (third quarter) and winter (first quarter) months, followed
by spring (second quarter) and fall (fourth quarter) months.
Historical seasonality trends have been and may continue to be
impacted by externalities such as pandemics.
Intellectual Property
Our intellectual property
includes patents 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
AutoWeb®,
AutoWeb.com®,
the global highway logo, Autobytel, Autobytel.com, MyGarage,
iControl®,
TextShield®,
and Payment Pro®.
We cannot provide any assurances that any of our intellectual
property rights 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 digital marketing services 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 2020. 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 compete
based on quality of our Leads and pricing.
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. According to Emarketer
forecasts, the top two digital advertising platforms in the U.S.
are Google and Facebook, which Emarketer expects to maintain their
dominant hold on digital advertising dollars. We also compete with
traditional marketing channels such as print, radio, and
television.
In
pay-per-click advertising, 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. Also, many dealership website providers are now
offering traffic solutions as part of their bundle of
services.
In
addition, some traditional data providers are moving to deliver
personalized digital marketing services at scale. These digital
marketing hubs and data management platforms provide marketers with
standardized access to audience data, content, workflow triggers
and operational analytics to automate execution and optimization of
multichannel campaigns. These services could be used as a source of
lead generation and website traffic by Dealers and Manufacturers
and could replace our existing product offerings.
Customers
We
have a concentration of credit risk with our automotive industry
related accounts receivable balances, particularly with Carat
Detroit (General Motors), Ford Direct, Urban Science Applications
(which represents several Manufacturer programs) and Autodata
Solutions. During 2020, approximately 46% of our total revenues
were derived from these four customers, and approximately 62% or
$8.6 million of gross accounts receivable related to these four
customers at December 31, 2020. Carat Detroit accounted
for 12% and 19% of total revenues and accounts receivable,
respectively, as of December 31, 2020. Ford Direct accounted for
11% and 16% of total revenues and accounts receivable,
respectively, as of December 31, 2020. Urban Science Applications
accounted for 12% and 15% of total revenues and accounts
receivable, respectively, as of December 31, 2020. Autodata
Solutions accounted for 11% and 12% of total revenues and accounts
receivable, respectively, as of December 31, 2020.
Operations and Technology
We
believe that our future success is significantly dependent upon our
ability to provide high-performance, reliable, and comprehensive
websites, advertising systems; enhance consumer and Dealer product
and service offerings; maintain the highest levels of information
privacy; and ensure transactional security. Our Company Websites
and advertising systems are hosted at secure third-party data
center facilities and public cloud providers. These data centers
and public cloud systems utilize redundant power infrastructure,
redundant network connectivity, multiple locations, distributed
services, fire detection and suppression systems and security
systems to prevent unauthorized access and to provide high
availability of their services, upon which our technology is built,
deployed and operated. Our network and computer systems are built
on industry standard technology. However, our websites and
information technology systems are susceptible to outages and
interruptions, such as occurred as a result of a malware attack in
January 2020. For additional information regarding risks related to
our information technology, see Part I, Item 1A “Risk
Factors” of this Annual Report on Form 10-K.
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, and provide cybersecurity
protections against evolving technology threats. System
enhancements entail the implementation of sophisticated new
technology and system processes. We implement industry standard
automation and delivery processes and employ centralized quality
assurance to improve the quality, scalability, security,
compliance, and availability of our products. 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 digital marketing services, 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 8, 2021, we had 149 employees.
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.
Risks Associated with our Business Operations and
Industry
We may be unable to increase Lead revenues and could continue to
suffer declining revenues due to Dealer attrition.
We
predominately derive our Lead revenues from Lead generation paid by
Dealers and Manufacturers participating in our Lead programs. Our
Lead generation decreased $29.6 million, or 33%, in 2020 compared
to 2019. Our ability to increase revenues from sales of Leads is
dependent on a mix of interrelated factors that include increasing
Lead revenues by attracting and retaining Dealers and Manufacturers
and increasing the number of high-quality Leads we sell to Dealers
and Manufacturers. 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 will decrease. We cannot provide
any assurances that we will be able to increase Lead generation
revenues, prevent Dealer attrition or 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 suppliers 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.
Many of these competitors are larger than us and 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 affected.
We depend on Manufacturers, through our third-party sales channel
and direct-to-Manufacturer wholesale programs, for a significant
amount of our revenues, and we may not be able to maintain or grow
these relationships.
We
depend on Manufacturers, through our third-party sales channel and
direct-to-Manufacturer wholesale programs for a significant amount
of our 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 wholesale program revenues in future periods. A
number of our third-party sales channel agreements and Manufacturer
agreements may be terminated at any time without cause or upon
expiration of the current term of the agreement. We may not be able
to maintain our relationships with sales channel third parties or
Manufacturers on favorable terms or find alternative comparable
relationships capable of replacing revenues on terms satisfactory
to us. If we cannot do so, our revenues would decline, which could
have a material adverse effect on our financial
performance.
Our financial performance could be materially and adversely
affected by changes in internet search engine algorithms, pricing
or operational 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. Our ability to continue
to use Google could be impacted as a result of the Company’s
credit position. Our financial performance would be materially and
adversely affected if we were no longer able to use Google for
generation of traffic to our websites.
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:
●
Pricing and
purchase incentives for vehicles;
●
Availability and terms of automotive
financing;
●
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
consumer referral industry;
●
The
effect of changes in transportation policy, including the potential
increase of public transportation options;
●
The
effect of fewer vehicles being purchased as a result of new
business models and changes in consumer attitudes regarding the
need for vehicle ownership;
●
Disruption
in the automotive manufacturing and parts supply chains caused by
natural disasters, epidemics and pandemics, adverse weather,
incidents of civil unrest and other events may affect the supply of
vehicle and parts inventories to Manufacturer’s and Dealers;
and
●
The
impact of high unemployment on the willingness or ability of
consumers to acquire new or used vehicles.
Natural disasters, public health crises, political crises and other
catastrophic events or other events outside of our control could
damage our facilities or the facilities of third parties on which
we depend and could impact consumer spending.
If
any of our facilities or the facilities of our third-party service
providers, dealers or partners are affected by natural disasters,
such as earthquakes, tsunamis, wildfires, power shortages, floods,
public health crises (such as pandemics and epidemics), political
crises (such as terrorism, insurrection, war, political instability
or other conflict) or other events outside our control, including a
cyberattack, our critical business or IT systems could be destroyed
or disrupted and our ability to conduct normal business operations,
and our financial performance, could be materially and adversely
affected. Moreover, these types of events could negatively impact
consumer spending in the impacted regions or, depending upon the
severity, globally, which could adversely impact our financial
performance.
In
early 2020 and continuing as of the date of this Annual Report on
Form 10-K, the outbreak of coronavirus has led to quarantines and
stay-at-home/work-from-home orders in a number of countries,
states, cities and regions and the closure or limited access to
public and private offices, businesses and facilities, worldwide,
causing widespread disruptions to travel, economic activity and
financial markets. We are unable to predict the extent and duration
of these disruptions, which could result in a national or global
recession. The pandemic has led our Manufacturer and Dealer
customers to experience disruptions in the (i) supply of vehicle
and parts inventories, (ii) ability and willingness of consumers to
visit automotive dealerships to purchase or lease vehicles, and
(iii) overall health, safety and availability of their labor force.
Manufacturers have also shut down assembly plants, adversely
impacting inventories of new vehicles. Volatility in the financial
markets, concerns about exposure to the virus, governmental
quarantines, stay-at-home/work-from-home orders, business closures
and employment furloughs and layoffs have also impacted consumer
confidence and willingness to visit dealerships and to purchase or
lease vehicles. High unemployment rates and lower consumer
confidence may continue even after stay-at-home/work-from-home
orders and business closures have ended. These disruptions have
impacted the willingness or desire of our customers to acquire
vehicle Leads or other digital marketing services from us. We are
also experiencing direct disruptions in our operations due to the
overall health and safety of, and concerns for, our labor force and
as a result of governmental “social distancing”
programs, quarantines, travel restrictions and
stay-at-home/work-from-home orders, leading to office closures,
operating from employee homes and restrictions on our employees
traveling to our various offices. In April 2020, we implemented a
series of cost actions in response to the coronavirus pandemic,
including reduced executive and board compensation during the
three-months ended June 30, 2020, reduced recruitment, travel,
consulting and business-to-business marketing expenses,
consolidation of various technology tools and products, and limited
employee furloughs and staff reductions. We also started reducing
our overall lead and click generation efforts and corresponding
costs to better align our volumes with industry demand and consumer
intent to purchase a vehicle. We will continue to evaluate these
and other cost reduction measures and explore all options available
to us in order to minimize the impact of the pandemic on
us.
At
this time, the eventual extent and magnitude of the disruptions
caused by the pandemic on the automotive industry in general are
not known, but vehicle sales have declined, and we continue to
experience cancellations or suspensions of purchases of Leads and
other digital marketing services by our customers, which materially
and adversely affects our financial performance.
The
long-and-short-term effects of the pandemic on our business and
financial condition are unknown, difficult to predict and will
depend upon many factors, including the severity and duration of
the pandemic, the duration of existing and future shelter-in-place
and other governmental mandates and guidance, the efficacy and
availability of vaccines and other treatments, the extent to which
new virus strains emerge and spread, and the health of our
employees.
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 executive, 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 highly qualified
executive, managerial, technical, sales and marketing personnel
could have a material adverse effect on our financial
performance.
Our
business and operations are substantially dependent on the
performance of our executive officers and key employees. Each of
these executive officers could 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 financial performance.
Qualified
individuals are in high demand, and we may incur significant costs
to attract and retain them. In order to attract and retain
executives and other key employees in a competitive marketplace, we
must provide competitive compensation packages, including cash and
stock-based compensation. Our primary forms of stock-based
incentive awards are stock options and restricted stock. If the
anticipated value of such stock-based incentive awards does not
materialize, if our stock-based compensation otherwise ceases to be
viewed as a valuable benefit, or if our total compensation package
is not viewed as being competitive, our ability to attract, retain
and motivate executives and key employees could be
weakened.
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. Our financial performance
may be materially and adversely affected by material investments in
technology. 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 evolving 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, our financial performance could be
materially and adversely affected by material investments in
technology in order to keep pace with technological
advances.
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, cyberattacks, terrorist
attacks, technology operations and development failures, failure of
redundant systems and disaster recovery plans and similar events.
Such outages and interruptions could damage our reputation and
materially and adversely impact our financial performance. Despite
our network security measures, our information technology platforms
are vulnerable to computer viruses, worms, physical and electronic
break-ins, sabotage, insider threats 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
have recently conducted evaluations of our technology and business
systems, and based on these evaluations, we believe that our
technology infrastructure, our accounting and business systems and
disaster recovery procedures are in need of upgrades and
replacements. Failure to implement these updates and upgrades could
result in systems failures, inability to promptly recover from
system failures, and data security risks. We anticipate incurring
significant expenses in upgrading and replacing technology
infrastructure and business systems over the next three years. Our
financial performance may be materially and adversely affected by
material investments in new technology infrastructure and business
systems.
We are dependent upon third parties for certain support services
and should they fail to perform, our financial performance could be
materially and adversely affected.
We rely
on various third parties from which we acquire Leads, clicks, or
consumer traffic for resale to our customers and to provide certain
support services. Should a third party fail to perform or perform
adequately, our financial performance could be materially and
adversely affected.
We are exposed to risks associated with overseas
operations.
We
currently maintain website, software development and operations in
Guatemala. These overseas operations are subject to many inherent
risks, including but not limited to:
●
Political and
social instability;
●
Exposure to
different business practices and legal standards, particularly with
respect to labor and employment laws and intellectual
property;
●
Continuation of
overseas conflicts and the risk of terrorist attacks and resulting
heightened security;
●
The imposition of
governmental controls and restrictions and unexpected changes in
regulatory requirements;
●
Theft and other
crimes;
●
Nationalization of
business and blocking of cash flows;
●
Changes in taxation
and tariffs;
●
Difficulties in
staffing and managing international operations; and
●
Foreign currency
exchange fluctuations.
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.
We may acquire other businesses, products or technologies, which
could divert our management’s attention from our business,
disrupt our operations and materially and adversely impact our
financial performance.
As part
of our strategy to grow our business, we evaluate whether to
acquire other businesses, products or technologies that we believe
will complement or enhance our existing business rather than develop these internally. The
identification of suitable acquisition candidates can be difficult,
time-consuming and costly, and we may not be able to identify
suitable candidates or to complete identified acquisitions. The
integration of acquisitions requires significant time and
resources, and we may not manage these processes successfully. We
cannot provide any assurances that any completed acquisitions will
be successful.
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 also
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 financial
performance. An announced acquisition transaction may not close
timely or at all, which may cause our financial performance to
differ from expectations in a given period.
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;
●
We
may be required to make substantial investments of resources to
support our acquisitions, which would result in significant ongoing
operating expenses and could divert resources and management
attention from other areas of our business;
●
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 through acquisitions may require
us to expend additional resources to develop products, services and
technology internally;
●
Acquisitions may
lead to litigation that can be costly to defend or settle, even if
no actual liability exists;
●
Integrations of
acquisitions are often complex, time consuming and expensive, and
if acquisitions are not successfully integrated, they could
materially and adversely affect our financial performance. The
challenges involved with integration of acquisitions
include:
o
Diversion of
management attention to assimilating the acquired business from
other business operations and concerns;
o
Integration of the
acquired business’s accounting,
management information, human resources, legal and other
administrative systems into our systems;
o
Difficulties in
assimilating the operations and personnel of an acquired business
into our own business;
o
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;
o
Consolidating and
rationalizing corporate IT infrastructure, which may include
multiple legacy systems from various acquisitions and integrating
software code and business processes;
o
Persuading
employees that business cultures are compatible, maintaining
employee morale, retaining key employees and integrating employees
into the Company;
o
Coordinating and
combining administrative, manufacturing, technology, research and
development, sales and marketing and other operations,
subsidiaries, facilities and relationships;
o
Transition
of the acquired business’s users to our websites and mobile
applications;
o
Transition
of customers to our products and services and our
contracts;
o
Risks
associated with the businesses, products or technologies we
acquired, which may differ from or be more significant than the
risks our business faces;
o
Liability
for the activities, products or services of the business we
acquired, including patent and trademark infringement claims,
violations of laws, commercial disputes, tax liabilities and other
known and unknown liabilities;
o
Litigation
or other claims in connection with the business, product or
technology we acquired, including claims from terminated employees,
consumers, former stockholders or other third parties;
and
o
The
need to implement or improve controls, procedures and policies at a
business that prior to the acquisition may have lacked effective
controls, procedures and policies.
Financial, Accounting and Liquidity Risks
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 and accounts
receivable. Cash and cash equivalents are primarily maintained with
one financial institution 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 Carat Detroit (General Motors), Ford Direct,
Urban Science Applications (which represents several Manufacturer
programs) and Autodata Solutions. During
2020, approximately 46% of our total revenues were derived from
these four customers, and approximately 62% or $8.6 million of
gross accounts receivable related to these four customers at
December 31, 2020. 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.
If we are unable to generate positive cash flows, we may not be
able to continue operations unless we are able to obtain additional
cash through private or public sales of securities, debt financings
or partnering/licensing transactions.
As of December 31, 2020, we had cash and cash
equivalents of $10.8 million and restricted cash of $4.3 million.
For the year ended December 31, 2020, we had a net loss of $6.8
million and had net cash provided by operations of $1.9 million. As
of December 31, 2020, we had an accumulated deficit of $349.8
million and stockholders’ equity of $16.3 million. Although
we have developed a strategic plan with the objective to achieve
cash generation as a business, if we are unsuccessful in achieving
this objective, we may need to seek to satisfy our future cash
needs through private or public sales of securities, debt
financings or partnering/licensing transactions; however, there is
no assurance that we will be successful in satisfying our future
cash needs such that we will be able to continue operations.
If we continue to experience losses and cannot comply with the
covenants in the CNC Credit Agreement or if our borrowing base
limits are diminished, we may not be able to borrow sufficient
funds under CNC Credit Agreement to satisfy our future cash
needs.
If we are unable to obtain adequate financing or financing on terms
satisfactory to us, when we require it, our ability to continue to
implement new strategic plans, modernize and upgrade our technology
and systems, pursue business objectives and respond to business
opportunities, challenges or unforeseen circumstances could be
significantly limited, and our financial performance could be
materially and adversely affected.
Our
future capital requirements will depend on many factors, including
but not limited to, implementing new strategic plans, modernizing
and upgrading our technology and systems, pursuing business
objectives and responding to business opportunities, challenges or
unforeseen circumstances, developing new or improving existing
products or services, enhancing our operating infrastructure and
acquiring complementary businesses and technologies. In addition,
if we continue to experience losses and cannot comply with
covenants in the CNC Credit Agreement or if our borrowing base
limits are diminished, we may be unable to borrow sufficient funds
under the CNC Credit Agreement to satisfy our future cash needs.
Although we have developed a strategic plan with the objective to
achieve cash generation as a business, if our plans are
unsuccessful, we may need to seek to satisfy our future cash needs
through private or public sales of securities, debt financings or
partnering/licensing transactions; however, there is no assurance
that we will be successful in satisfying our future cash needs such
that we will be able to continue operations.
We
will require additional capital to implement new strategic plans,
modernize and upgrade our technology and systems, pursue business
objectives and respond to business opportunities, challenges or
unforeseen circumstances, including to develop new products or
services, improve existing products and services, enhance our
operating infrastructure and acquire complementary businesses and
technologies. As a result, we may need to engage in equity or debt
financings to secure additional funds. There can be no assurance
that additional funds will be available when needed from any source
or, if available, will be available on terms that are acceptable to
us. If capital is not available to us, or is not available to us on
favorable terms, our financial performance could be materially and
adversely affected.
The
CNC Credit Agreement contains restrictive covenants that may make
it more difficult for us to obtain additional capital, as could any
additional debt financing that we may secure in the future that
could involve additional restrictive covenants. Volatility in the
credit markets may also have an adverse effect on our ability to
obtain debt financing. If we raise additional funds through further
issuances of equity or convertible debt securities, our existing
stockholders could suffer significant dilution, and any new equity
securities we issue could have rights, preferences and privileges
superior to those of holders of our common stock. If we are unable
to obtain adequate financing or financing on terms satisfactory to
us, when we require it, our ability to continue to implement new
strategic plans, modernize and upgrade our technology and systems,
pursue business objectives and respond to business opportunities,
challenges or unforeseen circumstances could be significantly
limited, and our financial performance could be materially and
adversely affected. The CNC Credit Agreement expires in March
2023.
If our internal controls and procedures fail, our financial
condition, results of operations and cash flow could be materially
and adversely affected.
Pursuant to the
Sarbanes-Oxley Act, management is responsible for establishing and
maintaining adequate internal control over financial reporting. Our
internal controls over financial reporting are processes designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in
accordance with U.S. generally accepted accounting principles. 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 annual or interim financial
statements will not be prevented or detected. As a smaller
reporting company (as defined by the SEC), we are not required to
obtain a separate attestation of our internal control over
financial reporting from our independent auditors. 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.
Our
internal controls may not prevent all potential errors or fraud.
Any control system, no matter how well designed and implemented,
can only provide reasonable and not absolute assurance that the
objectives of the control system will be achieved. We, or our
independent registered public accountants, may identify material
weaknesses in our internal controls which could adversely affect
our ability to ensure proper financial reporting and could affect
investor confidence in us and the price of our common
shares.
Personal Information and 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.
Identified below are some of these risks that we believe could
materially and adversely affect our financial
performance.
The failure to comply with privacy laws could materially and
adversely impact our financial performance.
Various
laws, rules and regulations govern the collection, use, retention,
sale, disclosure, sharing and
security of data and personal information that we receive from
consumers, customers, advertisers and Lead referral and advertising
affiliates. In addition, we have and post on our website our own
privacy policies and practices concerning the collection, use,
retention, sale, disclosure, sharing and security 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
consumers, customers, 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 Lead
referrals 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. Other proposals include enhanced rights for
consumers to obtain information regarding the sharing or sale of
their personal information and rights to opt-out or prevent the
sharing or sale of their personal information to third parties,
similar to the European Union’s General Data Protection
Regulation. The State of California enacted the California Consumer
Privacy Act of 2018 (“CCPA”), which became effective
January 1, 2020, and includes significant new personal information
privacy rights for consumers, including rights to know about the
personal information collected and sold by a business, have a
consumer’s personal information deleted, and to opt-out of
any sales of the consumer’s personal information.
The CCPA provides for civil penalties
for violations, as well as a private right of action for data
breaches that is expected to increase data breach
litigation. In addition, in November 2020, voters in
California approved Proposition 24, which enacted the California
Privacy Rights Act of 2020. This act includes various amendments to
the CCPA and expansion of rights thereunder and creates a new
California Privacy Protection Agency with full administrative
power, authority and jurisdiction to implement and enforce the
CCPA. Other states have enacted data privacy legislation and other
states may do so in the future. Compliance with these laws, could
have a material and adverse effect on our financial performance.
The CCPA, as amended, and regulations
promulgated thereunder may increase our compliance costs and
potential liability. Modifications to our data processing practices
and policies, products and consumer experience that we have made to
comply with the California Privacy Act and similar legislation, or
that we may be required to make in the future as a result of the
continuing changes to the requirements under that legislation or
similar future legislation, may materially negatively impact our
financial performance.
Risks associated with telemarketing and advertising.
