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, 20172020
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)
Delaware | | 33-0711569 |
(State or other jurisdiction of Incorporation) incorporation or organization) | | (I.R.S. Employer Identification No.) |
18872 MacArthur Boulevard,400 North Ashley Drive, Suite 200300
Irvine, California 92612-1400Tampa, Florida 33602
(Address (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:
| | |
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| Common Stock, par value $0.001 per share | AUTO | The Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, 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.
| Large accelerated filer ☐ | Accelerated filer ☒☐ | Non-accelerated filer ☐ | Smaller reporting company ☐☒ |
| | | (Do not check if a smaller reporting company) | Emerging growth company☐ |
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 $12.61$1.29 for our common stock on The Nasdaq Capital Market on June 30, 2017,2020, the aggregate market value of outstanding shares of common stock held by non-affiliates was approximately $140$11 million.
As of March 12, 2018, 13,074,5588, 2021, there were 13,169,204 shares of our common stock were outstanding.
Documents Incorporated by Reference
Portions of our Definitive Proxy Statement for the 20182021 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.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
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
AutoWeb, Inc. was incorporated inon 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.
On October 9, 2017, the Company changed its name from Autobytel Inc. to AutoWeb, Inc., assuming the name of AutoWeb, Inc., which was the name of the company that was acquired by the Company in October 2015. In connection with this name change, the Company’s stock ticker symbol was changed from “ABTL” to “AUTO” on The Nasdaq Capital Market.
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 by utilizing our digital sales enhancing products and services. Our consumer-facing automotive websites (“Company Websites”) provide consumers with information and tools to aid them with their automotive purchase decisions and gives in-market consumers the ability to connect with Dealers regarding purchasing or leasing vehicles. These consumers are connected to Dealers via our various programs for online lead referrals (“Leads”). The Company’s AutoWeb® consumer traffic referral product (“AutoWeb Traffic Product”) engages with car buyers from AutoWeb’s network of automotive websites and uses our proprietary technology to present them with highly relevant offers based on their make and model of interest and their geographic location. We then direct these in-market consumers to key areas of a Dealer’s or Manufacturer’s website to maximize conversion for sales, service or other products or services.
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 free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports as soon as practicable after this material is electronically filedother filings with or furnished to the SEC and The Nasdaq Stock Market. Our Code of Conduct and Ethics is available at the Corporate Governance link of the Investor Relations section of our website, and a copy of the code may also be obtained, free of charge, by writing to the Corporate Secretary, AutoWeb, Inc., 18872 MacArthur Boulevard, Suite 200, Irvine, California 92612-1400.SEC.
Significant Business Developments
DealerXOverview
On October 5, 2017, the Company and DealerX Partners, LLC,We are a Florida limited liabilitydigital marketing company (“DealerX”), entered into a Master License and Services Agreement (“DealerXLicense 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 will operate the platform for AutoWeb and provide enhancements to and support for the DealerX platformautomotive industry that assists automotive retail dealers (“Dealers”) and automotive manufacturers (“Manufacturers”) market and sell new and used vehicles to consumers through our programs for at least an initial five-year period (“Platform Support Obligations”). See Note 5 of the “Notes to Consolidated Financial Statements” in Part II, Item 8, Financial Statementsonline lead and Supplementary Data of this Annual Report on Form 10-K.
Stock Repurchase
On June 7, 2012, the Company announced that its board of directors had authorized the Company to repurchase up to $2.0 million of the Company’s common stock,traffic referrals, Dealer marketing products and on September 17, 2014, the Company announced that its board of directors had approved the repurchase of up to an additional $1.0 million of the Company’s common stock. On September 6, 2017, the Company announced that its board of directors authorized the Company to repurchase an additional $3.0 million of the Company’s common stock. Under these repurchase programs, we may repurchase common stock from time to time on the open market or in private transactions. These authorizations do not require us to purchase a specific number of shares,services, online advertising and the board of directors may suspend, modify or terminate the programs at any time. We will fund future repurchases through the use of available cash. During 2017, we repurchased 226,698 shares for an aggregate price of $1.9 million. The average price paid for all shares repurchased during 2017 was $8.37. The shares repurchased during 2017 were cancelled and returned to authorized and unissued shares.mobile products.
Our consumer-facing automotive websites (“Industry BackgroundCompany Websites
We believe that”) provide consumers engaged inwith information and tools to aid them with their automotive purchase decisions and the vehicleability to submit inquiries requesting Dealers to contact the consumers regarding purchasing process have adopted the internet, primarily because the internet is one of the best methods to easily find the information necessary to make informed buying decisions. Additionally, the internet is a primary tool for consumers to begin communicating with local Dealers regarding vehicle pricing, availability, options and financing. J.D. Power and Associates reported in 2017 that 78% of automotive consumer buyers surveyed use third party websites for vehicle research. In addition, we believe that many Dealers and all major Manufacturers that market theiror leasing vehicles in the U.S. use the internet as an efficient way to reach consumers through marketing programs.(“LeadsAccording to Automotive News, U.S. light vehicle sales were 17.2 million in 2017, a decrease from 17.5 million vehicles sold in 2016. J.D. Power/LMC Automotive are forecasting 2018 U.S. total light vehicle sales and retail light-vehicle sales at 17.0 million and 13.7 million, respectively.
Products and Services
”). Leads are internally-generated from our Company Websites (“Internally-GeneratedInternally Generated Leads”) or acquired from third parties (“Non-Internally-GeneratedNon-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-GeneratedInternally Generated Leads and Non-Internally-GeneratedNon-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 AutoWeb Traffic Productclick 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 AutoWeb Traffic Product.click traffic program. In addition to our Leads and AutoWeb Traffic Productclick 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 participate in our Lead programs, and Manufacturers participate in our Lead programs, our display advertising programs and our direct marketing programs, reaching consumers thatwho are in the market to acquire a vehicle. For consumers, we provide, at no cost to the consumer, an easy way to obtain valuableuseful 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 may also include additional data regarding the consumer’s needs, including any vehicle trade-in, whether the consumer wishes to lease name, email address and/or buy,phone number, and other options that are important to the vehicle acquisition decision. A Lead will usuallymay also include the consumer’s name, phone number and email address and may include a postal address.
Dealers participating in our new vehicle Leads program are provided with iControl by AutoWeb,®, our proprietary technology that allows Dealers many options to filter and control the volume and source of their Leads. iControl by AutoWeb 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 partythird-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 feegeneration paid by Dealers in our network; however, under our pay-per-sale program, we offer a limited number of Dealers in states where we are permitted to charge on a per transaction basis the opportunity to pay a flat per transaction fee for a Lead that results in a vehicle sale.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 19%approximately 17%, 22%17% and 27%18% of total revenues in 2017, 20162020, 2019 and 2015,2018, respectively. Revenues from wholesale Leads accounted for 46%approximately 58%, 46%57% and 47%52% of total revenues in 2017, 20162020, 2019 and 2015,2018, respectively.
We measure Lead quality by the conversion of Leads to actual vehicle sales, which we refer to as the “buy rate.” Buy rate is the percentage of the consumers submitting Leads that we delivered to our customers represented by the number of these consumers who purchased vehicles within ninety days of the date of the Lead submission. We rely on detailed feedback from Manufacturers and wholesale customers to confirm the performance of our Leads. Our Manufacturer and wholesale customers match the Leads we deliver to our customers against vehicle sales to provide us with information about vehicle purchases by the consumers who submitted Leads that we delivered to these customers. We also obtain vehicle registration data from a third party provider. This information, together with our internal analysis allows us to estimate the buy rates for the consumers who submitted the Internally-Generated Leads and Non-Internally Generated Leads that we delivered to our customers, and based on these estimates, to estimate an industry average buy rate. Based on the most current information and our internal analysis, we have estimated that, on average, consumers who submit Internally-Generated Leads that we deliver to our customers have an estimated buy rate of approximately 19%. Buy rates that individual Dealers may achieve can be impacted by factors such as the strength of processes and procedures within the dealership to manage communications and follow up with consumers.
In addition, we report a number of key metrics to our customers, allowing them to gain a better understanding of the revenue opportunities that they may realize by acquiring Leads from us. We can now optimize the mix of Leads we deliver to our customers based on multiple sources of quality measurements. Also, by reporting the buying behavior of potential consumers, the findings also can help shape improvements to online Lead management, online advertising and dealership sales process training. By providing actionable data, we place useful information in the hands of our customers.
During 2017, we continued to focus our Dealer acquisition and retention strategies on dealerships to which we could deliver a higher percentage of our Internally-Generated Leads. We believe this will result in increased vehicle sales for our Dealers and ultimately stronger relationships with us because, based on our evaluation of the performance data and information discussed above, we believe our Internally-Generated Leads are of high-quality.
Used Vehicle 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 freetoll-free number posted next to the vehicle search results. We charge each Dealer that participates in the used Vehiclevehicle Leads program a monthly subscription or per Lead fee. Revenues from used vehicle Leads accounted for 9%4%, 10%5% and 11%7% of total revenues in 2017, 20162020, 2019 and 2015,2018, respectively.
Other Dealer Products and Services
In addition to Leads and AutoWeb Traffic Producttraffic 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 partythird-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 comprehensive automotive segments such as mini-vans or SUVs and offeroffers 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 from our Company Websites to Manufacturer sites is the most significant action measured by Manufacturers in evaluating our performance and value for the Manufacturer’s marketing programs. Through our agreement with Jumpstart Automotive Group (“Jumpstart”), Jumpstarta third party, the third party sells our fixed placement advertising across our Company Websites to automotive advertisers. Jumpstart has informed us that Jumpstart currently reaches approximately 44 million unique visitors per month and works with every major automotive Manufacturer across its portfolio of digital publishers. We also offer a direct marketing platform that enables Manufacturers to selectively target in-market consumers during the often-extended vehicle shopping process. Designed to keep a specific automotive brand in consideration, our direct marketing programs allow automotive marketers to deliver specific communication through either email or direct mail formats to in-market consumers during their purchase cycle.
Our AutoWeb Traffic Productclick traffic program is our pay-per-click advertising program. The AutoWeb Traffic Productclick 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, qualityhigh-quality traffic that Dealers and other customers cannot typically reach through their own marketing efforts. The AutoWeb Traffic Productclick 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 AutoWeb Traffic Productclick 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 excellent time-on-site, below-average bounce rates, higher-than-average page viewshighly targeted marketing opportunities and is a valuable tool to help Dealers sell more vehicles.
Advertising revenues, including direct marketing, accounted for 24%20%, 16%20% and 8%22% of total revenues in 2017, 20162020, 2019 and 2015,2018, 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 Thethe Supply of High-Quality Leads. High-quality Leads are those Leads that result in high transaction (i.e., purchase)vehicle acquisition) closing rates for our Dealer customers. Internally-GeneratedInternally Generated Leads are generally higher quality than Non-Internally-GeneratedNon-Internally Generated Leads and increase the overall quality of our Lead portfolio. Non-Internally-GeneratedNon-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:
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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, natural search (search engine optimization or “SEO,”, which is the practice of optimizing keywords in website content to drive traffic to a website), paid search (search engine marketing, or “SEM,,” which is the practice of bidding on keywords on search engines to drive traffic to a website), direct marketing and partnering with other website publishers that provide links to our websites. Our goal is that over time, paid traffic such as SEM will be balanced by greater visitation from direct navigation and SEO, which we expect to result in increased Lead volumes and gross profit margins.
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.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-GeneratedInternally Generated Leads.
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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.
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Relationships with Suppliers of High-Quality, Non-Internally-GeneratedNon-Internally Generated Leads. We plan to continue to develop and maintain strong relationships with suppliers of Non-Internally-GeneratedNon-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:
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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,
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providing customizable Lead programs to meet our Dealers’ unique marketing requirements,
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providing additional value addedvalue-added marketing services that help Dealers more effectively utilize the internet to market and sell new and used vehicles,
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increasing overall Dealer satisfaction by improving all aspects of our services,
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increasing the size of our retail Dealer footprint,
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focusing on higher revenue Dealers that are more cost-effective to support;support, and
o
enhancing our internal Lead generation activities by leveraging our expanded retail lead coverage.
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IncreasingIncreasing Lead Sales to Wholesale Customers.We We currently have agreements to sell Leads to 31most Manufacturer Lead programs, including all mainstream Manufacturers, with the exception of one luxury brand that has yet to launch a Lead program.programs. We intend to continue to demonstrate the value of third partythird-party leads to Manufacturers by utilizing close rate and cross sell data that demonstratesdemonstrate that third partythird-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-GeneratedInternally 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 AutoWeb Traffic Product targeted pay-per-clickclick traffic program for online automotive advertisers and publishers. Our AutoWeb Traffic Productclick 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 AutoWeb Traffic Productclick 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 measureablemeasurable 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 volumehigh-volume automotive publishers to our network, by targeting in-market consumers on a variety of social media platforms and by continuing to optimize this advertising platform on our consumer facing websites, whose traffic we believe will continue to scale.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 increase the amount charged pergrow our click as the network grows andadvertiser base as the level of attribution from this product is understood by advertising partners.
Increasing Display Advertising Revenues. As traffic to, and time spent on, our Company Websites by consumers increases, we will seek to increase our advertising revenues. Through our agreement with Jumpstarta third party, we benefit from Jumpstart'sthe third party’s relationships with every major automotive ManufacturerManufacturers and/or itsthe third party’s advertising agencies by increasing revenuerevenues for our traditional display advertising. It is our belief that if the volume of our traffic continues to increase, advertisers will recognize this increased value by agreeing to purchase additional advertising space available on our Company Websites. Additionally, we believe that our AutoWeb Traffic Product provides an opportunity to increase AutoWeb advertising revenue through additional monetization opportunities for our existing and growing traffic.
Focus on Mobile Technologies. As consumers increasingly engage with Internetinternet content using mobile devices, AutoWeb will continue to focus on advanced mobile technologies that facilitate communication between Dealers and consumers on smart phones and tablets at the time, place, and in a manner preferred by many consumers. This focus on the mobile platform is a core part of our strategy moving forward regarding lead generation, automotive research, website advertising and traffic generation.
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. Excluding the effect of acquisitions in 2015, Lead volume is typically highest in summer (third quarter) and winter (first quarter) months, followed by spring (second quarter) and fall (fourth quarter) months. 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, Your Lifetime Automotive Advisor®, iControl by Autobytel®, TextShield®, and Payment Pro®. We have also been issued patents related to methods and systems for managing a Lead in data center systems and a method and system for managing Leads and routing them to one or more destinations. We cannot provide any assurances that any of our 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 2017.2020. 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 partythird-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 partythird-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 partythird-party Lead programs to test these new approaches.
In the display advertising marketplace, we compete with major internet portals, transaction basedtransaction-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 by 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), General Motors and Media.net Advertising.Autodata Solutions. During 2017,2020, approximately 34%46% of our total revenues were derived from these threefour customers, and approximately 43%62% or $11.6$8.6 million of gross accounts receivable related to these threefour customers at December 31, 2017. In 2017, Urban Science Applications2020. Carat Detroit accounted for 15%12% and 20%19% of total revenues and accounts receivable, respectively, as of December 31, 2017, respectively. In 2017, Media.net Advertising2020. Ford Direct accounted for 11% and 16% of both total revenues and accounts receivable, respectively, as of December 31, 2017, respectively.
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.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“Risk1A “Risk Factors” of this Annual Report on Form 10-K.
Employees
As of March 12, 2018, we had 228 employees. None of our employees are represented by labor unions.
Employees
As of March 8, 2021, we had 149 employees.
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 a decline indeclining revenues due to dealerDealer attrition.
We predominately derive more than 98% of our Lead revenues from Lead feesgeneration paid by Dealers and Manufacturers participating in our Lead programs. Our Lead feesgeneration decreased $23.6$29.6 million, or 18%33%, in 20172020 compared to 2016.2019. 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 wouldwill decrease. We cannot provide any assurances that we will be able to increase Lead feegeneration 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 suppliessuppliers to our competitors.
Our ability to provide increased numbers of high-quality Leads to our customers is dependent on increasing the number of Internally-GeneratedInternally Generated Leads and acquiring high-quality Non-Internally-GeneratedNon-Internally Generated Leads from third parties. Originating Internally-GeneratedInternally 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-GeneratedNon-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 impacted.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, andpricing 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:
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Pricing and purchase incentives for vehicles;
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Availability and terms of automotive financing;
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The expectation that consumers will be purchasing fewer vehicles overall during their lifetime as a result of better qualitybetter-quality vehicles and longer warranties;
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The impact of fuel prices on demand for the number and types of vehicles;
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Increases or decreases in the number of retail Dealers or in the number of Manufacturers and other wholesale customers in our customer base;
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Volatility in spending by Manufacturers and others in their marketing budgets and allocations;
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The competitive impact of consolidation in the online automotive consumer referral industry;
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The effect of changes in transportation policy, including the potential increase of public transportation options; and
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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.ownership;
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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
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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.
Concentration of credit risk and risks due to significant customers could materially and adversely affect our financial performance.
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments and accounts receivable. Cash and cash equivalents are primarily maintained with two financial institutions in the United States. Deposits held by banks exceed the amount of insurance provided for such deposits. Generally these deposits may be redeemed upon demand. Accounts receivable are primarily derived from fees billed to Dealers and Manufacturers. We have a concentration of credit risk with our automotive industry related accounts receivable balances, particularly with Urban Science Applications (which represents several Manufacturer programs), General Motors and Media.net Advertising. During 2017 approximately 34% of the Company’s total revenues were derived from these customers, and they accounted for approximately 43% or $11.6 million of gross accounts receivable at December 31, 2017. 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.
We depend on Manufacturers through our third party sales channel for a significant amount of our advertising revenues, and we may not be able to maintain or grow these relationships.
We depend on Manufacturers through our third party sales channel for a significant amount of our advertising revenues. A decline in the level of advertising on our websites, reductions in advertising rates or any significant failure to develop additional sources of advertising would cause our advertising revenues to decline, which could have a material adverse effect on our financial performance. We periodically negotiate revisions to existing agreements and these revisions could decrease our advertising revenues in future periods and a number of our advertising agreements with Manufacturers may be terminated at any time without cause. We may not be able to maintain our relationship with Manufacturers on favorable terms or find alternative comparable relationships capable of replacing advertising revenues on terms satisfactory to us. If we cannot do so, our advertising revenues would decline, which could have a material adverse effect on our financial performance.
Our ability to maintain and add to our relationships with advertisers and thereby increase advertising revenues is dependent on our ability to attract consumers and acquire traffic to our Company Websites and monetize that traffic at profitable margins with advertisers. Our consumer facing websites compete with offerings from the major internet portals, transaction based sites, automotive-related verticals (websites with content that is primarily automotive in nature) and numerous lifestyle websites. Our advertising business is characterized by minimal barriers to entry, and new competitors may be able to launch competitive services at relatively low costs. If our Company Websites do not provide a compelling, differentiated user experience, we may lose visitors to competing sites, and if our website traffic declines, we may lose relevance to our major advertisers who may reduce or eliminate their advertising buys from us, which could have a material and adverse effect on our financial performance.
Uncertainty exists in the application of various laws and regulations to our business. New laws or regulations applicable to our business, or expansion or interpretation of existing laws and regulations to apply to our business, could subject us to licensing, claims, judgments and remedies, including monetary liabilities and limitations on our business practices, and could increase administrative costs or materially and adversely affect our financial performance.
We operate in a regulatory climate in which there is uncertainty as to the application of various laws and regulations to our business. Our business could be significantly affected by different interpretations or applications of existing laws or regulations, future laws or regulations, or actions or rulings by judicial or regulatory authorities. Our operations may be subjected to adoption, expansion or interpretation of various laws and regulations, and compliance with these laws and regulations may require us to obtain licenses at an undeterminable and possibly significant initial and annual expense. These additional expenditures may increase future overhead, thereby potentially reducing our future results of operations. There can be no assurances that future laws or regulations or interpretations or expansions of existing laws or regulations will not impose requirements on internet commerce that could substantially impair the growth of e-commerce and adversely affect our financial performance. The adoption of additional laws or regulations may decrease the popularity or impede the expansion of e-commerce and internet marketing, restrict our present business practices, require us to implement costly compliance procedures or expose us and/or our customers to potential liability.
We may be deemed to “operate” or “do business” in states where our customers conduct their business, resulting in regulatory action. If any state licensing laws were determined to be applicable to us, and if we are required to be licensed and we are unable to do so, or we are otherwise unable to comply with laws or regulations, we could be subject to fines or other penalties or be compelled to discontinue operations in those states. In the event any state’s regulatory requirements impose state specific requirements on us or include us within an industry-specific regulatory scheme, we may be required to modify our marketing programs in that state in a manner that may undermine the program’s attractiveness to consumers or Dealers. In the alternative, if we determine that the licensing and related requirements are overly burdensome, we may elect to terminate operations in that state. In each case, our financial performance could be materially and adversely affected. We have identified below areas of government regulation, which if changed or interpreted to apply to our business, we believe could be costly for us and could materially and adversely affect our financial performance.
Automotive Dealer/ Broker and Vehicle Advertising Laws.All states comprehensively regulate vehicle sales and lease transactions, including strict licensure requirements for Dealers (and, in some states, brokers) and vehicle advertising. Most of these laws and regulations, we believe, specifically address only traditional vehicle purchase and lease transactions, not internet-based Lead referral programs such as our programs. If we determine that the licensing or other regulatory requirements in a given state are applicable to us or to a particular marketing services program, we may elect to obtain required licenses and comply with applicable regulatory requirements. However, if licensing or other regulatory requirements are overly burdensome, we may elect to terminate operations or particular marketing services programs in that state or elect to not operate or introduce particular marketing services programs in that state. In some states we have modified our marketing programs or pricing models to reduce uncertainty regarding our compliance with local laws. As we introduce new services, we may need to incur additional costs associated with additional licensing regulations and regulatory requirements.
Financial Broker and Consumer Credit Laws. We provide a connection through our websites that allows consumers to obtain finance information and, through our display and pay-per-click advertising programs, to be referred to Dealer, Manufacturer and potential lender websites. All online applications for quotes are completed on the respective third party’s websites. We receive marketing fees from financial institutions and Dealers in connection with this marketing activity. We do not demand nor do we receive any fees from consumers for these services. In the event states require us to be licensed as a financial broker or finder, we may be unable to comply with a state’s laws or regulations, or we could be required to incur significant fees and expenses to obtain any financial broker required license and comply with regulatory requirements. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act established a new consumer financial protection bureau with broad regulatory powers, which could lead to regulation of our advertising business directly or indirectly through regulation of automotive finance companies and other financial institutions.
Insurance Broker Laws.We provide links on our websites and referrals from call centers enabling consumers to be referred to third parties to receive quotes for insurance from such third parties. All online applications for quotes are completed on the respective insurance carriers’ or other third party websites, and all applications for quotes obtained through call center referrals are conducted by the insurance carrier or other third party. We receive marketing fees from participants in connection with this marketing activity. We do not receive any premiums from consumers nor do we charge consumers fees for our services.