We and
our third-party Lead suppliers 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 materially and 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. The regulations adopted by the Federal Communications
Commission under the Telephone Consumer Protection Act
(“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. We may become subject to lawsuits
(including class-action lawsuits) alleging that our business
violated the TCPA. Under the TCPA, plaintiffs may seek actual
monetary loss or statutory damages of $500 per violation, whichever
is greater, and courts may treble the damage award for willful or
knowing violations. Such litigation, even if not meritorious, could
result in substantial costs and diversion of management attention
and an adverse outcome could materially and adversely affect our
financial performance. Our efforts to comply with these regulations
may negatively affect conversion rates of Leads, and thus, our
revenue or profitability.
Data security risks.
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 issues
impacting the growth in consumer use of the internet, online
advertising and e-commerce. Despite our implementation of security
detection, prevention and monitoring measures, our computer systems
or those of our vendors are susceptible to electronic or physical
computer break-ins, viruses and other disruptive harms and security
breaches. For example, in early 2020 we discovered that our network
was impacted by malware that encrypted servers on most systems and
disrupted consumer and customer access to many of our services,
although we did not discover any evidence that caused us to
conclude that there has been any unauthorized access to or
acquisition of any consumer personal information or customer
confidential information. In addition, consumers may experience
losses of personally identifiable information as a result of
corporate identity theft. 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 that we collect
or store, 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 or Lead or traffic
suppliers. If consumers experience identity theft related to
personally identifiable information we collect or store, we may be
exposed to liability, adverse publicity and damage to our
reputation. To the extent that unauthorized disclosure of
personally identifiable information or corporate identity theft
gives rise to reluctance to use our websites or to supply us leads
or traffic, 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, including states that have enacted laws
requiring 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. Although we have
developed systems and processes that are designed to protect our
data and user data, to prevent data loss and to prevent or detect
security breaches, we cannot assure you that such measures will
provide absolute security, and we may need to expend significant
resources in protecting against or remediating security breaches
and cyberattacks.
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.
Online fraud and scams.
Internet fraud has
been increasing over the past few years, and we have 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 us. 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.
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.
Risks Associated with Regulatory Laws
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 civil and
criminal penalties 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. Compliance with these laws and regulations
may require us to obtain licenses at an undeterminable and possibly
significant initial and annual expense that could 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 civil or criminal 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 digital 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 not to
operate in, or to terminate operations in, that state. In each
case, our financial performance could be materially and adversely
affected.
The
following description of laws and regulations to which we may be
subject is not exhaustive, and the regulatory framework governing
our operations is subject to continuous change. The enactment of
new laws and regulations or the interpretation of existing laws and
regulations in an unfavorable way may affect the operation of our
business, directly or indirectly, which could result in substantial
regulatory compliance costs, civil or criminal penalties, including
fines, adverse publicity, loss of participating dealers, lost
revenues, increased expenses and decreased
profitability.
Automotive Dealer/ Broker and Vehicle Advertising
Laws.
All
states comprehensively regulate vehicle sales and lease
transactions, including strict licensure
requirements for automotive dealers (and, in some states, brokers)
and vehicle advertising. Although we
do not sell motor vehicles, state regulatory authorities or third
parties could take the position that some of the regulations
applicable to dealers or to the manner in which motor vehicles are
advertised and sold generally are directly applicable to our
business. We believe that most of these laws and regulations
specifically address only traditional vehicle purchase and lease
transactions, not internet-based digital marketing and consumer
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,
elect to not operate or introduce particular marketing services
programs in that state or modify the service to comply with
applicable law without being subjected to licensing requirements.
In some states we have modified our marketing programs or pricing
models to reduce uncertainty regarding our compliance with local
laws.
The Federal Trade Commission
(“FTC”) has authority to take actions to remedy
or prevent advertising practices that it considers to be unfair or
deceptive and that affect commerce in the United States. In
addition to generally applicable consumer protection laws, many
states in which we do business have laws and regulations that
specifically regulate the advertising for sale of new or used motor
vehicles. These state advertising laws and regulations are
frequently subject to multiple interpretations and are not uniform
from state to state, sometimes imposing inconsistent requirements
on the advertiser of a new or used motor
vehicle.
Some
states in which we do business have laws and regulations that
strictly regulate or prohibit the brokering of motor vehicles or
the making of so-called “bird-dog” payments by dealers
to third parties in connection with the sale of motor vehicles
through persons other than licensed salespersons. If our products
or services are determined to fall within the scope of those laws
or regulations, we may be forced to implement new measures, which
could be costly, to reduce our exposure to those obligations,
including the discontinuation of certain products or services in
affected jurisdictions.
If
our products or services are determined not to comply with relevant
licensing, advertising or other regulatory requirements, we could
be subject to significant civil and criminal penalties, including
fines, or the award of significant damages in class action or other
civil litigation, as well as orders interfering with our ability to
continue providing our products and services in some or all states.
In addition, even without a determination that our products or
services do not comply with relevant regulatory requirements, if
customers are uncertain about the applicability of those laws and
regulations to our business, we may be subjected to adverse
publicity and lose, or have difficulty increasing the number of,
customers for our products and services, which could adversely
affect our future growth and materially and adversely impact our
financial performance.
Financial Broker and Consumer Credit Laws.
Through
our websites, consumers can click through to Dealer, Manufacturer
and potential lender websites to
obtain information regarding automotive financing. All online
applications for financing 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 federal Consumer Financial
Protection Bureau has 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. California recently enacted the California
Consumer Financial Protection Law which significantly expanded the
regulatory and enforcement authority of the Department of Financial
Protection and Innovation. Other states may expand or create new
state level consumer financial protection agencies that could lead
to increased regulation of our business.
If
our products or services are determined not to comply with relevant
financial broker or consumer credit licensing or other regulatory
requirements, we could be subject to significant civil and criminal
penalties, including fines, or the award of significant damages in
class action or other civil litigation, as well as orders
interfering with our ability to continue providing our products and
services in some or all states. In addition, even without a
determination that our products or services do not comply with
relevant regulatory requirements, if customers are uncertain about
the applicability of those laws and regulations to our business, we
may be subjected to adverse publicity and lose, or have difficulty
increasing the number of, customers for our products and services,
which could adversely affect our future growth and materially and
adversely impact our financial performance.
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
automobile insurance and other products or services that may be
deemed to be insurance under applicable state laws. 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. In the event states require us to
be licensed under applicable insurance brokering or sales laws, 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 required licenses and comply with regulatory
requirements.
If
our products or services are determined not to comply with relevant
insurance brokering or sales licensing or other regulatory
requirements, we could be subject to significant civil and criminal
penalties, including fines, or the award of significant damages in
class action or other civil litigation, as well as orders
interfering with our ability to continue providing our products and
services in some or all states. In addition, even without a
determination that our products or services do not comply with
relevant regulatory requirements, if customers are uncertain about
the applicability of those laws and regulations to our business, we
may be subjected to adverse publicity and lose, or have difficulty
increasing the number of, customers for our products and services,
which could adversely affect our future growth and materially and
adversely impact our financial performance.
Risks Associated with Tax Matters
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. State taxing authorities are
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, as a source of tax
revenues. 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.
If our ability to use our net operating loss carryforwards and
other tax attributes is limited, we may not receive the benefit of
those assets.
We
had federal net operating loss carryforwards of
approximately $104.1 million and state net operating
loss carryforwards of
approximately $48.9 million at December 31,
2020. These federal and state net operating loss carryforwards
begin to expire in the years ending December 31, 2025 and 2028,
respectively. Federal net operating losses generated after December
31, 2017, will not expire and will carry forward indefinitely, but
will be limited in any given year to offsetting a maximum of 80% of
our taxable income for the year, determined without regard to the
application of such net operating loss carryforwards.
Sections
382 and 383 of the Internal Revenue Code impose substantial
restrictions on the use of net operating losses and other tax
attributes in the event of a cumulative “ownership
change” of a corporation of more than 50% over a three-year
period. Accordingly, if we generate taxable income in the future,
changes in our stock ownership, including equity offerings, as well
as other changes that may be outside our control, could potentially
result in material limitations on our ability to use our net
operating loss and research tax credit carryforwards.
Risks Associated with Ownership of Our Securities
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 “AUTO,” 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 a number of factors, many of which are beyond our
control and may not be related to our operating performance. These
fluctuations could cause you to lose all or part of your investment
in our common stock since you might be unable to sell your shares
at or above the price you paid. Factors that could cause
fluctuations in the trading price of our common stock include the
following:
●
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
by us or our competitors of new
product or service offerings;
●
Announced
or completed acquisitions of or investments in businesses or
technologies by us or our competitors;
●
Actual
or anticipated developments in our business, our competitors’
businesses or the competitive landscape generally;
●
Low trading
volumes;
●
Concentration of
holdings in our common stock resulting in low public float and
trading volume 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;
●
Competitive
developments, including actions by Manufacturers;
●
Data or network
security incidents and breaches;
●
Loan covenant
defaults;
●
New
laws or regulations or new interpretations of existing laws or
regulations applicable to our business;
●
Litigation
involving us, our industry or both, or investigations by regulators
into our operations or those of our competitors;
●
Conditions and
trends in the internet, electronic commerce and automotive
industries;
●
Changes in accounting standards, policies,
guidelines, interpretations or principles affecting the
technology or automotive industry;
●
Rumors, whether or
not accurate, about us, our industry, our competitors or possible
transactions or other events;
●
Any
significant change in our management;
●
Reaction
by certain market participants to the activities of other market
participants, such as large short positions on our
stock;
●
The impact of open
market repurchases of our common stock;
●
Comments posted on
internet discussion sites; and
●
General market or
economic conditions and other factors.
Further, the stock
markets in general, and the market for
technology companies in particular, have experienced price
and volume fluctuations that 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 rate changes, energy price changes, epidemics and
pandemics, international currency fluctuations, terrorist acts,
insurrections, 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.
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 trading in our stock may be less orderly
and efficient.
For
our common stock to continue to be listed on The Nasdaq Capital
Market, we must satisfy various continued listing requirements
established by The Nasdaq Stock Market LLC. In the event we are 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 associated with raising
capital, could limit resale of our stock in some states, and could
adversely impact our ability to issue equity-based compensation to
our employees.
One
of the continued listing requirements is that our Common Stock not
trade below a minimum closing bid requirement of $1.00 for 30
consecutive business days. Should our Common Stock trade below the
$1.00 minimum closing bid requirement for 30 business days, Nasdaq
would send us a deficiency notice, advising that it is being
afforded a compliance period of 180 days to regain compliance with
the requirement. This 180-day compliance period may be extended by
Nasdaq for another 180 days, subject to certain conditions being
satisfied, including that we meet other continued listing
requirements and provides a written notice to Nasdaq that we intend
to regain compliance with the $1.00 minimum closing bid requirement
during the extended period, by effecting a reverse stock split, if
necessary.
No
assurances can be given that we will continue to be able to meet
the continued listing requirements for listing of our common stock
on The Nasdaq Capital Market.
Our certificate of incorporation and bylaws, tax benefit
preservation plan and Delaware law contain provisions that could
make it more difficult for a third party to acquire us and could
discourage, delay or prevent a third party from acquiring us or
limit the price third parties are willing to pay for our
stock.
Provisions of our
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
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 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, and as a result of the classified board the
Delaware General Corporation Law (“DGCL”) provides that directors may
only be removed for cause. In addition, provisions in our restated
certificate of incorporation and bylaws:
●
Create a classified
Board of Directors whose members serve staggered three-year
terms;
●
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;
●
Authorize
“blank check” preferred stock, which could be issued by
our board of directors without stockholder approval and may contain
voting, liquidation, dividend and other rights superior to our
common stock;
●
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.
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 $20.00
(as this 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 DGCL, which, in general,
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.
Any
provision of our certificate of incorporation or bylaws, our Tax
Benefit Preservation Plan or of Delaware law that has the effect of
delaying or deterring a change in control could limit the
opportunity for our stockholders to receive a premium for their
shares of our common stock, and could also affect the price that
some investors are willing to pay for our common
stock.
Our bylaws provide that the Court of Chancery of the State of
Delaware will be the exclusive forum for substantially all disputes
between us and our stockholders, which could limit our
stockholders’ ability to obtain a favorable judicial forum
for disputes with us or our directors, officers, employees or
agents.
Our
bylaws provide that, unless we otherwise agree, the Court of
Chancery of the State of Delaware will be the exclusive forum
for:
●
any
derivative action or proceeding brought on our behalf;
●
any
action asserting a breach of fiduciary duty;
●
any
action asserting a claim against us under the Delaware General
Corporation Law, our certificate of incorporation or our bylaws;
and
●
any
action asserting a claim against us that is governed by the
internal-affairs doctrine.
This
exclusive-forum provision may limit a stockholder’s ability
to bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors, officers, employees or other
agents, which may discourage lawsuits against us and our directors,
officers, employees and other agents. If a court were to find this
exclusive-forum provision to be inapplicable or unenforceable in an
action, we may incur additional costs associated with resolving the
dispute in other jurisdictions, which could materially and
adversely impact our financial performance.
We may fail to meet our publicly announced guidance or other
expectations about our business and future operating results, which
could cause our stock price to decline.
We
have provided and may continue to provide guidance about our
business and future operating results as part of our press
releases, investor conference calls or otherwise. In developing
this guidance, our management must make significant assumptions and
judgments about our future performance. Our future business results
may vary significantly from management’s guidance due to a
number of factors, many of which are outside of our control, and
which could materially and adversely affect our financial
performance. If our publicly announced guidance of future operating
results fails to meet the expectations of securities analysts,
investors or other interested parties, the price of our common
stock could decline.
Concentration of ownership among our existing executive officers
and directors, their affiliates and holders of 5% or more of our
outstanding common stock may prevent new investors from influencing
significant corporate decisions.
As
of April 22, 2020, our executive officers, directors and
holders of 5% or more of our outstanding common stock (based upon
the most recent filings on Schedule 13D or Schedule 13G with the
SEC with respect to each such holder) beneficially own, in the
aggregate, approximately 42% of our outstanding shares of common
stock (assuming exercise of all beneficially owned shares). Some of
these persons or entities may have interests that are different
from yours. For example, these stockholders may support proposals
and actions with which you may disagree, or which are not in your
interests. These stockholders are able to exercise a significant
level of control over all matters requiring stockholder approval,
including the election of directors, amendment of our certificate
of incorporation and approval of significant corporate
transactions. This control could have the effect of delaying or
preventing a change of control of our company or changes in
management and will make the approval of certain transactions
difficult or impossible without the support of these stockholders,
which in turn could reduce the price of our common
stock.
You may experience future dilution as a result of future equity
offerings.
If
we raise additional funds through the sale of equity or convertible
debt securities, the issuance of the securities will result in
dilution to our stockholders. We may sell shares or other
securities in any other offering at a price per share that is less
than the price per share paid by investors in the past, and
investors purchasing shares or other securities in the future could
have rights superior to existing stockholders. The price per share
at which we sell additional shares of our common stock, or
securities convertible or exchangeable into common stock, in future
transactions may be higher or lower than the price per share paid
in the past. In addition, if we were to issue securities in
connection with our acquisition of complementary businesses,
products or technologies, our stockholders would also experience
dilution. In November 2020, we filed a shelf registration statement
on Form S-3, which may be used to raise additional capital in the
future through a variety of equity or debt offerings that could
result in dilution to existing stockholders. In addition, we have
reserved shares for issuance under our equity incentive plans. The
issuance and subsequent sale of these shares will be dilutive to
our existing stockholders and the trading price of our common stock
could decline.
If securities or industry analysts do not publish or cease
publishing research or reports about us, our business or our
market, or if they change their recommendations regarding our stock
adversely, our stock price and trading volume could
decline.
The
trading market for our common stock is influenced by the research
and reports that industry or securities analysts may publish about
us, our business, our market or our competitors. If any of the
analysts who cover us change their recommendation regarding our
stock adversely, or provide more favorable relative recommendations
about our competitors, our stock price could decline. If any
analyst who covers us were to cease coverage of our company or fail
to regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
We do not expect to declare any dividends in the foreseeable
future.
We
have never declared or paid cash dividends on our common stock. We
currently intend to retain any future earnings to finance the
operation and expansion of our business, and we do not anticipate
declaring any cash dividends to holders of our common stock in the
foreseeable future. In addition, the terms of our credit facility
currently restrict our payment of cash dividends on our capital
stock. Consequently, investors may need to rely on sales of their
common stock after price appreciation, which may never occur, as
the only way to realize any future gains on their investment.
Investors seeking cash dividends should not purchase our common
stock.
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 proprietary systems and technology are a competitive
factor. While we rely on trademark, trade secret, patent and
copyright law, confidentiality agreements and technical measures to
protect our proprietary and intellectual property 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 and federal
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.
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.
Item 1B.
Unresolved Staff
Comments
Not
applicable.
Item 2.
Properties
Our
principal executive office is located at our Tampa, Florida office,
which consists of approximately 13,000 square feet under a lease
that expires in May 2024. Our Irvine, California office consists of
12,000 square feet of leased office space under a lease that
expires in July 2025. 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 2022. 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. 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.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Market Information
Our
common stock, par value $0.001 per share, is listed on The Nasdaq
Capital Market and trades under the symbol
“AUTO.”
As
of March 8, 2021, there were 152 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.
Item 6.
Selected Financial Data
The tables below set forth our
selected consolidated financial data. We prepared this
information using the consolidated financial statements of AutoWeb
for the five years ended December 31, 2020. 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,
|
||||
|
|
2020
|
2019
|
2018 (1)
|
2017 (2)
|
2016
|
|
|
(Amounts in thousands, except per-share data)
|
||||
|
RESULTS
OF OPERATIONS:
|
|
|
|
|
|
|
Total
revenues
|
$76,570
|
$113,981
|
$125,589
|
$142,125
|
$156,684
|
|
Net
income (loss)
|
$(6,820)
|
$(15,229)
|
$(38,816)
|
$(64,964)
|
$3,871
|
|
Basic
earnings (loss) per common share
|
$(0.52)
|
$(1.17)
|
$(3.04)
|
$(5.48)
|
$0.36
|
|
Diluted
earnings (loss) per common share
|
$(0.52)
|
$(1.17)
|
$(3.04)
|
$(5.48)
|
$0.29
|
|
Weighted
average diluted shares
|
13,144
|
13,071
|
12,756
|
11,853
|
13,303
|
(1)
Net loss in 2018
included DealerX License
Agreement intangible asset impairment of $9.0 million, goodwill
impairment of $5.1 million and customer relationship intangible
asset impairment of $1.6 million.
(2)
Net
loss in 2017 included goodwill impairment of $37.7 million and
$16.7 million recording of an income tax valuation
allowance.
|
|
Years ended December 31,
|
||||
|
|
2020
|
2019
|
2018
|
2017
|
2016
|
|
|
(Amounts in thousands)
|
||||
|
FINANCIAL
POSITION:
|
|
|
|
|
|
|
Cash
and cash equivalents and restricted cash
|
$15,107
|
$5,946
|
$13,600
|
$24,993
|
$38,512
|
|
Total
assets
|
$41,129
|
$44,904
|
$57,416
|
$92,913
|
$165,281
|
|
Non-current
liabilities
|
$2,251
|
$1,497
|
$—
|
$9,000
|
$16,500
|
|
Accumulated
deficit
|
$(349,765)
|
$(342,945)
|
$(327,716)
|
$(288,900)
|
$(230,424)
|
|
Stockholders’
equity
|
$16,335
|
$21,096
|
$33,515
|
$67,167
|
$119,609
|
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.
Overview
As
reflected under the section “Results of Operations” in
this Item 7, the decline in total revenues for 2020 compared to
2019 was partially the result of a strategic shift made in the
first quarter of 2019 to prioritize gross profitability as opposed
to the maximization of Lead traffic and Lead volume. Further
contributing to the decline in total revenues was the impact
of the coronavirus pandemic on vehicle sales and overall demand
from our clients for our products. Although our prior
strategic focus often generated higher gross revenue, the margin
profile and overall quality was lower, resulting in lower overall
levels of gross profit and higher client churn. As a part of our
strategic decisions, we also shifted focus to our core Leads,
clicks and email products and services and away from non-core
products and services, such as third-party party product offerings.
This shift further negatively impacted total revenues in 2020
compared to 2019. Generally lower retail Leads sales levels
resulting from retail dealer participation attrition in the retail
dealer network that occurred throughout 2019 and parts of 2020 was
an additional factor that contributed to lower total revenues
during 2020. As a result of the continued impact of the
coronavirus pandemic on vehicle sales, we have continued to
intentionally operate at lower levels of media spend to match
projected industry selling rates, which provides a more accurate
reflection of true consumer demand. This approach enabled us to
better match Lead volume with lower dealership inventory that
resulted from vehicle production reductions in the second quarter
of 2020 and historically high used vehicle wholesale pricing.
Dealers and consumers alike are still contending with broader
macroeconomic uncertainty, and with this in mind, our objective is
to provide the right mix of high-quality Leads and click traffic to
our customers by staying aligned with automotive supply and demand
dynamics. Finally, the disruption from the January 2020
malware attack on the Company’s systems also negatively
impacted total revenues in 2020.
As
we continue to work with our traffic suppliers to optimize our SEM
methodologies and further grow our high-quality traffic streams, we
are also investing in and testing new traffic acquisition
strategies and enhanced mobile consumer experiences. Further, we
continue to invest in our pay-per-click approach to improve the
consumer experience of that product. With a more efficient traffic
acquisition model emerging, our plan for 2021 and beyond is to grow
audience, improve conversion, improve Leads and clicks delivery
rates, expand distribution, and increase retail Dealer Leads and
clicks budget capacity. We believe that this focus, along with
plans to develop new, innovative products to create a more
efficient process for how active vehicle shoppers with a vehicle in
mind can be matched with sellers that can meet the shoppers’
needs, will create opportunities for improved quality of delivery
and strengthen our position for revenue growth.