Changes in the taxation of internet commerce may result in increased costs.
Because our business is dependent on the internet, the adoption of new local, state or federal tax laws or regulations or new interpretations of existing laws or regulations by governmental authorities may subject us to additional local, state or federal sales, use or income taxes and could decrease the growth of internet usage or marketing or the acceptance of internet commerce which could, in turn, decrease the demand for our services and increase our costs. As a result, our financial performance could be materially and adversely affected. 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.
Changes in applicable tax regulations and resolutions of tax disputes could negatively affect our financial results.
The Company is subject to taxation in the U.S. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). The changes included in the TCJA are broad and complex and, among other items, reduce the corporate tax rate. The final transition impacts of the TCJA may differ from the estimates provided elsewhere in this report, possibly materially, due to, among other things, changes in interpretations of the TCJA, any legislative action to address questions that arise because of the TCJA, and any changes in accounting standards for income taxes or related interpretations in response to the TCJA. The TCJA, or future changes in tax laws applicable to us, could materially increase our future income tax expense.
Data Security and Privacy Risks
Our business is subject to various laws, rules and regulations relating to data security and privacy. New data security and privacy laws, rules and regulations may be adopted regarding the internet or other online services that could limit our business flexibility or cause us to incur higher compliance costs. In each case, our financial performance could be materially and adversely affected. We have identified below some of these risks that we believe could materially and adversely affect our financial performance.
Anti-spam laws, rules and regulations.Various state and federal laws, rules and regulations regulate email communications and internet advertising and restrict or prohibit unsolicited email (commonly known as “spam”). These laws, rules or regulations may adversely affect our ability to market our services to consumers in a cost-effective manner. The federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM”) imposes complex and often burdensome requirements in connection with sending commercial emails. In addition, state laws regulating the sending of commercial emails, including California’s law regulating the sending of commercial emails, to the extent found to not be preempted by CAN-SPAM, may impose requirements or conditions more restrictive than CAN-SPAM. Violation of these laws, rules or regulations may result in monetary fines or penalties or damage to our reputation.
Data privacy laws, rules and regulations.Various laws, rules and regulations govern the collection, use, retention, sharing and security of data that we receive from our users, advertisers and affiliates. In addition, we have and post on our website our own privacy policies and practices concerning the collection, use and disclosure of user data and personal information. Any failure, or perceived failure, by us to comply with our posted privacy policies, Federal Trade Commission requirements or orders or other federal or state privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others. Further, failure or perceived failure by us to comply with our policies, applicable requirements or industry self-regulatory principles related to the collection, use, sharing or security of personal information or other privacy-related matters could result in a loss of user confidence in us, damage to our brands, and ultimately in a loss of users, advertisers or Lead referral and advertising affiliates. We cannot predict whether new legislation or regulations concerning data privacy and retention issues related to our business will be adopted, or if adopted, whether they could impose requirements that may result in a decrease in our user registrations and materially and adversely affect our financial performance. Proposals that have or are currently being considered include restrictions relating to the collection and use of data and information obtained through the tracking of internet use, including the possible implementation of a “Do Not Track” list, that would allow internet users to opt-out of such tracking. 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.
Security risks associated with online Leads collection and referral, advertising and e-commerce risks associated with other online fraud and scams. A significant issue for online businesses like ours is the secure transmission of confidential and personal information over public networks. Concerns over the security of transactions conducted on the internet, consumer identity theft and user privacy issues have been significant barriers to growth in consumer use of the internet, online advertising and e-commerce. Despite our implementation of security measures, our computer systems or those of our vendors may be susceptible to electronic or physical computer break-ins, viruses and other disruptive harms and security breaches. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may specifically compromise our security measures. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures on a timely basis. Any perceived or actual unauthorized disclosure of personally identifiable information 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 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. For example, California law requires companies to inform individuals of any security breaches that result in their personal information being stolen. Because our success depends on the acceptance of online services and e-commerce, we may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by those breaches. Internet fraud has been increasing over the past few years, and the Company has experienced fraudulent use of our name and trademarks on websites in connection with the purported sale of vehicles offered on third party websites, with payments to be handled through an online escrow service purported to be owned and operated by the Company. These fraudulent online transactions and scams, should they continue to increase in prevalence, could affect our reputation with consumers and give rise to claims by consumers for funds transferred to the fraudulent accounts, which could materially and adversely affect our financial performance.
We are insured for some, but not all, of the foregoing risks. Even for those risks for which we are insured and have coverage under the terms and conditions of the applicable policies, there are no assurances given that the coverage limits would be sufficient to cover all costs, liabilities or losses we might incur or experience.
Telemarketing Risks. We are subject to various federal and state laws, rules, regulations and orders regarding telemarketing and privacy, including restrictions on the use of unsolicited emails and restrictions on marketing activities conducted through the use of telephonic communications (including text messaging to mobile telephones). Our financial performance could be adversely affected by newly-adopted or amended laws, rules, regulations and orders relating to telemarketing and increased enforcement of such laws, rules, regulations or orders by governmental agencies or by private litigants. One example of regulatory changes that may affect our financial performance are the regulations under the Telephone Consumer Protection Act (“TCPA”). Regulations adopted by the Federal Communications Commission under the TCPA require the prior express written consent of the called party before a caller can initiate telemarketing calls (i) to wireless numbers (including text messaging) using an automatic telephone dialing system or an artificial or prerecorded voice; or (ii) to residential lines using an artificial or prerecorded voice. Failure to comply with the TCPA can result in significant penalties, including statutory damages. 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.
Technology Risks
Our business is dependent on keeping pace with advances in technology. If we are unable to keep pace with advances in technology, consumers may stop using our services and our revenues will decrease. If we are required to invest substantial amounts in technology, ourOur financial performance willmay be materially and adversely impacted. 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, if we are required to invest substantial amountsour financial performance could be materially and adversely affected by material investments in technology in order to keep pace with technological advances, our financial performance could be materially and adversely affected.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, cybercyberattacks, terrorist attacks, 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 harmmaterially and adversely impact our operating results.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 partythird-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 partythird-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 partythird-party providers. We have little or no control over these third partythird-party providers. Any disruption of the services they provide us or any failure of these third partythird-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. For example, Dealer X operates the platform for AutoWeb and provides enhancements, and support for the DealerX platform for an initial five year period. 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 and outsourcing. operations.
We currently maintain website, software development and operations in Guatemala and receive software development and maintenance services for some of our systems from contractors located in Pakistan.Guatemala. These overseas operations and contractor arrangements are subject to many inherent risks, including but not limited to:
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Political social and economicsocial instability;
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Exposure to different business practices and legal standards, particularly with respect to labor and employment laws and intellectual property;
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Continuation of overseas conflicts and the risk of terrorist attacks and resulting heightened security;
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The imposition of governmental controls and restrictions and unexpected changes in regulatory requirements;
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Nationalization of business and blocking of cash flows;
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Changes in taxation and tariffs;
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Difficulties in staffing and managing international operations; and
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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 companies,businesses, products or technologies, which could divert our management’s attention from our business, disrupt our operations and there are many risks associated with acquisitions.materially and adversely impact our financial performance.
As part of our strategy to grow our business, strategy we evaluate potential acquisitionswhether to acquire other businesses, products or technologies that we believe will complement or enhance our existing business. We currently do not have any definitive agreements to acquire any company or businessrather 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 acquisition in the future. Acquisitions involve numerous risksassurances that include the following, any of which could materially and adversely affect our financial performance:completed acquisitions will be successful.
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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.
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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.
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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 liquidityfinancial 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 condition.performance:
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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;
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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;
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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.plans;
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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.unprofitable;
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The failure to further our strategic objectives thatthrough acquisitions may require us to expend additional resources to develop products, services and technology internally.internally;
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An announced business combination and investment transaction may not close timely or at all, which may cause our financial results to differ from expectations in a given quarter.
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Business combination and investment transactionsAcquisitions may lead to litigation that can be costly to defend or settle, even if no actual liability exists.exists;
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Integrations of acquisitions are often complex, time-consumingtime 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:
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Diversion of management attention to assimilating the acquired business from other business operations and concerns.concerns;
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Integration of the acquired business’s accounting, management information, human resources, legal and accountingother administrative systems of the acquired business into our systems, and the failure to fully realize all of the anticipated benefits of an acquisition.systems;
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Difficulties in assimilating the operations and personnel of an acquired business into our own business.
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Difficulties in integrating management information and accounting systems of an acquired business into our current systems.business;
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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.suppliers;
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Consolidating and rationalizing corporate IT infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code and business processes.processes;
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Persuading employees that business cultures are compatible, maintaining employee morale, retaining key employees and integrating employees into the Company.Company;
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Coordinating and combining administrative, manufacturing, technology, research and development, sales and marketing and other operations, subsidiaries, facilities and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures.relationships;
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Managing integration issues shortly after or pendingTransition of the completion of other independent transactions.acquired business’s users to our websites and mobile applications;
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Transition of customers to our products and services and our contracts;
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Risks associated with the businesses, products or technologies we acquired, which may differ from or be more significant than the risks our business faces;
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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;
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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
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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.
Securities Market 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, such as: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:
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Actual or anticipated variations in our quarterly operating results;
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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;
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Announcements by us or our competitors of newnew product or service offerings;
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Technological innovations;Announced or completed acquisitions of or investments in businesses or technologies by us or our competitors;
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Actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;
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Concentration of holdings in our common stock resulting in low public float and trading volume for our shares;
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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;
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Limited analyst coverage of the Company;
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Competitive developments, including actions by Manufacturers;
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Changes in financial estimatesData or network security incidents and breaches;
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New laws or regulations or new interpretations of existing laws or regulations applicable to our business;
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Litigation involving us, our industry or both, or investigations by securities analystsregulators into our operations or those of our failure to meet such estimates;competitors;
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Conditions and trends in the internet, electronic commerce and automotive industries;
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Adoption of newChanges in accounting standards, policies, guidelines, interpretations or principles affecting the technology or automotive industry;
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Rumors, whether or not accurate, about us, our industry, our competitors or possible transactions or other events;
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Any significant change in our management;
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Reaction by certain market participants to the activities of other market participants, such as large short positions on our stock;
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The impact of open market repurchases of our common stock;
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Comments posted on internet discussion sites; and
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General market or economic conditions and other factors.
Further, the stock markets in general, and the market for technology companies in particular, The Nasdaq Capital Market, have experienced price and volume fluctuations that have particularly affected the market prices of equity securities of many technology companies and have often been unrelated or disproportionate to the operating performance of those companies. These broad market factors have affected and may adversely affect the market price of our common stock. In addition, general economic, political and market conditions, such as recessions, interest rates,rate changes, energy prices,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. Following announcement of our financial results for the year ended December 31, 2017 and the departures of our Chief Executive Officer and Chief Financial Officer, the market price of our common stock declined significantly and a law firm announced that it is investigating investor claims. Should securities related litigation be filed, we could incur substantial costs and a diversion of management’s attention and resources, which would have a material adverse effect on our financial performance.
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, the Companywe must satisfy various continued listing requirements established by The Nasdaq Stock Market LLC. In the event the Company werewe 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 Companyour 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 the Companywe 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:
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Create a classified Board of Directors whose members serve staggered three-year terms;
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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;
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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;
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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;
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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;
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Provide that our bylaws may be amended by our Board of Directors without stockholder approval;
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Allow our Board of Directors to establish the size of our Board of Directors;
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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
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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:
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any derivative action or proceeding brought on our behalf;
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any action asserting a breach of fiduciary duty;
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any action asserting a claim against us under the Delaware General Corporation Law, our certificate of incorporation or our bylaws; and
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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 partythird-party infringement claims as the number of competitors in our industry segment grows and the functionality of products in different industry segments overlaps.Our ability to compete depends upon our proprietary systems and technology.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 namebrand-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 partythird-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 partythird-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 partythird-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.
Our certificate of incorporation and bylaws, tax benefit preservation plan and Delaware law contain provisions that could discourage a third party from acquiring us or limit the price third parties are willing to pay for our stock.
Provisions of our restated certificate of incorporation and bylaws relating to our corporate governance and provisions in our Tax Benefit Preservation Plan could make it difficult for a third party to acquire us, and could discourage a third party from attempting to acquire control of us. These provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock and may have the effect of delaying or preventing a change in control. The issuance of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of the common stock.
Our restated certificate of incorporation allows us to issue preferred stock with rights senior to those of the common stock without any further vote or action by the stockholders. Our restated certificate of incorporation also provides that the board of directors is divided into three classes, which may have the effect of delaying or preventing changes in control or change in our management because less than a majority of the board of directors are up for election at each annual meeting. In addition, provisions in our restated certificate of incorporation and bylaws:
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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;
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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;
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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;
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Provide that our bylaws may be amended by our board of directors without stockholder approval;
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Allow our board of directors to establish the size of our board of directors;
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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
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Do not give the holders of our common stock cumulative voting rights with respect to the election of directors.
These provisions could make it more difficult for stockholders to effect corporate actions such as a merger, asset sale or other change in control of us.
Under our Tax Benefit Preservation Plan, rights to purchase capital stock of the Company (“Rights”) have been distributed as a dividend at the rate of five Rights for each share of common stock. Each Right entitles its holder, upon triggering of the Rights, to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company at a price of $73.00 (as such price may be adjusted under the Tax Benefit Preservation Plan) or, in certain circumstances, to instead acquire shares of common stock. The Rights will convert into a right to acquire common stock or other capital stock of the Company in certain circumstances and subject to certain exceptions. The Rights will be triggered upon the acquisition of 4.90% or more of the Company’s outstanding common stock or future acquisitions by any existing holders of 4.90% or more of the Company’s outstanding common stock. If a person or group acquires 4.90% or more of our common stock, all Rights holders, except the acquirer, will be entitled to acquire at the then exercise price of a Right that number of shares of our common stock which, at the time, has a market value of two times the exercise price of the Right. The Tax Benefit Preservation Plan authorizes our board of directors to exercise discretionary authority to deem a person acquiring common stock in excess of 4.90% not to be an “Acquiring Person” under the Tax Benefit Preservation Plan, and thereby not trigger the Rights, if the Board finds that the beneficial ownership of the shares by the person acquiring the shares will not be likely to directly or indirectly limit the availability to the Company of the net operating loss carryovers and other tax attributes that the plan is intended to preserve or is otherwise in the best interests of the Company.
We are also subject to Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an “interested stockholder” is a person who, together with affiliates and associates, owns or did own 15% or more of the corporation’s voting stock. Section 203 could discourage a third party from attempting to acquire control of us.
If our internal controls and procedures fail, our financial condition, results of operations and cash flow could be materially and adversely affected.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. In making its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017, management used the criteria described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of the identification of the material weakness described below, our management concluded that our internal control over financial reporting was not effective as of December 31, 2017
On March 14, 2018, Moss Adams LLP, our independent registered public accounting firm, advised us that they believed there were control deficiencies in our internal controls over financial reporting such that in the aggregate they constituted a material weakness. Specifically, our independent accounting firm believed we did not adequately evidence management’s expectations, criteria for investigation, and the level of precision used in the performance of the controls. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. See Part II, Item 9A, “Controls and Procedures” of this Annual Report on Form 10-K.
Our management is in the process of evaluating the material weakness described above and intends to promptly remediate it. We are committed to continuing to improve our internal control processes and intend to implement controls to better evidence management’s expectation; however, we cannot be certain of the effectiveness of such implementation or that, in the future, additional material weaknesses or significant deficiencies will not exist or otherwise be discovered. If we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements and prevent fraud. In addition, if we are unable to successfully remediate the material weaknesses in our internal controls or if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with The Nasdaq Capital Market listing requirements
If we lose our key personnel or are unable to attract, train and retain additional highly qualified sales, marketing, managerial and technical personnel, our business may suffer.
Our future success depends on our ability to identify, hire, train and retain highly qualified sales, marketing, managerial and technical personnel. In addition, as we introduce new services we may need to hire additional personnel. We may not be able to attract, assimilate or retain such personnel in the future. The inability to attract and retain the necessary managerial, technical, sales and marketing personnel could have a material adverse effect on our financial performance.
Our business and operations are substantially dependent on the performance of our executive officers and key employees. Each of these executive officers would be difficult to replace. There is no guarantee that these or any of our other executive officers and key employees will remain employed with us. The loss of the services of one or more of our executive officers or key employees could have a material adverse effect on our financial performance.
Item 1B.
UnrUnreessolvedolved Staff Comments
Not applicable.
Our headquarters areprincipal executive office is located in Irvine, California. Our headquarters consistat our Tampa, Florida office, which consists of approximately 33,00013,000 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 2020. Our Tampa, Florida SEM operations are located in offices consisting of approximately 13,000 square feet under a lease that expires in May 2024.2025. 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 2020.2022. 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.
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. Following the announcement of our financial results for the year ended December 31, 2017 and the departures of our Chief Executive Officer and Chief Financial Officer, the market price of our common stock declined significantly and a law firm announced publicly that it is investigating investor claims. See Risk Factors—“Securities Market Risks”in Part I, Item 1A of this Annual Report on Form 10K.
Item 4.
MineMine Safety Disclosures
Not applicable.
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.” The following table sets forth, for the calendar quarters indicated, the range of high and low sales prices of our common stock:
| | |
| 2016 | | |
| First Quarter | $21.01 | $14.56 |
| Second Quarter | 18.74 | 12.34 |
| Third Quarter | 17.80 | 13.49 |
| Fourth Quarter | 18.28 | 11.04 |
| | | |
| 2017 | | |
| First Quarter | 14.18 | 12.01 |
| Second Quarter | 14.09 | 11.65 |
| Third Quarter | 12.92 | 6.89 |
| Fourth Quarter | 9.62 | 6.70 |
As of March 12, 2018,8, 2021, there were 228152 holders of record of our common stock. We have never declared or paid any cash dividends on our common stock and we do not expect to pay any cash dividends in the foreseeable future. Payment of any future dividends will depend on our earnings, cash flows and financial condition and will be subject to legal and contractual restrictions. As of March 12, 2018, our common stock closing price was $3.97 per share.
Purchases of Equity Securities by Issuer
The following table provides information with respect to Company purchases of the Company’s common stock during the three months ended December 31, 2017:
| Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
| | | | | |
| October 1, 2017 – October 31, 2017 | — | — | — | $3,024,751 |
| | | | | |
| November 1, 2017 – November 30, 2017 | 66,877 | $8.70 | 66,877 | 2,442,874 |
| | | | | |
| December 1, 2017 – December 31, 2017 | 14,000 | 8.61 | 14,000 | 2,322,352 |
| | | | | |
| Total | 80,877 | $8.68 | 80,877 | $2,322,352 |
(1)
On September 6, 2017, the Company announced that its board of directors authorized the Company to repurchase up to $3.0 million of the Company’s common stock. Shares repurchased under this program have been retired and returned to the status of authorized and unissued shares. The authorization may be increased or otherwise modified, renewed, suspended or terminated by the Company at any time, without prior notice. The Company may repurchase the Company’s common stock from time to time on the open market or in private transactions. The Company funded repurchases and anticipates that it will fund future repurchases, if any, through the use of available cash.
Performance Graph
The following graph shows a comparison of cumulative total stockholder returns for our common stock, the NASDAQ Composite, the S&P Automobile Manufacturers Index, and the S&P Smallcap 600 Automotive Retail Index. The comparisons reflected in the graph and table below are not intended to predict the future performance of our stock and may not be indicative of our future performance. The data regarding our common stock assume an investment in our common stock at the closing price of $3.98 per share of our common stock on December 31, 2012.
| | |
| | | | 12/14
| 12/15
| 12/16
| 12/17
|
| AutoWeb, Inc. | $100.00 | $380.15 | $273.87 | $566.83 | $337.94 | $226.38 |
| NASDAQ Composite | 100.00 | 141.63 | 162.09 | 173.33 | 187.19 | 242.29 |
| S&P Automobile Manufacturers | 100.00 | 130.10 | 126.21 | 123.53 | 122.70 | 141.93 |
| S&P Smallcap 600 Automotive Retail | 100.00 | 146.11 | 178.96 | 179.73 | 169.27 | 174.03 |
Item 6.
SeleSelectcetedd 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, 2017.2020. 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.”
| | | |
| | | | | | | | | | | |
| | (Amounts in thousands, except per-share data) | (Amounts in thousands, except per-share data) |
| RESULTS OF OPERATIONS: | | |
| Total revenues | $142,125 | $156,684 | $133,226 | $106,278 | $78,361 | $76,570 | $113,981 | $125,589 | $142,125 | $156,684 |
| Income (loss) from continuing operations | $(64,964) | $3,871 | $4,646 | $3,411 | $38,144 | |
| Net income (loss) | $(64,964) | $3,871 | $4,646 | $3,411 | $38,144 | $(6,820) | $(15,229) | $(38,816) | $(64,964) | $3,871 |
| Basic earnings (loss) per common share | $(5.48) | $0.36 | $0.47 | $0.38 | $4.29 | $(0.52) | $(1.17) | $(3.04) | $(5.48) | $0.36 |
| Diluted earnings (loss) per common share | $(5.48) | $0.29 | $0.37 | $0.32 | $3.61 | $(0.52) | $(1.17) | $(3.04) | $(5.48) | $0.29 |
| Weighted average diluted shares | 11,853 | 13,303 | 12,662 | 11,212 | 10,616 | 13,144 | 13,071 | 12,756 | 11,853 | 13,303 |
(1)
Net loss in 2018 included DealerXLicense 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 incomeloss in 2017 included goodwill impairment of $37.7 million and $16.7 million recording of aan income tax valuation allowance.
(2)
Net income in 2013 included a one-time benefit of $35.5 million in connection with the release of a valuation allowance against deferred tax assets.
| | |
| | | | | | |
| | |
| FINANCIAL POSITION (1): | | | | | |
| Cash and cash equivalents | $24,993 | $38,512 | $23,993 | $20,747 | $18,930 |
| Total assets | $92,913 | $165,281 | $153,588 | $104,749 | $88,193 |
| Non-current liabilities | $9,000 | $16,500 | $21,750 | $11,061 | $10,450 |
| Accumulated deficit | $(288,900) | $(230,424) | $(234,295) | $(238,941) | $(242,352) |
| Stockholders’ equity | $67,167 | $119,609 | $108,201 | $69,258 | $64,828 |
(1)
See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to the Consolidated Financial Statements” in Part II, Item 8, of this Annual Report on Form 10-K for information regarding business combinations and other items that may affect comparability.
| | |
| | | | | | |
| | |
| 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.
ManagManagemement’snt’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.