Our
lead and click generation products have historically operated with
limited visibility due to short sales cycles and a high rate of
customer churn as clients are able to join and leave our platform
with limited notice. Our advertising business is also subject
to seasonal trends, with the first quarter of the calendar year
typically showing sequential decline versus the fourth quarter.
These factors have historically contributed to volatility in our
revenues, cost of revenues, gross profit and gross profit
margin. We anticipate these trends will continue throughout
2021.
Although we are not able at this time to provide
any specific guidance regarding our full year 2021 financial
performance with detail or accuracy, many industry analysts have
forecast improvement in new vehicle unit sales seasonally adjusted
annual rate from 14.5M units in 2020 to a range of 15.5-16.0M units
in 2021, or 7-10% growth. We anticipate that our 2021 financial condition
may be adversely impacted when compared to 2020 by (i) the
continuing impact of the coronavirus pandemic on vehicle sales and
on demand for our products and services; (ii) increased competitive
pressure on cost of audience acquisition that may limit how much
volume we will be able to profitably source and distribute to our
customers; (iii) the costs and revenue impact associated with our
efforts to optimize our clicks product; and (iv) the decision to
shift our focus to our core leads, clicks and email products and
services and away from non-core product and
services.
During
2020, our cash generated by operations improved, a direct result of
reducing our office footprint and eliminating certain positions
beginning in late 2019. The cost reductions discussed below that
were implemented in response to the coronavirus pandemic further
contributed to this reduction in cash used by operations. Our plan
is to improve our liquidity and balance sheet through dilutive and
non-dilutive measures, including use of available borrowings under
the CNC Credit Agreement.
Beginning
in 2020 and continuing as of the date of this Annual Report on Form
10-K, the coronavirus pandemic has led to quarantines and
stay-at-home/work-from-home orders and curfews in a number of
countries, states, cities and regions and the closure or limited
access to public and private offices, businesses and facilities,
worldwide, causing widespread disruptions to travel, economic
activity and financial markets. We are unable to predict the extent
and duration of these disruptions, which could result in a national
or global recession. The pandemic has led our Manufacturer and
Dealer customers to experience disruptions in the (i) supply of
vehicle and parts inventories, (ii) ability and willingness of
consumers to visit automotive dealerships to purchase or lease
vehicles, and (iii) overall health, safety, and availability of
their labor force. Manufacturers have also shut down assembly
plants, adversely impacting inventories of new vehicles. Volatility
in the financial markets, concerns about exposure to the novel
coronavirus and governmental quarantines,
stay-at-home/work-from-home orders, curfews, business closures, and
employment furloughs and layoff have also adversely impacted
consumer confidence and ability and willingness to visit
dealerships and to purchase or lease vehicles. High unemployment
and lower consumer confidence may continue after
stay-at-home/work-from-home orders and business closures and
curfews have ended. These disruptions have impacted the willingness
or desire of our customers to acquire vehicle Leads or other
digital marketing services from us. Vehicle sales have declined,
and we are experiencing direct disruptions in our operations due to
the overall health and safety of, and concerns for, our labor force
and as a result of governmental “social distancing”
programs, stringent office reopening guidance and procedures,
changes in workers’ compensation laws, rules and regulations
related to employees contracting the coronavirus; quarantines,
travel restrictions and stay-at-home/work-from-home orders, leading
to office closures, operating from employee homes and restrictions
on our employees traveling to our various
offices.
In
April 2020, we implemented a series of cost actions in response to
the coronavirus pandemic, including reduced executive and board
compensation, reduced recruitment, travel, consulting and
business-to-business marketing expenses, consolidation of various
technology tools and products, and limited employee furloughs and
staff reductions. We also reduced our overall lead and click
generation efforts and corresponding costs to better align our
volumes with industry demand and consumer intent to purchase a
vehicle. We will continue to evaluate these and other cost
reduction measures and explore all options available to us in order
to minimize the impact of the pandemic on us. At this time, the
eventual extent and magnitude of the disruptions caused by the
outbreak on the automotive industry in general, and on us
specifically, are not known, but vehicle sales have declined, and
we continue to experience cancellations or suspensions of purchases
of Leads and other digital marketing services by our customers,
which materially and adversely affects our business, results of
operations, financial condition, earnings per share, cash flow and
the trading price of our common stock. In addition, resurgence of
coronavirus cases has caused many state and local governments to
re-impose, or impose additional, mitigation measures.
Operating Metrics
We
evaluate several key operating metrics that we believe are
instrumental to understanding the direction of our business,
including Lead traffic, volume, retail dealer count and Lead
capacity; click traffic and click volume.
Lead Traffic and Volume. Lead
traffic is the number of consumers who visited our entire portfolio
of owned Lead websites during the applicable review period. Lead
traffic represents the total opportunity of potential Internally
and Non-Internally generated Lead revenue, as it represents the
prospective consumer engaging with our experiences. Lead volume
means the total new and used vehicle Leads invoiced to retail and
wholesale customers for the applicable review period. Lead volume
directly translates to Lead revenue, as we bill our clients for the
Lead volume we deliver to them. Although we are not able at this
time to disclose any guidance as to 2021 Lead traffic or Lead
volume with any detail or accuracy, we do anticipate some typical
level of volatility in our Lead traffic and Lead volume, and we
anticipate that our Lead sourcing mix between Internally Generated
Leads and Non-Internally Generated Leads will vary as we balance
quality and quantity of our core Lead product. We are also
balancing the gross margin economic characteristics of Internally
Generated Leads and Non-Internally Generated
Leads.
Retail Dealer Count and Capacity. Retail dealer count means the number of
franchised dealers contracted for delivery of retail new vehicle
Leads plus the number of vehicle dealers (franchised or
independent) contracted for delivery of retail used vehicle
Leads. Retail dealer count
growth enables more opportunity to create a match between Lead
volume and retail dealer inventory, and ultimately translates into
Retail capacity. Retail lead capacity means the sum of the number
of new and used vehicle Leads contracted for by new or used retail
vehicle Dealers that the Dealers wish to receive each month (i.e.,
“targets”) during the applicable review period. Retail
capacity represents the total available opportunity to monetize the
Lead volume within the Retail Dealer channel. For 2021, we do not anticipate a straight-line
trajectory for our distribution metrics that include Dealer count
and Retail lead capacity as we continue to refine our strategy. We
believe that we need to refine our distribution channel
effectiveness and do a better job at increasing our relationships
with the top 150 dealer groups in the United States. We expect some
volatility for both dealer count and lead capacity during 2021 as
we continue to evolve our engagement model for both retail dealers
and the top 150 dealer groups.
Click Traffic and Volume. Click
traffic means the total visits to Company-owned click referral
websites during the applicable review period. Click traffic
represents the total opportunity of potential Internally and
Non-Internally generated click revenue, as it represents the
prospective consumer engaging with our experiences. click volume
means the number of times during the applicable review period that
consumers clicked on advertisements on the Company’s click
referral websites during the applicable review period. Click volume
directly translates to click revenue, as we bill our clients for
the click volume we deliver to them. We anticipate that click volume and ultimately
click monetization will be impacted by overall customer mix between
non-endemic (i.e., non-automotive) advertisers and endemic (i.e.,
automotive) advertisers. We intend to continue to focus on shifting
this mix towards endemic (i.e., automotive) advertisers where it
creates the right match for our click volume and overall
monetization opportunities, and we are taking steps in this
direction. However, this is an area that we will focus on to get
performance back to a level that is representative of what we
believe is optimized.
Lead Quality. Our business,
results of operations and financial condition are impacted by the
volume and quality of our Leads. 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. High-quality Leads delivered to the right
customer will have a higher buy rate than lower quality or
unmatched Leads. We rely on detailed feedback from Retail,
Manufacturers and Wholesale customers to confirm the performance of
our Leads. Our Manufacturer and other wholesale customers each
compare the Leads we deliver to them against their vehicle sales
and provide us with information about vehicle purchases by the
consumers who submitted Leads through our experiences. We also
obtain vehicle registration data from a third-party provider to
conduct our own internal review of buy rate and Lead
quality.
Results of Operations
The comparison of 2019 to 2018 is located in our
Annual Report on Form 10-K for the year ended December 31, 2019
(“2019
Form 10-K”) at Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Results of Operations-
2019 Compared to
2018.
The
following table sets forth our results of operations as a
percentage of total revenues for the years ended December 31,
2020 and 2019 (certain percentages below may not sum due to
rounding):
|
|
Years Ended December 31,
|
|
|
|
2020
|
2019
|
|
Revenues:
|
|
|
|
Lead
generation
|
79.8%
|
79.6%
|
|
Digital
advertising
|
20.2
|
20.3
|
|
Other
revenues
|
0.0
|
0.1
|
|
Total
revenues
|
100.0
|
100.0
|
|
Cost
of revenues
|
69.1
|
80.2
|
|
Gross
profit
|
30.9
|
19.8
|
|
Operating
expenses:
|
|
|
|
Sales
and marketing
|
10.7
|
9.3
|
|
Technology
support
|
8.6
|
7.8
|
|
General
and administrative
|
16.6
|
12.4
|
|
Depreciation
and amortization
|
2.2
|
3.8
|
|
Total
operating expenses
|
38.1
|
33.3
|
|
Operating
loss
|
(7.2)
|
(13.5)
|
|
Interest
and other income, net
|
(1.7)
|
0.1
|
|
Loss
before income tax provision
|
(8.9)
|
(13.4)
|
|
Income
tax provision (benefit)
|
—
|
—
|
|
Net
loss
|
(8.9)%
|
(13.4)%
|
Revenues
by groups of similar services and gross profits are as follows
(dollars in thousands):
|
|
Years Ended December 31,
|
|
||
|
|
2020
|
2019
|
$ Change
|
% Change
|
|
Revenues:
|
|
|
|
|
|
Lead
generation
|
$61,114
|
$90,728
|
$(29,614)
|
(33)%
|
|
Digital
advertising
|
15,441
|
23,173
|
(7,732)
|
(33)
|
|
Other
revenues
|
15
|
80
|
(65)
|
(81)
|
|
Total
revenues
|
76,570
|
113,981
|
(37,411)
|
(33)
|
|
Cost
of revenues
|
52,890
|
91,412
|
(38,522)
|
(42)
|
|
Gross
profit
|
$23,680
|
$22,569
|
$1,111
|
5%
|
2020 Compared to 2019
Lead Generation.
Lead generation decreased $29.6
million or 33% in 2020 compared to 2019. The decrease in Lead
generation was primarily as a result of the impact of the
coronavirus pandemic on vehicle sales. We also reduced our overall
Lead generation efforts starting in second quarter of 2020 to
better align our volumes with industry demand and consumer intent
to purchase a vehicle.
Digital
advertising. The $7.7 million or 33% decrease
in advertising revenues in 2020 compared to 2019 was primarily as a
result of a decrease in click revenue associated with decreased
click volume. The decrease in click volume is attributed to the
impact of the coronavirus pandemic and our internal decision to
reduce overall click generation efforts to better align with
industry demand.
Cost of Revenues.
Cost of revenues consists of purchase
request and traffic acquisition costs and other cost of revenues.
Purchase request and traffic acquisition costs consist of payments
made to our third-party purchase request providers, including
internet portals and online automotive information providers. Other
cost of revenues consists of SEM and fees paid to third parties for
data and content, including search engine optimization activity,
included on our websites; connectivity costs; development costs
related to our websites; technology license fees; server equipment
depreciation; and technology amortization directly related to our
Websites.
The
$38.5 million or 42% decrease in cost of revenues in 2020 compared
to 2019 was primarily due to decreased SEM, purchase request and
traffic acquisition costs and a decrease in click publisher
costs.
Gross
Profit. Gross
profit increased $1.1 million, or 5%, compared to 2019 due
to prioritizing gross
profitability by reducing lead generation effort as opposed to the
maximization of lead traffic and lead volume. Further contributing
to this increase was a reduction in cost of revenues primarily
driven by a reduction in cost-per-click.
Operating
expenses, interest and other income and income tax provision were
as follows (dollars in thousands):
|
|
Years Ended December 31,
|
|
|
|
|
|
2020
|
2019
|
$ Change
|
% Change
|
|
Operating
expenses:
|
|
|
|
|
|
Sales
and marketing
|
$8,201
|
$10,512
|
$(2,311)
|
(22)%
|
|
Technology
support
|
6,574
|
8,849
|
(2,275)
|
(26)
|
|
General
and administrative
|
12,718
|
14,175
|
(1,457)
|
(10)
|
|
Depreciation
and amortization
|
1,711
|
4,371
|
(2,660)
|
(61)
|
|
Total
operating expenses
|
$29,204
|
$37,907
|
$(8,703)
|
(23)%
|
|
|
|
|
|
|
|
Interest
and other (expense) income, net
|
$(1,286)
|
$119
|
$(1,405)
|
(1,181)
|
|
|
|
|
|
|
|
Income
tax provision
|
$10
|
$10
|
$—
|
—%
|
Sales and
Marketing.
Sales and marketing expense include
costs for developing our brand, personnel costs, and other costs
associated with Dealer and Wholesale sales, website advertising and
dealer support.
Sales
and marketing expense for the year ended December 31, 2020,
decreased $2.3 million, or 22%, compared to the 2019 period, due
primarily to a decrease in compensation and related benefits and
the elimination of certain discretionary compensation.
Technology
Support.
Technology support includes
compensation, benefits, software licenses and other direct costs
incurred by us to enhance, manage, maintain, support, monitor and
operate our websites and related technologies, and to operate our
internal technology infrastructure.
Technology
support expense for the year ended December 31, 2020, decreased
$2.3 million, or 26%, compared to the year ended December 31, 2019.
The change was due primarily to lower headcount related costs
coupled with the elimination of certain discretionary
compensation.
General and
Administrative. General and administrative expense consists of
certain executive, financial, human resources, legal and facilities
personnel expenses, costs related to operating as a publicly traded
company and bad debt expense.
General
and administrative expense for the year ended December 31, 2020,
decreased $1.5 million, or 10%, compared to the 2019 period due
primarily to lower consulting and recruiting costs coupled with a
reduction in compensation and benefit-related expenses and certain
discretionary compensation.
Depreciation
and Amortization. Depreciation
and amortization expense for the year ended December 31, 2020,
decreased $2.7 million to $1.7 million compared to $4.4 million in
the 2019 period. This was primarily due to assets that have
been fully depreciated as compared to the same period in the prior
year.
Interest and Other (Expense)
Income, net. Interest and other
(expense) income was approximately ($1.3) million for the year
ended December 31, 2020, compared to interest and other (expense)
income of approximately $0.1 million for the year ended December
31, 2019. Interest expense increased to $1.6 million for the year
ended December 31, 2020, compared to $0.5 million for the year
ended December 31, 2019, which is primarily due to the write-off of
our deferred financing fees associated with the revolving line of
credit under the PNC Credit Facility. Interest expense also
includes interest on outstanding borrowings and the amortization of
debt issuance costs.
Income tax
provision. Income tax expense
was $10,000 for both the years ended December 31, 2020, and 2019.
Operating losses during the year ended December 31, 2020, did not
result in any tax benefit due as valuation allowances were recorded
against the deferred tax assets. Income tax expense was also driven
by changes in certain state taxes.
For a discussion of our fiscal 2019 results
compared to our fiscal 2018 results, refer to Item 7,
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” under Part II of our
annual report on Form 10-K for the fiscal year ended December 31,
2019 (“2019 Form
10-K”), which was filed
with the Securities and Exchange Commission on March 27,
2020.
Segment Information
We
conduct our business within one business segment, which is defined
as providing digital marketing services to the automotive
industry. 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, 2020 and 2019 (dollars in
thousands):
|
|
Years Ended December 31,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
$1,901
|
$(9,417)
|
|
Net
cash used in investing activities
|
(596)
|
(1,390)
|
|
Net
cash provided by financing activities
|
7,856
|
3,153
|
Our principal sources of liquidity are our cash
and cash equivalent balances and borrowings under the CNC Credit
Agreement. See Note 7 of the “Notes to
Consolidated Financial Statements.” Our cash and cash
equivalents and restricted cash totaled $15.1 million as of December 31, 2020, compared to $5.9
million as of December 31, 2019. For the year ended December
31, 2020, we had a net loss of $6.8 million. The net loss is
primarily attributable to operating expenses of $29.2 million for
the year ended December 31, 2020. We had net cash provided by
operations of $1.9 million for the year ended December 31, 2020. As
of December 31, 2020, we had an accumulated deficit of $349.8
million and stockholders’ equity of $16.3
million.
We
have developed a strategic plan focused on improving operating
performance in the future that includes modernizing and upgrading
our technology and systems, pursuing business objectives and
responding to business opportunities, developing new or improving
existing products and services and enhancing operating
infrastructure.
Our
objective is to achieve cash generation as a business; however,
there is no assurance that we will be able to achieve this
objective. The CNC Credit Agreement is expected to be used to
continue to partially fund operations.
We
believe that current cash reserves and operating cash flows will be
enough to sustain operations for the next twelve months. If we are
unsuccessful in meeting our objective to achieve cash generation as
a business, we may need to seek to satisfy our future cash needs
through private or public sales of securities, debt financings or
partnering/licensing transactions; however, there is no assurance
that we will be successful in satisfying our future cash needs to
continue operations.
Net Cash Provided by Operating
Activities. Net cash
provided by operating activities totaled $1.9 million for the year
ended December 31, 2020, compared to net cash use of $9.4 million
in the prior year. Net cash provided by operating activities in
2020 was due primarily to collections efforts resulting in a
reduction in Accounts Receivable of $9.7 million offsetting a net
loss of $6.8 million. Additional operating cash changes include a
use of cash in reducing Accounts Payable of $7.3 million partially
offset by Depreciation & Amortization, Share-based Compensation
and Right-of-Use Assets net of Lease Liabilities favorable cash
impacts of $3.6 million, $2.0 million and $0.2 million,
respectively.
Net
cash used in operating activities totaled $9.4 million for the year
ended December 31, 2019, compared to $2.9 million in the prior
year. Net cash used in 2019 was due primarily to a net loss of
$15.2 million coupled with a net change in assets and liabilities
of $3.4 million. Offsetting these decreases was an increase in
other non-cash expenses including depreciation and share-based
compensation of $9.2 million.
Net Cash Used in Investing
Activities. Net cash
used in investing activities of $0.6 million in 2020 primarily
related to purchase of property and equipment and expenditures
related to capitalized internal use software of $0.5
million.
Net
cash used in investing activities of $1.4 million in 2019 primarily
related to purchase of property and equipment and expenditures
related to capitalized internal use software of $1.6 million,
offset by $0.2 million in proceeds from the sale of the GoMoto
investment.
Net Cash Provided by Financing
Activities. Net cash provided
by financing activities of $7.9 million in 2020 primarily consisted
of $6.4 million of net borrowings on the credit facilities, coupled
with $1.4 million of proceeds related to the PPP loan and $0.1
million for exercises of stock options.
Net
cash provided by financing activities of $3.2 million in 2019
primarily consisted of $3.7 million of net borrowings on the credit
facility, coupled with $0.4 million proceeds from the exercise of
stock options, offset by a $1.0 million repayment of the
convertible subordinated promissory note for $1.0 million issued to
AutoNationDirect.com, Inc.in connection with the acquisition of
AutoUSA, LLC on January 13, 2014. Refer to the 2019 Form 10-K
for comparison of 2019 to 2018.
Contractual Obligations
The
following table provides aggregated information about our
outstanding contractual obligations as of December 31, 2020
(in thousands):
|
|
Total
|
Less than 1 year
|
1-3 years
|
3-5 years
|
More than 5 years
|
|
Credit
Facility Obligations (a)
|
$10,185
|
$—
|
$10,185
|
$—
|
$—
|
|
Operating
Lease Obligations (b)
|
3,589
|
1,187
|
1,678
|
724
|
—
|
|
Debt
Obligations (c)
|
1,509
|
1,449
|
60
|
—
|
—
|
|
Total
|
$15,283
|
$2,636
|
$11,923
|
$724
|
$—
|
(a)
Credit
Facility obligations as defined by ASC 470, “Debt,” and
disclosed in Note 7 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 ASC 842, “Leases,” and
disclosed in Note 8 of the consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form
10-K.
(c)
Debt
obligations as defined by ASC 470, “Debt,” and
disclosed in Note 7 of the consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K.
Included in Debt obligations is the approximate $1.4 million PPP
Loan that was forgiven on January 13, 2021. Refer to Note 7 for
additional information related to the PPP Loan.
Off-Balance Sheet Arrangements
We
do not have any material off-balance sheet
arrangements.
Critical Accounting Policies and Estimates
Our
significant accounting policies are discussed in Note 2 –
Summary of Significant Accounting Policies of the Notes to
Consolidated Financial Statements included in Part II, Item 8
– Financial Statements and Supplementary Data. We consider
the accounting policies described below to be critical in preparing
our consolidated financial statements. These policies require us to
make estimates and judgments that affect the reported amounts of
certain assets, liabilities, revenues, expenses and related
disclosures of contingencies. Our assumptions, estimates and
judgments are based on historical experience, current trends and
other factors to be relevant at the time we prepare the
consolidated financial statements. Although our estimates and
assumptions are reasonable, we cannot determine future events.
Consequently, actual results could differ materially from our
assumptions and estimates.
Revenue Recognition.
Revenue is recognized when the Company
transfers control of promised goods or services to the
Company’s customers, or when the Company satisfies any
performance obligations under contract. The amount of revenue
recognized reflects the consideration the Company expects to be
entitled to in exchange for respective goods or services provided.