ForOverview
As reflected under the year ended December 31, 2017, our business, resultssection “Results of operations and financial condition were affected and may continueOperations” in this Item 7, the decline in total revenues for 2020 compared to be affected2019 was partially the result of a strategic shift made in the future byfirst quarter of 2019 to prioritize gross profitability as opposed to the eventsmaximization 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 or subsequent to year end that are described in Part I, Item 1 “Business –Significant Business Developments”of this Annual report on Form 10-K.Total revenues in 2017 were $142.1 million compared to $156.7 million in 2016. The decline in revenue was due to unfulfilled demand for our Leads as2020. As a result of higher traffic acquisition costs as well as channel mix issues resulting from a lower retail dealer count. The lower revenue was partially offset bythe continued growth of advertising click revenues. We believe that a large partimpact of the increasecoronavirus 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 acquisition costs were a result of an increased SEM spendto our customers by staying aligned with automotive supply and demand dynamics. Finally, the disruption from several of our competitors. We will continue to work with our traffic partners to optimize our SEM methodologies and rebuild our high-quality traffic streams. In addition,the January 2020 malware attack on the Company’s systems also negatively impacted total revenues in order to mitigate the impact to profitability, we realigned our headcount and expect it to reduce operating expenses. We cannot provide an exact timeframe for resolution of these issues, and these trends may continue into 2018 and beyond.
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:revenues for the years ended December 31, 2020 and 2019 (certain percentages below may not sum due to rounding):
| | | |
| | | | | | |
| Revenues: | | |
| Lead fees | 75.3% | 83.4% | 90.6% | |
| Advertising | 24.0 | 15.6 | 7.9 | |
| Lead generation | | 79.8% | 79.6% |
| Digital advertising | | 20.2 | 20.3 |
| Other revenues | 0.7 | 1.0 | 1.5 | 0.0 | 0.1 |
| Total revenues | 100.0 | 100.0 |
| Cost of revenues | 69.9 | 63.0 | 61.2 | 69.1 | 80.2 |
| Gross margin | 30.1 | 37.0 | 38.8 | |
| Gross profit | | 30.9 | 19.8 |
| Operating expenses: | | |
| Sales and marketing | 10.1 | 11.6 | 12.0 | 10.7 | 9.3 |
| Technology support | 8.8 | 8.9 | 8.8 | 8.6 | 7.8 |
| General and administrative | 8.5 | 9.4 | 9.9 | 16.6 | 12.4 |
| Depreciation and amortization | 3.4 | 3.2 | 2.3 | 2.2 | 3.8 |
| Litigation settlements | (0.1) | — | (0.1) | |
| Goodwill impairment | 26.5 | — | |
| Total operating expenses | 57.2 | 33.1 | 32.9 | 38.1 | 33.3 |
| Operating income (loss) | (27.1) | 3.9 | 5.8 | |
| Interest and other income (expense), net | (0.7) | 0.4 | 0.2 | |
| Income tax provision | 17.9 | 1.8 | 2.5 | |
| Net income (loss) | (45.7%) | 2.5% | 3.5% | |
| 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):
| | | | | | |
| | | | | $ | % | | % | | | | |
| Revenues: | | | | | |
| Lead fees | $107,045 | $130,684 | $120,678 | $(23,639) | (18%) | $10,006 | 8%
| |
| Advertising | 34,142 | 24,508 | 10,534 | 9,634 | 39 | 13,974 | 133 | |
| Lead generation | | $61,114 | $90,728 | $(29,614) | (33)% |
| Digital advertising | | 15,441 | 23,173 | (7,732) | (33) |
| Other revenues | 938 | 1,492 | 2,014 | (554) | (37) | (522) | (26) | 15 | 80 | (65) | (81) |
| Total revenues | 142,125 | 156,684 | 133,226 | (14,559) | (9) | 23,458 | 18 | 76,570 | 113,981 | (37,411) | (33) |
| Cost of revenues | 99,352 | 98,771 | 81,586 | 581 | 1 | 17,185 | 21 | 52,890 | 91,412 | (38,522) | (42) |
| Gross profit | $42,773 | $57,913 | $51,640 | $(15,140) | (26%) | $6,273 | 12% | $23,680 | $22,569 | $1,111 | 5% |
20172020 Compared to 20162019
Lead fees.Generation. Lead feesgeneration decreased $23.6$29.6 million or 18%33% in 20172020 compared to 2016.2019. The decrease in Lead feesgeneration was primarily as a result of the eliminationimpact of poor quality trafficthe coronavirus pandemic on vehicle sales. We also reduced our overall Lead generation efforts starting in the second quarter of 2017, decreased Lead sales2020 to Dealers combinedbetter align our volumes with increased Dealer churnindustry demand and the disposal of our specialty finance leads product in December 2016.consumer intent to purchase a vehicle.
Advertising.Digital advertising. The $9.6$7.7 million or 39% increase33% decrease in advertising revenues in 20172020 compared to 20162019 was primarily due to an increase in click revenue as a result of both increaseda decrease in click volume and pricing.
Other revenues. Other revenuesrevenue associated with decreased $0.6 million or 37% in 2017 compared to 2016.click volume. The decrease in other revenues was primarily dueclick volume is attributed to lower customer utilizationthe impact of the mobile offeringscoronavirus pandemic and SaleMove product.our internal decision to reduce overall click generation efforts to better align with industry demand.
Cost of Revenues. Cost of revenues consists of Leadpurchase request and traffic acquisition costs and other costs. Leadcost of revenues. Purchase request and traffic acquisition costs consist of payments made to our third party Leadthird-party purchase request providers, including internet portals and online automotive information providers, as well as SEM costs.providers. Other cost of revenues consists of SEM and fees paid to third parties for data and content, including SEOsearch engine optimization activity, included on our properties,websites; connectivity costs,costs; development costs related to our websites, compensation related expense andwebsites; technology license fees,fees; server equipment depreciationdepreciation; and technology amortization directly related to the Companyour Websites. SEM, sometimes referred to as paid search marketing, is the practice of bidding on keywords on search engines to drive traffic to a website.
The $0.6$38.5 million or 1% increase42% decrease in cost of revenues in 20172020 compared to 20162019 was primarily due to the increased costs indecreased SEM, purchase request and traffic acquisition activity. Costcosts and a decrease in click publisher costs.
Gross Profit.Gross profit increased $1.1 million, or 5%, compared to 2019 due toprioritizing gross profitability by reducing lead generation effort as opposed to the maximization of revenues increased aslead traffic and lead volume. Further contributing to this increase was a percentage of total revenues as a result of the $0.6 million increasereduction in cost of revenues and the $23.6 million, or 18%, decreaseprimarily driven by a reduction in total revenues.
2016 Compared to 2015
Lead fees.cost-per-click. Lead fees increased $10.0 million or 8% in 2016 compared to 2015. The increase in Lead fees was primarily due to increased lead volume associated with the acquisitions of Dealix Corporation and Autotegrity, Inc. (collectively, “Dealix/Autotegrity”) in May 2015.
Advertising. The $14.0 million or 133% increase in advertising revenues in 2016 compared to 2015 was primarily due to an increase in click revenue as a result of both increased click volume and pricing. Increased click volume was the result of increased investments in traffic acquisition activity.
Other revenues. Other revenues decreased $0.5 million or 26% in 2016 compared to 2015. The decrease in other revenues was primarily due to the discontinuation of a Manufacturer’s brand using other non-Lead products.
Cost of Revenues.The $17.2 million or 21% increase in cost of revenues in 2016 compared to 2015 was primarily due to increased lead volume from the Dealix/Autotegrity acquisition in May 2015 together with increased intangible amortization costs from both the Dealix/Autotegrity acquisition and the acquisition of AutoWeb, Inc. in October 2015, and an increased investment in additional traffic acquisition methodologies.
Operating expenses, interest and other income and income tax provision were as follows (dollars in thousands):
| | | | |
| | | | | | % | | %
|
| Operating expenses: | | | | | | | |
| Sales and marketing | $14,315 | $18,118 | $15,956 | $(3,803) | (21%) | $2,162 | 14%
|
| Technology support | 12,567 | 13,986 | 11,740 | (1,419) | (10) | 2,246 | 19 |
| General and administrative | 12,110 | 14,663 | 13,189 | (2,553) | (17) | 1,474 | 11 |
| Depreciation and amortization | 4,781 | 5,068 | 3,106 | (287) | (6) | 1,962 | 63 |
| Litigation settlements | (109) | (50) | (108) | (59) | 118 | 58 | (54) |
| Goodwill impairment | 37,688 | —— | — | 37,688 | — | — | — |
| Total operating expenses | $81,352 | $51,785 | $43,883 | $29,567 | 57% | $7,902 | 18% |
2017 Compared to 2016| | | | |
| | | | | |
| 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.Marketing. Sales and marketing expense includesinclude costs for developing our brand, personnel costs, and other costs associated with Dealer and Wholesale sales, website advertising Dealer support and bad debt expense.dealer support.
Sales and marketing expense for the year ended December 31, 20172020, decreased by $3.8$2.3 million, or 21%22%, compared to the prior year,2019 period, due primarily to a decrease in overall headcountcompensation and related expenses.benefits and the elimination of certain discretionary compensation.
Technology Support. Support.Technology support includes compensation, benefits, software licenses and other direct costs incurred by the Companyus to enhance, manage, maintain, support, monitor and operate the Company'sour websites and related technologies, and to operate the Company'sour internal technology infrastructure.
Technology support expense for the year ended December 31, 20172020, decreased by $1.4$2.3 million, or 10%26%, compared to the prior year ended December 31, 2019. The change was due primarily due to a decrease inlower headcount related costs.costs coupled with the elimination of certain discretionary compensation.
General and Administrative.Administrative. General and administrative expense consists of certain executive, financial, human resources, legal and facilities personnel expenses, and costs related to beingoperating as a publicly-traded company.publicly traded company and bad debt expense.
General and administrative expense for the year ended December 31, 20172020, decreased by $2.6$1.5 million, or 17%10%, compared to the prior year. The decrease2019 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 a decreaseassets that have been fully depreciated as compared to the same period in headcount relatedthe 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.
DepreciationIncome tax provision. Income tax expense was $10,000 for both the years ended December 31, 2020, and Amortization. Depreciation and amortization expense for2019. Operating losses during the year ended December 31, 2017 decreased $0.3 million or 6% from2020, 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, 2016 primarily due to some intangible assets becoming fully amortized during2019 (“2019 Form 10-K”), which was filed with the year.Securities and Exchange Commission on March 27, 2020.
Litigation Settlements.Payments received primarily from 2010 settlements of patent infringement claims against third parties relating to the third parties’ methods of Lead delivery were $0.1 million in 2017 compared to $50,000 in 2016. We also paid $41,000 related to settlement of claims alleged under the Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003 inherited in connection with the acquisition of Dealix/Autotegrity in 2016.
Goodwill impairment.As discussed below, we evaluate the carrying value of enterprise goodwill for impairment, at a minimum, on an annual basis. During 2017 we performed our annual impairment test by comparing the carrying value of AutoWeb to its fair value based on market capitalization at that date. As a result of this testing, a non-cash impairment charge of $37.7 million was recorded during 2017.
Interest and Other Income (Expense), net.Interest and other expense was $0.9 million for the year ended December 31, 2017 compared to interest and other income of $0.6 million for the year ended December 31, 2016. Interest expense was $0.8 million and $0.9 million for the years ended December 31, 2017 and 2016, respectively. The year ended December 31, 2017 included an impairment charge of $0.6 million related to SaleMove. The year ended December 31, 2016 also included gain on disposal of the finance leads product of $2.2 million offset by a $0.8 million write-off related to our investment in GoMoto, Inc. (“GoMoto’).
Income tax provision. Income tax expense was $25.4 million for the year ended December 31, 2017 compared to income tax expense of $2.8 million for the year ended December 31, 2016. The Company’s effective tax rate of (64.4)% for the year ended December 31, 2017 differed from the federal statutory rate principally as a result of deferred tax asset adjustments relating to the change in the U.S. federal rate, goodwill impairment, and establishing additional valuation allowances on our deferred tax assets. The Company’s effective tax rate of 42.1% for the year ended December 31, 2016 differed from the federal statutory rate principally as a result of deferred tax asset adjustments, state income taxes and permanent non-deductible tax items. The TCJAreduced the U.S. federal corporate rate to 21%, effective January 1, 2018. In addition, the TCJA limits the Company’s annual deduction for business interest expense to an amount equal to 30% of the Company’s “adjusted taxable income” (as defined in the Internal Revenue Code) for the taxable year, also effective January 1, 2018. The amount of any business interest not allowed as a deduction for any taxable year may be carried forward indefinitely and utilized in future years, subject to this and other applicable interest deductibility limitations.
2016 Compared to 2015
Sales and Marketing.Sales and marketing expense for the year ended December 31, 2016 increased by $2.2 million or 14% compared to the prior year, due to increased headcount related costs associated with the Dealix/Autotegrity and AutoWeb acquisitions coupled with severance expense of $0.6 million and accelerated stock compensation expense of $0.3 million associated with the termination of two executive officers.
Technology Support. Technology support expense for the year ended December 31, 2016 increased by $2.2 million or 19% compared to the prior year, primarily due to increased headcount related costs associated with the Dealix/Autotegrity and AutoWeb acquisitions coupled with severance expense of $0.3 million and accelerated stock compensation expense of $0.2 million associated with the termination of an executive officer.
General and Administrative.General and administrative expense for the year ended December 31, 2016 increased by $1.5 million or 11% compared to the prior year. The increase was due to increased headcount costs and facility fees, offset with a reduction in professional fees all associated with the Dealix/Autotegrity and AutoWeb acquisitions, together with $0.3 million in severance expense and $0.2 million in accelerated stock compensation expense for a terminated executive officer.
Depreciation and Amortization. Depreciation and amortization expense for the year ended December 31, 2016 increased $2.0 million or 63% from the year ended December 31, 2015 primarily due to the addition of intangible assets associated with the Dealix/Autotegrity and AutoWeb acquisitions.
Litigation Settlements.Payments received primarily from 2010 settlements of patent infringement claims against third parties relating to the third parties’ methods of Lead delivery were $50,000 in 2016 compared to $108,000 in 2015. We also paid $41,000 related to settlement of claims alleged under the Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003 inherited in connection with the acquisition of Dealix/Autotegrity in 2016.
Interest and Other Income (Expense), net.Interest and other income was $0.6 million for the year ended December 31, 2016 compared to interest and other income of $0.3 million for the year ended December 31, 2015. Interest expense was $0.9 million and $0.8 million for the years ended December 31, 2016 and 2015, respectively. The year ended December 31, 2016 also included gain on disposal of the finance leads product of $2.2 million offset by a $0.8 million write-off related to our investment in GoMoto.
Income tax provision. Income tax expense was $2.8 million for the year ended December 31, 2016 compared to income tax expense of $3.4 million for the year ended December 31, 2015. The Company’s effective tax rate of 42.1% for the year ended December 31, 2016 differed from the federal statutory rate principally as a result of deferred tax asset adjustments and state income taxes and permanent non-deductible tax items. The Company’s effective tax rate of 42.5% for the year ended December 31, 2015 differed from the federal statutory rate principally as a result of deferred tax asset adjustments and state income taxes.
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, 2017, 20162020 and 20152019 (dollars in thousands):
| | |
| | | | |
| | | |
| Net cash provided by operating activities | $11,488 | $18,242 | $12,200 |
| Net cash used in investing activities | (10,402) | (2,774) | (28,105) |
| Net cash (used in) provided by financing activities | (14,605) | (949) | 19,151 |
| | |
| | | |
| | | |
| 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 equivalentsequivalent balances and accounts receivable balances.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 $25.0 $15.1 million as of December 31, 20172020, compared to $38.5$5.9 million as of December 31, 2016.
On June 7, 2012,2019. For the year ended December 31, 2020, we announced thathad a net loss of $6.8 million. The net loss is primarily attributable to operating expenses of $29.2 million for the boardyear ended December 31, 2020. We had net cash provided by operations of directors had authorized us to repurchase up to $2.0$1.9 million of our common stock, and on September 17, 2014 we announced that our board of directors had approvedfor the repurchase of up to an additional $1.0 million of our common stock. On September 6, 2017, we announced that our board of directors had authorized us to repurchase up to $3.0 million of our common stock. We repurchased 226,698 shares of our common stock with an average price of $8.37 per share during 2017. No shares were repurchased during 2016. The authorization may be increased or otherwise modified, renewed, suspended or terminated by us at any time, without prior notice. We may repurchase our common stock from time to time on the open market or in private transactions. Shares repurchased under this program have been retired and returned to the status of authorized and unissued shares. We funded repurchases and anticipate that we would fund future repurchases through the use of available cash. The repurchase authorization does not obligate us to repurchase any particular number of shares. The timing and actual number of repurchases of additional shares, if any, under our stock repurchase program will depend upon a variety of factors, including price, market conditions, release of quarterly and annual earnings, and other legal, regulatory, and corporate considerations at our sole discretion. The impact of repurchases on our Tax Benefit Preservation Plan, as amended, and on the our use of net operating loss carryovers and other tax attributes if we were to experience an “ownership change,” as defined in Section 382 of the Internal Revenue Code, is also a factor that we consider in connection with share repurchases.year ended December 31, 2020. As of December 31, 2017, $2.32020, we had an accumulated deficit of $349.8 million remains available for repurchase under the program.
The Company and MUFG Union Bank, N.A. (“Union Bank”), have 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”). Until December 31, 2017, 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 linestockholders’ equity of credit (“Revolving Loan”). Term Loan 1 and Term Loan 2 were fully paid as of December 31, 2017. The outstanding balance of the Revolving Loan as of December 31, 2017 was $8.0$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.
Borrowings under the Revolving Loan bear interest at either (i) the LIBOR plus 2.50% or (ii) the bank’s Reference Rate (prime rate) minus 0.50%, at the option of the Company. Interest under 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 rateOur objective is selected; or (ii) with changes in Union Bank’s Reference Rate, if the Reference Rateto achieve cash generation as a business; however, there is selected.no assurance that we will be able to achieve this objective. The Company pays a commitment fee of 0.10% per year on the unused portion of the Revolving Loan, payable quarterly in arrears. Borrowings under the Revolving Loan are secured by a first priority security interest on all of the Company’s personal property (including, but not limitedCNC Credit Agreement is expected to accounts receivable) and proceeds thereof. The maturity date of the Revolving Loan is January 5, 2021. Borrowings under the Revolving Loan may be used as a source to finance working capital, capital expenditures, acquisitions and stock buybacks and for other general corporate purposes.
The Credit Facility Agreement contains certain customary affirmative and negative covenants and restrictive and financial covenants, which the Company was in compliance with as of December 31, 2017. The Company is in negotiations with Union Bank regarding possible amendmentscontinue to the Credit Facility Agreement to be effective prior to March 31, 2018, which amendments could require a partial paydown of the Revolver Loan. In the event these amendments are not entered into prior to March 31, 2018, the Company anticipates that it will pay off the Revolving Loan in full.partially fund operations.
We believe ourthat current cash reserves and cash equivalent balances together with anticipatedoperating cash flows from operations will be sufficientenough 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 working capital and capital expenditure requirements for at least the next 12 months.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 2017 of $11.5 million resulted primarily from net loss of $65.0 million, adjustments for non-cash charges to earnings of $75.9 million and an increase in working capital.
the prior year. Net cash provided by operating activities in 20162020 was due primarily to collections efforts resulting in a reduction in Accounts Receivable of $18.2$9.7 million resultedoffsetting 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 fromto a net incomeloss of $3.9$15.2 million adjustments for non-cash charges to earningscoupled with a net change in assets and liabilities of $13.4 million and$3.4 million. Offsetting these decreases was an increase in working capital.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 $10.4$0.6 million in 20172020 primarily consisted of $1.8 million in purchasesrelated to purchase of property and equipment and expenditures related to capitalized internal use software and $8.6 million used to purchase intangible assets.of $0.5 million.
Net cash used in investing activities of $2.8$1.4 million in 20162019 primarily consisted of a $0.4 million investment in GoMoto, a $0.3 million in a short-term investment and $2.1 million in purchasesrelated to purchase of property and equipment and expenditures related to capitalized internal use software.software of $1.6 million, offset by $0.2 million in proceeds from the sale of the GoMoto investment.
Net Cash (Used in) Provided by Financing Activities. Net cash used inprovided by financing activities of $14.6$7.9 million in 20172020 primarily consisted of payments$6.4 million of net borrowings on term loan borrowings of $14.1 million and cash used to repurchase Company common stock of $1.9 million. Stock options for 248,344 shares of the Company’s common stock were exercised in the year ended December 31, 2017 resulting incredit facilities, coupled with $1.4 million of cash inflow.
proceeds related to the PPP loan and $0.1 million for exercises of stock options.
Net cash used inprovided by financing activities of $0.9$3.2 million in 20162019 primarily consisted of payments$3.7 million of net borrowings on term loan borrowingsthe credit facility, coupled with $0.4 million proceeds from the exercise of $3.9 million. Stockstock options, for 386,001 sharesoffset by a $1.0 million repayment of the Company’s common stock were exercised inconvertible subordinated promissory note for $1.0 million issued to AutoNationDirect.com, Inc.in connection with the year ended December 31, 2016 resulting in $3.1 millionacquisition of cash inflow. 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, 20172020 (in thousands):
| | | | | | | | | | | |
| Long-term Debt Obligations (a) | $9,000 | $— | $1,000 | $8,000 | $— | |
| Credit Facility Obligations (a) | | $10,185 | $— | $10,185 | $— |
| Operating Lease Obligations (b) | 5,467 | 1,526 | 2,349 | 920 | 672 | 3,589 | 1,187 | 1,678 | 724 | — |
| Debt Obligations (c) | | 1,509 | 1,449 | 60 | — |
| Total | $14,467 | $1,526 | $3,349 | $8,920 | $672 | $15,283 | $2,636 | $11,923 | $724 | $— |
(a)
Long-term debtCredit Facility obligations as defined by ASC 470, “Debt,” and disclosed in Note 5 and 67 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 840,842, “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.
Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe the following critical accounting policies, among others, require significant judgment in determining estimates and assumptions used in the preparation of our consolidated financial statements. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and our actual results, our financial condition or results of operations may be affected. For a detailed discussion of the application of these and other accounting policies, see Note 2 of the “Notes to Consolidated Financial Statements” in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
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, consist of vehicle buying Leads foradvertising and mobile products and services used by Dealers and Manufacturers in their efforts to market and sell new and used vehicles request fees. Fees paid by Dealersto consumers. The Company enters into contracts that can include various combinations of products and Manufacturers participating in our Lead programs are comprised of monthly transaction and/or subscription fees. Advertising revenues represent fees for display advertising on our websites and fees from our click program.
We recognize revenues when evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured, and delivery or performance of service has occurred. Leadsservices, which are generally recognizedcapable of being distinct and accounted for as revenuesseparate performance obligations. The Company records revenue on distinct performance obligations at a single point in time, when control is transferred to the period the service is provided. Advertising revenues are generally recognized in the period the advertisements are displayed on our websites and the period in which clicks have been delivered. Fees billed prior to providing services are deferred, as they do not satisfy all U.S. GAAP revenue recognition criteria. Deferred revenues are recognized as revenue over the periods services are provided.
Investments. We make strategic investments because we believe that they may allow us to increase market share, benefit from advancements in technology and strengthen our business operations by enhancing our product and service offerings.customer.