Further, under Accounting Standards Codification
(“ASC”) 606, “Revenue from Contracts with
Customers”, contract assets or contract liabilities that
arise from past performance but require further performance before
obligation can be fully satisfied must be identified and recorded
on the balance sheet until respective settlements have been
met.
The
Company performs the following steps in order to properly determine
revenue recognition and identify relevant contract assets and
contract liabilities:
●
identify
the contract with a customer;
●
identify
the performance obligations in the contract;
●
determine
the transaction price;
●
allocate
the transaction price to the performance obligations in the
contract; and
●
recognize
revenue when, or as, the Company satisfies a performance
obligation.
The
Company earns revenue by providing Leads, advertising and mobile
products and services used by Dealers and Manufacturers in their
efforts to market and sell new and used vehicles to consumers. The
Company enters into contracts that can include various combinations
of products and services, which are generally capable of being
distinct and accounted for as separate performance obligations. The
Company records revenue on distinct performance obligations at a
single point in time, when control is transferred to the
customer.
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 general and administrative 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 general and administrative 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. From time to time, the Company
may issue discounts or credits on current invoices. These discounts
or credits are direct reductions to revenue without a change in the
allowance for customer credits.
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.
Capitalized Internal Use
Software and Website Development
Costs. The Company
capitalizes costs to develop internal use software in accordance
with ASC 350-40, “Internal-Use Software”, and ASC
350-50, “Website Development Costs”, 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.
Recent
Accounting Pronouncements
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 for recent
accounting pronouncements.
Item 7A.
Quantitative and Qualitative
Disclosures about Market Risk
Not
Applicable
Item 8.
Financial Statements and Supplementary Data
Our
Consolidated Balance Sheets as of December 31, 2020 and 2019,
and our Consolidated Statements of Operations, Stockholders’
Equity and Cash Flows for each of the years in the three-year
period ended December 31, 2020, 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.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
We have established and maintained 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, 2020. 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, 2020.
Management’s Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule
13a-15(f) and 15(d)-15(f) of the Exchange Act. The 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.
The
Company’s internal controls over financial reporting includes
those policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles; provide
reasonable assurance that receipts and expenditures of the Company
are being made only in accordance with authorizations of management
and directors of the Company; and 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 controls over financial
reporting may not prevent or detect misstatements or fraud. 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.
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, 2020. In
making this assessment, management used the framework established
in Internal
Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment,
management has concluded that the Company’s internal control
over financial reporting was effective as of December 31,
2020. 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 the Company’s internal controls over
financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) during the fourth fiscal quarter of the
Company’s year ended December 31, 2020, that has
materially affected, or is reasonably likely to materially affect,
the Company’s internal control over financial
reporting.
Item 9B.
Other Information
Not
applicable.
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 2021 Annual Meeting of
Stockholders that will be filed not later than 120 days after
December 31, 2020 (“2021 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 2021 Proxy Statement:
“Proposal 1-Nomination and Election of Directors;”
“Board of Directors;” “Executive Officers;”
“Delinquent Section 16(a) Reports;” 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 2021 Proxy Statement:
“Executive Compensation” and “Corporate
Governance Matters—Compensation Committee Interlocks and
Insider Participation” and “—Board’s Role
in Oversight of Risk.”
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 2021 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 2021 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 2021 Proxy Statement:
“Independent Registered Public Accounting Firm and Audit
Committee Report—Principal Accountant Fees and
Services,” “—Audit Fees,”
“—Audit Related Fees,” and
“—Pre-Approval Policy for Services.”
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:
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|
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Page
|
|
|
|
Index
|
|
|
F-1
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
Consolidated
Balance Sheets
|
|
|
F-4
|
|
|
Consolidated
Statements of Operations
|
|
|
F-5
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
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|
F-6
|
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|
Consolidated
Statements of Cash Flows
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F-7
|
|
|
Notes
to Consolidated Financial Statements
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F-8
|
|
(2)
Financial Statement Schedules:
|
Schedule
II - Valuation Qualifying Accounts
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|
|
F-32
|
|
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 those listed in the following Exhibit Index.
EXHIBIT INDEX
|
Number
|
Description
|
|
|
|
|
3.1
|
Seventh Amended and Restated Certificate of
Incorporation of AutoWeb, Inc. (filed with the Secretary of the
State of Delaware on June 22, 2020), incorporated by reference
to Exhibit
3.1 to the Current
Report on Form 8-K filed with the SEC on June 23, 2020 (SEC File
No. 001-34761).
|
|
|
|
|
3.2
|
Seventh Amended and Restated
Bylaws of AutoWeb, Inc. dated as of October 9, 2017, incorporated
by reference to Exhibit
3.5 to the Current Report on Form 8-K filed with the
SEC on October 10, 2017 (SEC File No. 001-34761).
|
|
|
|
|
4.1*
|
Description
of AutoWeb, Inc. Securities Registered Pursuant to Section 12 of
the Securities Exchange Act of 1934.
|
|
|
|
|
4.2
|
Tax Benefit Preservation Plan dated as of May 26,
2010, by and between Company 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 Company,
incorporated 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); Amendment No. 1 to Tax Benefit Preservation
Plan dated as of April 14, 2014, between Company and Computershare
Trust Company, N.A., as rights agent, incorporated 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); Amendment No. 2 to Tax Benefit Preservation
Plan dated as of April 13, 2017, between Company and
Computershare Trust Company, N.A., as rights agent, incorporated by
reference to Exhibit
4.1 to the Current
Report on Form 8-K filed with the SEC on April 14, 2017 (SEC File
No. 001-34761); Amendment No. 3 to Tax Benefit Preservation Plan
dated as of March 31, 2020, between Company and Computershare Trust
Company, N.A., as rights agent, incorporated by reference
to Exhibit
4.1 to the Current
Report on Form 8-K filed with the SEC on April 2, 2020 (SEC File
No. 001-34761); Certificate of Adjustment Under Section 11(m) of
the Tax Benefit Preservation Plan, incorporated 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 Inc. 2010 Equity
Incentive Plan, incorporated 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, Form of
2012 Performance-Based Stock Option Award Agreement, Form of
Non-Employee Director Stock Option Award Agreement and Form of
(Management) Employee Stock Option Award Agreement under the
Autobytel Inc. 2010 Equity Incentive Plan, incorporated by
reference to Exhibits 10.58, 10.59, 10.60 and 10.61,
respectively, 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); and Form of 2013 Performance-Based Stock Option
Award Agreement under the Autobytel Inc. 2010 Equity Incentive
Plan, incorporated 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).
|
|
|
|
|
10.2■
|
AutoWeb, Inc. (formerly Autobytel
Inc.) 2014 Equity Incentive Plan, incorporated 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); Amended and Restated AutoWeb, Inc. (formerly Autobytel
Inc.) 2014 Equity Incentive Plan (supersedes and replaces the
AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity Incentive Plan
filed under Exhibit
10.1 to the Current Report on
Form 8-K filed with the SEC on June 23, 2014 (SEC File No.
001-34761), incorporated by reference to Exhibit
10.11 to the Annual Report on
Form 10-K for the Year Ended December 31, 2017, filed with the SEC
on March 15, 2018 (SEC File No. 001-34761); Form of Non-Employee
Director Stock Option Award Agreement under the Amended and
Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity
Incentive Plan, incorporated by reference to
Exhibit
10.12 on
the Annual Report on Form 10-K for the Year Ended December 31,
2017, filed with the SEC on March 15, 2018 (SEC File No.
001-34761); Form of Executive Stock Option Award Agreement under
the Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.)
2014 Equity Incentive Plan, incorporated by reference to
Exhibit
10.13 on
the Annual Report on Form 10-K for the Year Ended December 31,
2017, filed with the SEC on March 15, 2018 (SEC File No.
001-34761); Form of Non-Executive Employee Stock Option Award
Agreement under the Amended and Restated AutoWeb, Inc. (formerly
Autobytel Inc.) 2014 Equity Incentive Plan, incorporated by
reference to
Exhibit
10.14 on
the Annual Report on Form 10-K for the Year Ended December 31,
2017, filed with the SEC on March 15, 2018 (SEC File No.
001-34761); Form of Subsidiary Employee Stock Option Award
Agreement under the Amended and Restated AutoWeb, Inc. (formerly
Autobytel Inc.) 2014 Equity Incentive Plan, incorporated by
reference to
Exhibit
10.15 on
the Annual Report on Form 10-K for the Year Ended December 31,
2017, filed with the SEC on March 15, 2018 (SEC File No.
001-34761); and Form of Restricted Stock Award Agreement under the
Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014
Equity Incentive Plan, incorporated by reference to
Exhibit
10.16 on
the Annual Report on Form 10-K for the Year Ended December 31,
2017, filed with the SEC on March 15, 2018 (SEC File No.
001-34761).
|
|
|
|
|
10.3■
|
AutoWeb, Inc. 2018 Equity
Incentive Plan, incorporated by reference to
Exhibit
10.1 on
the Current Report on Form 8-K filed with the SEC on June 27, 2018
(SEC File No. 001-34761); Form of Non-Employee Director Stock
Option Award Agreement (Non-Qualified Stock Option) under the
AutoWeb, Inc. 2018 Equity Incentive Plan, incorporated by reference
to
Exhibit
10.8 to
the Quarterly Report on Form 10-Q for the Quarterly Period ended
June 30, 2018, filed with the SEC on August 2, 2018 (SEC File No.
001-34761); Form of Employee Stock Option Award Agreement
(Non-Qualified Stock Option) (Executive) under the AutoWeb, Inc.
2018 Equity Incentive Plan, incorporated by reference to
Exhibit
10.9 on
the Quarterly Period ended June 30, 2018, filed with the SEC on
August 2, 2018 (SEC File No. 001-34761); Form of Employee Stock
Option Award Agreement (Non-Qualified Stock Option) (Non-Executive)
under the AutoWeb, Inc. 2018 Equity Incentive Plan, incorporated by
reference to
Exhibit
10.10 on
the Quarterly Period ended June 30, 2018, filed with the SEC on
August 2, 2018 (SEC File No. 001-34761); and Form of Restricted
Stock Award Agreement under the AutoWeb, Inc. 2018 Equity Incentive
Plan, incorporated by reference to
Exhibit
10.11 on
the Quarterly Period ended June 30, 2018, filed with the SEC on
August 2, 2018 (SEC File No. 001-34761).
|
|
|
|
|
10.4■
|
Form of Amended and Restated
Indemnification Agreement between Company and its directors and
officers, incorporated 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).
|
|
|
|
|
10.5■
|
Form of Indemnification Agreement
between Company and its directors and officers, incorporated by
reference to Exhibit
10.24 to the Annual Report on
Form 10-K for the Year Ended December 31, 2017, filed with the SEC
on March 15, 2018 (SEC File No. 001-34761).
|
|
|
|
|
10.6■
|
Employment Agreement dated as of April 12, 2018,
between Company and Jared Rowe, incorporated by reference
to Exhibit
10.1 to the Current Report on
Form 8-K filed with the SEC on April 18, 2018 (SEC File No.
001-34761); as amended by Amendment No. 1 to Employment Agreement
dated as of August 26, 2019, incorporated by reference to
Exhibit
10.2 to
the Quarterly Report on Form 10-Q filed with the SEC on November 7,
2019 (SEC File No. 001-34761).
|
|
|
|
|
10.7■
|
Inducement Stock Option Award Agreement dated as
of April 12, 2018, between Company and Jared Rowe,
incorporated by
reference to Exhibit
10.2 to the Current Report on
Form 8-K filed with the SEC on April 18, 2018 (SEC File No.
001-34761).
|
|
|
|
|
10.8■
|
Letter Agreement dated as of
October 10, 2006, between Company and Glenn Fuller, as amended by
Memorandum dated April 18, 2008, Memorandum dated as of December 8,
2008, and Memorandum dated as of March 1, 2009, incorporated 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); as amended by
Memorandum dated as of January 31, 2017, incorporated by reference
to Exhibit
10.13 to the Annual Report on
Form 10-K for the Year Ended December 31, 2016, filed with the SEC
on March 9, 2017 (SEC File No. 001-34761); and as amended by
Memorandum dated April 18, 2018, incorporated by reference
to
Exhibit
10.20 to
the Annual Report on Form 10-K for the Year Ended December 31,
2018, filed with the SEC on March 7, 2019 (SEC File No.
001-34761).
|
|
|
|
|
10.9■*
|
Third
Amended and Restated Severance Benefits Agreement dated as of March
3, 2021, between Company and Glenn Fuller.
|
|
|
|
|
10.10■
|
Offer of Employment dated as of
November 26, 2018, between Company and Daniel Ingle, incorporated
by reference to
Exhibit
10.1 to
the Current Report on Form 8-K filed with the SEC on January 16,
2019 (SEC File No. 001-34761).
|
|
|
|
|
10.11■
|
Inducement Stock Option Award
Agreement dated as of January 16, 2019, between Company and Daniel
Ingle, incorporated by reference to
Exhibit
10.25 to
the Annual Report on Form 10-K for the year ended December 31,
2018, filed with the SEC on March 7, 2019 (SEC File No.
001-34761).
|
|
|
|
|
10.12■
|
Amended and Restated Severance
Benefits Agreement dated as of March 3, 2021, between Company and
Daniel Ingle, incorporated by reference to
Exhibit
10.2 to the Current Report on Form 8-K
filed with the SEC on March 4, 2021 (SEC File No.
001-34761).
|
|
|
|
|
10.13■
|
Offer of Employment dated as of
November 16, 2020, between Company and Michael Sadowski,
incorporated by reference to
Exhibit
10.1 to the Current Report on Form 8-K
filed with the SEC on November 19, 2020 (SEC File No.
001-34761).
|
|
|
|
|
10.14■*
|
Inducement
Stock Option Award Agreement dated as of November 30, 2020, between
Company and Michael Sadowski.
|
|
|
|
|
10.15■
|
Amended and Restated Severance
Benefits Agreement dated as of March 3, 2021, between Company and
Michael Sadowski, incorporated by reference to
Exhibit
10.1 to the Current Report on Form 8-K
filed with the SEC on March 4, 2021 (SEC File No.
001-34761).
|
|
|
|
|
10.16■
|
Offer of Employment dated as of
October 2, 2018, between Company and Sara Partin, incorporated by
reference to
Exhibit
10.1 to
the Quarterly Report on Form 10-Q for the Quarterly Period ended
September 30, 2018, filed with the SEC on November 8, 2018 (SEC
File No. 001-34761).
|
|
|
|
|
10.17■
|
Inducement Stock Option Award
Agreement dated as of October 22, 2018, between Company and Sara
Partin, incorporated by reference to
Exhibit
10.2 to
the Quarterly Report on Form 10-Q for the Quarterly Period ended
September 30, 2018, filed with the SEC on November 8, 2018 (SEC
File No. 001-34761).
|
|
|
|
|
10.18■*
|
Amended
and Restated Severance Benefits Agreement dated as of March 3,
2021, between Company and Sara Partin.
|
|
|
|
|
10.19
|
Fourth Amended and Restated Stockholder Agreement
dated as of March 1, 2017, incorporated 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).
|
|
|
|
|
10.20
|
Lease Agreement dated as of March 11, 2020,
between Company and The Irvine Company LLC, incorporated by
reference to
Exhibit
10.1 to the Current Report
on Form 8-K filed with the SEC on March 16, 2020
(SEC File No.
001-34761).
|
|
|
|
|
10.21
|
Lease Agreement dated as of
December 9, 2015, between Company and Rivergate Tower Owner, LLC,
as amended by Amendment No. 1 to Lease Agreement dated November 21,
2016, incorporated by reference to
Exhibit
10.35 to
the Annual Report on Form 10-K filed with the SEC on March 9, 2017
(SEC File No. 001-34761).
|
|
|
|
|
10.22
|
Contract for Lease and Deposit dated as of June
1, 2016, between AW GUA, Limitada, and Mertech, Sociedad Anonima,
for office No. 1101, incorporated by reference to
Exhibit
10.33 to Annual Report on
Form 10-K filed with the SEC on March 9, 2017 (SEC File No.
001-34761); Letter Agreements for Lease Extension dated as of
December 18, 2019 and January 6, 2020, between AW GUA, Limitada,
and Mertech, Sociedad Anonima, for office No. 1101,
incorporated by
reference to
Exhibit
10.32 to
the Annual Report on Form 10-K filed with the SEC on March 27, 2020
(SEC File No. 001-34761).
|
|
|
|
|
10.23
|
Contract for Lease and Deposit dated as of June
1, 2016, between AW GUA, Limitada, and Mertech, Sociedad Anonima,
for office No. 1102, incorporated by reference to
Exhibit
10.34 to Annual Report on
Form 10-K filed with the SEC on March 9, 2017 (SEC File No.
001-34761); Letter Agreements for Lease Extension dated as of
December 18, 2019 and January 6, 2020, between AW GUA, Limitada,
and Mertech, Sociedad Anonima, for office No. 1102,
incorporated by
reference to
Exhibit
10.33 to
the Annual Report on Form 10-K filed with the SEC on March 27, 2020
(SEC File No. 001-34761).
|
|
|
|
|
10.24
|
Tax Benefit Preservation Plan
Exemption Agreement and Irrevocable Proxy dated as of November 15,
2017, by and among Company, Piton Capital Partners LLC, a Delaware
limited liability company (“Piton
Capital”), and Piton
Capital’s managing members, incorporated by reference
to Exhibits
10.1 and 10.2,
respectively, to the Current Report on Form 8-K filed with the SEC
on November 17, 2017 (SEC File No. 001-34761).
|
|
|
|
|
10.25
|
Tax Benefit Preservation Plan
Exemption Agreement and Irrevocable Proxies, effective as of
November 30, 2018, by and among Company, Daniel M. Negari, The 1 8
999 Trust, a trust organized under the laws of Nevada, Michael R.
Ambrose, and The Insight Trust, a trust organized under the laws of
Nevada, incorporated by reference to Exhibits
10.1,
10.2,
10.3,
10.4 and
10.5, respectively, to the Current
Report on Form 8-K filed with the SEC on November 30, 2018 (SEC
File No. 001-34761).
|
|
|
|
|
10.26
|
Transitional License and Linking Agreement dated
as of January 1, 2017, by and among Company, Internet Brands, Inc.,
a Delaware corporation, and Car.com, Inc., a Delaware corporation,
incorporated 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).
|
|
|
|
|
10.27
|
Form of Warrant to Purchase
Common Stock (on an as-converted basis following the conversion of
Series B Junior Preferred Stock) dated as of October 1, 2015,
issued by the Company to the persons listed on Schedule A thereto,
which is incorporated herein by reference to Exhibit
10.1 to the Current Report on
Form 8-K filed with the SEC on October 6, 2015 (SEC File No.
001-34761).
|
|
|
|
|
10.28
|
Loan, Security and Guarantee Agreement dated as
of March 26, 2020, by and among AutoWeb, Inc., as
Borrower, Autobytel, Inc., AW GUA USA, Inc., and Car.com, Inc., as
Guarantors, Certain Financial Institutions, as lenders, and CIT
Northbridge Credit LLC, as agent, incorporated by reference to
Exhibit
10.1 to the Current Report
on Form 8-K filed with the SEC on March 26,
2020 (SEC File No. 001-34761); as amended by First Amendment
to Loan, Security and
Guarantee Agreement dated as of May 18, 2020,
incorporated by reference to Exhibit
10.1 to the Current Report on
Form 8-K filed with the SEC on May 19, 2020 (SEC File No.
001-34761).
|
|
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|
|
21.1*
|
Subsidiaries
of AutoWeb, Inc.
|
|
|
|
|
23.1*
|
Consent
of Independent Registered Public Accounting Firm, Moss Adams
LLP.
|
|
|
|
|
24.1*
|
Power
of Attorney (included in the signature page hereto).
|
|
|
|
|
31.1*
|
Chief
Executive Officer Section 302 Certification of Periodic Report
dated March 11, 2021.
|
|
|
|
|
31.2*
|
Chief
Financial Officer Section 302 Certification of Periodic Report
dated March 11, 2021.
|
|
|
|
|
32.1*
|
Chief
Executive Officer and Chief Financial Officer Section 906
Certification of Periodic Report dated March 11, 2021.
|
|
|
|
|
101.INS
|
XBRL
Instance Document.
|
|
|
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document.
|
|
|
|
|
101.CAL
|
XBRL
Taxonomy Calculation Linkbase Document.
|
|
|
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Document.
|
|
|
|
|
101.LAB
|
XBRL
Taxonomy Label Linkbase Document.
|
|
|
|
|
101.PRE
|
XBRL
Taxonomy Presentation Linkbase Document.
|
|
104
|
Cover
Page Interactive Data File (formatted as Inline XRBL with
applicable taxonomy extension information contained in Exhibit
101)
|
|
*
|
Filed
or Furnished herewith.
|
|
■
|
Management
Contract or Compensatory Plan or Arrangement.
|
Item 16.
Form 10-K Summary
None.
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 11th day of March 2021.
|
|
AUTOWEB, INC.
|
|
|
|
|
|
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|
By:
|
/s/ JARED R. ROWE
|
|
|
|
|
Jared R. Rowe
|
|
|
|
|
President, Chief Executive Officer and Director
|
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of
AutoWeb, Inc., a Delaware corporation (“Company”),
and the undersigned Directors and Officers of AutoWeb, Inc. hereby
constitute and appoint Jared R. Rowe, Michael Sadowski and Glenn E.