Allowances for Bad DebtDebts and Customer Credits. We estimate and record allowances for potential bad debts and customer credits based on factors such as the write-off percentages, the current business environment and known concerns within our accounts receivable balances.
The allowance for bad debts is ouran estimate of bad debt expense that could result from the inability or refusal of our customers to pay for our services. Additions to the estimated allowance for bad debts are recorded as an increase in salesto general and marketingadministrative expenses and are based on factors such as historical write-off percentages, the current business environment and the known concerns within the current aging of accounts receivable. Reductions in the estimated allowance for bad debts due to subsequent cash recoveries are recorded as a decrease in salesgeneral and marketingadministrative expenses. As specific bad debts are identified, they are written-offwritten off against the previously established estimated allowance for bad debts and havewith no impact on operating expenses.
The allowance for customer credits is ouran estimate of adjustments for services that do not meet our customers’the customer requirements. Additions to the estimated allowance for customer credits are recorded as a reduction inof 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-offwritten off against the previously established estimated allowance for customer credits and havewith 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 ourthe Company’s customers or an increase in the number of customers that are dissatisfied with ourtheir services, additional estimated allowances for bad debts and customer credits may be required, and the impact on ourthe Company’s business, results of operations, or financial condition, earnings per share, cash flow or the trading price of our stock could be material. We generally do not require collateral to support our accounts receivables.
Fair Value of Financial Instruments.We record our financial assets and liabilities at fair value, which is defined under the applicable accounting standards as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measure date. We use valuation techniques to measure fair value, maximizing the use of observable outputs and minimizing the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.
Cash equivalents, accounts receivable, net of allowance, accounts payable and accrued liabilities, are carried at cost, which management believes approximates fair value because of the short-term maturity of these instruments.
Our investments at December 31, 2017 and 2016 consisted primarily of investments in SaleMove, Inc. (‘SaleMove”) and GoMoto and are accounted for under the cost method. Although there is no established market for these investments, we evaluated the investments for impairment by comparing them to an estimated fair value and determined that there is no impairment.
The following table presents the Company’s investment activity for 2017 and 2016 (dollars in thousands):
| | | | |
| | | | |
| Description | | | |
| | | | |
| Balance at December 31, 2015 | $375 | $— | $680 |
| Purchases, (sales), issuances and (settlements), net | (375) | 750 | — |
| Balance at December 31, 2016 | — | 750 | 680 |
| Reserve for notes receivable | — | (750) | — |
| Net balance at December 31, 2016 | — | — | 680 |
| Write-offs | — | — | (580) |
| Net balance at December 31, 2017 | $— | $— | $100 |
The Company recorded an impairment of its investment in SaleMove as of December 31, 2017 because we do not believe SaleMove’s cash balance is sufficient to sustain its cash burn rate as of December 31, 2017.The Company recorded a reserve against the current notes receivable related to GoMoto as of December 31, 2016 because the Company believes the amounts may not be recoverable.
Variable Interest Entities. We have an investment in an entity that is considered a variable interest entity (“VIE”) under U.S. GAAP. We have concluded that our investment in SaleMove qualifies as a variable interest and SaleMove is a VIE. VIEs are legal entities in which the equity investors do not have sufficient equity at risk for the entity to independently finance its activities or the collective holders do not have the power through voting or similar rights to direct the activities of the entity that most significantly impacts its economic performance, the obligation to absorb the expected losses of the entity, or the right to receive expected residual returns of the entity. Consolidation of a VIE is considered appropriate if a reporting entity is the primary beneficiary, the party that has both significant influence and control over the VIE. Management periodically performs a qualitative analysis to determine if the Company is the primary beneficiary of a VIE. This analysis includes review of the VIEs’ capital structures, contractual terms, and primary activities, including the Company’s ability to direct the activities of the VIEs and obligations to absorb losses, or the right to receive benefits, significant to the VIEs. Additionally, changes in our various equity investments have in the past resulted in a reconsideration event
Based on our analysis, AutoWeb is not the primary beneficiary of SaleMove. Accordingly, SaleMove does not meet the criteria for consolidation. The SaleMove Advances are classified as an other long-term asset on the consolidated balance sheet as of December 31, 2017. The carrying value and maximum potential loss exposure from SaleMove was zero and $0.6 million as of December 31, 2017 and 2016, respectively.
Capitalized Internal Use Software and Website Development Costs. We capitalizeThe Company capitalizes costs to develop internal use software in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software,“Internal-Use Software”, and ASC 350-50, Website“Website Development Costs,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 liveslife of the related websites.
Share-Based Compensation Expense. We account for our share-based compensation using the fair value method in accordance with the Stock Compensation Topic of the Codification. Under these provisions, we recognize share-based compensation net of an estimated forfeiture rate and therefore only recognize compensation cost for those shares expected to vest over the service period of the award. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model based on the underlying common stock closing price as of the date of grant, the expected term, expected stock price volatility and expected risk-free interest rates.
Calculating share-based compensation expense requires the input of highly subjective assumptions, including the expected term of the share-based awards, expected stock price volatility and expected pre-vesting option forfeitures. We estimate the expected life of options granted based on historical experience, which we believe is representative of future behavior. We estimate the volatility of the price of our common stock at the date of grant based on historical volatility of the price of our common stock for a period equal to the expected term of the awards. We have used historical volatility because we have a limited number of options traded on our common stock to support the use of an implied volatility or a combination of both historical and implied volatility. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future. In addition, we elected to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience of our share-based awards that are granted, exercised or cancelled. If our actual forfeiture rate is materially different from our estimate, the share-based compensation expense could be significantly different from what we have recorded in the current period.
Income Taxes.We account for income taxes under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We record a valuation allowance, if necessary, to reduce deferred tax assets to an amount we believe is more likely than not to be realized.
As of December 31, 2017, we had $0.5 million of unrecognized tax benefits. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2017, we did not accrue interest associated with our unrecognized tax benefits, and no interest expense was recognized in 2017.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the TCJA. The TCJA establishes new tax laws that will take effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax (“AMT”); (3) a new limitation on deductible interest expense; (4) one-time transition tax on certain deemed repatriated earnings of foreign subsidiaries (“Transition Tax”); (5) limitations on the deductibility of certain executive compensation; (6) changes to the bonus depreciation rules for fixed asset additions: and (7) limitations on net operating losses (“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 accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.
At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the TCJA; however, we have made a reasonable estimate of the effects of the TCJA’s change in the federal rate and revalued our deferred tax assets based on the rates at which they are expected to reverse in the future, which is generally the new 21% federal corporate tax rate plus applicable state tax rate. We 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, we recognized a deemed repatriation of $0.6 million of deferred foreign income from our Guatemala subsidiary, which did not result in any incremental tax cost after application of foreign tax credits. Our provisional estimates will be adjusted during the measurement period defined under SAB 118, based upon ongoing analysis of data and tax positions along with the new guidance from regulators and interpretations of the law.
Goodwill. Goodwill represents the excess of the purchase price for business acquisitions over the fair value of identifiable assets and liabilities acquired. We evaluate the carrying value of enterprise goodwill for impairment 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. We evaluate enterprise goodwill, at a minimum, on an annual basis in the fourth quarter of each year or whenever events or changes in circumstances suggest that the carrying amount of goodwill may be impaired. During 2015 we recognized $22.0 million in goodwill related to the acquisitions of Dealix/Autotegrity and AutoWeb. As of December 31, 2016, we adjusted goodwill by $82,000 as a result of purchase price allocation adjustments and no goodwill impairment was recorded during the year. As a result of our annual impairment testing, a non-cash impairment charge of $37.7 million was recorded during 2017.
Impairment of Long-Lived Assets and Intangible Assets.We periodically review long-lived assets to determine if there is any impairment of these assets. We assess the impairment of these assets, or the need to accelerate amortization, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our long-lived assets and other intangibles. Future events could cause us to conclude that impairment indicators exist and that the assets should be reviewed to determine their fair value. We assess the assets for impairment based on the estimated future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value. Fair value is generally determined based on a valuation process that provides an estimate of a fair value of these assets using a discounted cash flow model, which includes many assumptions and estimates. Once the valuation is determined, we will write-down these assets to their determined fair value, if necessary. Any write-downs could have a material adverse effect on our financial condition and results of operations. We recorded a $0.6 million impairment in our investment in SaleMove becausewe do not believe SaleMove’s cash balance is sufficient to sustain its cash burn rate as of December 31, 2017. We did not record any impairment of long-lived assets in 2016 and 2015.
Indefinite-lived intangible assets. Indefinite-lived intangible assets consists of a domain name, which was acquired as part of the Dealix/Autotegrity acquisition in 2015, which is tested for impairment annually, or more frequently if an event occurs or circumstances changes that would indicate that impairment may exist. When evaluating indefinite-lived intangible assets for impairment, we may first perform a qualitative analysis to determine whether it is more likely than not that the indefinite-lived intangible assets is impaired. If we do not perform the qualitative assessment, or if we determine that it is more likely than not that the fair value of the indefinite-lived intangible asset exceeds its carrying amount, we will calculate the estimated fair value of the indefinite-lived intangible asset. Fair value is the price a willing buyer would pay for the indefinite-lived intangible asset and is typically calculated using an income approach. If the carrying amount of the indefinite-lived intangible asset exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. We did not record any impairment of indefinite-lived intangible assets in 2017 and 2016.
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
The Company does not use financial instruments for trading. Our primary exposure to market risk is interest rate sensitivity related to our Credit Facility Agreement. The effect of a hypothetical 10% change in interest rates would have increased our interest expense by $73,000 in the year ended December 31, 2017.Not Applicable
Financial Statements and Supplementary Data
Our Consolidated Balance Sheets as of December 31, 20172020 and 20162019, and our Consolidated Statements of Operations, and Comprehensive Income (Loss), Stockholders’ Equity and Cash Flows for each of the years in the three-year period ended December 31, 2017,2020, 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.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We have established and maintainmaintained 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, 2017. As a result of2020. Based on this evaluation, the identification of the material weakness described below under “Management’s Report on Internal Control Over Financial Reporting,” management haschief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2017.2020.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in RulesRule 13a-15(f) underand 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, 2017. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or fraud.2020. In making this assessment, management used the criteria set forthframework established in the framework Internal Control-Integrated Framework (2013)issued by the COSO entitledInternal Control—Integrated Framework (2013). As a resultCommittee of Sponsoring Organizations of the identification of the material weakness described below,Treadway Commission. Based on this assessment, management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2017.2020. Management reviewed the results of its assessment with the Audit Committee of the Board of Directors.
On March 14, 2018, Moss Adams LLP, our independent registered public accounting firm, provided us the following assessment (“Moss Adams Assessment”) in connection with their attestation report onour internal control over financial reporting as
In connection with the evaluation and measurement of goodwill for impairment and valuation of deferred tax assets, we believe the Company’s management review controls were not effectively designed to operate at a sufficient level of precision, or there was not sufficient evidence to demonstrate the controls were designed to operate at a sufficient level of precision, necessary to prevent or detect a material misstatement on a timely basis. Specifically, we believe the Company did not adequately evidence management’s expectations, criteria for investigation, and the level of precision used in the performance of the controls. We also believe the controls did not sufficiently evidence the completeness and accuracy of key assumptions and other data used by management in the operation of controls. The aggregation of control deficiencies in these areas resulted in a material weakness related to internal control over financial reporting.
Representatives of Moss Adams discussed their assessment with members of our audit committee of the board of directors.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Our management is in the process of evaluating the Moss Adams Assessment and intends to promptly remediate the material weakness identified in the Moss Adams Assessment. We note that our management did in fact perform procedures designed to prevent any material misstatement of the Company’s annual or interim financial statements with respect to the evaluation and measurement of goodwill for impairment and valuation of deferred tax assets, including the engagement of independent third parties to assist management in its evaluation and measurement of goodwill for impairment and valuation of deferred tax assets. We also note that the material weakness identified in the Moss Adams Assessment did not result in a material misstatement of the Company’s consolidated financial statements for the year ended December 31, 2017.
Any controls and procedures, no matter how well designed and operated can only provide reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of all possible controls and procedures.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting identified(as defined in connection with the evaluation required by paragraph (d) of Rules 13a-15 ofRule 13a-15(f) under the Exchange Act that have occurredAct) during the fourth fiscal quarter of fiscalthe Company’s year 2017ended December 31, 2020, that havehas materially affected, or areis reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
Beginning January 1, 2018, we implemented internal controls to ensure we have adequately evaluated our contracts and properly assessed the impact of the new accounting standards related to revenue recognition to facilitate adoption on that date. We do not expect significant changes to our internal control over financial reporting due to the adoption of the new standard.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 has been audited by Moss Adams LLP, the Company’s independent registered public accounting firm, as stated in their attestation report, which is included below in Part IV, Item 15, Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K.
9B.
Item 9B. OOtthherer Information
Not applicable.
PART III
Information called for by the Items included under this Part III is incorporated by reference to the sections listed below of our definitive Proxy Statement for our 20182021 Annual Meeting of Stockholders that will be filed not later than 120 days after December 31, 20172020 (“20182021 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 20182021 Proxy Statement: “Proposal 1-Nomination and Election of Directors;” “Board of Directors;” “Executive Officers;” “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance;Reports;” and the following paragraphs under the section “Corporate Governance Matters” “--CommitteesMatters,” “—Committees of the Board of Directors—Audit Committee,” and “--Code“—Code of Conduct and Ethics.”
Item 11
ExecutiveExecutive Compensation
The information called for in this Item 11 is incorporated by reference to the following sections of the 20182021 Proxy Statement: “Executive Compensation,”Compensation” and “Corporate Governance Matters--CompensationMatters—Compensation Committee Interlocks and Insider Participation” and “--Board’s“—Board’s Role in Oversight of Risk,” and “Executive Compensation--Compensation Discussion and Analysis” and “--Compensation Committee Report.Risk.”
Item 12
SecuritySecurity 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 20182021 Proxy Statement: “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation-- 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 20182021 Proxy Statement: “Corporate Governance Matters--CertainMatters—Certain Relationships and Related PartyRelated-Party Transactions” and “--Director“—Director Independence.”
Item 14
PrincipalPrincipal Accountant Fees and Services
The information called for in this Item 14 is incorporated by reference to the following sections of the 20182021 Proxy Statement: “Independent Registered Public Accounting Firm and Audit Committee Report--PrincipalReport—Principal Accountant Fees and Services,” “--Audit“—Audit Fees,” “--Audit“—Audit Related Fees,” and “--Pre-Approval“—Pre-Approval Policy for Services.”
Item 15.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
(1)
Financial Statements:
| | | Page | |
| Index | | | F-1 | |
| Report of Independent Registered Public Accounting Firm | | | F-2 | |
| Consolidated Balance Sheets | | | F-3F-4 | |
Consolidated Statements of Operations and Comprehensive Income (Loss) | | | F-4F-5 | |
| Consolidated Statements of Stockholders’ Equity | | | F-5F-6 | |
| Consolidated Statements of Cash Flows | | | F-6F-7 | |
| Notes to Consolidated Financial Statements | | | F-7F-8 | |
(2)
Financial Statement Schedules:
Schedule II-II - Valuation Qualifying Accounts | | | 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.
The exhibits filed or furnished as part of this Annual Report on Form 10-K are those listed in the following Exhibit Index.
Number | Description |
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2.1‡ | Membership Interest Purchase Agreement dated as of January 13, 2014 by and among Company, AutoNation, Inc., a Delaware corporation, and AutoNationDirect.com, Inc., a Delaware corporation, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on January 17, 2014 (SEC File No. 001-34761) (“January 2014 Form 8-K”) |
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2.2 ‡ | Agreement and Plan of Merger dated as of October 1, 2015 by and among Company, New Horizon Acquisition Corp., a Delaware corporation, Autobytel, Inc. (formerly AutoWeb, Inc.), a Delaware corporation, and José Vargas, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on October 6, 2015 (SEC File No. 001-34761) (“October 2015 Form 8-K”) |
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2.3‡ | Asset Purchase and Sale Agreement dated as of December 19, 2016 by and among Company, Car.com, Inc., a Delaware corporation, and Internet Brands, Inc., a Delaware corporation, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on December 21, 2016 (SEC File No. 001-34761)Description |
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| 3.1 | SixthSeventh Amended and Restated Certificate of Incorporation of AutoWeb, Inc. (filed with the Secretary of the State of Delaware on October 9, 2017)June 22, 2020), incorporated by reference to Exhibit 3.43.1 to the Current Report on Form 8-K filed with the SEC on June 23, 2020 (SEC File No. 001-34761). |
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| 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)(“October 2017 Form 8-K”). |
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3.24.1* | Seventh Amended and Restated BylawsDescription of AutoWeb, dated October 9, 2017, incorporated by referenceInc. Securities Registered Pursuant to Exhibit 3.5 toSection 12 of the October 2017 Form 8-K |
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4.1 | FormSecurities Exchange Act of Common Stock Certificate of Company, incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 filed with the SEC on November 14, 2001 (SEC File No. 000-22239) |
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| 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 toExhibit 4.1to 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 toExhibit 4.1to 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 |
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4.3 | 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 periodQuarterly Period ended September 30, 2012 filed with the SEC on November 8, 2012 (SEC File No. 001-34761) |
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10.1■
| Autobytel.com Inc. 1998 Stock Option Plan, incorporated by reference to Exhibit 10.8 to Amendment No. 1 to S-1 Registration Statement filed with the SEC on February 9, 1999 (SEC File No. 333-70621), as amended by Amendment No. 1 dated September 22, 1999 to Autobytel.com Inc. 1998 Stock Option Plan, incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999 filed with the SEC on November 12, 1999 (SEC File No. 000-22239), and as amended by Amendment No. 2 dated December 5, 2001 to the Autobytel.com Inc. 1998 Stock Option Plan and Form of Stock Option Agreement under the Autobytel.com Inc. 1998 Stock Option Plan, incorporated by reference to Exhibits (d)(5) and(d)(14), respectively, to the Schedule TO filed with the SEC on December 14, 2001 (SEC File No. 005-58067) (“Schedule TO”). |
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10.2■
| Autobytel.com Inc. 1999 Employee and Acquisition Related Stock Option Plan, incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-8 filed with the SEC on November 1, 1999 (SEC File No. 333-90045), as amended by Amendment No. 1 dated December 5, 2001 to the Autobytel.com Inc. 1999 Employee and Acquisition Related Stock Option Plan, and Form of Stock Option Agreement under the Autobytel.com Inc. 1999 Employee and Acquisition Related Stock Option Plan, incorporated by reference to Exhibits (d)(10) and (d)(16), respectively, to the Schedule TO, and Amendment No. 2 to the Autobytel.com Inc. 1999 Employee and Acquisition Related Stock Option Plan dated May 1, 2009, incorporated by reference to Exhibit 10.86 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 filed with the SEC on July 24, 2009 (SEC File No. 000-22239) (“Second Quarter 2009 Form 10-Q”) |
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10.3■ | Form of Employee Stock Option Agreement under the Autobytel.com Inc. 1998 Stock Option Plan and the Autobytel.com Inc. 1999 Employee and Acquisition Related Stock Option Plan, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on October 3, 2008 (SEC File No. 000-22239) (“October 2008 Form 8-K”) | |
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10.4■ | Autobytel.com Inc. 2000 Stock Option Plan, incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed with the SEC on June 15, 2000 (SEC File No. 333-39396); as amended by Amendment No. 1 dated December 5, 2001 to the Autobytel.com Inc. 2000 Stock Option Plan and Form of Stock Option Agreement under the Autobytel.com Inc. 2000 Stock Option Plan, incorporated by reference to Exhibits (d)(12) and (d)(17), respectively, to the Schedule TO; Amendment No. 2 to the Autobytel.com Inc. 2000 Stock Option Plan, incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the Year Ended December 31, 2001 filed with the SEC on March 22, 2002 (SEC File No. 000-22239); and as amended by Amendment No. 3 to the Autobytel.com Inc. 2000 Stock Option Plan dated May 1, 2009, incorporated by reference to Exhibit 10.87 to the Second Quarter 2009 Form 10-Q | |
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10.5■ | Autobytel Inc. Amended and Restated 2001 Restricted Stock and Option Plan, incorporated by reference to Exhibit 4.7 to the Post-Effective Amendment to Registration Statement on Form S-8 filed with the SEC on July 31, 2003 (SEC File No. 333-67692); as amended by Amendment No. 1 to the Autobytel Inc. Amended and Restated 2001 Restricted Stock and Option Plan dated May 1, 2009, incorporated by reference to Exhibit 10.88 to the Second Quarter 2009 Form 10-Q; and Form of Restricted Stock Award Agreement under the Autobytel Inc. Amended and Restated 2001 Restricted Stock and Option Plan, incorporated by reference to Exhibit 10.1 to the October 2008 Form 8-K |
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10.6■ | Form of Employee Stock Option Agreement under the Autobytel Inc. Amended and Restated 2001 Restricted Stock and Option Plan, incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K for the Year Ended December 31, 2014 filed with the SEC on February 26, 2015 (SEC File No. 001-34761) | | |
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10.7■
| Autobytel Inc. 2004 Restricted Stock and Option Plan and Form of Employee Stock Option Agreement under the Autobytel Inc. 2004 Restricted Stock and Option Plan, incorporated by reference to Exhibits 4.8 and 4.9, respectively, to the Registration Statement on Form S-8 filed with the SEC on June 28, 2004 (SEC File No. 333-116930); as amended by Amendment No. 1 to the Autobytel Inc. 2004 Restricted Stock and Option Plan dated May 1, 2009, incorporated by reference to Exhibit 10.89 to the Second Quarter 2009 Form 10-Q; Form of Outside Director Stock Option Agreement under the Autobytel Inc. 2004 Restricted Stock and Option Plan, incorporated by reference to Exhibit 10.2 to the November 2004 Form 8-K; Form of Stock Option Agreement under the Autobytel Inc. 2004 Restricted Stock and Option Plan, incorporated by reference to Exhibit 10.65 to the Annual Report on Form 10-K for the Year Ended December 31, 2004 filed with the SEC on May 31, 2005 (SEC File No. 000-22239); and Form of Outside Director Stock Option Agreement and Form of Letter Agreement (amending certain stock option agreements with Outside Directors) under the 2004 Restricted Stock and Option Plan, incorporated by reference to Exhibits 10.1 and 10.2 to the Current Report on Form 8-K filed with the SEC on September 14, 2005 (SEC File No. 000-22239) |
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10.8■
| Autobytel Inc. 2006 Inducement Stock Option Plan and Form of Employee Inducement Stock Option Agreement, incorporated by reference to Exhibits 4.9 and 4.10, respectively, to the Registration Statement on Form S-8 filed with the SEC on June 16, 2006 (SEC File No. 333-135076); and as amended by Amendment No. 1 to the Autobytel Inc. 2006 Inducement Stock Option Plan dated May 1, 2009, incorporated by reference to Exhibit 10.90 to the Second Quarter 2009 Form 10-Q |
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10.9■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) (“2011 Form 10-K”); 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) (“2012 Form 10-K”). |
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10.10■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) (“June 2014 Form 8-K”) |
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| ; 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 8-K) |
| 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, |
| |
| 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, |
| |
| 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, |
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| 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, |
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| 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 toExhibit 10.16on 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). |
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| 10.3■ | AutoWeb, Inc. 2018 Equity Incentive Plan, incorporated by reference toExhibit 10.1on 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 toExhibit 10.8to 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 toExhibit 10.9on 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 toExhibit 10.10on 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 toExhibit 10.11on the Quarterly Period ended June 30, 2018, filed with the SEC on August 2, 2018 (SEC File No. 001-34761). |
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10.17■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). |
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| 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). |
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| 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 toExhibit 10.2to the Quarterly Report on Form 10-Q filed with the SEC on November 7, 2019 (SEC File No. 001-34761). |
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| 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). |
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| 10.8■ | Letter Agreement dated as of October 10, 2006, between Company and Glenn E. Fuller, as amended by Memorandum dated April 18, 2008, Memorandum dated as of December 8, 2008, and Memorandum dated as of March 1, 2009, 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) (“2008 Form 10-K”); and 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) (“2016 Form 10-K”) |
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10.18■ | Amended; and Restated Severance Agreement dated as of September 29, 2008 between Company and Glenn E. Fuller, incorporated by reference to Exhibit 10.4 to the October 2008 Form 8-K; as amended by Amendment No. 1 dated December 14, 2012, incorporated by reference to Exhibit 10.73 to the 2012 Form 10-K |
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10.19■ | Letter Agreement dated August 6, 2004 between Company and Wesley Ozima, as amended by Memorandum dated March 1, 2009,April 18, 2018, incorporated by reference to Exhibit 10.8110.20 to the 2008 Form 10-K; and as amended by Memorandums dated January 22, 2016 and January 31, 2017, incorporated by reference to Exhibit 10.16to the Annual Report on Form 10-K for the Year Ended December 31, 2016 filed with the 2016 Form 10-K |
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10.20■ | Amended and Restated Severance Agreement dated as of November 15, 2008 between Company and Wesley Ozima, incorporated by reference to Exhibit 10.82 to the 2008 Form 10-K; and as amended by Amendment No. 1 dated October 16, 2012, incorporated by reference to Exhibit 10.74 to the 2012 Form 10-K |
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10.21■ | Stock Option Award Agreement under the Autobytel Inc. 2000 Stock Option Plan, Stock Option Award Agreement under the Autobytel Inc. Amended and Restated 2001 Restricted Stock and Option Plan, and Stock Option Award Agreement under the Autobytel Inc. 2004 Restricted Stock and Option Plan each dated effective as of April 3, 2009 between Company and Jeffrey H. Coats, incorporated by reference to Exhibits 10.92, 10.93 and 10.94, respectively, to the Second Quarter 2009 Form 10-Q; Employee Stock Option Award Agreement under the Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity Incentive Plan and Employee Stock Option Award Agreement under the Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity Incentive Plan, each dated as of January 21, 2016 between Company and Jeffrey H. Coats, incorporated by reference to Exhibits 10.2 and 10.3, respectively, to the Current Report on Form 8-K2018, filed with the SEC January 27, 2016on March 7, 2019 (SEC File No. 001-34761) (“January 2016 Form 8-K”). |
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10.22■ | SecondThird Amended and Restated EmploymentSeverance Benefits Agreement dated as of AprilMarch 3, 20142021, between Company and Jeffrey H. Coats,Glenn Fuller.
|
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| 10.10■ | Offer of Employment dated as of November 26, 2018, between Company and Daniel Ingle, incorporated by reference to Exhibit 99.110.1 to the Current Report on Form 8-K filed with the SEC on April 8, 2014January 16, 2019 (SEC File No. 001-34761); as amended by Amendment No. 1 dated January 21, 2016, incorporated by reference to Exhibit 10.1 to the January 2016 Form 8-K; and as amended by Amendment No. 2 dated September 21, 2016, incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the SEC on September 26, 2016 (SEC File No. 001-34761) (“September 2016 Form 8-K”). |
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10.23■10.11■ | FormInducement Stock Option Award Agreement dated as of Amended and Restated Indemnification AgreementJanuary 16, 2019, between Company and its directors and officers,Daniel Ingle, incorporated by reference to Exhibit 99.110.25 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). |
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10.12■ | Amended and Restated Severance Benefits Agreement dated as of March 3, 2021, between Company and Daniel Ingle, incorporated by reference toExhibit 10.2to the Current Report on Form 8-K filed with the SEC on July 22, 2010March 4, 2021 (SEC File No. 001-34761). |
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10.13■ | Offer of Employment dated as of November 16, 2020, between Company and Michael Sadowski, incorporated by reference toExhibit 10.1to the Current Report on Form 8-K filed with the SEC on November 19, 2020 (SEC File No. 001-34761). |
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| FormInducement Stock Option Award Agreement dated as of Indemnification AgreementNovember 30, 2020, between the Company and its directorsMichael Sadowski. |
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| 10.15■ | Amended and officersRestated Severance Benefits Agreement dated as of March 3, 2021, between Company and Michael Sadowski, incorporated by reference toExhibit 10.1to the Current Report on Form 8-K filed with the SEC on March 4, 2021 (SEC File No. 001-34761). |
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10.16■ | Offer of Employment dated as of October 2, 2018, between Company and Sara Partin, incorporated by reference toExhibit 10.1to 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). |
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10.25■
10.17■ | Revised OfferInducement Stock Option Award Agreement dated as of Employment Letter dated March 9, 2010October 22, 2018, between Company and Kimberly Boren, as amended by Memorandum dated December 21, 2010 and Memorandum dated as of December 1, 2011, isSara Partin, incorporated by reference to Exhibit 10.7310.2 to the 2011Quarterly Report on Form 10-K; and as amended by Memorandum dated10-Q for the Quarterly Period ended September 21, 2016, incorporated by reference to Exhibit 10.4 to September 2016 Form 8-K30, 2018, filed with the SEC on November 8, 2018 (SEC File No. 001-34761). |
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10.26■
| Amended and Restated Severance Benefits Agreement dated as of February 25, 2011March 3, 2021, between Company and Kimberly Boren, incorporated by reference to Exhibit 10.74 to the 2011 Form 10-K; as amended by Amendment No. 1 to Amended and Restated Severance Benefits Agreement dated November 14, 2012 between Company and Kimberly Boren, incorporated by reference to Exhibit 10.70 to the 2012 Form 10-K Sara Partin. |
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10.27■10.19 | Restricted Stock Award Agreement under the AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity Incentive Plan and Amended and Restated Letter Agreement dated as of April 23, 2015 between Company and William Ferriolo, incorporated by reference to Exhibits 10.3 and 10.5, respectively, to the Current Report on Form 8-K filed with the SEC on April 29, 2015 (SEC File No. 001-34761) (“April 2015 Form 8-K”) |
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10.28■ | Amended and Restated Letter Agreement dated as of April 23, 2015 between Company and William Ferriolo, incorporated by reference to Exhibit 10.5 to the April 2015 Form 8-K; as amended by Amendment No. 1 dated January 22, 2016, incorporated by reference to Exhibit 10.4 to the January 2016 Form 8-K; and as amended by Amendment No. 2 dated December 15, 2016, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on December 2, 2016 (SEC File No. 001-34761) (“December 2016 Form 8-K”) |
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10.29■
| Letter Agreement dated May 21, 2007 between Company and John Steerman, as amended by Memorandum dated March 20, 2009, Memorandum dated September 30, 2009, and Memorandum dated December 1, 2011, incorporated by reference to Exhibit 10.77 to the 2011 Form 10-K; and as amended by Memorandum dated January 22, 2016, incorporated by reference to Exhibit 10.29 to the 2016 Form 10-K |
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10.30■
| Severance Agreement dated as of October 1, 2009 between Company and John Steerman, incorporated by reference to Exhibit 10.78 to the 2011 Form 10-K; and as amended by Amendment No. 1 dated September 19, 2012 and Amendment No. 2 dated November 7, 2012, incorporated by reference to Exhibits 10.75 and 10.76, respectively, to the 2012 Form 10-K |
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10.31■ | Amended and Restated Employment Agreement dated April 24, 2013 between Company and John Skocilic Jr., as amended by Memorandum dated January 22, 2016 and Memorandum dated January 31, 2017, incorporated by reference to Exhibit 10.51 to the 2016 Form 10-K |
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10.32■ | Amended and Restated Severance Benefits Agreement dated May 1, 2013 between Company and John Skocilic Jr., incorporated by reference to Exhibit 10.49 to the 2015 Form 10-K |
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10.33■ | Employment Offer Letter Agreement dated September 17, 2010 between Company and Ralph Smith, as amended by Memorandum dated January 1, 2013, Memorandum dated July 1, 2013, and Memorandum dated January 28, 2016, incorporated by reference to Exhibit 10.47 to the 2016 Form 10-K |
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10.34■ | Amended and Restated Severance Benefits Agreement dated July 1, 2013 between Company and Ralph Smith, incorporated by reference to Exhibit 10.48 to the 2016 Form 10-K |
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| Memorandum dated July 16, 2016, amending Employment Offer Letter Agreement dated September 17, 2010 between Company and Ralph Smith |
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| Memorandum dated February 20, 2018, amending Employment Offer Letter Agreement dated September 17, 2010 between Company and Ralph Smith |
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10.37■ | Employment Offer Letter dated February 14, 2014 between Company and Taren Peng, as amended by Memorandum dated January 31, 2017, incorporated by reference to Exhibit 10.49 to the 2016 Form 10-K |
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10.38■ | Severance Benefits Agreement dated August 25, 2014 between Company and Taren Peng, incorporated by reference to Exhibit 10.50 to the 2016 Form 10-K |
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10.39■ | Employee Stock Option Award Agreement under the Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity Incentive Plan dated as of September 21, 2016 between Company and José Vargas, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on October 21, 2016 (SEC File No. 001-34761) (“October 2016 Form 8-K”) |
10.40■ | Employment Offer Letter dated February 23, 2016 between Company and José Vargas, incorporated by reference to Exhibit 10.54 to the 2015 Form 10-K |
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10.41
| Amended and Restated Stockholder Agreement dated as of October 1, 2015 by and among Company, Auto Holdings Ltd., a British Virgin Islands business company, Manatee Ventures Inc., a British Virgin Islands business company, Galeb3 Inc., a Florida corporation, Matías de Tezanos, and José Vargas, and the other parties set forth on the signature pages thereto, incorporated by reference to Exhibit 10.2 to the October 2015 Form 8-K; as amended by Second Amended and Restated Stockholder Agreement dated as of October 19, 2016, incorporated by reference to Exhibit 10.1 to the October 2016 Form 8-K; as amended by Third Amended and Restated Stockholder Agreement dated as of November 30, 2016, incorporated by reference to Exhibit 10.1 to the December 2016 Form 8-K; as amended by 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). |
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10.4210.20 | LoanLease Agreement dated as of February 26, 2013 by andMarch 11, 2020, between Company and Union Bank, N.A., a national banking association (“Loan Agreement”); as amended by First Amendment dated as of September 10, 2013 to Loan Agreement; as amended by Second Amendment dated as of January 13, 2014 to Loan Agreement, Security Agreement dated January 13, 2014, Commercial Promissory Note dated January 13, 2014 ($9,000,000 Term Loan), and Commercial Promissory Note dated January 13, 2014 ($8,000,000 Revolving Loan),The Irvine Company LLC, incorporated by reference to Exhibit 10.410.1 to the January 2014 Form 8-K; as amended by Third Amendment dated as of May 20, 2015 to Loan Agreement, Commercial Promissory Note dated May 20, 2015 ($15,000,000 Term Loan), and Commercial Promissory Note dated May 20, 2015 ($8,000,000 Revolving Loan), incorporated by reference to Exhibits 10.1, 10.2 and 10.3to the Current Report on Form 8-K filed with the SEC on May 27,March 16, 2020(SEC File No. 001-34761). |
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| 10.21 | Lease Agreement dated as of December 9, 2015, betweenCompanyand Rivergate Tower Owner, LLC, as amended by Amendment No. 1 to Lease Agreement dated November 21, 2016, incorporated by reference toExhibit 10.35to the Annual Report on Form 10-K filed with the SEC on March 9, 2017 (SEC File No. 001-34761); as amended by Fourth Amendment. |
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| 10.22 | Contract for Lease and Deposit dated as of June 1, 2016, to Loan Agreement,between AW GUA, Limitada, and Mertech, Sociedad Anonima, for office No. 1101, incorporated by reference to Exhibit 10.510.33 to the QuarterlyAnnual Report on Form 10-Q for the quarterly period ended June 30, 201610-K filed with the SEC on August 4, 2016March 9, 2017 (SEC File No. 001-34761); as amended by Fifth AmendmentLetter Agreements for Lease Extension dated as of June 28, 2017 to Loan AgreementDecember 18, 2019 and Commercial Promissory Note dated on June 28, 2017 ($8,000,000 Revolving Loan), January 6, 2020, between AW GUA, Limitada, and Mertech, Sociedad Anonima, for office No. 1101,incorporated by reference to Exhibits 10.2Exhibit 10.32 and 10.3to the CurrentAnnual Report on Form 8-K10-K filed with the SEC on March 27, 2020 (SEC File No. 001-34761). |
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| 10.23 | Contract for Lease and Deposit dated as of June 29,1, 2016, between AW GUA, Limitada, and Mertech, Sociedad Anonima, for office No. 1102, incorporated by reference toExhibit 10.34to Annual Report on Form 10-K filed with the SEC on March 9, 2017 (SEC File No. 001-34761); and as amended by Sixth AmendmentLetter Agreements for Lease Extension dated as of December 27, 2017 to Loan Agreement, 18, 2019 and January 6, 2020, between AW GUA, Limitada, and Mertech, Sociedad Anonima, for office No. 1102,incorporated by reference to Exhibit 10.110.33 to the CurrentAnnual Report on Form 8-K10-K filed with the SEC on DecemberMarch 27, 20172020 (SEC File No. 001-34761). |
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10.43
| Lease Agreement dated April 3, 1997 between The Provider Fund Partners, The Colton Company (n/k/a: GFE MacArthur Investments, LLC, as successor-in-interest to The Provider Fund Partners, The Colton Company) and the Company (“Irvine Lease”), as amended by Amendment No. 12 dated February 6, 2009 to Irvine Lease, Amendment No. 13 dated February 6, 2009 to Irvine Lease, and Amendment No. 14 to Irvine Lease dated November 9, 2010, incorporated by reference to Exhibit 10.79 to the 2011 Form 10-K; as amended by Amendment No. 15 dated October 31, 2012 to Irvine Lease, incorporated by reference to Exhibit 10.69 to the 2012 Form 10-K, and as amended by Amendment No. 16 to Irvine Lease dated August 7, 2015, incorporated by reference to Exhibit 10.32 to the 2015 Form 10-K; and as amended by Amendment No. 17 dated April 14, 2017 to the Irvine Lease Agreement dated April 3, 1997 between GFE MacArthur Investments, LLC, successor-in-interest to TFP Partners, and the Company, incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed with the SEC on May 4, 2017 (SEC File No. 001-34761) |
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10.44‡
| Master License and Services Agreement as of October 5, 2017 by and between AutoWeb and DealerX Partners, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on October 11, 2017 (SEC File No. 001-34761) (“October 2017 Form 8-K”) |
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10.45‡ | Stockholder Agreement dated as of October 5, 2017 by and between AutoWeb, DealerX Partners, LLC and Jeffrey Tognetti, incorporated by reference to Exhibit 10.2 to the October 2017 Form 8-K |
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10.4610.24
| Tax Benefit Preservation Plan Exemption Agreement and Irrevocable Proxy dated as of November 15, 2017, by and between AutoWeb,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). |
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| 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 and10.5, respectively, to the Current Report on Form 8-K filed with the SEC on November 30, 2018 (SEC File No. 001-34761). |
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10.47‡10.26
| Transitional License and Linking Agreement madedated as of January 1, 2017, by and among Company, Internet Brands, Inc., a Delaware corporation, and Car.com, Inc., a Delaware corporation, and the Company, 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). |
10.48 | Convertible Subordinated Promissory Note dated as of January 13, 2014 (Principal Amount $1,000,000.00) issued by Company to AutoNationDirect.com, Inc., a Delaware corporation, incorporated by reference to Exhibit 10.1 to the January 2014 Form 8-K |
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10.4910.27 | Warrant to Purchase 69,930 Shares of Company Common Stock dated as of January 13, 2014 issued by Company to AutoNationDirect.com, Inc., a Delaware corporation, incorporated by reference to Exhibit 10.2 to the January 2014 Form 8-K |
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10.50 | Shareholder Registration Rights Agreement dated as of January 13, 2014 by and between Company and AutoNationDirect.com, Inc., a Delaware corporation, incorporated by reference to Exhibit 10.3 to the January 2014 Form 8-K |
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10.51
| 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 October 2015Current Report on Form 8-K filed with the SEC on October 6, 2015 (SEC File No. 001-34761). |
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| 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 toExhibit 10.1to the Current Report on Form 8-Kfiled with the SEC on March 26, 2020 (SEC File No. 001-34761); as amended by First Amendment toLoan, Security and Guarantee Agreementdated 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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| Subsidiaries of AutoWeb, Inc. |
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| Consent of Independent Registered Public Accounting Firm, Moss Adams LLP LLP. |
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| Power of Attorney (included in the signature page hereto) . |
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| Chief Executive Officer Section 302 Certification of Periodic Report dated March 15, 201811, 2021. |
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| Chief Financial Officer Section 302 Certification of Periodic Report dated March 15, 201811, 2021. |
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| Chief Executive Officer and Chief Financial Officer Section 906 Certification of Periodic Report dated March 15, 201811, 2021. |
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101.INS††
101.INS | XBRL Instance DocumentDocument. |
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101.SCH††
101.SCH | XBRL Taxonomy Extension Schema DocumentDocument. |
| |
101.CAL††
101.CAL | XBRL Taxonomy Calculation Linkbase DocumentDocument. |
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101.DEF††
101.DEF | XBRL Taxonomy Extension Definition DocumentDocument. |
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101.LAB††
101.LAB | XBRL Taxonomy Label Linkbase DocumentDocument. |
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| 101.PRE | XBRL Taxonomy Presentation Linkbase DocumentDocument. |
| 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.
Filed herewith.Form 10-K Summary
■
Management Contract or Compensatory Plan or Arrangement.
‡
Certain schedules in this Exhibit have been omitted in accordance with Item 601(b)(2) of Regulation S-K. AutoWeb, Inc. will furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request; provided, however, that AutoWeb, Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.
††
Furnished with this report. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.None
.
Item 16. Form 10-K SummaryNone
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 15th11th day of March 2018.2021.
| | AUTOWEB, INC. | |
| | | | |
| | By: | /s/ JEFFREY H. COATSJARED R. ROWE | |
| | | Jeffrey H. CoatsJared R. Rowe | |
| | | President, Chief Executive Officer and Director | |
POWER OF ATTORNEYATTORNEY
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 Jeffrey H. Coats, Kimberly Boren orJared 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 15, 201811, 2021 | |
| | | | |
/s/ JEFFREY H. COATSJARED R. ROWE Jeffrey H. CoatsJared R. Rowe
| President, Chief Executive Officer and Director (Principal (Principal Executive Officer) | March 15, 201811, 2021 | |
| | | | |
/s/ KIMBERLY BORENMICHAEL SADOWSKI Kimberly BorenMichael Sadowski
| Executive Vice President and Chief Financial Officer (Principal (Principal Financial Officer) | March 15, 201811, 2021 | |
|
|
| |
/s/ WESLEY OZIMACHERAY DURAN
Wesley OzimaCheray Duran
| Senior Vice President, andCorporate Controller (Principal
(Principal Accounting Officer)
| March 15, 201811, 2021 | |
| | | | |
/s/ MICHAEL A. CARPENTER Michael A. Carpenter | Director | March 15, 201811, 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 15, 2018 | |
| | | |
/s/ JEFFREY M. STIBEL
Jeffrey M. Stibel
| Director | March 15, 2018 | |
| | | |
/s/ MATIAS DE TEZANOS
Matias de Tezanos
| Director | March 15, 201811, 2021 | |
| | | | |
/s/ JANET M. THOMPSON Janet M. Thompson | Director | March 15, 201811, 2021 | |
| | | | |
/s/ JOSE VARGAS Jose Vargas | Director | March 15, 201811, 2021 | |
AUTOWEB, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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REPORT OF INDINDEEPPENDENTENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
AutoWeb, Inc.
OpinionsOpinion on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of AutoWeb, Inc. (the “Company”) as of December 31, 20172020 and 2016,2019, the related consolidated statements of statements of operations, and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2020, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 20172020 and 2016,2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Change in Accounting Principle
As discussed in Note 28 to the consolidated financial statements, the Company prospectively changed the mannerits method of accounting for leases in which it accounts for the balance sheet classification of deferred taxes due to the adoption of Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes.
As discussed in Note 2 to the consolidated financial statements, the Company prospectively changed the manner in which it accounts for share-based payment transactions and the related excess tax benefits and tax deficiencies due to the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting.2019.
Basis for OpinionsOpinion
The Company’s management is responsible for theseThese consolidated financial statements for maintaining effective internal control over financial reporting, and for its assessmentare the responsibility of the effectiveness of internal control over financial reporting, included in the accompanying included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting 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, and whether effectivefraud. 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 was maintained in all material respects.
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 of the consolidated financial statements 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.opinion.
A material weaknessCritical Audit Matters
The critical audit matter communicated below is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement ofmatter arising from the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified:
In connection with the evaluation and measurement of goodwill for impairment and valuation of deferred tax assets, we believe the Company’s management review controls were not effectively designed to operate at a sufficient level of precision, or there was not sufficient evidence to demonstrate the controls were designed to operate at a sufficient level of precision, necessary to prevent or detect a material misstatement on a timely basis. Specifically, we believe the Company did not adequately evidence management’s expectations, criteria for investigation, and the level of precision used in the performance of the controls. We also believe the controls did not sufficiently evidence the completeness and accuracy of key assumptions and other data used by management in the operation of controls. The aggregation of control deficiencies in these areas resulted in a material weakness related to internal control over financial reporting.
We considered the material weakness in determining the nature, timing, and extent of the audit tests applied in ourcurrent period audit of the Company’s consolidated financial statements asthat 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 and for the year ended December 31, 2017, andcritical audit matters does not alter in any way our opinion on suchthe consolidated financial statements, wastaken as a whole, and we are not, affected.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.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Moss Adams LLP
San Diego, California
March 15, 2018
We have served as the Company’s auditor since 2012.
AUTOWEB, INC.