Fuller as the Company’s or such Director’s or
Officer’s true and lawful attorneys-in-fact and agents, for
the Company or such Director or Officer and in the Company’s
or such Director’s or Officer’s 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 the Company or such Director or Officer 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 11, 2021
|
|
|
|
|
|
|
|
/s/ JARED
R. ROWE
Jared R. Rowe
|
President,
Chief Executive Officer and Director
(Principal
Executive Officer)
|
March 11, 2021
|
|
|
|
|
|
|
|
/s/ MICHAEL
SADOWSKI
Michael Sadowski
|
Executive
Vice President and Chief Financial Officer
(Principal
Financial Officer)
|
March 11, 2021
|
|
|
|
|||
|
/s/ CHERAY
DURAN
Cheray Duran
|
Vice
President, Corporate Controller
(Principal
Accounting Officer)
|
March
11, 2021
|
|
|
|
|
|
|
|
/s/ MICHAEL
A. CARPENTER
Michael A. Carpenter
|
Director
|
March 11, 2021
|
|
|
|
|
|
|
|
/s/ MATIAS
DE TEZANOS
Matias de Tezanos
|
Director
|
March 11, 2021
|
|
|
|
|
|
|
|
/s/ CHAN
GALBATO
Chan Galbato
|
Director
|
March 11, 2021
|
|
|
|
|
|
|
|
/s/ MARK
N. KAPLAN
Mark N. Kaplan
|
Director
|
March 11, 2021
|
|
|
|
|
|
|
|
/s/ JANET
M. THOMPSON
Janet M. Thompson
|
Director
|
March 11, 2021
|
|
|
|
|
|
|
|
/s/ JOSE
VARGAS
Jose Vargas
|
Director
|
March 11, 2021
|
|
-36-
AUTOWEB, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
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Page
|
|
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|
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F-2
|
|
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F-4
|
|
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F-5
|
|
|
|
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|
F-6
|
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|
F-7
|
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|
F-8
|
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Shareholders and the Board of Directors of
AutoWeb,
Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
AutoWeb, Inc. (the “Company”) as of December 31,
2020 and 2019, the related consolidated statements of operations,
stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2020, and the related notes
and schedule (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the
consolidated financial position of the Company as of
December 31, 2020 and 2019, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2020, in conformity with accounting
principles generally accepted in the United States of
America.
Change in Accounting Principle
As discussed in Note 8 to the consolidated financial statements,
the Company changed its method of accounting for leases in
2019.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. 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, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures to respond
to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising
from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to
the audit committee and that (i) relates to accounts or disclosures
that are material to the consolidated financial statements and (ii)
involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it
relates.
Revenue recognition – Identifying and evaluating terms and
conditions in contracts
For the fiscal year ended December 31, 2020, Company’s
revenue was approximately $76.6 million. As described in Note 3 to
the consolidated financial statements, the Company applies the
following steps in their determination of revenue to be recognized:
1) identification of the contract with a customer; 2)
identification of the performance obligations in the contract; 3)
determination of the transaction price; 4) allocation of the
transaction price to the performance obligations in the contract;
and 5) recognition of revenue when, or as, the Company satisfies a
performance obligation. The Company earns revenue from multiple
revenue streams and frequently enters into contracts that include
various combinations of products and services, which are generally
capable of being distinct and accounted for as separate performance
obligations. Further, the Company’s revenue contracts are
subject to frequent amendment.
The identification and evaluation of all relevant terms and
conditions in each contract has been determined to be a critical
audit matter. The principal considerations for this determination
include the fact that the Company’s revenue process is
largely manual and requires the evaluation of a large volume of
contracts which are subject to frequent modification or amendment,
which results in a significant effort by the Company to identify
and evaluate all the relevant terms and conditions in each contract
with a customer and its impact on revenue recognition. This led to
a high degree of audit effort in performing our audit procedures to
evaluate whether all the relevant terms and conditions in its
revenue contracts were appropriately identified and evaluated by
the Company.
The primary audit procedures we performed to address the critical
audit matter included, among others, testing the completeness and
accuracy of the Company’s identification and evaluation of
the appropriate contract utilized by examining revenue arrangements
on a test basis, and testing the Company’s application of the
terms and conditions in the contract by inspecting the
corresponding invoice and payment remittance ensuring the revenue
was recognized in the appropriate period.
/s/
Moss Adams LLP
San
Diego, California
March
11, 2021
We have
served as the Company’s auditor since
2012.
AUTOWEB, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
|
|
December 31,
2020
|
December 31,
2019
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$10,803
|
$892
|
|
Restricted
cash
|
4,304
|
5,054
|
|
Accounts receivable, net of allowances for bad
debts and customer credits of $406 and $740 at December 31, 2020 and 2019,
respectively
|
13,955
|
24,051
|
|
Prepaid
expenses and other current assets
|
847
|
1,265
|
|
Total
current assets
|
29,909
|
31,262
|
|
Property
and equipment, net
|
2,953
|
3,349
|
|
Right-of-use
assets
|
2,892
|
2,528
|
|
Intangible
assets, net
|
4,733
|
7,104
|
|
Other
assets
|
642
|
661
|
|
Total
assets
|
$41,129
|
$44,904
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$7,233
|
$14,412
|
|
Borrowings
under revolving credit facility
|
10,185
|
3,745
|
|
Accrued
employee-related benefits
|
2,123
|
1,351
|
|
Other
accrued expenses and other current liabilities
|
538
|
1,636
|
|
Current
portion of the PPP loan
|
1,384
|
—
|
|
Current
portion of lease liabilities
|
1,015
|
1,167
|
|
Current
portion of financing debt
|
65
|
—
|
|
Total
current liabilities
|
22,543
|
22,311
|
|
Lease
liabilities, net of current portion
|
2,191
|
1,497
|
|
Financing
debt, net of current portion
|
60
|
—
|
|
Total
liabilities
|
24,794
|
23,808
|
|
Commitments
and contingencies (Note 8)
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred
stock, $0.001 par value; 11,445,187 shares authorized
|
|
|
|
Series
A Preferred stock 2,000,000 shares authorized, none issued and
outstanding at December 31, 2020 and 2019,
respectively
|
—
|
—
|
|
Common
stock, $0.001 par value; 55,000,000 shares authorized; 13,169,204
and 13,146,831 shares issued and outstanding at December 31,
2020 and 2019, respectively
|
13
|
13
|
|
Additional
paid-in capital
|
366,087
|
364,028
|
|
Accumulated
deficit
|
(349,765)
|
(342,945)
|
|
Total
stockholders’ equity
|
16,335
|
21,096
|
|
Total
liabilities and stockholders’ equity
|
$41,129
|
$44,904
|
The accompanying notes are an integral part of these consolidated
financial statements.
AUTOWEB, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per-share data)
|
|
Years Ended December 31,
|
||
|
|
2020
|
2019
|
2018
|
|
Revenues:
|
|
|
|
|
Lead
generation
|
$61,114
|
$90,728
|
$96,936
|
|
Digital
advertising
|
15,441
|
23,173
|
28,169
|
|
Other
revenues
|
15
|
80
|
484
|
|
Total
revenues
|
76,570
|
113,981
|
125,589
|
|
Cost
of revenues
|
52,890
|
91,412
|
101,315
|
|
Cost
of revenues – impairment
|
—
|
—
|
9,014
|
|
Gross
profit
|
23,680
|
22,569
|
15,260
|
|
Operating
expenses:
|
|
|
|
|
Sales
and marketing
|
8,201
|
10,512
|
12,178
|
|
Technology
support
|
6,574
|
8,849
|
13,838
|
|
General
and administrative
|
12,718
|
14,175
|
16,318
|
|
Depreciation
and amortization
|
1,711
|
4,371
|
4,897
|
|
Goodwill
impairment
|
—
|
—
|
5,133
|
|
Long-lived
asset impairment
|
—
|
—
|
1,968
|
|
Total
operating expenses
|
29,204
|
37,907
|
54,332
|
|
Operating
loss
|
(5,524)
|
(15,338)
|
(39,072)
|
|
Interest
and other (expense) income:
|
|
|
|
|
Interest
(expense) income
|
(1,524)
|
(410)
|
(106)
|
|
Other
income (expense)
|
238
|
529
|
356
|
|
Loss
before income tax provision
|
(6,810)
|
(15,219)
|
(38,822)
|
|
Income
tax provision (benefit)
|
10
|
10
|
(6)
|
|
Net
loss
|
$(6,820)
|
$(15,229)
|
$(38,816)
|
|
|
|
|
|
|
Basic
loss per common share
|
$(0.52)
|
$(1.17)
|
$(3.04)
|
|
Diluted
loss per common share
|
$(0.52)
|
$(1.17)
|
$(3.04)
|
The accompanying notes are an integral part of these consolidated
financial statements.
AUTOWEB, 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, 2017
|
13,059,341
|
$13
|
—
|
$—
|
$356,054
|
$(288,900)
|
$67,167
|
|
Share-based
compensation
|
—
|
—
|
—
|
—
|
4,866
|
—
|
4,866
|
|
Issuance
of common stock upon exercise of stock options
|
28,467
|
—
|
—
|
—
|
98
|
—
|
98
|
|
Cancellation
of restricted stock
|
(188,333)
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Issuance
of common stock
|
60,975
|
—
|
—
|
—
|
200
|
—
|
200
|
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(38,816)
|
(38,816)
|
|
Balance
at December 31, 2018
|
12,960,450
|
$13
|
—
|
$—
|
$361,218
|
$(327,716)
|
$33,515
|
|
Share-based
compensation
|
—
|
—
|
—
|
—
|
2,402
|
—
|
2,402
|
|
Issuance
of common stock upon exercise of stock options
|
213,048
|
—
|
—
|
—
|
408
|
—
|
408
|
|
Cancellation
of restricted stock
|
(26,667)
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(15,229)
|
(15,229)
|
|
Balance
at December 31, 2019
|
13,146,831
|
$13
|
—
|
$—
|
$364,028
|
$(342,945)
|
$21,096
|
|
Share-based
compensation
|
—
|
—
|
—
|
—
|
1,984
|
—
|
1,984
|
|
Issuance
of common stock upon exercise of stock options
|
22,373
|
—
|
—
|
—
|
75
|
—
|
75
|
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(6,820)
|
(6,820)
|
|
Balance
at December 31, 2020
|
13,169,204
|
$13
|
—
|
$—
|
$366,087
|
$(349,765)
|
$16,335
|
The accompanying notes are an integral part of these consolidated
financial statements.
AUTOWEB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Years Ended December 31,
|
||
|
|
2020
|
2019
|
2018
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net
loss
|
$(6,820)
|
$(15,229)
|
$(38,816)
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
|
|
|
|
Depreciation
and amortization
|
3,624
|
6,454
|
8,544
|
|
Goodwill
impairment
|
—
|
—
|
5,133
|
|
Intangible
asset impairment
|
—
|
—
|
9,014
|
|
Provision
for bad debt
|
291
|
293
|
241
|
|
Provision
for customer credits
|
83
|
250
|
217
|
|
Share-based
compensation
|
1,984
|
2,402
|
4,866
|
|
Right-of-use-assets
|
1,426
|
1,697
|
—
|
|
Lease
Liabilities
|
(1,248)
|
(1,706)
|
—
|
|
Write-down
of assets
|
—
|
59
|
—
|
|
Loss
on disposal of assets
|
6
|
—
|
—
|
|
Long-lived
asset impairment
|
—
|
—
|
1,968
|
|
(Gain)/loss
on investment
|
—
|
(250)
|
(25)
|
|
Change
in deferred tax assets
|
—
|
—
|
692
|
|
Changes
in assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
9,722
|
2,304
|
(1,445)
|
|
Prepaid
expenses and other current assets
|
418
|
(20)
|
814
|
|
Other
non-current assets
|
19
|
(145)
|
(278)
|
|
Accounts
payable
|
(7,279)
|
(3,753)
|
5,076
|
|
Accrued
expenses and other current liabilities
|
(325)
|
(1,773)
|
1,079
|
|
Net
cash provided by (used in) operating activities
|
1,901
|
(9,417)
|
(2,920)
|
|
Cash
flows from investing activities:
|
|
|
|
|
Purchases
of property and equipment
|
(596)
|
(1,640)
|
(896)
|
|
Proceeds
from sale of investment
|
—
|
250
|
125
|
|
Net
cash used in investing activities
|
(596)
|
(1,390)
|
(771)
|
|
Cash
flows from financing activities:
|
|
|
|
|
Borrowings
under PNC credit facility
|
28,564
|
73,968
|
—
|
|
Principal
payments on PNC credit facility
|
(32,308)
|
(70,223)
|
—
|
|
Borrowings
under CNC credit facility
|
71,072
|
—
|
—
|
|
Principal
payments on CNC credit facility
|
(60,887)
|
—
|
—
|
|
Principal
payments on MUFG Union Bank credit facility
|
—
|
—
|
(8,000)
|
|
Borrowings
under the PPP loan
|
1,384
|
—
|
—
|
|
Proceeds
from issuance of common stock
|
—
|
—
|
200
|
|
Payments
on convertible note
|
—
|
(1,000)
|
—
|
|
Payments
under financing agreement
|
(44)
|
—
|
—
|
|
Net
proceeds from stock option exercises
|
75
|
408
|
98
|
|
Net
cash provided by (used in) financing activities
|
7,856
|
3,153
|
(7,702)
|
|
Net
increase (decrease) in cash and cash equivalents
|
9,161
|
(7,654)
|
(11,393)
|
|
Cash
and cash equivalents and restricted cash, beginning of
period
|
5,946
|
13,600
|
24,993
|
|
Cash
and cash equivalents and restricted cash, end of
period
|
$15,107
|
$5,946
|
$13,600
|
|
|
|
|
|
|
Reconciliation
of cash and cash equivalents and restricted cash
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
$892
|
$13,600
|
$24,993
|
|
Restricted
cash at beginning of period
|
5,054
|
—
|
—
|
|
Cash
and cash equivalents and restricted cash at beginning of
period
|
$5,946
|
$13,600
|
$24,993
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
$10,803
|
$892
|
$13,600
|
|
Restricted
cash at end of period
|
4,304
|
5,054
|
—
|
|
Cash
and cash equivalents and restricted cash at end of
period
|
$15,107
|
$5,946
|
$13,600
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
Cash
paid for income taxes
|
$1
|
$12
|
$4
|
|
Cash
refunds for income taxes
|
$849
|
$128
|
$223
|
|
Cash
paid for interest
|
$845
|
$176
|
$118
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|
|
|
|
Right-of-use
assets obtained in exchange for operating lease
liabilities
|
$1,790
|
$—
|
$
|
|
Financing
for the purchase of fixed assets
|
$170
|
$—
|
$—
|
|
Purchases
on account related to capitalized software
|
$99
|
$—
|
$—
|
The accompanying notes are an integral part of these consolidated
financial statements.
AUTOWEB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Operations of AutoWeb
AutoWeb, Inc. (“AutoWeb” or the “Company”) is a digital marketing company for
the automotive industry that assists automotive retail dealers
(“Dealers”) and
automotive manufacturers (“Manufacturers”) market and sell
new and used vehicles to consumers through its programs for online lead and traffic
referrals, Dealer marketing products and services, and online
advertising.
The Company’s consumer-facing automotive
websites (“Company
Websites”) 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”). Leads are internally-generated from
Company Websites or acquired from third parties that generate Leads
from their websites.
The
Company’s click traffic referral program provides consumers
who are shopping for vehicles online with targeted offers based on
make, model and geographic location. As these consumers conduct
online research on Company Websites or on the site of one of the
Company’s 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 the Company’s Dealer,
Manufacturer or advertising customers.
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.
The Company accounts for comprehensive income in
accordance with ASC 220 (“Comprehensive
Income”), which specifies
the computation, presentation, and disclosure requirements for
comprehensive income (loss). During the reported periods, the
Company had no other comprehensive income.
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.
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.
Restricted
Cash. For
purposes of the Consolidated Balance Sheets and the Consolidated
Statements of Cash Flows, restricted cash primarily consists of
cash pledged pursuant to the CNC Credit Agreement (See Note
7).
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 general and administrative 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 general and administrative 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.
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, restricted cash, 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 during the year
ended December 31, 2018, consisted of an investment in GoMoto and
SaleMove which were accounted for under the cost method. On July
30, 2019, the Company entered into a Repurchase Agreement with
GoMoto, pursuant to which GoMoto repurchased these 317,460 shares
of Series Seed Preferred Stock and 1,781,047 shares of Series A-2
Preferred Stock from the Company for an aggregate purchase price of
$250,000. During the year ended December 31, 2018, the Company
sold its interest back to
SaleMove for $0.1 million. See
Note 5 for further discussion.
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.
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
the Company’s stock could be material.
The
Company has a concentration of credit risk with the Company’s
automotive industry related accounts receivable balances,
particularly with Carat Detroit (General Motors), Ford Direct,
Urban Science Applications (which represents several Manufacturer
programs) and Autodata Solutions. During 2020, approximately 46% of
the Company’s total revenues were derived from these four
customers, and approximately 62% or $8.6 million of gross accounts
receivable related to these four customers at December 31,
2020. Carat Detroit accounted for 12% and 19% of total
revenues and accounts receivable, respectively, as of December 31,
2020. Ford Direct accounted for 11% and 16% of total revenues and
accounts receivable, respectively, as of December 31, 2020. Urban
Science Applications accounted for 12% and 15% of total revenues
and accounts receivable, respectively, as of December 31, 2020.
Autodata Solutions accounted for 11% and 12% of total revenues and
accounts receivable, respectively, as of December 31,
2020.
During
2019, approximately 25% of the Company’s total revenues were
derived from Urban Science Applications and Carat Detroit.
Approximately 33% or $8.4 million of gross accounts receivable
related to these two customers at December 31,
2019. Urban Science Applications accounted for 15% and
13% of total revenues and accounts receivable, respectively, as of
December 31, 2019. Carat Detroit accounted for 9% and 21% of total
revenues and accounts receivable, respectively, as of December 31,
2019.
During
2018, approximately 37% of the Company’s total revenues were
derived from Urban Science Applications (which represents several
Manufacturer programs), General Motors and media.net Advertising
and approximately 41% or $11.2 million of gross accounts receivable
related to these three customers at December 31,
2018. Urban Science Applications accounted for 18% and
21% of total revenues and accounts receivable, respectively, as of
December 31, 2018. Media.net Advertising accounted for 10% and
6% of total revenues and accounts receivable, respectively, as of
December 31, 2018. General Motors accounted for 9% and 13% of
total revenues and accounts receivable, respectively, as of
December 31, 2018.
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,
respectively.
Operating
Leases. The Company
leases office space and certain office equipment under operating
lease agreements which expire on various dates through 2025, with
options to renew on expiration of the original lease terms. These
operating lease agreements include one material related-party
agreement, whereby the Company incurred $0.1 million of operating
lease payments during 2020.
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 ASC 350-40, “Internal-Use Software,” and ASC
350-50, “Website Development Costs,” 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 placed in service $1.5
million and $0.4 million of such costs for the years ended December
31, 2020 and 2019, respectively.
Indefinite-lived intangible
assets. Indefinite-lived
intangible assets consist 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, the Company may first perform a qualitative analysis to
determine whether it is more-likely-than-not that the
indefinite-lived intangible assets are impaired. If the Company
does not perform the qualitative assessment, or if the Company
determines that it is more-likely-than-not that the fair value of
the indefinite-lived intangible asset exceeds its carrying amount,
the Company 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.
Impairment of Long-Lived
Assets and Intangible Assets. The Company periodically reviews long-lived
amortizing 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. In 2018, the Company recorded impairments totaling
$11.0 million, primarily attributable to a $9.0 million
charge due to the
Company’s decision to terminate the support provisions of the
DealerX License Agreement, which significantly impacted the
usability of the asset. The remaining $2.0 million is comprised of a $1.6 million
customer relationships impairment related to a 2015 acquisition
after determining that a significant percentage of acquired
customers were no longer part of the dealer base, and the write-off
of $0.4 million in cash advances to SaleMove. The Company did not
record any impairment of long-lived assets and intangible assets in
2020 and 2019, respectively.
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 by comparing the
enterprise’s carrying value to its fair value. If the fair
value is less than the carrying value, enterprise goodwill is
potentially impaired. 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. The Company recorded
goodwill impairment of $5.1 million in 2018.
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.
ASC 740, “Income Taxes”, requires the
effects of changes in tax laws to be recognized in the period in
which the legislation is enacted. However, due to the complexity
and significance of the Tax Cuts and Jobs Act of 2017
(“TCJA”) provisions, the staff of the Securities
and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 118
(“SAB
118”), which provides
guidance on accounting for the tax effects of the TCJA. SAB 118
provides a measurement period that should not extend beyond one
year from the TCJA enactment date for companies to complete the
accounting under ASC 740.
In
2017, the Company recorded provisional amounts for certain
enactment-date effects of the TCJA, for which the accounting had
not been finalized, by applying the guidance in SAB 118. The
Company recorded a decrease in deferred tax assets of $11.7
million, with a corresponding net adjustment to deferred income tax
expense of $11.7 million for the year ended December 31, 2017. In
addition, the Company recognized a deemed repatriation of $0.6
million of deferred foreign income from its Guatemala subsidiary,
which did not result in any incremental tax cost after application
of foreign tax credits. Accordingly, the Company completed
accounting for the effects of the TCJA in 2018 and did not
recognize any material adjustments to the 2017 provisional income
tax expense.
The TCJA created a provision known as global
intangible low-tax income (“GILTI”) that imposes a U.S. tax on certain
earnings of foreign subsidiaries that are subject to foreign tax
below a certain threshold. We have made an accounting policy
election to reflect GILTI taxes, if any, as a current income tax
expense in the period incurred.
In response to the coronavirus pandemic, the
Coronavirus Aid, Relief and Economic Security
(“CARES”) Act was signed into law in March 2020.