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.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per-share and share data)
| | | | | |
| Assets | | |
| Current assets: | | |
| Cash and cash equivalents | $24,993 | $38,512 | $10,803 | $892 |
| Short-term investment | 254 | 251 | |
| Accounts receivable, net of allowances for bad debts and customer credits of $892 and $1,015 at December 31, 2017 and 2016, respectively | 25,911 | 33,634 | |
| Deferred tax asset | — | 4,669 | |
| 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 | 1,805 | 901 | 847 | 1,265 |
| Total current assets | 52,963 | 77,967 | 29,909 | 31,262 |
| Property and equipment, net | 4,311 | 4,430 | 2,953 | 3,349 |
| Investments | 100 | 680 | |
| Right-of-use assets | | 2,892 | 2,528 |
| Intangible assets, net | 29,113 | 23,783 | 4,733 | 7,104 |
| Goodwill | 5,133 | 42,821 | |
| Long-term deferred tax asset | 692 | 14,799 | |
| Other assets | 601 | 801 | 642 | 661 |
| Total assets | $92,913 | $165,281 | $41,129 | $44,904 |
| | | |
| Liabilities and Stockholders’ Equity | | |
| Current liabilities: | | |
| Accounts payable | $7,083 | $9,764 | $7,233 | $14,412 |
| Borrowings under revolving credit facility | | 10,185 | 3,745 |
| Accrued employee-related benefits | 2,411 | 4,530 | 2,123 | 1,351 |
| Other accrued expenses and other current liabilities | 7,252 | 8,315 | 538 | 1,636 |
| Current portion of term loan payable | — | 6,563 | |
| 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 | 16,746 | 29,172 | 22,543 | 22,311 |
| Convertible note payable | 1,000 | |
| Long-term portion of term loan payable | — | 7,500 | |
| Borrowings under revolving credit facility | 8,000 | |
| Lease liabilities, net of current portion | | 2,191 | 1,497 |
| Financing debt, net of current portion | | 60 | — |
| Total liabilities | 25,746 | 45,672 | 24,794 | 23,808 |
| Commitments and contingencies (Note 7) | | |
| Commitments and contingencies (Note 8) | | |
| Stockholders’ equity: | | |
| Preferred stock, $0.001 par value; 11,445,187 shares authorized | | |
| Series A Preferred stock, none issued and outstanding | — | |
| Series B Preferred stock, none and 168,007 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | — | |
| Common stock, $0.001 par value; 55,000,000 shares authorized; 13,059,341 and 11,012,625 shares issued and outstanding at December 31, 2017 and 2016, respectively | 13 | 11 | |
| 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 |
| Additional paid-in capital | 356,054 | 350,022 | 366,087 | 364,028 |
| Accumulated deficit | (288,900) | (230,424) | (349,765) | (342,945) |
| Total stockholders’ equity | 67,167 | 119,609 | 16,335 | 21,096 |
| Total liabilities and stockholders’ equity | $92,913 | $165,281 | $41,129 | $44,904 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per-share data)
| | |
| | | | |
| Revenues: | | | |
| Lead fees | $107,045 | $130,684 | $120,678 |
| Advertising | 34,142 | 24,508 | 10,534 |
| Other revenues | 938 | 1,492 | 2,014 |
| Total revenues | 142,125 | 156,684 | 133,226 |
| Cost of revenues | 99,352 | 98,771 | 81,586 |
| Gross profit | 42,773 | 57,913 | 51,640 |
| Operating expenses: | | | |
| Sales and marketing | 14,315 | 18,118 | 15,956 |
| Technology support | 12,567 | 13,986 | 11,740 |
| General and administrative | 12,110 | 14,663 | 13,189 |
| Depreciation and amortization | 4,781 | 5,068 | 3,106 |
| Litigation settlements | (109) | (50) | (108) |
| Goodwill impairment | 37,688 | — | — |
| Total operating expenses | 81,352 | 51,785 | 43,883 |
| Operating income (loss) | (38,579) | 6,128 | 7,757 |
| Interest and other income (expense), net | (946) | 558 | 322 |
| Income (loss) before income tax provision | (39,525) | 6,686 | 8,079 |
| Income tax provision | 25,439 | 2,815 | 3,433 |
| Net income (loss) and comprehensive income (loss) | $(64,964) | $3,871 | $4,646 |
| | | | |
| Basic earnings (loss) per common share | $(5.48) | $0.36 | $0.47 |
| Diluted earnings (loss) per common share | $(5.48) | $0.29 | $0.37 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYOPERATIONS
(Amounts in thousands, except shareper-share data)
| | | | Additional
| | |
| | | | | | | Accumulated Deficit | |
| | | | | | | | |
| Balance at January 1, 2015 | 8,880,377 | $9 | - | $- | $308,190 | $(238,941) | $69,258 |
| Share-based compensation | - | - | - | - | 2,563 | - | 2,563 |
| Issuance of common stock upon exercise of stock options | 145,979 | - | - | - | 1,197 | - | 1,197 |
| Issuance of AWI warrants | - | - | - | - | 2,542 | - | 2,542 |
| Issuance of preferred shares | - | - | 168,007 | - | 21,133 | - | 21,133 |
| Issuance of restricted stock | 125,000 | - | - | - | - | - | - |
| Exercise of warrants | 400,000 | 1 | - | - | 1,860 | - | 1,861 |
| Conversion of note payable | 1,075,268 | 1 | - | - | 5,000 | - | 5,001 |
| Net income | - | - | - | - | - | 4,646 | 4,646 |
| Balance at December 31, 2015 | 10,626,624 | 11 | 168,007 | - | 342,485 | (234,295) | 108,201 |
| Share-based compensation | - | - | - | - | 4,486 | - | 4,486 |
| Issuance of common stock upon exercise of stock options | 386,001 | - | - | - | 3,051 | - | 3,051 |
| Net income | - | - | - | - | - | 3,871 | 3,871 |
| Balance at December 31, 2016 | 11,012,625 | 11 | 168,007 | - | 350,022 | (230,424) | 119,609 |
| Share-based compensation | - | - | - | - | 4,106 | - | 4,106 |
| Issuance of common stock upon exercise of stock options | 248,344 | - | - | - | 1,355 | - | 1,355 |
| Issuance of restricted stock | 345,000 | - | - | - | - | - | - |
| Conversion of preferred shares | 1,680,070 | 2 | (168,007) | - | (2) | - | - |
| DealerX contingent consideration | - | - | - | - | 2,470 | - | 2,470 |
| Repurchase of common stock | (226,698) | - | - | - | (1,897) | - | (1,897) |
| Cumulative effect adjustment | - | - | - | - | - | 6,488 | 6,488 |
| Net loss | - | - | - | - | - | (64,964) | (64,964) |
| Balance at December 31, 2017 | 13,059,341 | $13 | - | $- | $356,054 | $(288,900) | $67,167 |
| | |
| | | | |
| 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)
| | | | | | |
| | | | | | 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.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | |
| | | | | | | |
| Cash flows from operating activities: | | |
| Net income (loss) | $(64,964) | $3,871 | $4,646 | |
| Adjustments to reconcile net income (loss) to net cash provided by 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 | 7,653 | 7,303 | 4,021 | 3,624 | 6,454 | 8,544 |
| Goodwill impairment | | — | 5,133 |
| Intangible asset impairment | | — | 9,014 |
| Provision for bad debt | 346 | 344 | 379 | 291 | 293 | 241 |
| Provision for customer credits | 247 | 592 | 803 | 83 | 250 | 217 |
| Share-based compensation | 4,103 | 4,412 | 2,557 | 1,984 | 2,402 | 4,866 |
| Right-of-use-assets | | 1,426 | 1,697 | — |
| Lease Liabilities | | (1,248) | (1,706) | — |
| Write-down of assets | 8 | 115 | — | — | 59 | — |
| Gain on sale of business | — | (2,183) | — | |
| (Gain)/loss on long-term strategic investment | 580 | 777 | (636) | |
| Loss on disposal of assets | | 6 | — |
| Long-lived asset impairment | | — | 1,968 |
| (Gain)/loss on investment | | — | (250) | (25) |
| Change in deferred tax assets | 25,264 | 1,994 | 2,996 | — | 692 |
| Goodwill impairment | 37,688 | — | |
| Changes in assets and liabilities: | | |
| Accounts receivable | 7,130 | (3,229) | (381) | 9,722 | 2,304 | (1,445) |
| Prepaid expenses and other current assets | (904) | (402) | (121) | 418 | (20) | 814 |
| Other non-current assets | 200 | 946 | 147 | 19 | (145) | (278) |
| Accounts payable | (2,681) | 2,121 | (586) | (7,279) | (3,753) | 5,076 |
| Accrued expenses and other current liabilities | (3,182) | 1,581 | (1,352) | (325) | (1,773) | 1,079 |
| Non-current liabilities | — | (273) | |
| Net cash provided by operating activities | 11,488 | 18,242 | 12,200 | |
| Net cash provided by (used in) operating activities | | 1,901 | (9,417) | (2,920) |
| Cash flows from investing activities: | | |
| Purchase of Dealix/Autotegrity | — | (25,011) | |
| Investment in GoMoto | — | (375) | |
| Change in short-term investment | (3) | (251) | — | |
| Purchase of intangible assets | (8,600) | — | |
| Purchases of property and equipment | (1,799) | (2,148) | (2,719) | (596) | (1,640) | (896) |
| Proceeds from sale of investment | | — | 250 | 125 |
| Net cash used in investing activities | (10,402) | (2,774) | (28,105) | (596) | (1,390) | (771) |
| Cash flows from financing activities: | | |
| Repurchase of common stock | (1,897) | — | |
| Borrowings under credit facility | — | 2,750 | |
| Borrowings under term loan | — | 15,000 | |
| Payments on term loan borrowings | (14,063) | (3,937) | (3,750) | |
| 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 | 1,355 | 3,051 | 1,197 | 75 | 408 | 98 |
| Proceeds from exercise of warrants | — | 1,860 | |
| Proceeds from issuance of preferred shares | — | 2,132 | |
| Payment of contingent fee arrangement | — | (63) | (38) | |
| Net cash (used in) provided by financing activities | (14,605) | (949) | 19,151 | |
| Net cash provided by (used in) financing activities | | 7,856 | 3,153 | (7,702) |
| Net increase (decrease) in cash and cash equivalents | (13,519) | 14,519 | 3,246 | 9,161 | (7,654) | (11,393) |
| Cash and cash equivalents, beginning of period | 38,512 | 23,993 | 20,747 | |
| Cash and cash equivalents, end of period | $24,993 | $38,512 | $23,993 | |
| 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 | $650
| $760 | $552 | $1 | $12 | $4 |
| Cash refunds for income taxes | | $849 | $128 | $223 |
| Cash paid for interest | $948 | $717 | $884 | $845 | $176 | $118 |
| | | |
| Supplemental schedule of non-cash investing and financing activities: | | |
| DealerX contingent consideration | $2,470 | $— | |
| Purchase of AutoWeb | $— | $21,543 | |
| Conversion of Cyber Note | $— | $5,000 | |
| Sale of specialty finance leads business | $— | $3,168 | $— | |
| 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and 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 by utilizing the Company’s digital sales enhancingthrough its programs for online lead and traffic referrals, Dealer marketing products and services.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 gives in-market consumers with information and tools to aid them with their automotive purchase decisions and gives in-market consumers the ability to connect withsubmit inquiries requesting Dealers to contact the consumers regarding purchasing or leasing vehicles. These consumers are connected to Dealers via the Company’s various programs for online lead referralsvehicles (“Leads”). The Company’s AutoWeb® consumer traffic referral product engages with car buyersLeads are internally-generated from AutoWeb’s network of automotive websites and uses our proprietary technology to present them with highly relevant offers based onCompany Websites or acquired from third parties that generate Leads from their make and model of interest and their geographic location. The Company then directs these in-market consumers to key areas of a Dealer’s or Manufacturer’s website to maximize conversion for sales, service or other products or services.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 was incorporated in DelawareWebsites or on May 17, 1996. Its principal corporate offices are located in Irvine, California. The Company’s common stock is listed on The Nasdaq Capital Market under the symbol AUTO.
On October 9, 2017, the Company changed its name from Autobytel Inc. to AutoWeb, Inc., assuming the namesite of AutoWeb, Inc., which was the nameone of the company that was acquired byCompany’s network of automotive publishers, they are presented with relevant offers on a timely basis and, upon the Company in October 2015. In connection with this name change,consumer clicking on the displayed advertisement, are sent to the appropriate website location of one of the Company’s stock ticker symbol was changed from “ABTL” to “AUTO” on The Nasdaq Capital Market.Dealer, Manufacturer or advertising customers.
On October 5, 2017, the Company and DealerX Partners, LLC, a Florida limited liability company (“DealerX”), entered into a Master License and Services Agreement (“DealerXLicense 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 will 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”). See Note 5.
On December 19, 2016, AutoWeb and Car.com, Inc., a wholly owned subsidiary of AutoWeb (“Car.com”), entered into an Asset Purchase and Sale Agreement, by and among AutoWeb, Car.com, and Internet Brands, Inc., a Delaware corporation (“Internet Brands”), in which Internet Brands acquired substantially all of the assets of the automotive specialty finance leads group of Car.com. The transaction was completed effective as of December 31, 2016. The transaction consideration consisted of $3.2 million in cash and $1.6 million to be paid over a five year period pursuant to a Transitional License and Linking Agreement. The Company recorded a gain on sale of approximately $2.2 million in connection with the transaction in the fourth quarter of 2016. See Note 3.
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. See Note 3.
On May 21, 2015 (“Dealix/Autotegrity Acquisition Date”), AutoWeb and CDK Global, LLC, a Delaware limited liability company (“CDK”), entered into and consummated a Stock Purchase Agreement in which AutoWeb acquired all of the issued and outstanding shares of common stock in Dealix Corporation, a California corporation and subsidiary of CDK, and Autotegrity, Inc., a Delaware corporation and subsidiary of CDK (collectively, “Dealix/Autotegrity”). Dealix Corporation provides new and used car Leads to automotive dealerships, Dealer groups and Manufacturers, and Autotegrity, Inc. is a consumer Leads acquisition and analytics business. See Note 3.
On April 27, 2015, Auto Holdings Ltd. (“Auto Holdings”) acquired from Cyber Ventures, Inc. and Autotropolis, Inc. the $5.0 million convertible subordinated promissory note and the warrant to purchase 400,000 shares of AutoWeb common stock issued by the Company to Cyber Ventures and Autotropolis in September 2010 in connection with AutoWeb’s acquisition of substantially all of the assets of Cyber Ventures and Autotropolis (collectively referred to as “Cyber”). Concurrent with the acquisition of the Cyber convertible note (“Cyber Note”) and warrant (“Cyber Warrant”), Auto Holdings converted the Cyber Note and fully exercised the Cyber Warrant at its conversion price of $4.65 per share. As required under the terms of the conversion for the Cyber Note, AutoWeb issued 1,075,268 shares of its common stock and under the terms of exercise for the Cyber Warrant, it issued an additional 400,000 shares of its common stock.
2.
Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated financial statements include the accounts of the Company and its wholly-ownedwholly 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.
InvestmentsRestricted Cash.. The Company makes strategic investments because they believe that investments may allowFor purposes of the CompanyConsolidated Balance Sheets and the Consolidated Statements of Cash Flows, restricted cash primarily consists of cash pledged pursuant to increase market share, benefit from advancements in technology and strengthen its business operations by enhancing their product and service offerings.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 salesgeneral and marketingadministrative 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 salesgeneral and marketingadministrative expenses. As specific bad debts are identified, they are written-offwritten 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-offwritten off against the previously established estimated allowance for customer credits with no impact on revenues.
If there is a decline in the general economic environment that negatively affects the financial condition of the Company’s customers or an increase in the number of customers that are dissatisfied with their services, additional estimated allowances for bad debts and customer credits may be required, and the impact on the Company’s business, results of operations, financial condition, earnings per share, cash flow or the trading price of our stock could be material.
Contingencies. From time to time the Company may be subject to proceedings, lawsuits and other claims. The Company assesses the likelihood of any adverse judgments or outcomes of these matters as well as potential ranges of probable losses. The Company records a loss contingency when an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. The amount of allowances required, if any, for these contingencies is determined after analysis of each individual case. The amount of allowances may change in the future if there are new material developments in each matter. Gain contingencies are not recorded until all elements necessary to realize the revenue are present. Any legal fees incurred in connection with a contingency are expensed as incurred.
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 atduring the year ended December 31, 2017 and 2016 consist primarily2018, consisted of investmentsan investment in SaleMove and GoMoto and areSaleMove 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 yearsyear ended December 31, 2017 and 2016,2018, the Company recorded a write-off relatedsoldits interest back to it its investments in SaleMove of $0.6 million and GoMoto of $0.7 million in SaleMove, respectively.
Variable Interest Entities. The Company has an investment in an entity that is considered a variable interest entity (“VIE”) under U.S. GAAP. The Company has concluded that its investment in SaleMove qualifies as a variable interest and SaleMove is a VIE. VIEs are legal entities in which the equity investors do not have sufficient equity at risk for the entity to independently finance its activities or the collective holders do not have the power through voting or similar rights to direct the activities of the entity that most significantly impacts its economic performance, the obligation to absorb the expected losses of the entity, or the right to receive expected residual returns of the entity. Consolidation of a VIE is considered appropriate if a reporting entity is the primary beneficiary, the party that has both significant influence and control over the VIE. Management periodically performs a qualitative analysis to determine if the Company is the primary beneficiary of a VIE. This analysis includes review of the VIEs’ capital structure, contractual terms, and primary activities, including the Company’s ability to direct the activities of the VIEs and obligations to absorb losses, or the right to receive benefits, significant to the VIE. $0.1 million.See Note 5 for further discussion.
Based on AutoWeb’s analysis for the periods presented in this report, it is not the primary beneficiary of SaleMove. Accordingly, SaleMove does not meet the criteria for consolidation. The SaleMove advances are classified as an other long-term asset on the consolidated balance sheet as of December 31, 2017 and December 31, 2016. The carrying value and maximum potential loss exposure from SaleMove was zero and $0.6 million as of December 31, 2017 and 2016, respectively.
Concentration of Credit Risk and Risks Due to Significant Customers. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments and accounts receivable. Cash and cash equivalents are primarily maintained with two financial institutions in the United States. Deposits held by banks exceed the amount of insurance provided for such deposits. Generally, these deposits may be redeemed upon demand. Accounts
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 are primarilybalances, 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 fees billedthese four customers, and approximately 62% or $8.6 million of gross accounts receivable related to automotive Dealersthese four customers at December 31, 2020. Carat Detroit accounted for 12% and automotive Manufacturers.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.
The Company has a concentrationDuring 2019, approximately 25% of credit risk with its automotive industry relatedthe Company’s total revenues were derived from Urban Science Applications and Carat Detroit. Approximately 33% or $8.4 million of gross accounts receivable balances, particularly withrelated 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. During 2017, approximately 34% of the Company’s total revenues were derived from these three customers,media.net Advertising and approximately 43%41% or $11.6$11.2 million of gross accounts receivable related to these three customers at December 31, 2017. In 2017,2018. Urban Science Applications accounted for 15%18% and 20%21% of total revenues and total accounts receivable as of December 31, 2017, respectively. In 2017, Media.net Advertising accounted for 11% of both total revenues and accounts receivable, respectively, as of December 31, 2017, respectively.
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During 2016, approximately 28% of the Company’s total revenues were derived from Urban Science Applications, General Motors and Ford Direct, and approximately 36% or $12.6 million of gross accounts receivable related to these three customers at December 31, 2016. In 2016, Urban Science Applications2018. Media.net Advertising accounted for 16%10% and 19%6% of total revenues and total accounts receivable, respectively, as of December 31, 2016, respectively.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, or expenses, respectively.
Operating Leases. The Company leases office space and certain office equipment under operating lease agreements which expire on various dates through 2024,2025, 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.
Reimbursed tenant improvements are considered in determining straight-line rent expense and are amortized over the shorter of their estimated useful lives or the lease term. The lease term begins on the date of initial possession of the leased property for purposes of recognizing rent expense on a straight-line basis over the term of the lease. Lease renewal periods are considered on a lease-by-lease basis and are generally not included in the initial lease term.
Capitalized Internal Use Software and Website Development Costs. The Company capitalizes costs to develop internal use software in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use“Internal-Use Software,” and ASC 350-50, Website“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 capitalized $0.5 million, $1.7placed in service $1.5 million and $1.5$0.4 million of such costs for the years ended December 31, 2017, 20162020 and 2015,2019, 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. TheIn 2018, the Company recorded impairmentimpairments totaling $11.0 million, primarily attributable to a $9.0 million chargedue to the Company’s decision to terminate the support provisions of $0.6the 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 its investmenta 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 SaleMove in 2017.cash advances to SaleMove. The Company did not record any impairment of long-lived assets in 2016 and 2015.
Indefinite-lived intangible assets. Indefinite-lived intangible assets consists of a domain name, which was acquired as part of the Dealix/Autotegrity acquisition in 2015, which is tested for impairment annually, or more frequently if an event occurs or circumstances changes that would indicate that impairment may exist. When evaluating indefinite-lived intangible assets for impairment, the Company may first perform a qualitative analysis to determine whether it is more likely than not that the indefinite-lived intangible assets is 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. The Company did not record any impairment of indefinite-lived intangible assets in 2017, 20162020 and 2015.2019, 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 $37.7$5.1 million in 2017.
Revenue Recognition. Lead fees consist of fees from the sale of Leads for new and used vehicles and Leads for vehicle financing. Fees paid by customers participating in the Company’s Lead programs are comprised of monthly transaction and/or subscription fees. Advertising revenues represent fees for display advertising on Company’s Websites and fees from the Company’s click programs.2018.
The Company recognizes revenues when evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured and delivery or performance of service has occurred. Lead fees are generally recognized as revenues in the period the service is provided. Advertising revenues are generally recognized in the period the advertisements are displayed on Company Websites and the period in which clicks have been delivered. Fees billed prior to providing services are deferred, as they do not satisfy all U.S. GAAP revenue recognition criteria. Deferred revenues are recognized as revenue over the periods services are provided.
Cost of Revenues. Cost of revenues consists of Lead and traffic acquisition costs and other cost of revenues. Lead and traffic acquisition costs consist of payments made to the Company’s Lead providers, including internet portals and on-line automotive information providers. Other cost of revenues consists of search engine marketing (“SEM”) and fees paid to third parties for data and content, including search engine optimization (“SEO”) activity, included on the Company’s properties, connectivity costs and development costs related to the Company Websites, compensation related expense and technology license fees, server equipment depreciation and technology amortization directly related to Company Websites. SEM, sometimes referred to as paid search marketing, is the practice of bidding on keywords on search engines to drive traffic to a website.