The CARES Act lifts certain deduction limitations originally
imposed by the TCJA. Corporate taxpayers may carryback NOLs
originating during 2018 through 2020 for up to five years, which
was not previously allowed under the TCJA. The CARES Act also
eliminates the 80% of taxable income limitations by allowing
corporate entities to fully utilize NOL carryforwards to offset
taxable income in 2018, 2019 or 2020.
Taxpayers
may generally deduct interest up to the sum of 50% of adjusted
taxable income plus business interest income (30% limit under the
TCJA) for tax years beginning January 1, 2019 and 2020. The CARES
Act allows taxpayers with alternative minimum tax credits to claim
a refund in 2020 for the entire amount of the credits instead of
recovering the credits through refunds over a period of years, as
originally enacted by the TCJA. The enactment of the CARES Act did
not result in any material adjustments to the Company’s
income tax provision for the year ended December 31, 2020, or to
its net deferred tax assets as of December 31, 2020.
Computation of Basic and
Diluted Net Earnings (Loss) per
Share. Basic net
earnings (loss) per share is computed using the weighted-average
number of common shares outstanding during the
period. Diluted net earnings (loss) 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 unvested restricted stock, common shares issuable
upon the exercise of stock options, the exercise of
warrants, and conversion of
convertible notes.
The
following are the share amounts utilized to compute the basic and
diluted net earnings (loss) per share for the years ended
December 31:
|
|
2020
|
2019
|
2018
|
|
Basic
Shares:
|
|
|
|
|
Weighted
average common shares outstanding
|
13,144,314
|
13,070,898
|
12,756,191
|
|
Weighted
average common shares repurchased
|
—
|
—
|
—
|
|
Basic
Shares
|
13,144,314
|
13,070,898
|
12,756,191
|
|
|
|
|
|
|
Diluted
Shares:
|
|
|
|
|
Basic
Shares
|
13,144,314
|
13,070,898
|
12,756,191
|
|
Weighted
average dilutive securities
|
—
|
—
|
—
|
|
Dilutive
Shares
|
13,144,314
|
13,070,898
|
12,756,191
|
For
the years ended December 31, 2020, 2019 and 2018, basic and diluted
weighted average shares are the same as the Company generated a net
loss for the period and potentially dilutive securities are
excluded because they have an anti-dilutive impact.
Potentially
dilutive securities representing approximately 3.8 million, 4.4
million, and 3.5 million shares of common stock for the years ended
December 31, 2020, 2019, and 2018, respectively, were excluded
from the computation of diluted income per share for these periods
because their effect would have been anti-dilutive.
Share-Based
Compensation. The
Company grants stock-based awards (“Awards”) primarily in the form of stock options
and restricted stock awards (“RSAs”) under several of its stock-based
compensation Plans (the “Plans”), that are more fully described in Note
10. 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, 2020, 2019 and
2018 was $0.3 million, $0.6 million and $1.4 million,
respectively.
Recent Accounting Pronouncements
The
Company has reviewed all recently issued accounting pronouncements
and concluded that they were either not applicable or not expected
to have a material impact to its consolidated financial
statements.
3.
Revenue Recognition
Revenue
is recognized when the Company transfers control of promised goods
or services to the Company’s customers, or when the Company
satisfies any performance obligations under contract. The amount of
revenue recognized reflects the consideration the Company expects
to be entitled to in exchange for respective goods or services
provided. Further, under ASC 606, contract assets or contract
liabilities that arise from past performance but require further
performance before obligation can be fully satisfied must be
identified and recorded on the balance sheet until respective
settlements have been met.
The
Company performs the following steps in order to properly determine
revenue recognition and identify relevant contract assets and
contract liabilities:
●
identify
the contract with a customer;
●
identify
the performance obligations in the contract;
●
determine
the transaction price;
●
allocate
the transaction price to the performance obligations in the
contract; and
●
recognize
revenue when, or as, the Company satisfies a performance
obligation.
The
Company earns revenue by providing lead generation, digital
advertising, and mobile products and services used by Dealers and
Manufacturers in their efforts to market and sell new and used
vehicles to consumers. The Company enters into contracts that can
include various combinations of products and services, which are
generally capable of being distinct and accounted for as separate
performance obligations. The Company records revenue on distinct
performance obligations at a single point in time, when control is
transferred to the customer.
The
Company has two main revenue sources – Lead generation and
Digital advertising. Accordingly, the Company recognizes revenue
for each source as described below:
●
Lead
generation – paid by Dealers and Manufacturers participating
in the Company’s Lead programs and are comprised of Lead
transaction and/or monthly subscription fees. Lead generation is
recognized in the period when service is provided.
●
Digital
advertising – fees paid by Dealers, Manufacturers and
third-party wholesale suppliers for (i) the Company’s click
traffic program, (ii) display advertising on Company websites, and
(iii) email and other direct marketing. Revenue is recognized in
the period advertisements are displayed on Company Websites or the
period in which clicks have been delivered, as applicable. The
Company recognizes revenue from the delivery of action-based
advertisement (including email and other direct marketing) in the
period in which a user takes the action for which the marketer
contracted with the Company. For advertising revenue arrangements
where the Company is not the principal, the Company recognizes
revenue on a net basis.
Variable Consideration
Leads
are generally sold with a right-of-return for services that do not
meet customer requirements as specified by the relevant contract.
Rights-of-return can be estimated, and provisions for estimated
returns are recorded as a reduction in revenue by the Company in
the period revenue is recognized, and thereby accounted for as
variable consideration. The Company includes the allowance for
customer credits in its net accounts receivable balances on the
Company’s balance sheet at period end. However, it should be
noted that from time to time, the Company may issue discounts or
credits on current invoices. These discounts or credits are direct
reductions to revenue without a change in the allowance for
customer credits. Allowance for customer credits totaled $64,000
and $194,000 as of December 31, 2020 and 2019,
respectively.
See
further discussion below on significant judgments exercised by the
Company in regard to variable consideration.
Contract Assets and Contract Liabilities Unbilled
Revenue
Timing
of revenue recognition may differ from the timing of invoicing to
customers. The Company records a receivable when revenue is
recognized prior to invoicing. From time to time, the Company may
have balances on its balance sheet representing revenue that has
been recognized by the Company upon satisfaction of performance
obligations and earning a right to receive payment. These not-yet
invoiced receivable balances are driven by the timing of
administrative transaction processing, and are not indicative of
partially complete performance obligations.
Deferred Revenue
The
Company defers the recognition of revenue when cash payments are
received or due in advance of satisfying its performance
obligations, including amounts which are refundable. Such activity
is not a common practice of operation for the Company. The Company
had zero deferred revenue included in its consolidated balance
sheets as of December 31, 2020 and 2019. Payment terms and
conditions can vary by contract type. Generally, payment terms
within the Company’s customer contracts include a requirement
of payment within 30 to 60 days from date of invoice. Typically,
customers make payments after receipt of invoice for billed
services, and less typically, in advance of rendered
services.
Practical Expedients and Exemptions
The
Company excludes from the transaction price all sales taxes related
to revenue producing transactions collected from the customer for a
governmental authority. The Company applies the new revenue
standard requirements to a portfolio of contracts (or performance
obligations) with similar characteristics for transactions where it
is expected that the effects of applying the revenue recognition
guidance to the portfolio would not differ materially on the
financial statements from that of applying the same guidance to the
individual contracts (or performance obligations) within that
portfolio. The Company generally expenses incremental costs of
obtaining a contract when incurred because the amortization period
would be less than one year. These costs primarily relate to sales
commissions and are recorded in selling, marketing, and
distribution expense.
Significant Judgments
The
Company provides Dealers and Manufacturers with various
opportunities to market their vehicles to potential vehicle buyers,
namely via consumer lead and click traffic referrals and online
advertising products and services. Proper revenue recognition of
digital marketing activities, as well as proper recognition of
assets and liabilities related to these activities, requires
management to exercise significant judgment with the following
items:
●
Arrangements with Multiple Performance Obligations
The
Company enters into contracts with customers that often include
multiple products and services to a customer. Determining whether
products and/or services are distinct performance obligations that
should be accounted for singularly or separately may require
significant judgment.
●
Variable Consideration and Customer Credits
The
Company’s products are generally sold with a right-of-return.
Additionally, the Company will sometimes provide customer credits
or sales incentives. These items are accounted for as variable
consideration when determining the allocation of the transaction
price to performance obligations under a contract. The allowance
for customer credits is an estimate of adjustments for services
that do not meet 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 charged against
this allowance with no impact on revenues. Returns and credits are
measured at contract inception, with respective obligations
reviewed each reporting period or as further information becomes
available, whichever is earlier, and only to the extent that it is
probable that a significant reversal of any incremental revenue
will not occur. The allowance for customer credits is included in
the net accounts receivable balances of the Company’s balance
sheets as of December 31, 2020 and 2019.
Disaggregation of Revenue
The
Company disaggregates revenue from contracts with customers by
revenue source and has determined that disaggregating revenue into
these categories sufficiently depicts the differences in the
nature, amount, timing, and uncertainty of its revenue
streams.
The
following table summarizes revenue from contracts with customers,
disaggregated by revenue source, for the years ended December 31,
2020, 2019 and 2018. Revenue is recognized net of allowances for
returns and any taxes collected from customers, which are
subsequently remitted to governmental authorities.
|
|
Years Ended December 31,
|
||
|
|
2020
|
2019
|
2018
|
|
|
(in thousands)
|
||
|
Lead
generation
|
$61,114
|
$90,728
|
$96,936
|
|
Digital
advertising
|
|
|
|
|
Clicks
|
13,058
|
19,599
|
23,387
|
|
Display
and other advertising
|
2,383
|
3,574
|
4,782
|
|
Other
revenues
|
15
|
80
|
484
|
|
Total
revenues
|
$76,570
|
$113,981
|
$125,589
|
4.
Disposals
Disposal of Specialty Finance Leads Product
In December 2016, AutoWeb sold substantially all
of the assets of its automotive specialty finance leads group to
Internet Brands, Inc., a Delaware corporation
(“Internet
Brands”). In connection
with this disposal of assets, the parties to the transaction
entered into a Transitional License and Linking Agreement
(“Transition
Agreement”). Under the
Transition Agreement, AutoWeb and its Car.com subsidiary provide
Internet Brands certain transition services and arrangements,
including (i) the grant of a limited, non-exclusive,
non-transferable license to Internet Brands to use the Car.com logo
and name solely for sales and marketing purposes in Internet
Brand’s automotive specialty finance leads business; and (ii)
certain redirect linking of consumer traffic from the
Company’s specialty finance leads application forms to a
landing page designated by Internet Brands. The Transition
Agreement provides that Internet Brands will pay AutoWeb $1.6
million in fees over the five-year term of the Transition
Agreement, and the Company received $0.3 million,
$0.3 million, and $0.4 million during the years ended December
31, 2020, 2019 and
2018, respectively, related to the
Transition Agreement.
5.
Investments
SaleMove
In September 2013, the Company entered into a Convertible Note
Purchase Agreement with SaleMove in which AutoWeb 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. The Company recorded an impairment charge of
$0.6 million in SaleMove in 2017. On June 5, 2018, the Company sold
its shares of Series A Preferred stock back to SaleMove for
$125,000. The gain of $125,000 is recorded in Interest and other
income (expense) on the Consolidated Statement of Operations for
year ended December 31, 2018.
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 $1.0 million to SaleMove to fund
SaleMove’s 50% share of various product development,
marketing and sales costs and expenses. These previously advanced
funds are repaid to the Company from SaleMove’s share of net
revenues and expenses from the Reseller Agreement each reporting
period. During the three months ended September 30, 2018, the
Company performed a qualitative review of the agreement with
SaleMove and, based on several factors related to the trend in
operating results from this reseller arrangement and costs being
incurred by the Company, the parties agreed to allow the
arrangement to expire November 30, 2018, one month earlier than the
original expiration date of December 31, 2018. Upon expiration of
the Reseller Agreement, the remaining outstanding advances are no
longer recoverable from SaleMove, and, accordingly, the Company has
impaired the remaining balance of $364,000 of advances due from
SaleMove. The impairment charge is included in “Long-lived
asset impairment” in the Consolidated Statement of Operations
for the year ended December 31, 2018.
GoMoto
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 in each period in the
form of convertible promissory notes (“GoMoto Notes”). The GoMoto Notes accrue interest at an
annual rate of 4.0% and are due and payable in full upon demand by
the Company or at GoMoto’s option ten days’ written
notice unless converted prior to the repayment of the GoMoto Notes.
The GoMoto Notes will be converted into preferred stock of GoMoto
in the event of a preferred stock financing by GoMoto of at least
$1.0 million prior to repayment of the GoMoto Notes. At December
31, 2018 and 2017, both the GoMoto Notes and related interest
receivable are fully reserved on the Consolidated Condensed Balance
Sheets because the Company believed the amounts were not
recoverable. Further, the three months ended September 30, 2018,
represented the third consecutive quarter of declining operating
results for GoMoto and, as such, the Company performed a
qualitative review of its investment in GoMoto. Based on continuing
deterioration in GoMoto’s financial position, the Company
believed that uncertainty existed in the recoverability of its
remaining investment of $100,000 in GoMoto and, accordingly,
recognized a loss on the investment which has been recorded in
“Interest and other income (expense)” on the
Consolidated Statement of Operations for the year ended December
31, 2018.
On
January 29, 2019, the GoMoto Notes were converted into 1,781,047
shares of GoMoto’s Series A-2 Preferred Stock, $0.001 par
value per share. The outstanding principal plus accrued interest
under the GoMoto Notes was converted in accordance with the terms
of the notes upon the closing of a new preferred stock financing
and based on a discount to the price paid by the new investor for
the investor’s preferred shares. On July 30, 2019, the
Company entered into a Repurchase Agreement with GoMoto, pursuant
to which GoMoto repurchased these 317,460 shares of Series Seed
Preferred Stock and 1,781,047 shares of Series A-2 Preferred Stock
from the Company for an aggregate purchase price of
$250,000.
6.
Selected Balance Sheet Accounts
Property
and equipment consist of the following:
|
|
As of December 31,
|
|
|
|
2020
|
2019
|
|
|
(in thousands)
|
|
|
Computer
software and hardware
|
$4,940
|
$11,267
|
|
Capitalized
internal use software
|
7,391
|
5,878
|
|
Furniture
and equipment
|
935
|
1,743
|
|
Leasehold
improvements
|
884
|
1,613
|
|
Construction
in progress
|
805
|
1,537
|
|
|
14,955
|
22,038
|
|
Less—Accumulated
depreciation and amortization
|
(12,002)
|
(18,689)
|
|
Property
and equipment, net
|
$2,953
|
$3,349
|
As
of December 31, 2020 and 2019, capitalized internal use
software, net of amortization, was $1.4 million and $0.6 million,
respectively. Depreciation and amortization expense
related to property and equipment was $1.3 million for the year
ended December 31, 2020. Of this amount, $0.8
million was recorded in cost of revenues and $0.5 million was
recorded in operating expenses for the year ended December 31,
2020. Depreciation and amortization expense related to property and
equipment was $1.6 million for the year ended December 31,
2019. Of this amount, $0.9 million was recorded in cost
of revenues and $0.7 million was recorded in operating expenses for
the year ended December 31, 2019. Depreciation and amortization
expense related to property and equipment was $2.0 million for the
year ended December 31, 2018. Of this amount, $1.2
million was recorded in cost of revenues and $0.8 million was
recorded in operating expenses for the year ended December 31,
2018.
The
Company amortizes specifically identified definite-lived intangible
assets using the straight-line method over the estimated useful
lives of the assets.
On October 5, 2017, the Company and DealerX
Partners, LLC, a Florida limited liability company
(“DealerX”), entered into a Master License and
Services Agreement (“DealerX License
Agreement”). Pursuant to
the terms of the DealerX License Agreement, AutoWeb was granted a
perpetual license to access and use DealerX’s proprietary
platform and technology for targeted, online marketing. DealerX was
to operate the platform for AutoWeb and provide enhancements to and
support for the DealerX platform for at least an initial five-year
period (“Platform Support
Obligations”), however
the Company terminated the Platform Support Obligations effective
November 2, 2018, and as a result, recorded an impairment
charge.
The transaction consideration consisted of: (i)
$8.0 million in cash paid to DealerX upon execution of the DealerX
License Agreement and (ii) the right to 710,856 shares of the
Company’s common stock, par value $0.001 per share,
representing approximately 5% of the Company’s outstanding
Common Stock as of the date the parties entered into the DealerX
License Agreement (“Market Capitalization
Shares”) if on or before
October 5, 2022: (i) AutoWeb’s market capitalization averages
at least $225.0 million over a consecutive 90-day period or (ii)
there is a change in control of AutoWeb that reflects a market
capitalization of at least $225.0 million. If the Market
Capitalization Shares are issued to DealerX, DealerX’s
obligation to continue to support the platform
(“Platform Support
Obligations”) will
continue in perpetuity. Alternatively, upon the occurrence of
certain events prior to the issuance of the Market Capitalization
Shares, AutoWeb may elect to make an additional lump-sum payment of
$12.5 million (“Alternative Cash
Payment”) in order to
extend DealerX’s Platform Support Obligations in perpetuity.
If the Alternative Cash payment were made, DealerX’s
contingent right to receive the Market Capitalization Shares would
be terminated. The fair value of the Market Capitalization Shares
was calculated at $2.5 million. At the transaction date, the
Company recorded approximately $10.5 million as a definite-lived
intangible asset which was amortized over its expected useful life
of seven years.
The
Company makes judgments about the recoverability of purchased
intangible assets with definite lives whenever events or changes in
circumstances indicate that an impairment may exist. Recoverability
of purchased intangible assets with definite lives is measured by
comparing the carrying amount of the asset to the future
undiscounted cashflows the asset is expected to generate. In the
third quarter of 2018, the Company performed an analysis of its
planned future use of two intangible assets in the licenses and
customer relationships asset groups. As a result of realignment
activities finalized in the third quarter of 2018, the Company made
a determination that the Company’s use of certain assets
would not be continued as originally planned. Accordingly, the
Company performed further analysis to quantitatively determine the
amount of impairment for each of these intangible assets as of
September 30, 2018.
An
assessment was performed on the DealerX License intangible asset,
whereby lead generation and acquisition cost, amongst other things,
was compared to alternate sources of lead generation available to
the Company. As a result of the Company’s analysis, the
Company concluded that the effectiveness of the platform was not
in-line with the enhanced consumer-to-client matchmaking that the
Company is seeking and made the decision in the third quarter to
terminate DealerX’s Platform Support Obligations,
significantly impacting the usability of the asset by the Company.
Accordingly, the Company recorded impairment charges of $9.0
million in connection with the impairment of this long-lived asset
with the expense recorded in Cost of revenues-impairment on the
Company’s Consolidated Statements of Operations for the year
ended December 31, 2018.
A
quantitative analysis was performed by the Company in 2018 on its
customer relationship intangible assets, whereby it examined
available data, namely historical activity and cashflows resulting
from the customer relationships of previous acquisitions, in
concert with projected future use of acquired customer
relationships within the parameters of the Company’s future
strategic plans. As a result of this analysis, the Company
determined there to be impairment of $1.6 million related to
customer relationship intangible assets acquired in a 2015
acquisition for which projected cashflows did not support the
carrying values. Additionally, the Company determined that the
estimated useful life of these customer relationship intangible
assets had changed from 10 years to 5 years. This change in
estimate will impact amortization expense in future periods as
amortization will be accelerated over the remaining estimated
useful life of this asset due to the change in
estimate.
The
Company’s intangible assets will be amortized over the
following estimated useful lives (in thousands):
|
|
|
December
31, 2020
|
December
31, 2019
|
||||
|
Intangible
Asset
|
Estimated
Useful Life
|
Gross
|
Accumulated
Amortization
|
Net
|
Gross
|
Accumulated
Amortization
|
Net
|
|
Trademarks/trade
names/licenses/ domains
|
3
– 7 years
|
$16,589
|
$(15,961)
|
$628
|
$16,589
|
$(15,442)
|
$1,147
|
|
Customer
relationships
|
2 -
5 years
|
19,563
|
(19,563)
|
—
|
19,563
|
(18,800)
|
763
|
|
Developed
technology
|
5-7
years
|
8,955
|
(7,050)
|
1,905
|
8,955
|
(5,961)
|
2,994
|
|
|
$45,107
|
$(42,574)
|
$2,533
|
$45,107
|
$(40,203)
|
$4,904
|
|
|
|
|
December
31, 2020
|
December
31, 2019
|
||||
|
Indefinite-lived
Intangible
Asset
|
Estimated
Useful Life
|
Gross
|
Accumulated
Amortization
|
Net
|
Gross
|
Accumulated
Amortization
|
Net
|
|
Domain
|
Indefinite
|
$2,200
|
$—
|
$2,200
|
$2,200
|
$—
|
$2,200
|
Amortization
expense is included in “Cost of revenues” and
“Depreciation and amortization” in the Statements of
Operations. Amortization expense was $2.4 million, $4.9
million, and $8.1 million in 2020, 2019 and 2018, respectively.
Amortization expense for 2018 includes $1.6 million related to the
above-mentioned customer relationship impairment. The $9.0 million
impairment related to DealerX was recorded to Cost of revenues -
impairment. Amortization expense for intangible assets for the next
four years is as follows:
|
Year
|
Amortization
Expense
|
|
|
(in thousands)
|
|
|
|
|
2021
|
$1,499
|
|
2022
|
902
|
|
2023
|
86
|
|
2024
|
46
|
|
|
$2,533
|
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 impaired goodwill by
$5.1 million during the year ended December 31, 2018.