Income Taxes. The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records a valuation allowance, if necessary, to reduce deferred tax assets to an amount it believes is more likely than notmore-likely-than-not to be realized.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (“TCJA”). The TCJA establishes new tax laws that will take effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax (“AMT”); (3) a new limitation on deductible interest expense; (4) one-time transition tax on certain deemed repatriated earnings of foreign subsidiaries (“Transition Tax”); (5) limitations on the deductibility of certain executive compensation; (6) changes to the bonus depreciation rules for fixed asset additions: and (7) limitations on net operating losses (“NOLs”) generated after December 31, 2017, to 80% of taxable income.
ASC 740, Income Taxes,“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'sTax Cuts and Jobs Act of 2017 (“TCJA”) provisions, the staff of the Securities and Exchange Commission (“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 accordance with SAB 118, a company must reflect2017, the income taxCompany recorded provisional amounts for certain enactment-date effects of those aspects of the TCJA, for which the accounting under ASC 740 is complete. Tohad not been finalized, by applying the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimateguidance in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.
At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the TCJA; however, the Company has made a reasonable estimate of the effects of the TCJA’s change in the federal rate and revalued its deferred tax assets based on the rates at which they are expected to reverse in the future, which is generally the new 21% federal corporate tax rate plus applicable state tax rate.SAB 118. 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. The Company’s provisional estimates will be adjusted duringAccordingly, the measurement period defined under SAB 118, based upon ongoing analysis of data and tax positions along withCompany completed accounting for the new guidance from regulators and interpretationseffects of the law.
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 averageweighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per share is computed using the weighted averageweighted-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, common shares issuable upon the exercise of warrants, described below and common shares issuable upon conversion of the shares described in Note 3.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:
| | | | | | | |
| Basic Shares: | | |
| Weighted average common shares outstanding | 11,910,906 | 10,673,015 | 9,907,066 | 13,144,314 | 13,070,898 | 12,756,191 |
| Weighted average common shares repurchased | (58,367) | — | — |
| Basic Shares | 11,852,539 | 10,673,015 | 9,907,066 | 13,144,314 | 13,070,898 | 12,756,191 |
| | | |
| Diluted Shares: | | |
| Basic Shares | 11,852,539 | 10,673,015 | 9,907,066 | 13,144,314 | 13,070,898 | 12,756,191 |
| Weighted average dilutive securities | — | 2,630,194 | 2,755,258 | — |
| Dilutive Shares | 11,852,539 | 13,303,209 | 12,662,324 | 13,144,314 | 13,070,898 | 12,756,191 |
For the year ended December 31, 2017, weighted average dilutive securities were not included since the company had a net loss for the year. For the years ended December 31, 20162020, 2019 and 2015,2018, basic and diluted weighted average shares are the same as the Company generated a net loss for the period and potentially dilutive securities included dilutive options, warrants and convertible preferred shares.are excluded because they have an anti-dilutive impact.
Potentially dilutive securities representing approximately 3.73.8 million, 1.94.4 million, and 1.43.5 million shares of common stock for the years ended December 31, 2017, 20162020, 2019, and 2015,2018, 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 and stock option awards (the “(“AwardsRSAs”) under several of its share-basedstock-based compensation Plans (the “Plans”), that are more fully described in Note 9.10. The Company recognizes share-based compensation based on the Awards’ fair value, net of estimated forfeitures on a straight linestraight-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, 2017, 20162020, 2019 and 20152018 was $1.7$0.3 million, $1.4$0.6 million and $2.0$1.4 million, respectively.
Recent Accounting Pronouncements
Issued butThe Company has reviewed all recently issued accounting pronouncements and concluded that they were either not yet adopted by the Companyapplicable or not expected to have a material impact to its consolidated financial statements.
Accounting Standards Codification 842 “Leases.” In February 2016, Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” was issued. This ASU willRevenue 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 lessees to recognizefurther 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 liabilities forcontract liabilities:
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identify the rightscontract with a customer;
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identify the performance obligations in the contract;
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determine the transaction price;
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allocate the transaction price to the performance obligations in the contract; and obligations created
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recognize revenue when, or as, the Company satisfies a performance obligation.
The Company earns revenue by those leasesproviding 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 terms more than 12 months. The ASU will require both capitalproducts and operating leases to be recognized on the balance sheet. Qualitativeservices, which are generally capable of being distinct and quantitative disclosures will also be required to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. In January 2018, ASU No. 2018-01, “Land Easement Practical Expedient for Transition to Topic842” was issued. This ASU permits an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist or expired before the entity’s adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. The ASU will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.separate performance obligations. The Company expects this standard will haverecords revenue on distinct performance obligations at a material effect on its consolidated financial statements duesingle point in time, when control is transferred to the recognition of new right-of-use assets and lease liabilities on its balance sheet for real estate and equipment operating leases. The Company is continuing to evaluate the effect this guidance will have on the consolidated financial statements and related disclosures.
Accounting Standards Codification 805 “Business Combinations.” In January 2017, ASU No. 2017-01, “Clarifying the Definition of a Business” was issued. This ASU provides a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, and interim periods within those periods. The Company does not believe this ASU will have a material effect on the consolidated financial statements and related disclosures.
Accounting Standards Codification 718 “Compensation – Stock Compensation.” In May 2017, ASU No. 2017-09, “Scope of Modification Accounting” was issued. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should apply this ASU on a prospective basis for an award modified on or after the adoption date for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company does not believe this ASU will have a material effect on the consolidated financial statements and related disclosures.
Accounting Standards Codification 606 “Revenue from Contracts with Customers.” In May 2014, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” was issued. This ASU requires the use of a five-step methodology to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the ASU requires enhanced disclosure regarding revenue recognition.customer.
The standard permits the use of either the retrospective or cumulative effect transition method (modified retrospective method). The Company adopted the ASU on a modified retrospective transition method on January 1, 2018has two main revenue sources – Lead generation and will apply the guidance to the most current period presented in the financial statements issued subsequent to the adoption date. The Company did not record a cumulative adjustment to retained earnings as of January 1, 2018 sinceDigital advertising. Accordingly, the Company was recognizingrecognizes revenue consistent with the provisions of ASC 606 and any adjustment would have been deemed immaterial. In preparation for adoption of the standard, the Company has implemented internal controls to enable the preparation of financial information and have reached conclusions on key accounting assessments related to the standard, including that accounting for variable consideration is immaterial.each source as described below:
Under ASU 2014-09, revenue is recognized upon transfer of control of promised products or services to customers. The Company has three main revenue streams: lead fees, advertising and other revenues. ●
Lead fees aregeneration – paid by Dealers and Manufacturers participating in the Company’s Lead programs and are comprised of monthlyLead transaction and/or monthly subscription fees. Lead fees aregeneration is recognized in the period when service is provided. Advertising revenue represents
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Digital advertising – fees paid by Dealers, Manufacturers and third-party wholesale suppliers for (i) the Company’s click traffic program, (ii) display advertising on our websiteCompany websites, and fees from our click program. Advertising revenue(iii) email and other direct marketing. Revenue is recognized in the period the advertisements are displayed on our websites andCompany Websites or the period in which clicks have been delivered.
delivered, as applicable. The Company adoptedrecognizes revenue from the standard throughdelivery of action-based advertisement (including email and other direct marketing) in the application ofperiod in which a user takes the portfolio approach and selected a sample of customer contracts to assess underaction for which the guidance ofmarketer contracted with the new standard that are characteristically representative of eachCompany. For advertising revenue stream. The Company has completed its review of the sample contracts, andarrangements where the Company doesis not anticipatethe principal, the Company recognizes revenue on a significant change to the pattern or timing of revenue recognition as a result of adopting the new standard.net basis.
Recently adoptedVariable 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.
Accounting Standards Codification 350 “Intangibles – Goodwill and Other.” In January 2017, ASU No. 2017-04, “SimplifyingSee further discussion below on significant judgments exercised by the Test for Goodwill Impairment” was issued. Under the amendmentsCompany in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss should not exceed the total amount of goodwill allocatedregard to that reporting unit. The ASU also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The Company early adopted the provisions of ASU No. 2017-04 and recorded impairment of goodwill for the year ended December 31, 2017 of $37.7 million.variable consideration.
Accounting Standards Codification 740 “Income Taxes.” In November 2015, ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” was issued. This ASU requires that deferred tax liabilitiesContract Assets and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update apply to all entities that present a classified statement of financial position. The Company adopted this ASU prospectively on January 1, 2017 and reclassified $4.7 million of current deferred tax assets to long-term deferred tax assets. Prior periods were not retrospectively adjusted.Contract Liabilities Unbilled Revenue
Accounting Standards Codification 323 “Investments-Equity Method and Joint Ventures.” In March 2016, ASU No. 2016-07, “Simplifying the Transition to the Equity MethodTiming of Accounting” was issued. This ASU eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment was held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Thus, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The Company adopted this ASU on January 1, 2017 and it did not have a material effect on the consolidated financial statements.
Accounting Standards Codification 718 “Compensation-Stock Compensation.”In March 2016, ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” was issued. This ASU provides for areas of simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.
The changes in the new standard eliminate the accounting for excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either in the income tax provision or in additional paid-in capital. ASU 2016-09 requiresrevenue recognition of excess tax benefits and tax deficiencies in the income statement on a prospective basis. The Company adopted the amendments on January 1, 2017 related tomay differ from the timing of invoicing to customers. The Company records a receivable when excess tax benefitsrevenue 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 recognized on a modified retrospective transition method. The Company recognized $6.5 milliondriven by the timing of deferred tax assets relating to unrealized stock option benefits, resulting in a cumulative $6.5 million adjustment to retained earnings. administrative transaction processing, and are not indicative of partially complete performance obligations.
For the twelve months ended December 31, 2017, the Company recognized all excess tax benefits and tax deficiencies as income tax expense or benefit as a discrete event. Income tax benefit of approximately $32,000 was recognized in the twelve months ended December 31, 2017 as a result of the adoption of ASU 2016-09.
The treatment of forfeitures has not changed as the Company is electing to continue its current process of estimating the number of forfeitures. As such, this has no cumulative effect on retained earnings. The Company has elected to present the cash flow statement on a prospective transition method and no prior periods have been adjusted.Deferred Revenue
The Company calculates diluted earnings per share usingdefers the treasury stock methodrecognition 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 share-basedthe 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 awards. ASU 2016-09 eliminates excess tax benefitsterms 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 deficienciesless typically, in advance of rendered services.
Practical Expedients and Exemptions
The Company excludes from the calculationtransaction 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 assumed proceeds undercontracts (or performance obligations) with similar characteristics for transactions where it is expected that the treasury stock method, whicheffects 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 adopted ongenerally expenses incremental costs of obtaining a prospective transition method.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.
Accounting Standards Codification 230 “StatementSignificant 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 Cash Flows.” In August 2016, ASU No. 2016-15, “Classificationdigital marketing activities, as well as proper recognition of Certain Cash Receiptsassets and Cash Payments” was issued. This ASU provides guidance on eight specific cash flow issuesliabilities related to these activities, requires management to exercise significant judgment with the objective of reducing the existing diversity in practice for those issues. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company early adopted this ASU on January 1, 2017 and it did not have a material effect on the consolidated financial statements.following items:
Accounting Standards Codification 810 “Consolidation.” In October 2016, ASU No. 2016-17, “Interests Held through Related Parties That Are Under Common Control” was issued. This ASU amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (“VIE”) should treat indirect interests in the entity held through related parties that are under common control●
Arrangements with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted this ASU on January 1, 2017 and it did not have a material effect on the consolidated financial statements.Multiple Performance Obligations
3. Acquisitions and Disposals
Acquisition of AWI
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.
The AWI Merger Date fair value of the consideration transferred totaled $23.8 million consisting of (i) 168,007 newly issued shares of Series B Junior Participating Convertible Preferred Stock, par value $0.001 per share, of AutoWeb (“Series B Preferred Stock”); (ii) warrants to purchase up to 148,240 shares of Series B Preferred Stock “AWI Warrant”), at an exercise price of $184.47 (reflecting 10 times the $16.77 closing price of a share of the Company’s common stock, $0.001 par value per share (“Common Stock”), plus a ten percent (10%) premium); and (iii) $0.3 million in cash to cancel vested, in-the-money options to acquire shares of AWI common stock. As a result of accounting for the transaction as a business combination achieved in stages, the Company also recorded $0.6 million as a gain to the pre-merger investment in AWI. The results of operations of AWI have been included in the Company’s results of operations since the AWI Merger Date.
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Series B Preferred Stock | $20,989
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Series B Preferred warrants to purchase 148,240 shares of Series B Preferred Stock | 2,542
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Cash | 279
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Fair value of prior ownership in AWI | 4,016
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| $27,826
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The shares of Series B Preferred Stock were converted into ten (10) shares of Common Stock upon stockholder approval on June 22, 2017.
The AWI Warrant was valued at $1.72 per share underlying the warrant for a total value of $2.5 million. The Company used a Monte Carlo simulation model to determine the value of the AWI Warrant. Key assumptions used in valuing the AutoWeb Warrant are as follows: risk-free rate of 1.9%, stock price volatility of 74.0% and a term of 7.0 years. 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 becomes exercisable on October 1, 2018, subject to the following vesting conditions: (i) with respect to the first one-third (1/3) of the warrant shares, if at any time after the issuance date of the AWI Warrant and prior to the expiration date of the AWI Warrant the weighted average closing price of the Common Stock for the preceding 30 trading days (adjusted for any stock splits, stock dividends, reverse stock splits or combinations of the Common Stock occurring after the issuance date) (“Weighted Average Closing Price”) is at or above $30.00; (ii) with respect to the second one-third (1/3) of the warrant shares, if at any time after the issuance date of the 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 (1/3) 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.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the AWI Merger Date.
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Net identifiable assets acquired: | |
Total tangible assets acquired | $4,456
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Total liabilities assumed | 543
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Net identifiable assets acquired | 3,913
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Definite-lived intangible assets acquired | 17,690
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Goodwill | 5,954
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| $27,557
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The fair valueCompany 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.
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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 acquired intangible assets was determined using the below valuation approaches. In estimating the fair valuetransaction price to performance obligations under a contract. The allowance for customer credits is an estimate of the acquired intangible assets, the Company utilized the valuation methodology determined to be most appropriateadjustments for the individual intangible asset being valued as described below. The intangible assets relatedservices that do not meet customer requirements. Additions to the AWI acquisition includeestimated allowance for customer credits are recorded as a reduction of revenues and are based on the following: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.
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| Customer relationships | Excess of earnings (2) | $7,470 | 4 |
| Trademark/trade names | Relief from Royalty (3) | 2,600 | 6 |
| Developed technology | Excess of earnings (4) | 7,620 | 7 |
| Total purchased intangible assets | | $17,690 | |
(1) | Determination of the estimated useful lives of the individual categories of purchased intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from such intangible asset. Amortization of intangible assets with definite lives is recognized over the shorter of the respective life of the agreement or the period of time the assets are expected to contribute to future cash flows.
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(2) | The excess of earnings method estimates a purchased intangible asset's value based on the present value of the prospective net cash flows (or excess earnings) attributable to it. The value attributed to these intangibles was based on projected net cash inflows from existing contracts or relationships.
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(3) | The relief from royalty method is an earnings approach which assesses the royalty savings an entity realizes since it owns the asset and isn’t required to pay a third party a license fee for its use.
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(4) | The excess of earnings method estimates a purchased intangible asset's value based on the present value of the prospective net cash flows (or excess earnings) attributable to it. The method takes into account technological and economic obsolescence of the technology. | |
Additionally,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 connection with the acquisition of AWI, the Company entered into non-compete agreements with key executives of AWI. The fair value of the AWI non-compete agreements was $270,000 and was derived by calculating the difference between the present valuenet accounts receivable balances of the Company’s forecasted cash flows with the agreements in placebalance sheets as of December 31, 2020 and without the agreements in place. The Company amortized the value of the AWI non-compete agreement over two years.2019.
SomeDisaggregation of the more significant estimates and assumptions inherent in the estimate of the fair value of the identifiable purchased intangible assets include all assumptions associated with forecasting cash flows and profitability. The primary assumptions used for the determination of the preliminary fair value of the purchased intangible assets were generally based upon the discounted present value of anticipated cash flows. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.Revenue
The goodwill recognized of $6.0 million was attributable primarily to expected synergiesCompany disaggregates revenue from contracts with customers by revenue source and has determined that disaggregating revenue into these categories sufficiently depicts the assembled workforce of AWI. The Company incurred approximately $1.1 million of acquisition-related costs related to the AWI acquisition.
Acquisition of Dealix/Autotegrity
On the Dealix/Autotegrity Acquisition Date, AutoWeb acquired all of the issued and outstanding shares of common stock of Dealix and Autotegrity. Dealix provides new and used car leads to automotive dealerships, Dealer groups and Manufacturers, and Autotegrity is a consumer leads acquisition and analytics business. The Company acquired Dealix/Autotegrity to further expand its reach and influencedifferences in the industry by increasingnature, amount, timing, and uncertainty of its Dealer network.
The Dealix/Autotegrity Acquisition Date fair value of the consideration transferred totaled $25.0 million in cash (plus a working capital adjustment of $11,000). The results of operations of Dealix/Autotegrity have been included in the Company’s results of operations since the Dealix/Autotegrity Acquisition Date.
revenue streams.
The following table summarizes revenue from contracts with customers, disaggregated by revenue source, for the estimated fair values of the assets acquired and liabilities assumed as of the Dealix/Autotegrity Acquisition Date. During the yearyears ended December 31, 2016, the Company made adjustments2020, 2019 and 2018. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to the purchase price allocation due to changes in accounts receivable and sales tax payable acquired. governmental authorities.
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Net identifiable assets acquired: | |
Total tangible assets acquired | $9,778
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Total liabilities assumed | 2,520
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Net identifiable assets acquired | 7,258
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Definite-lived intangible assets acquired | 7,655
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Indefinite-lived intangible assets acquired | 2,200
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Goodwill | 7,358
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| $24,471
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The fair value of the acquired intangible assets was determined using the below valuation approaches. In estimating the fair value of the acquired intangible assets, the Company utilized the valuation methodology determined to be most appropriate for the individual intangible asset being valued as described below. The intangible assets related to the Dealix/Autotegrity acquisition include the following:
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| Customer relationships | Excess of earnings (2) | $7,020 | 10 |
| Trademark/trade names – Autotegrity | Relief from Royalty (3) | 120 | 3 |
| Trademark/trade names – UsedCars.com | Relief from Royalty (3) | 2,200 | |
| Developed technology | Cost Approach (4) | 515 | 3 |
| Total purchased intangible assets | | $9,855 | |
(1) | Determination of the estimated useful lives of the individual categories of purchased intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from such intangible asset. Amortization of intangible assets with definite lives is recognized over the shorter of the respective life of the agreement or the period of time the assets are expected to contribute to future cash flows.
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(2) | The excess of earnings method estimates a purchased intangible asset's value based on the present value of the prospective net cash flows (or excess earnings) attributable to it. The value attributed to these intangibles was based on projected net cash inflows from existing contracts or relationships.
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(3) | The relief from royalty method is an earnings approach which assesses the royalty savings an entity realizes since it owns the asset and isn’t required to pay a third party a license fee for its use.
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(4) | The cost approach estimates the cost required to repurchase or reproduce the intangible assets. The method takes into account technological and economic obsolescence of the technology.
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Additionally, in connection with the acquisition of Dealix/Autotegrity, the Company entered into non-compete agreements with CDK and a key executive of Dealix/Autotegrity. The fair value of the non-compete agreements with CDK and the key executive from Dealix/Autotegrity was $0.5 million and $40,000, respectively, and was derived by calculating the difference between the present value of the Company’s forecasted cash flows with the agreements in place and without the agreements in place. The Company amortized the value of the non-compete agreement with CDK and the key executive from Dealix/Autotegrity over two and one year(s), respectively.
Some of the more significant estimates and assumptions inherent in the estimate of the fair value of the identifiable purchased intangible assets include all assumptions associated with forecasting cash flows and profitability. The primary assumptions used for the determination of the preliminary fair value of the purchased intangible assets were generally based upon the discounted present value of anticipated cash flows. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.
The goodwill recognized of $7.3 million was attributable primarily to expected synergies and the assembled workforce of Dealix/Autotegrity. The Company incurred approximately $1.7 million of acquisition-related costs related to the Dealix/Autotegrity acquisition.
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| 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 |
Disposal of Specialty Finance Leads Product
OnIn December 19, 2016, AutoWeb and Car.com, Inc., a wholly owned subsidiarysold substantially all of AutoWeb (“Car.com”), entered into an Asset Purchase and Sale Agreement, by and among AutoWeb, Car.com, andthe assets of its automotive specialty finance leads group to Internet Brands, Inc., a Delaware corporation (“Internet Brands”), pursuant. In connection with this disposal of assets, the parties to which Internet Brands acquired substantially all of the assets of the automotive specialty finance leads group of Car.com (“Acquired Group”). The transaction was completed effective as of December 31, 2016. The transaction consideration consisted of $3.2 million in cash paid at closing and $1.6 million to be paid over a five-year period pursuant toentered into a Transitional License and Linking Agreement (“Specialty Finance LeadsLicenseTransition Agreement”). The Company recorded a gain on sale of approximately $2.2 million in connection withUnder the transaction in December 2016.
In connection with the transaction, Internet Brands,Transition Agreement, AutoWeb and its Car.com and AutoWeb entered into the Specialty Finance Leads License Agreement pursuant to which Car.com and AutoWeb willsubsidiary provide to Internet Brands certain transition services and arrangements. Pursuant toarrangements, including (i) the Specialty Finance Leads License Agreement, (i) Internet Brands will pay AutoWeb $1.6 million in fees over the five-year termgrant of the Specialty Finance Leads License Agreement, and (ii) Car.com (1) granted Internet Brands 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 (2) provided(ii) certain redirect linking of consumer traffic from the Acquired Group’s currentCompany’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 $0.4 $0.3 million, $0.3 million, and $0.4 million during the twelve monthsyears ended December 31, 2017 2020, 2019 and 2018, respectively, related to the Specialty Finance Leads LicenseTransition Agreement.
The disposal of the automotive specialty finance leads product did not qualify for presentation and disclosure as a discontinued operation because it did not represent a strategic shift that had or will have a major effect on the Company’s operations.
4. Investments
Investments. The Company’s investments at December 31, 2017 and 2016 consist primarily of investments in SaleMove and GoMoto and are recorded at cost.
The following table presents the Company’s investment activity for 2017 and 2016 (in thousands):
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| Description | | | |
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| Balance at December 31, 2015 | $375 | $— | $680 |
| Purchases, (sales), issuances and (settlements), net | (375) | 750 | — |
| Balance at December 31, 2016 | — | 750 | 680 |
| Reserve for notes receivable | — | (750) | — |
| Net balance at December 31, 2016 | — | — | 680 |
| Write-offs | — | — | (580) |
| Net balance at December 31, 2017 | $— | $— | $100 |
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 $1.0 million to fund SaleMove’s 50% share of various product development, marketing and sales costs and expenses, with theexpenses. These previously advanced funds to be recovered by the Company from SaleMove’s share of sales revenue. SaleMove advances are repaid to the Company from SaleMove’s share of net revenues and expenses from the Reseller Agreement. AsAgreement 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, 2017,2018. Upon expiration of the netReseller 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 totaled $424,000.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 forin each period in GoMoto in the form of convertible promissory notes (“GoMoto Notes”). The GoMoto Notes accruedaccrue 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 maturity date. Asrepayment 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, the Company has recorded a reserve of $0.8 million related toboth 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 are past duewere 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 believesentered 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 amounts may not be recoverable.Company for an aggregate purchase price of $250,000.