As
of December 31, 2020, and 2019, accrued expenses and other
current liabilities consisted of the following:
|
|
As of December 31,
|
|
|
|
2020
|
2019
|
|
|
(in thousands)
|
|
|
Accrued
employee related benefits
|
$2,123
|
$1,351
|
|
Other
accrued expenses and other current liabilities:
|
|
|
|
Other
accrued expenses
|
143
|
532
|
|
Amounts
due to customers
|
94
|
354
|
|
Other
current liabilities
|
301
|
750
|
|
Total
other accrued expenses and other current liabilities
|
538
|
1,636
|
|
|
|
|
|
Total
accrued expenses and other current liabilities
|
$2,661
|
$2,987
|
In connection with the acquisition of AutoUSA, LLC
(“AutoUSA”) on January 13, 2014, the Company issued a
convertible subordinated promissory note for $1.0 million
(“AutoUSA Note”)
to AutoNationDirect.com, Inc. 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
included 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 plus accrued interest was paid in full on January
31, 2019.
7.
Debt
The Company and MUFG Union Bank, N.A.
(“Union Bank”), entered into a Loan Agreement dated
February 26, 2013, as amended on September 10, 2013, January 13,
2014, May 20, 2015, June 1, 2016, June 28, 2017 and December 27,
2017 (the original Loan Agreement, as amended to date, is referred
to collectively as the “Credit Facility
Agreement).” The Credit
Facility Agreement provided for (i) a $9.0 million term loan
(“Term
Loan 1”); (ii) a $15.0
million term loan (“Term Loan 2”); and (iii) an $8.0 million working
capital revolving line of credit (“Revolving
Loan”). The term loans
were fully paid as of December 31, 2017. The Revolving Loan was
fully paid as of March 31, 2018, at which time the Credit Facility
Agreement was terminated.
Borrowings
under the Revolving Loan bear interest at either (i) the London
Interbank Offering Rate (“LIBOR”) plus 2.50% or (ii)
the bank’s Reference Rate (prime rate) minus 0.50%, at the
option of the Company. Interest under the Revolving Loan 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. The Company paid a commitment fee of
0.10% per year on the unused portion of the Revolving Loan, payable
quarterly in arrears.
Term
Loan 1 was amortized over a period of four years, with fixed
quarterly principal payments of $562,500. Borrowings under Term
Loan 1 bore interest at either (i) the bank’s Reference Rate
(prime rate) minus 0.50% or (ii) LIBOR plus 2.50%, at the option of
the Company. Interest under Term Loan 1 adjusted (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 was selected; or (ii) with changes
in Union Bank’s Reference Rate, if the Reference Rate was
selected.
Term
Loan 2 was amortized over a period of five years, with fixed
quarterly principal payments of $750,000. Borrowings under Term
Loan 2 bore interest at either (i) LIBOR plus 3.00% or (ii) the
bank’s Reference Rate (prime rate), at the option of the
Company. Interest under Term Loan 2 adjusted (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 was selected; or (ii) with changes in
Union Bank’s Reference Rate, if the Reference Rate was
selected. The Company paid an upfront fee of 0.10% of the Term Loan
2 principal amount upon drawing upon Term Loan 2.
On April 30, 2019, the Company entered into a
$25.0 million Revolving Credit and Security
Agreement (“PNC Credit
Agreement”) with PNC
Bank, N.A. (“PNC”) as agent, and the Company’s U.S.
subsidiaries Car.com, Inc., Autobytel, Inc., and AW GUA USA, Inc.
(“Company U.S.
Subsidiaries”). The
obligations under the PNC Credit Agreement were guaranteed by the
Company U.S. Subsidiaries and secured by a first priority lien on
all of the Company’s and the Company U.S. Subsidiaries’
tangible and intangible assets. The PNC Credit Agreement provided a
subfacility of up to $5.0 million for letters of credit. The PNC
Credit Agreement was to expire on April 30,
2022.
The interest rates per annum applicable to
borrowings under the PNC Credit Agreement were, at the
Company’s option (subject to certain conditions), equal to
either a domestic rate (“Domestic Rate
Loans”) or a LIBOR rate
for one, two, or three-month interest periods chosen by the Company
(“LIBOR Rate
Loans”), plus the
applicable margin percentage of 2% for Domestic Rate Loans and 3%
for LIBOR Rate Loans. The domestic rate for Domestic Rate Loans
would be the highest of (i) the base commercial lending rate of the
lender, (ii) the overnight bank funding rate plus 0.50%, or (iii)
the LIBOR rate plus 1.00% so long as the daily LIBOR rate is
offered, ascertainable and not unlawful. The PNC Credit Agreement
also provided for commitment fees ranging from 0.5% to 1.5% applied
to unused funds (with the applicable fee based on quarterly average
borrowings), but with the fees fixed at 1.5% until September 30,
2019. Fees for Letters of Credit were to be equal to 3% for LIBOR
Rate Loans, with a fronting fee for each Letter of Credit in an
amount equal to 0.5% of the daily average aggregate undrawn amount
of all Letters of Credit outstanding. The Company was required to
maintain a $5.0 million pledged interest-bearing deposit account
with the lender until the Company’s consolidated EBITDA is
greater than $10.0 million.
On October 29, 2019, the Company, the Company’s U.S.
Subsidiaries, and PNC entered into a First Amendment to the PNC
Credit Agreement (“PNC Credit Agreement First
Amendment”) that provided
for an amended financial covenant related to the Company’s
minimum required EBITDA (as defined in the PNC Credit Agreement).
This amended financial covenant required the Company to maintain
its consolidated EBITDA (as defined in the PNC Credit Agreement) at
stated minimum levels (i) of $0.7 million for the quarter ended
September 30, 2019; (ii) $250,000 for the month of October 2019;
(iii) $600,000 for the two months ended November 30, 2019; and
ranging from $3.6 million to $7.5 million for the later periods set
forth in the PNC Credit Agreement First Amendment during the
remaining term of the PNC Credit Agreement. In addition, the PNC
Credit Agreement First Amendment added a new financial covenant
requiring the Company to maintain at least a 1.20 to 1.00 Fixed
Charge Coverage Ratio (as defined in the PNC Credit Agreement First
Amendment) for the periods set forth in the PNC Credit Agreement
First Amendment. If the Company failed to comply with the minimum
EBITDA requirements or the Fixed Charge Coverage Ratio, the Company
had the right to cure (“Cure Right”) through the application of the proceeds
from the sale of new equity interests in the Company, subject to
the conditions set forth in the PNC Credit Agreement First
Amendment. The Cure Right could not be exercised more than three
times during the term of the PNC Credit Agreement and any proceeds
from a sale of equity interests could not be less than the greater
of (i) the amount required to cure the applicable default; and (ii)
$500,000.
On January 16, 2020, the Company received a notice of event of
default and reservation of rights (“Default
Notice”) from PNC Bank,
under the PNC Credit Agreement advising the Company that an event
of default had occurred and was continuing under Section 10.3 of
the PNC Credit Agreement by reason of AutoWeb’s failure to
deliver to PNC the financial statements and related compliance
certificate for the month ended November 30, 2019. Although not
covered by the Default Notice at the time, AutoWeb also was not in
compliance with the minimum EBITDA financial covenant under the PNC
Credit Agreement. As a result of the Default Notice, PNC increased
the interest rate under the PNC Credit Agreement by 2.0% per
annum.
On March 26, 2020, the Company fully paid the PNC
Credit Agreement, at which time it was terminated, and in
conjunction with the termination of the PNC Credit Agreement, on
March 26, 2020, the Company entered into a $20.0 million Loan,
Security and Guarantee Agreement (“CNC Credit
Agreement”) with CIT
Northbridge Credit LLC, as agent (the “Agent”), and the Company U.S. Subsidiaries. The
CNC Credit Agreement provides for a $20.0 million revolving credit
facility with borrowings subject to availability based primarily on
limits of 85% of eligible billed accounts receivable and 75%
against eligible unbilled accounts receivable. The obligations
under the CNC Credit Agreement are guaranteed by the Company U.S.
Subsidiaries and secured by a first priority lien on all of the
Company’s and the Company U.S. Subsidiaries’ tangible
and intangible assets. The CNC Credit Agreement has an average
minimum borrowing usage requirement of an average of
$10,000,000.
As
of December 31, 2020, the Company had $10.2 million outstanding
under the CNC Credit Agreement and approximately $1.1 million of
net availability. To increase the borrowing base sufficient enough
to meet the minimum borrowing usage requirement, the Company on
June 29, 2020, placed $3.0 million into a restricted cash account
that provided for greater availability under the CNC Credit
Agreement. The Company placed an additional $1.0 million into the
same restricted cash account in December 2020. The Company can
borrow up to 97.5% of the total restricted cash amount. The
restricted cash accrues interest at a variable rate currently
averaging 0.25% per annum.
Financing
costs related to the CNC Credit Agreement, net of accumulated
amortization, of approximately $0.4 million, have been deferred
over the initial term of the loan and are included in other assets
as of December 31, 2020. The interest rate per annum applicable to
borrowings under the CNC Credit Agreement is the LIBO plus 5.5%.
The LIBO Rate is equal to the greater of (i) 1.75%, and (ii) the
rate determined by the Agent to be equal to the quotient obtained
by dividing (1) the LIBO Base Rate (i.e., the rate per annum
determined by Agent to be the offered rate that appears on the
applicable Bloomberg page) for the applicable LIBOR Loan for the
applicable interest period by (2) one minus the Eurodollar Reserve
Percentage (i.e., the reserve percentage in effect under
regulations issued from time to time by the Board of Governors of
the Federal Reserve System for determining the maximum reserve
requirement with respect to Eurocurrency funding for the applicable
LIBOR Loan for the applicable interest period). If adequate and
reasonable means do not exist for ascertaining or the LIBOR rate is
no longer available, the Company and the Agent may amend the CNC
Credit Agreement to replace LIBOR with an alternate benchmark rate.
If no LIBOR successor rate is determined, the obligation of the
lenders to make or maintain LIBOR loans will be suspended and the
LIBO Base Rate component will no longer be utilized in determining
the base rate.
If,
due to any circumstance affecting the London interbank market, the
Agent determines that adequate and fair means do not exist for
ascertaining the LIBO Rate on any applicable date (and such
circumstances that are identified in the next two paragraphs below
are not covered or governed by such provisions below), then until
the Agent determines that such circumstance no longer exists, the
obligation of lenders to make LIBOR Loans will be suspended and, if
requested by the Agent, the Company must promptly, at its option,
either (i) pay all such affected LIBOR Loans or (ii) convert such
affected LIBOR Loans into loans that bear reference to the Base
Rate plus the Applicable Margin.
If
the Agent determines that for any reason (i) dollar deposits are
not being offered to banks in the London interbank Eurodollar
market for the applicable loan amount or applicable interest
period, (ii) adequate and reasonable means do not exist for
determining the LIBO Rate for the applicable interest period, or
(iii) LIBOR for the applicable interest period does not adequately
and fairly reflect the cost to the lenders of funding a loan, then
the lenders’ obligation to make or maintain LIBOR Loans will
be suspended to the extent of the affected LIBOR Loan or interest
period until all such loans are converted to loans bearing interest
at the Base Rate (as defined below) plus the Applicable Margin (as
specified below).
However, if Agent determines that (i) adequate and
reasonable means do not exist for ascertaining LIBOR for any
requested interest period and such circumstances are unlikely to be
temporary; (ii) the administrator of the LIBOR screen rate or a
governmental authority having jurisdiction over the Agent has made
a public statement identifying a specific date after which LIBOR or
the LIBOR screen rate shall no longer be made available, or used
for determining the interest rate of loans
(“Scheduled Unavailability
Date”); or (iii)
syndicated loans currently being executed, or that include language
similar to that contained in this paragraph are being executed or
amended to incorporate or adopt a new benchmark interest rate to
replace LIBOR, then, Agent and the Company may amend the CNC Credit
Agreement to replace LIBOR with an alternate benchmark rate
(“LIBOR Successor
Rate”) and any such
amendment will become effective unless lenders holding more than
50% in value of the loans or commitments under the CNC Credit
Agreement do not accept such amendment. If no LIBOR Successor Rate
has been determined and the circumstances under clause (i) above
exist or the Scheduled Unavailability Date has
occurred, (x) the obligation of lenders to make or
maintain LIBOR Loans will be suspended (to the extent of the
affected LIBOR Loans or interest periods), and (y) the LIBO
Base Rate component will no longer be utilized in determining the
Base Rate. The Base Rate for any day is a fluctuating rate
per annum equal to the highest of: (i) the Federal Funds Rate plus
1/2 of 1%; (ii) the rate of interest in effect for such day as
publicly announced from time to time by JPMorgan Chase Bank, N.A.
as its “prime rate” in effect for such day; or (iii)
the most recently available LIBO Base Rate (as adjusted by any
minimum LIBO Rate floor) plus 1%. The Applicable Margin is equal to
5.50%. The CNC Credit Agreement expires on March 26,
2023.
On April 16, 2020, the Company received a loan in
the amount of approximately $1.38 million
(“PPP
Loan”) from PNC pursuant
to the Paycheck Protection Program (“PPP”) administered by the United States Small
Business Administration (“SBA”) under the CARES Act. The PPP Loan
was granted pursuant to a Paycheck Protection Program Term Note
dated April 16, 2020, issued by the Company
(“PPP
Note”).
On June 5, 2020 the Paycheck Protection Program
Flexibility Act (“PPPFA”) was signed into law that contained
important clarifications and modifications to the previous PPP loan
rules under the CARES Act. These revisions provided that at least
60% of the PPP Loan proceeds must be used for payroll expenses.
Also, all, or a portion of, the PPP Loan may be forgiven based on
the sum of documented payroll costs, covered lease payments,
covered mortgage interest and covered utilities during an
eight-week or twenty-four-week period beginning on the date on
which the PPP Loan was approved.
The
PPP Note matures on April 16, 2022, and bears interest at a rate of
1.00% per annum. Principal and accrued interest are payable monthly
in equal installments commencing November 15, 2020, unless the PPP
Loan is forgiven as described below. The PPP Note may be prepaid at
any time prior to maturity with no prepayment penalties. The PPP
Note contains customary events of default relating to, among other
things, payment defaults and breaches of representations and
warranties. The proceeds from the PPP Loan could only be used to
retain workers and maintain payroll or make mortgage interest,
lease and utility payments. For purposes of the CARES Act, payroll
costs excluded compensation of an individual employee in excess of
$100,000, prorated annually. Not more than 40% of the forgiven
amount could be for non-payroll costs. Forgiveness of the PPP Loan
is reduced if full-time headcount declines, or if salaries and
wages for employees with salaries of $100,000 or less annually are
reduced by more than 25%. The outstanding principal will be reduced
in the event the Loan, or any portion thereof, is forgiven pursuant
to the PPP. The Company originally applied for loan forgiveness on
October 12, 2020, using the 8-week loan forgiveness methodology.
Prior to final PNC Bank review acceptance and final submission to
the SBA, the Company reapplied for loan forgiveness using the
24-week methodology on December 29, 2020. The loan forgiveness
application was reviewed by PNC Bank and submitted to the SBA on
December 30, 2020.
On
January 13, 2021, the Company received a notice from PNC Bank
regarding forgiveness of the loan in the principal amount of
approximately $1.38 million that was made to the Company pursuant
to the SBA PPP under the CARES Act of 2020. The notice states that
SBA has remitted to PNC a loan forgiveness payment equal to $1.39
million, which constitutes full payment and forgiveness of the
principal amount of the PPP loan and all accrued
interest.
On June 10, 2020, the Company entered
into a thirty-six-month equipment financing agreement
(“Financing
Agreement”) with
Dimension Funding LLC. The Financing Agreement provides for an
advance payment of approximately $170,000 to be used to secure
furniture and fixtures for the Company’s new office location
in Irvine, California. Payments of approximately $5,300 (inclusive
of imputed interest) are made monthly under the Financing
Agreement. As of December 31, 2020, the Company has paid
approximately $45,000. The Financing Agreement will mature on
December 31, 2022.
The
Company’s future commitments under the Financing Agreement as
of December 31, 2020, are as follows:
|
Year
(1)
|
|
|
2021
|
$65
|
|
2022
|
60
|
|
Total
financing debt
|
$125
|
8.
Commitments and Contingencies
Operating Leases
The Company adopted ASC 842, Leases, on January
1st,
2019. Consequently, financial information has not been updated for
dates and periods before January 1, 2019. The Company determines if
an arrangement is a lease at inception. ROU assets represent the
Company’s right to use an underlying asset for the lease term
and lease liabilities represent the obligation to make lease
payments arising from the lease. Operating lease ROU assets and
liabilities are recognized at commencement date of the lease based
on the present value of lease payments over the lease term. The
Company has lease arrangements for certain equipment and facilities
that typically have original terms not exceeding five years and, in
some cases, contain automatic renewal provisions that provide for
multiple year renewal terms unless either party, prior to the
then-expiring term, notifies the other party of the intention not
to renew the lease. The
Company’s lease terms may also include options to terminate
the lease when it is reasonably certain that the Company will
exercise such options. When
readily determinable, the Company uses the implicit rate in
determining the present value of lease payments. The ROU asset also
includes any lease payments made and excludes lease incentives.
Lease expense for lease payments is recognized on a straight-line
basis over the lease term. The Company had a weighted average
remaining lease term of 3.0 years and a weighted average discount
rate as determined by the Company CNC Credit Agreement of 6.25% as
of December 31, 2020. The Company had a weighted average remaining
lease term of 1.6 years and a weighted average discount rate of
5.5% as of December 31, 2019.
Lease Liabilities
Lease
liabilities as of December 31, 2020, consist of the
following:
|
Current
portion of lease liabilities
|
$1,015
|
|
Long-term
lease liabilities, net of current portion
|
2,191
|
|
Total
lease liabilities
|
$3,206
|
The
Company leases its facilities and certain office equipment under
operating leases which expire on various dates through
2025. 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,
|
|
|
2021
|
$1,187
|
|
2022
|
881
|
|
2023
|
797
|
|
2024
|
528
|
|
2025
|
196
|
|
Total
minimum lease payments
|
3,589
|
|
Less
imputed interest
|
383
|
|
Total
lease liabilities
|
$3,206
|
On March 11, 2020, the Company entered into a
Lease Agreement (“New Irvine
Lease”) with The Irvine
Company LLC, pursuant to which the Company leases approximately
12,000 square feet of office space located in Irvine, California.
The term of the New Irvine Lease commenced on August 1, 2020, and
continues for a period of approximately five years, unless earlier
terminated in accordance with the terms of the New Irvine Lease.
The Company has the option to extend the term of the New Irvine
Lease for one additional period of five years. The new office space
replaced the Company’s prior, approximately 39,361 square
feet of office space in Irvine, California, the lease for which
expired July 31, 2020. The Company included the New Irvine Lease on
its balance sheet and within the future minimum lease payment table
above.
Operating lease cost was $1.7 million, $2.0
million and $1.7 million for the years ended December 31,
2020, 2019 and 2018, respectively. In June 2017, the Company subleased one of its
buildings to a third party for the remainder of the lease term
which expired in February 2019. Rent expense for the years ended
December 31, 2019 and 2018, is net of sublease income of $26,000
and $0.2 million, 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. 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.
9.
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 for the year ended December
31, 2020, was $0.1 million. The Company contribution for the years
ended December 31, 2019 and 2018, was $0.3 million each
year.
10.
Stockholders’ Equity
Stock-Based Incentive Plans
The Company has established plans that provide for
stock-based awards (“Awards”), primarily in the form of stock options
and restricted stock awards (“RSAs”), to employees, directors, and
consultants. As of June 21, 2018, new Awards may only be
granted under the 2018 Equity Incentive Plan, and as of December
31, 2020, an aggregate of approximately 2.5 million shares of
Company common stock were available for granting of new Awards
under the 2018 Equity Incentive Plan.
Share-based
compensation expense is included in costs and expenses in the
Consolidated Statements of Operations as follows:
|
|
Years Ended December 31,
|
||
|
|
2020
|
2019
|
2018
|
|
|
(in thousands)
|
||
|
Share-based
compensation expense:
|
|
|
|
|
Cost
of revenues
|
$—
|
$—
|
$23
|
|
Sales
and marketing
|
116
|
304
|
982
|
|
Technology
support
|
81
|
197
|
1,247
|
|
General
and administrative
|
1,787
|
1,901
|
2,615
|
|
|
|
|
|
|
Share-based
compensation expense
|
1,984
|
2,402
|
4,867
|
|
|
|
|
|
|
Amount
capitalized to internal use software
|
—
|
—
|
1
|
|
|
|
|
|
|
Total
share-based compensation expense
|
$1,984
|
$2,402
|
$4,866
|
During the year
ended December 31, 2019 and 2018, certain Awards were
modified or accelerated in connection with the termination of
employment of certain former officers of the Company. In accordance
with guidance provided under ASC 718 and related ASU No. 2017-09
and ASU No. 2018-07, the Company recognized Award modification and
acceleration expenses related to these events in the period
incurred. Modification expense was determined by using the
Black-Scholes option pricing model to estimate the fair value of
the modified awards as of the new measurement date and respective
fair value assumptions. The Company recognized acceleration expense
of $0.2 million and $2.1 million in the years ended December 31,
2019 and 2018, respectively. No awards were accelerated or modified
for the year ended December 31, 2020.
As
of December 31, 2020, 2019 and 2018, there was approximately
$1.6 million, $3.0 million and $2.6 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 1.5 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
Company elected to estimate a forfeiture rate and 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 contingent upon
the employees continued employment with the Company during the
vesting period and vesting may be 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 were estimated
to have a weighted average grant date fair value per share of
$1.27, $1.77 and $1.75 for the years ended December 31, 2020,
2019 and 2018, respectively, based on the Black-Scholes
option-pricing model on the date of grant using the following
weighted average assumptions:
|
|
Years Ended December 31,
|
||
|
|
2020
|
2019
|
2018
|
|
Expected
volatility
|
74%
|
65%
|
68%
|
|
Expected
risk-free interest rate
|
0.9%
|
2.2%
|
2.6%
|
|
Expected
life (years)
|
4.6
|
4.4
|
4.5
|
A
summary of the Company’s outstanding stock options as of
December 31, 2020, 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, 2019
|
4,361,606
|
$5.80
|
4.8
|
$37
|
|
Granted
|
635,000
|
2.15
|
|
|
|
Exercised
|
(22,373)
|
3.35
|
|
29
|
|
Forfeited
or expired
|
(1,215,563)
|
8.72
|
|
|
|
Outstanding
at December 31, 2020
|
3,758,670
|
$4.26
|
4.7
|
$270
|
|
Vested
and expected to vest at December 31, 2020
|
3,625,650
|
$4.31
|
4.7
|
$254
|
|
Exercisable
at December 31, 2020
|
2,323,528
|
$5.12
|
4.2
|
$47
|
Service-Based
Options. During the
years ended December 31, 2020, 2019 and 2018, the Company granted
635,000, 1,697,883, and 2,056,700 service-based stock options,
which had weighted average grant date fair values of $1.27, $1.77,
and $1.75, respectively.
Stock option
exercises. During 2020, there
were 22,373 options exercised, with an aggregate weighted average
exercise price of $3.35. During 2019, there were 213,048 options
exercised, with an aggregate weighted average exercise price of
$1.92. During 2018, 28,467 options were exercised, with an
aggregate weighted average exercise price of $3.39. The total
intrinsic value of options exercised during 2020 is de minimis. The
total intrinsic value of options exercised during 2019 and 2018 was
$0.5 million and $0.1 million, respectively.
In
April 2018, the Company entered into an Inducement Stock Option
Award Agreement with the Company’s chief executive officer,
Jared Rowe (“Rowe Option
Award Agreement”). Pursuant to the Rowe Option Award
Agreement, Mr. Rowe was granted stock options to purchase 1,000,000
shares of common stock (“Rowe
Employment Options”), which will vest monthly in 36
monthly installments on the first day of each calendar month
following the date of grant. These options have an exercise price
of $3.26 per share and a term of seven years from the date of
grant. Upon a change in control of the Company or in the event of a
termination of Mr. Rowe’s employment by the Company without
cause or by Mr. Rowe with good reason, all unvested options will
vest. In the event of a termination of Mr. Rowe’s employment
with the Company by reason of Mr. Rowe’s death or disability,
the lesser of: (i) one-third of the total number of these options
and (ii) the total number of unvested options will vest upon the
date of termination.
Market Condition
Options. On January 21, 2016,
the Company granted 100,000 stock options to its former chief
executive officer (“Former
CEO”) with an exercise
price of $17.09 and grant date fair value of $1.47 per option,
using a Monte Carlo simulation model (“Former CEO Market Condition
Options”).
The Former 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 Former CEO Market
Condition Options were subject to both stock price-based and
service-based vesting requirements. On April 12, 2018, pursuant to the
stock option award agreement, vesting of then-unvested Former CEO
Market Condition Options was accelerated with the termination of
employment of the Former CEO, resulting in the recognition of
approximately $0.8 million of non-recurring share-based
compensation expense during the first quarter of
2018.
Market Condition
Options. In August 2019, the
Company awarded a total of 455,000 stock options of the
Company’s common stock to certain officers under the 2018
Equity Incentive Plan. In addition to the service-based
vesting described above, vesting of these options is subject to the
achievement of a performance condition based on the weighted
average closing price of the Company’s common stock on The
Nasdaq Capital Market reaching Five Dollars ($5.00) for 10
consecutive trading days. The weighted average grant date fair
value of these stock options was $1.69.
Restricted Stock Awards. The Company
granted an aggregate of 125,000 RSAs on April 23, 2015, in
connection with the promotion of one of its executive officers. Of
these 125,000 RSAs, 25,000 were service-based and 100,000 were
performance-based. The forfeiture restrictions of the service-based
RSAs 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. Forfeiture restrictions lapsed on 8,333 shares and 8,333
shares of restricted stock on April 23, 2016 and April 23, 2017,
respectively. During the year ended December 31, 2018, 8,333
of the foregoing service-based RSAs and 100,000 of the
performance-based RSAs were forfeited upon the resignation of this
executive officer.
The
Company granted an aggregate of 345,000 RSAs on September 27, 2017,
to senior officers of the Company. These RSAs are service-based 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. During the year ended
December 31, 2018, 80,000 shares of RSAs were forfeited upon the
resignation of two executive officers, the forfeiture restrictions
on 175,000 shares of RSA lapsed upon the termination of employment
of the Former CEO and three officers of the Company, and the
forfeiture restrictions on 40,000 shares of RSAs were modified upon
the entry into a consulting agreement with a former executive
officer (with 26,666 of these 40,000 shares being forfeited in
2019). The Company recognized expense of $0.8 million related to
the acceleration of vesting and modification of these RSAs during
the year ended December 31, 2018. During the year ended December
31, 2019, the forfeiture restrictions on 3,333 shares of RSA lapsed
upon the termination of employment of a former officer of the
Company, and the Company recognized a de minimis amount of expense
related to the acceleration of vesting of these RSAs during the
year ended December 31, 2019. As of December 31, 2020, the Company
does not have any unvested RSAs.
Options and Warrants Outstanding and Shares Available for New
Awards Under Stockholder-Approved Plans
As
of December 31, 2020, the Company had outstanding the following
options and warrants to purchase shares of common stock and shares
available for new Awards under stockholder-approved
plans:
|
|
Number
of Shares
|
|
Stock
options outstanding
|
3,758,670
|
|
Authorized
for future Award grants under stockholder-approved stock-based
incentive plans
|
2,497,070
|
|
Warrants
outstanding
|
1,482,400
|
|
Total
|
7,738,140
|
F-26
Table of Contents
Tax Benefit Preservation Plan
The Company’s Tax Benefit Preservation Plan
dated as of May 26, 2010 between AutoWeb 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, Amendment
No. 2 to Tax Benefit Preservation Plan dated as of April 13, 2017,
Amendment No. 3 to Tax Benefit Preservation Plan dated as of March
31, 2020, and Certificate of Adjustment Under Section 11(m) of the
Tax Benefit Preservation Plan dated July 12, 2012 (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
$20.00 (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, 2023 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 2020 Annual
Meeting of Stockholders and will expire on May 26, 2023 unless that
date is advanced or extended by the Company’s Board of
Directors.
Warrant
On October 1, 2015 (“AWI Merger
Date”), AutoWeb entered
into and consummated an Agreement and Plan of Merger by and among
AutoWeb, New Horizon Acquisition Corp., a Delaware corporation and
a wholly owned subsidiary of AutoWeb (“Merger Sub”), Autobytel, Inc. (formerly AutoWeb,
Inc.), a Delaware corporation (“AWI”), and Jose Vargas, in his capacity as
Stockholder Representative. On the AWI Merger Date,
Merger Sub merged with and into AWI, with AWI continuing as the
surviving corporation and as a wholly owned subsidiary of
AutoWeb. AWI 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 AWI, on a fully converted and diluted basis,
and accounted for the investment on the cost
basis.
The warrant to purchase up to 148,240 shares of
Series B Preferred Stock issued in connection with the acquisition
of AWI (“AWI Warrant”) 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 AWI
Warrant. Key assumptions used in valuing the AWI Warrant
are as follows: risk-free rate of 1.9%, stock price volatility of
74.0% and a term of 7.0 years. The AWI Warrant was
valued based on long-term stock price volatilities of the
Company’s common stock. On June 22, 2017, the
Company received stockholder approval which resulted in the
automatic conversion of the AWI Warrant into warrants to acquire up
to 1,482,400 shares of the Company’s common stock at an
exercise price of $18.45 per share of common stock. The AWI Warrant
became exercisable on October 1, 2018, subject to the following
vesting conditions: (i) with respect to the first one-third of the
warrant shares, if at any time after the issuance date of the AWI
Warrant and prior to the expiration date of the AWI Warrant the
Weighted Average Closing Price of the Company’s common stock
is at or above $30.00; (ii) with respect to the second one-third of
the warrant shares, if at any time after the issuance date of the
AWI 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 of the warrant shares, if at any time after the
issuance date of the AWI Warrant and prior to the expiration date
the Weighted Average Closing Price is at or above
$45.00. The AWI Warrant expires on October 1,
2022.
Stock Repurchase
On June 7, 2012, September 17, 2014 and September
6, 2017, the Company announced that its Board of Directors had
authorized the Company to repurchase up to $2.0 million, $1.0
million and $3.0 million of the Company’s common stock,
respectively. Under these repurchase programs, the Company
may repurchase common stock from time to time on the open market or
in private transactions. These authorizations do not require the
Company to purchase a specific number of shares, and the Board of
Directors may suspend, modify or terminate the programs at any
time. The Company will fund future repurchases through the use of
available cash. No shares were repurchased in 2020 or 2019. As of
December 31, 2020, $2.3 million remains available for stock
repurchases under the program.
11.
Income Taxes
The
components of income (loss) before income tax provision are as
follows for the years ended December 31:
|
|
2020
|
2019
|
2018
|
|
|
(in thousands)
|
||
|
|
|
|
|
|
United
States
|
$(7,089)
|
$(15,647)
|
$(39,334)
|
|
International
|
279
|
428
|
512
|
|
Total
loss before income tax provision
|
$(6,810)
|
$(15,219)
|
$(38,822)
|
Income
tax expense (benefit) from continuing operations consists of the
following for the years ended December 31:
|
|
2020
|
2019
|
2018
|
|
|
(in thousands)
|
||
|
Current:
|
|
|
|
|
Federal
|
$—
|
$—
|
$32
|
|
State
|
10
|
10
|
(6)
|
|
Foreign
|
—
|
—
|
—
|
|
|
10
|
10
|
26
|
|
Deferred:
|
|
|
|
|
Federal
|
(562)
|
(2,065)
|
(6,213)
|
|
State
|
(159)
|
(417)
|
(1,188)
|
|
Foreign
|
—
|
—
|
—
|
|
|
(721)
|
(2,482)
|
(7,401)
|
|
|
|
|
|
|
Change
in federal tax rate
|
—
|
—
|
—
|
|
|
|
|
|
|
Valuation
allowance
|
721
|
2,482
|
7,369
|
|
|
|
|
|
|
Total
income tax expense (benefit)
|
$10
|
$10
|
$(6)
|
The
reconciliations of the U.S. federal statutory rate to the effective
income tax rate for the years ended December 31, 2020, 2019
and 2018, are as follows:
|
|
2020
|
2019
|
2018
|
|
Tax
provision at U.S. federal statutory rates
|
21.0%
|
21.0%
|
21.0%
|
|
State
income taxes net of federal benefit
|
2.1
|
3.0
|
3.2
|
|
Deferred
tax asset adjustments – NOL related
|
0.0
|
(0.4)
|
(0.2)
|
|
Non-deductible
permanent items
|
(1.1)
|
(0.3)
|
(0.2)
|
|
Stock
options
|
(28.0)
|
(3.2)
|
(3.4)
|
|
Goodwill
impairment
|
0.0
|
—
|
(1.5)
|
|
Other
|
0.0
|
(3.9)
|
(0.2)
|
|
Change
in valuation allowance
|
5.8
|
(16.3)
|
(18.7)
|
|
Effective
income tax rate
|
(0.2)%
|
(0.1)%
|
0.0%
|
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, 2020 and 2019 are as
follows:
|
|
2020
|
2019
|
|
|
(in thousands)
|
|
|
Deferred
tax assets:
|
|
|
|
Allowance
for doubtful accounts
|
$103
|
$187
|
|
Accrued
liabilities
|
412
|
826
|
|
Net
operating loss carryforwards
|
24,798
|
23,933
|
|
Intangible
assets
|
4,259
|
4,334
|
|
Share-based
compensation expense
|
228
|
2,120
|
|
Other
|
1,370
|
406
|
|
Total
gross deferred tax assets
|
31,181
|
31,806
|
|
Valuation
allowance
|
(30,447)
|
(31,168)
|
|
Total
deferred tax assets
|
734
|
638
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
Right
of use assets
|
(733)
|
(638)
|
|
Fixed
assets
|
—
|
—
|
|
Other
|
(1)
|
—
|
|
Total
gross deferred tax liabilities
|
(734)
|
(638)
|
|
Net
deferred tax assets
|
$—
|
$—
|
On
December 22, 2017, the U.S. government enacted comprehensive tax
legislation known as the TCJA. The TCJA established new tax laws
that will take effect in 2018, including, but not limited to (i)
reduction of the U.S. federal corporate tax rate from a maximum of
35% to 21%; (ii) elimination of the corporate AMT; (iii) a new
limitation on deductible interest expense; (iv) the Transition Tax;
(v) limitations on the deductibility of certain executive
compensation; (vi) changes to the bonus depreciation rules for
fixed asset additions; and (vii) limitations on NOLs generated
after December 31, 2017, to 80% of taxable income.
ASC 740, “Income
Taxes,” requires the
effects of changes in tax laws to be recognized in the period in
which the legislation is enacted. However, due to the complexity
and significance of the TCJA’s provisions, the SEC staff
issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting
for the tax effects of the TCJA. SAB 118 provides a measurement
period that should not extend beyond one year from the TCJA
enactment date for companies to complete the accounting under ASC
740.
In
2017, we recorded provisional amounts for certain enactment date
effects of the TCJA, for which the accounting had not been
finalized, by applying the guidance in SAB 118. At December 31,
2017, the Company recorded a decrease in deferred tax assets and
deferred tax liabilities of $11.7 million and $0.0 million,
respectively, with a corresponding net adjustment to deferred
income tax expense of $11.7 million for the year ended December 31,
2017. In addition, the Company recognized a deemed repatriation of
$0.6 million of deferred foreign income from its Guatemala
subsidiary, which did not result in any incremental tax cost after
application of foreign tax credits. Accordingly, the Company
completed our accounting for the effects of the TCJA in 2018 and
did not recognize any material adjustments to the 2017 provisional
income tax expense.
The
TCJA created a provision known as GILTI that imposes a U.S. tax on
certain earnings of foreign subsidiaries that are subject to
foreign tax below a certain threshold. The Company has made an
accounting policy election to reflect GILTI taxes, if any, as a
current income tax expense in the period incurred.
During
2020 and 2019, the Company continued to experience losses and is
not projecting taxable income in the near future. Based on this
evaluation, the Company recorded an additional valuation allowance
of $0.7 million and $2.5 million against its deferred tax assets
during the years ended 2020 and 2019, respectively. Based on the
weight of available evidence, the Company believes that it is more
likely than not that these deferred tax assets will not be
realized.
In response to the coronavirus pandemic, the CARES
Act was signed into law in March 2020. The CARES Act lifts certain
deduction limitations originally imposed by the TCJA. Corporate
taxpayers may carryback net operating losses
(“NOL’s”) originating during 2018 through 2020 for
up to five years, which was not previously allowed under the TCJA.
The CARES Act also eliminates the 80% of taxable income limitations
by allowing corporate entities to fully utilize NOL carryforwards
to offset taxable income in 2018, 2019 or 2020.
Taxpayers
may generally deduct interest up to the sum of 50% of adjusted
taxable income plus business interest income (30% limit under the
TCJA) for tax years beginning January 1, 2019 and 2020. The CARES
Act allows taxpayers with alternative minimum tax credits to claim
a refund in 2020 for the entire amount of the credits instead of
recovering the credits through refunds over a period of years, as
originally enacted by the TCJA. The enactment of the CARES Act did
not result in any material adjustments to the Company’s
income tax provision for the year ended December 31, 2020, or to
its net deferred tax assets as of December 31, 2020.
The
CARES Act lifts certain deduction limitations originally imposed by
the TCJA. Corporate taxpayers may carryback NOLs originating during
2018 through 2020 for up to five years, which was not previously
allowed under the TCJA. The CARES Act also eliminates the 80% of
taxable income limitations by allowing corporate entities to fully
utilize NOL carryforwards to offset taxable income in 2018, 2019 or
2020.
On December 27, 2020, President Trump signed into
law the Consolidated Appropriations Act of 2021 (the
“Act”). The Act enhances and expands
certain provisions of the CARES Act. The Act permits
taxpayers whose PPP loans are forgiven to deduct the expenses
relating to their loans to the extent they would otherwise qualify
as ordinary and necessary business expenses. This rule applies
retroactively to the effective date of the CARES Act, so that
expenses paid using funds from PPP loans previously issued under
the CARES Act are deductible, regardless of when the loan was
forgiven. The Company’s $1.4M PPP loan was completely
forgiven in January 2021 and the expenses are currently deductible
on the Company’s 2020 Federal tax return.
On
December 31, 2020, the Company had federal and state NOLs of
approximately $104.1 million and $48.9 million,
respectively. $30.0 million of the federal NOLs have an
indefinite life and do not expire. The remaining $74.1 million of
the federal and all of the state NOLs expire through 2035 and 2040,
respectively, as follows:
The
federal NOLs expire through 2035 as follows (in
millions):
|
2025
|
$4.2
|
|
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
|
|
Do
not expire
|
30.0
|
|
|
$104.1
|
The
state NOLs expire through 2040 as follows (in
millions):
|
2028
|
$2.6
|
|
2029
|
5.8
|
|
2030
|
11.0
|
|
2034
|
1.4
|
|
2035
|
0.8
|
|
2038
|
2.3
|
|
2039
|
2.2
|
|
2040
|
0.6
|
|
California
NOLs
|
26.8
|
|
Other
State NOLs
|
22.1
|
|
Total
State NOLs
|
$48.9
|
Utilization
of the NOLs and tax credit carryforwards 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 carryforwards 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, 2020.
The
federal and state NOLs begin to expire in 2025 and 2028,
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. The tax benefits associated with the realization of
such NOLs was credited to the provision for income
taxes.
At
December 31, 2020, the Company has state research and development
tax credit carryforwards of $0.2 million. The previous
federal tax credits have been written off in the current year and
the state credits do not expire.
As
of December 31, 2020, and 2019, the Company had unrecognized tax
benefits of approximately $0.2 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:
|
|
2020
|
2019
|
|
|
(in thousands)
|
|
|
Balance
at January 1,
|
$464
|
$464
|
|
Reductions
based on tax positions related to prior years and
settlements
|
(275)
|
—
|
|
Balance
at December 31,
|
$189
|
$464
|
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 2017 and 2016, respectively (except for the use
of tax losses generated prior to 2017 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 has not accrued any interest associated
with its unrecognized tax benefits in the years ended December 31,
2020 and 2019.
12.
Selected Quarterly Financial Data (Unaudited)
The
following table presents quarterly unaudited consolidated financial
information for the eight quarters preceding December 31,
2020. Such information is presented on the same basis as the annual
information presented in the accompanying consolidated financial
statements. In management’s opinion, this information
reflects all normal recurring adjustments that are necessary for a
fair statement of the results for these periods.
|
|
Quarter Ended
|
|||||||
|
|
Dec 31,
2020
|
Sep 30,
2020
|
Jun 30,
2020
|
Mar 31,
2020
|
Dec 31,
2019
|
Sep 30,
2019
|
Jun 30,
2019
|
Mar 31,
2019
|
|
|
(in thousands, except per-share amounts)
|
|||||||
|
Total
net revenues
|
$17,252
|
$17,813
|
$17,033
|
$24,472
|
$26,687
|
$28,552
|
$27,142
|
$31,604
|
|
Gross
profit (loss)
|
$5,860
|
$6,423
|
$6,040
|
$5,357
|
$5,522
|
$5,907
|
$5,384
|
$5,757
|
|
Net
income (loss)
|
$(937)
|
$(448)
|
$(1,374)
|
$(4,061)
|
$(3,177)
|
$(1,739)
|
$(4,953)
|
$(5,360)
|
|
Basic
earnings (loss) per share
|
$(0.07)
|
$(0.03)
|
$(0.10)
|
$(0.31)
|
$(0.24)
|
$(0.13)
|
$(0.38)
|
$(0.41)
|
|
Diluted
earnings (loss) per share
|
$(0.07)
|
$(0.03)
|
$(0.10)
|
$(0.31)
|
$(0.24)
|
$(0.13)
|
$(0.38)
|
$(0.41)
|
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
|
|
Years Ended December 31,
|
||
|
|
2020
|
2019
|
2018
|
|
|
(in thousands)
|
||
|
Allowance
for bad debts:
|
|
|
|
|
Beginning
balance
|
$546
|
$445
|
$679
|
|
Additions
|
470
|
330
|
241
|
|
Write-offs
|
(674)
|
(229)
|
(475)
|
|
Ending
balance
|
$342
|
$546
|
$445
|
|
Allowance
for customer credits:
|
|
|
|
|
Beginning
balance
|
$194
|
$121
|
$213
|
|
Additions
|
(26)
|
250
|
198
|
|
Write-offs
|
(104)
|
(177)
|
(290)
|
|
Ending
balance
|
$64
|
$194
|
$121
|
|
Tax
valuation allowance:
|
|
|
|
|
Beginning
balance
|
$31,168
|
$28,687
|
$21,318
|
|
Charged
(credited) to tax expense
|
(721)
|
2,481
|
7,369
|
|
Charged
(credited) to retained earnings
|
—
|
—
|
—
|
|
Ending
balance
|
$30,447
|
$31,168
|
$28,687
|
F-32