6.
Selected Balance Sheet Accounts
Property and Equipment
Property and equipment consistsconsist of the following:
| | | |
| | | | | |
| | | |
| Computer software and hardware | $11,065 | $12,027 | $4,940 | $11,267 |
| Capitalized internal use software | 5,774 | 5,359 | 7,391 | 5,878 |
| Furniture and equipment | 1,703 | 1,332 | 935 | 1,743 |
| Leasehold improvements | 1,539 | 1,139 | 884 | 1,613 |
| Construction in progress | | 805 | 1,537 |
| | 20,081 | 19,857 | 14,955 | 22,038 |
| Less—Accumulated depreciation and amortization | (15,770) | (15,427) | (12,002) | (18,689) |
| Property and Equipment, net | $4,311 | $4,430 | |
| Property and equipment, net | | $2,953 | $3,349 |
As of December 31, 20172020 and 2016,2019, capitalized internal use software, net of amortization, was $2.0$1.4 million and $2.7$0.6 million, respectively. Depreciation and amortization expense related to property and equipment was $1.9$1.3 million for the year ended December 31, 2017.2020. Of this amount, $1.1$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, 2017. Depreciation and amortization expense related to property and equipment was $1.6 million for the year ended December 31, 2016. Of this amount, $0.7 million was recorded in cost of revenues and $0.8 million was recorded in operating expenses for the year ended December 31, 2016.
Intangible Assets. 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 the DealerXa Master License Agreement.and Services Agreement (“DealerXLicense 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 five percent5% 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 day90-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 iswere made, DealerX’s contingent right to receive the Market Capitalization Shares willwould be terminated. The fair value of the Market Capitalization Shares was calculated at $2.5 million. The DealerX perpetual license and related Market Capitalization Shares is beingAt 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):
| | | | | | | |
| | | | | | | | | | | | | | |
| Trademarks/trade names/licenses/domains | 3 – 7 years | $16,589 | $(4,037) | $12,552 | $9,294 | $(6,756) | $2,538 | |
| Software and publications | 3 years | 1,300 | (1,300) | — | 1,300 | (1,300) | — | |
| Trademarks/trade names/licenses/ domains | | 3 – 7 years | $16,589 | $(15,961) | $628 | $16,589 | $(15,442) | $1,147 |
| Customer relationships | 2 - 10 years | 19,563 | (10,555) | 9,008 | 19,563 | (7,454) | 12,109 | 2 - 5 years | 19,563 | (19,563) | — | 19,563 | (18,800) | 763 |
| Employment/non-compete agreements | 1-5 years | 1,510 | (1,493) | 17 | 1,510 | (1,273) | 237 | |
| Developed technology | 5-7 years | 8,955 | (3,619) | 5,336 | 8,955 | (2,256) | 6,699 | 5-7 years | 8,955 | (7,050) | 1,905 | 8,955 | (5,961) | 2,994 |
| | | $47,917 | $(21,004) | $26,913 | $40,622 | $(19,039) | $21,583 | | $45,107 | $(42,574) | $2,533 | $45,107 | $(40,203) | $4,904 |
| | | | | | | |
Indefinite-lived Intangible Asset | | | | | | | | | | | | | | |
| Domain | Indefinite | $2,200 | $— | $2,200 | $— | $2,200 | Indefinite | $2,200 | $— | $2,200 | $— | $2,200 |
Amortization expense is included in “Cost of Revenues”revenues” and “Depreciation and amortization” in the Statements of Operations. Amortization expense was $5.7$2.4 million, $5.7$4.9 million, and $3.0$8.1 million in 2017, 20162020, 2019 and 2015,2018, 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 fivefour years is as follows:
| Year | |
| | |
| | |
| 2018 | $6,610 |
| 2019 | 5,236 |
| 2020 | 3,805 |
| 2021 | 3,697 |
| 2022 | 3,100 |
| Thereafter | 4,465 |
| | $26,913 |
| Year | |
| | |
| | |
| 2021 | $1,499 |
| 2022 | 902 |
| 2023 | 86 |
| 2024 | 46 |
| | $2,533 |
Goodwill.
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is not amortized and is assessed annually for impairment or whenever events or circumstances indicate that the carrying value of such assets may not be recoverable. The Company did not record any impairment related to goodwill as of December 31, 2016. The Company impaired goodwill by $37.7$5.1 million as of December 31, 2017. As of December 31, 2017 and 2016, goodwill consisted of the following:
| |
Goodwill as of December 31, 2015 | $42,903
|
Purchase price allocation adjustments from Dealix/Autotegrity acquisition | (82)
|
Goodwill as December 31, 2016 | 42,821
|
Impairment charge | (37,688)
|
Goodwill as of December 31, 2017 | $5,133
|
Duringduring the year ended December 31, 2016, the Company made adjustments to the Dealix/Autotegrity purchase price allocation due to changes in accounts receivable and sales tax payable acquired, and adjusted goodwill accordingly.
Accrued Expenses and Other Current Liabilities2018.
As of December 31, 20172020, and 2016,2019, accrued expenses and other current liabilities consisted of the following:
| | |
| | | |
| | |
| Accrued employee-related benefits | $2,411 | $4,530 |
| Other accrued expenses and other current liabilities: | | |
| Other accrued expenses | 6,307 | 7,278 |
| Amounts due to customers | 438 | 466 |
| Other current liabilities | 507 | 571 |
| Total other accrued expenses and other current liabilities | 7,252 | 8,315 |
| | | |
| Total accrued expenses and other current liabilities | $9,663 | $12,845 |
Convertible Notes Payable.
In connection with the acquisition of Cyber, the Company issued the Cyber Note to the sellers. The fair value of the Cyber Note as of the Cyber Acquisition Date was $5.9 million. This valuation was estimated using a binomial option pricing method. Key assumptions used by the Company's outside valuation consultants in valuing the Cyber Note included a market yield of 15.0% and stock price volatility of 77.5%. As the Cyber Note was issued with a substantial premium, the Company recorded the premium as additional paid-in capital. Interest is payable at an annual interest rate of 6% in quarterly installments. The Cyber Note was acquired by Auto Holdings and was converted into 1,075,268 shares of Company common stock on April 27, 2015, as discussed in Note 1. Upon conversion of the Cyber Note, the Company removed the liability from the Consolidated Balance Sheet.| | |
| | | |
| | |
| 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 is to beplus accrued interest was paid in full on January 31, 2019. The holder of the AutoUSA Note may at any time convert all or any part, but at least 30,600 shares, of the then outstanding and unpaid principal of the AutoUSA Note into fully paid shares of the Company's common stock at a conversion price of $16.34 per share (as adjusted for stock splits, stock dividends, combinations and other similar events). In the event of default, the entire unpaid balance of the AutoUSA Note will become immediately due and payable and will bear interest at the lower of 8% per year and the highest legal rate permissible under applicable law.
7.
6. Credit Facility
The Company and MUFG Union Bank, N.A. (“Union Bank”), have 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”). Until December 31, 2017, the” 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”). Term Loan 1 and Term Loan 2The term loans were fully paid as of December 31, 2017. The outstanding balance of the Revolving Loan was fully paid as of DecemberMarch 31, 20172018, at which time the Credit Facility Agreement was $8.0 million.terminated.
Borrowings under the Revolving Loan bear interest at either (i) the LIBORLondon 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 payspaid a commitment fee of 0.10% per year on the unused portion of the Revolving Loan, payable quarterly in arrears. Borrowings under the Revolving Loan are secured by a first priority security interest on all of the Company’s personal property (including, but not limited to, accounts receivable) and proceeds thereof. The maturity date of the Revolving Loan was extended from March 31, 2017 to April 30, 2018. Borrowings under the Revolving Loan may be used as a source to finance working capital, capital expenditures, acquisitions and stock buybacks and for other general corporate purposes.
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) the London Interbank Offering Rate (“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. Borrowings under Term Loan 1 were secured by a first priority security interest on all of the Company’s personal property (including, but not limited to, accounts receivable) and proceeds thereof. Borrowing under Term Loan 1 was limited to use for the acquisition of AutoUSA, and the Company drew down the entire $9.0 million of Term Loan 1, together with $1.0 million under the Revolving Loan, in financing this acquisition.
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. Borrowings
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 Term Loan 2the PNC Credit Agreement were guaranteed by the Company U.S. Subsidiaries and secured by a first priority security interestlien on all of the Company’s personal property (including, but not limited to, accounts receivable) and proceeds thereof. Borrowing under Term Loan 2 was limited to use for the acquisition of Dealix/Autotegrity, and the Company drew downU.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 entire $15.0PNC 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 Term Loan 2, together with $2.75net 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 Revolving Loan and $6.76CNC Credit Agreement. The Company placed an additional $1.0 million from availableinto the same restricted cash on hand,account in financing this acquisition.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.
The
Financing costs related to the CNC Credit Facility Agreement, contains certain customary affirmativenet of accumulated amortization, of approximately $0.4 million, have been deferred over the initial term of the loan and negative covenants and restrictive and financial covenants, which the Company wasare included in compliance withother assets as of December 31, 2017.2020. 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 2024.2025. 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 |
| Years Ending December 31, | |
| 2018 | $1,526 |
| 2019 | 1,385 |
| 2020 | 964 |
| 2021 | 461 |
| 2022 | 459 |
| Thereafter | 672 |
| | $5,467 |
Rent expense included in operating expensesOperating lease cost was $2.0$1.7 million, $2.0 million and $1.2$1.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. In June 2017, 2016the 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 2015,2018, 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 infor the year ended December 31, 2020, was $0.1 million. The Company contribution for the years ended December 31, 2017, 20162019 and 20152018, was $0.3 million $0.4 million and $0.4 million, respectively.each year.
Stock-Based Incentive Plans
The Company has established several plans that provide for stock-based awards (“Awards”), primarily in the form of stock options and restricted stock awards (“RSAs”). Certain of these plans provide for awards, to employees, the Company’s Board of Directorsdirectors, and independent consultants. The Awards were granted under the 1998 Stock Option Plan, the 1999 Employee and Acquisition Related Stock Option Plan, the 2000 Stock Option Plan, the Amended and Restated 2001 Restricted Stock and Option Plan, the 2004 Restricted Stock and Option Plan, the 2006 Inducement Stock Option Plan, 2010 Equity Incentive Plan and the Amended and Restated 2014 Equity Incentive Plan. As of June 19, 2014, awards21, 2018, new Awards may only be granted under the Amended and Restated 20142018 Equity Incentive Plan. AnPlan, and as of December 31, 2020, an aggregate of 0.6approximately 2.5 million shares of Company common stock are reservedwere available for future issuancegranting of new Awards under the Amended and Restated 20142018 Equity Incentive Plan at December 31, 2017.Plan.
Share-based compensation expense is included in costs and expenses in the Consolidated Statements of Operations and Comprehensive Income(Loss) as follows:
| | | |
| | | | | | | |
| | | |
| Share-based compensation expense: | | |
| Cost of revenues | $78 | $67 | $150 | $— | $23 |
| Sales and marketing | 1,703 | 1,777 | 713 | 116 | 304 | 982 |
| Technology support | 586 | 601 | 518 | 81 | 197 | 1,247 |
| General and administrative | 1,739 | 1,982 | 1,185 | 1,787 | 1,901 | 2,615 |
| | | |
| Share-based compensation expense | 4,106 | 4,427 | 2,566 | 1,984 | 2,402 | 4,867 |
| | | |
| Amount capitalized to internal use software | 3 | 15 | 9 | — | 1 |
| | | |
| Total share-based compensation expense | $4,103 | $4,412 | $2,557 | $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, 2017, December 31, 20162020, 2019 and December 31, 2015,2018, there was approximately $3.9$1.6 million, $4.9$3.0 million and $2.9$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 3.91.5 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 treasuryTreasury yield for a term consistent with the expected life of the stock option in effect at the time of grant.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 yearten-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 $6.23, $7.04$1.27, $1.77 and $5.73$1.75 for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively, based on the Black-Scholes option-pricing model on the date of grant using the following weighted average assumptions:
| | | |
| | | | | | | |
| Expected volatility | 62% | 58% | 56% | 74% | 65% | 68% |
| Expected risk-free interest rate | 1.8% | 1.2% | 1.3% | 0.9% | 2.2% | 2.6% |
| Expected life (years) | 4.4 | 4.6 | 4.4 | 4.5 |
A summary of the Company’s outstanding stock options as of December 31, 2017,2020, and changes during the year then ended is presented below:
| | | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Term | |
| | | | | |
| Outstanding at December 31, 2016 | 2,742,531 | $11.15 | 4.3 | |
| Granted | 466,600 | 12.41 | | |
| Exercised | (248,344) | 5.46 | | |
| Forfeited or expired | (215,503) | 15.93 | | |
| Outstanding at December 31, 2017 | 2,745,284 | $11.50 | 3.9 | $4,089 |
| Vested and expected to vest at December 31, 2017 | 2,677,867 | $11.45 | 3.9 | $4,066 |
| Exercisable at December 31, 2017 | 1,909,298 | $10.32 | 3.1 | $3,920 |
| | | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Term | |
| | | | | |
| 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, 2017, 20162020, 2019 and 2015,2018, the Company granted 466,600, 833,900635,000, 1,697,883, and 606,7502,056,700 service-based stock options, which had weighted average grant date fair values of $6.23, $7.71$1.27, $1.77, and $5.73,$1.75, respectively.
Stock option exercises. During 2017, 248,3442020, 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 $5.46. During 2016, 386,001 options were exercised, with an aggregate weighted average exercise price of $7.91. During 2015, 145,979 options were exercised, with an aggregate weighted average exercise price of $8.19.$3.39. The total intrinsic value of options exercised during 2017, 20162020 is de minimis. The total intrinsic value of options exercised during 2019 and 20152018 was $1.6 million, $3.2$0.5 million and $1.9$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 arewere subject to both stock price-based and service-based vesting requirements that must be satisfied forrequirements.On April 12, 2018, pursuant to the stock option award agreement, vesting of then-unvested Former CEO Market Condition Options to vest and become exercisable. Thewas 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 provide thatOptions.In August 2019, the Company awarded a total of 455,000 stock price-based vesting condition will be met (i) with respectoptions of the Company’s common stock to certain officers under the 2018 Equity Incentive Plan. In addition to the first one-third (1/3)service-based vesting described above, vesting of the CEO Market Condition Options, if at any time after the grant date and priorthese options is subject to the expiration dateachievement of the CEO Market Condition Optionsa 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 the preceding thirty (30)10 consecutive trading days (adjusted for any stock splits, stock dividends, reverse stock splits or combinations occurring after the issuance date) (“Weighted Average Closing Price”) is at or above $30.00; (ii) with respect to the second one-third (1/3) of the CEO Market Condition Options, if at any time after thedays. The weighted average grant date and prior to the expiration date the Weighted Average Closing Price is at or above $37.50; and (iii) with respect to the last one-third (1/3) of the CEO Market Condition Options, if at any time after the grant date and prior to the expiration date the Weighted Average Closing Price is at or above $45.00. With respect to any of the CEO Market Condition Options for which the stock price-based requirements are met, these options are also subject to the following service-based vesting schedule: (i) thirty-three and one-third percent (33 1/3%)fair value of these stock options will vest and become exercisable on January 21, 2017 and (ii) one thirty-sixth (1/36th) of these options will vest and become exercisable on each successive monthly anniversary thereafter for the following twenty-four months ending on January 21, 2019. None of the stock-price based vesting requirements have been met as of December 31, 2017. The CEO Market Condition Options expire on January 21, 2023.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 thethese 125,000 RSAs, 25,000 were service-based (“Service-Based RSA Award”) and the100,000 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. The Service-Based RSA Award had a fair market value of $15.37 per share. This executive officer was also awarded 100,000Forfeiture restrictions lapsed on 8,333 shares and 8,333 shares of the Company’s common stock in the form of performance-based restricted stock (“Performance-Based RSA Award”). The Performance-Based RSA Award had a fair market valueon April 23, 2016 and April 23, 2017, respectively. During the year ended December 31, 2018, 8,333 of $5.23 per share. The shares are subject to forfeiturethe foregoing service-based RSAs and 100,000 of the performance-based RSAs were forfeited upon the earlierresignation of (such earliest date being referred to as the “Termination Date”) (i) a termination of thethis executive officer’s employment with the Company; (ii) March 31, 2018; and (iii) other events of forfeiture set forth in the award agreement, subject to the following: (i) the forfeiture restrictions with respect to 50,000 of the restricted shares will lapse if any time prior to the Termination Date the weighted average closing price of the Company’s common stock for the preceding 30 trading days is at or above $30.00 per share, and (ii) the forfeiture restrictions with respect to any of the restricted shares that remain subject to forfeiture restrictions will lapse if any time prior to the Termination Date the weighted average closing price of the Company’s common stock for the preceding 30 trading days is at or above $45.00 per share. None of the forfeiture restrictions had lapsed on the Performance-Based RSA Awards during 2017.officer.
The Company granted an aggregate of 345,000 RSAs on September 27, 2017, to executivesenior officers of the Company. TheThese 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. LapsingDuring the year ended December 31, 2018, 80,000 shares of RSAs were forfeited upon the resignation of two executive officers, the forfeiture restrictions may be accelerated inon 175,000 shares of RSA lapsed upon the eventtermination of a change in controlemployment of the Former CEO and three officers of the Company, and will acceleratethe forfeiture restrictions on 40,000 shares of RSAs were modified upon the death or disabilityentry 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 holderCompany, 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:
| |
| 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 |
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 $75.00$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, 20172023 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 20142020 Annual Meeting of Stockholders.Stockholders and will expire on May 26, 2023 unless that date is advanced or extended by the Company’s Board of Directors.
Series B Preferred StockWarrant
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 issued the Series B Preferred Stock. The sharespreviously owned approximately 15% of Series B Preferred Stock were convertible, subject to certain limitations, into 10 shares of Common Stock (with such conversion ratio subject to adjustment as set forth in the certificate of designations for the Series B Preferred Stock). On June 22, 2017, the Company obtained stockholder approval for conversion of the then outstanding Series B Preferred Stock. Upon obtaining stockholder approval for the conversion, each share of Series B Preferred Stock outstanding was automatically converted into 10 shares of the Company’s common stock, which resulted in the outstanding shares of Series B Preferred Stock beingAWI, on a fully converted into 1,680,070 shares ofand diluted basis, and accounted for the Company’s common stock.
Warrant
On September 17, 2010 (“CyberAcquisition Date”), the Company acquired substantially all of the assets of Cyber. In connection with the acquisition of Cyber, the Company issued to the sellers the Cyber Warrant. The Cyber Warrant was valued at $3.15 per shareinvestment on the Cyber Acquisition Date using an option pricing model with the following key assumptions: risk-free rate of 2.3%, stock price volatility of 77.5% and a term of 8.04 years. The Cyber Warrant was valued based on historical stock price volatilities of the Company and comparable public companies as of the Cyber Acquisition Date. The exercise price of the Cyber Warrant was $4.65 per share (as adjusted for stock splits, stock dividends, combinations and other similar events). The Cyber Warrant was acquired by Auto Holdings and exercised on April 27, 2015, as discussed in Note 1. Based upon the terms of exercise of the Cyber Warrant, the Company issued 400,000 shares of Company Common stock and received approximately $1.9 million in cash.
The warrant to purchase 69,930 shares of the Company’s common stock issued in connection with the acquisition of AutoUSA was valued at $7.35 per share for a total value of $0.5 million (“AutoUSA Warrant”). The Company used an option pricing model to determine the value of the AutoUSA Warrant. Key assumptions used in valuing the AutoUSA Warrant are as follows: risk-free rate of 1.6%, stock price volatility of 65.0% and a term of 5.0 years. The AutoUSA Warrant was valued based on long-term stock price volatilities of the Company. The exercise price of the AutoUSA Warrant is $14.30 per share (as may be adjusted for stock splits, stock dividends, combinations and other similar events). The AutoUSA Warrant became exercisable on January 13, 2017 and expires on January 13, 2019.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 becomesbecame exercisable on October 1, 2018, subject to the following vesting conditions: (i) with respect to the first one-third (1/3) of the warrant shares, if at any time after the issuance date of the 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 (1/3) 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 (1/3) 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 boardBoard of directorsDirectors had authorized the Company to repurchase up to $2.0 million, of the Company’s common stock, and on September 17, 2014, the Company announced that its board of directors had approved the repurchase of up to an additional $1.0 million of the Company’s common stock. On September 6, 2017, the Company announced that its board of directors authorized the Company to repurchase an additionaland $3.0 million of the Company’s common stock.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 usthe Company to purchase a specific number of shares, and the boardBoard of directorsDirectors may suspend, modify or terminate the programs at any time. The Company will fund future repurchases through the use of available cash. During 2017, the Company repurchased 226,698 shares for an aggregate price of $1.9 million. The average price paid for all shares repurchased during 2017 was $8.37. The shares repurchased during 2017 were cancelled and returned to authorized and unissued shares. No shares were repurchased in 2016.2020 or 2019. As of December 31, 2020, $2.3 million remains available for stock repurchases under the program.
Shares Reserved for Future Issuance
The Company had the following shares of common stock reserved for future issuance upon the exercise or issuance of equity instruments as of December 31, 2017:
| |
Stock options outstanding | 2,745,284
|
Authorized for future grants under stock-based incentive plans | 603,758
|
Reserved for exercise of warrants | 1,552,330
|
Reserved for conversion of AUSA Note | 61,200
|
Total | 4,962,572
|
11.
Income Taxes
The components of income (loss) before income tax provision are as follows for the years ended December 31:
| | | | |
| | (in thousands) |
| | | | |
| United States | $(40,090) | $6,448 | $8,079 |
| International | 565 | 238 | — |
| Total income (loss) before income tax provision | $(39,525) | $6,686 | $8,079 |
| | | | |
| | |
| | | | |
| 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:
| | | | | | | |
| | (in thousands) | |
| Current: | | |
| Federal | $— | $244 | $212 | $— | $32 |
| State | 36 | 508 | 226 | 10 | (6) |
| Foreign | 139 | 69 | — | — |
| | 175 | 821 | 438 | 10 | 26 |
| Deferred: | | |
| Federal | (2,916) | 1,726 | 2,997 | (562) | (2,065) | (6,213) |
| State | (175) | 1,040 | 586 | (159) | (417) | (1,188) |
| Foreign | — | — |
| | (3,091) | 2,766 | 3,583 | (721) | (2,482) | (7,401) |
| | | |
| Change in federal tax rate | 11,693 | — | — |
| | | |
Valuation allowance
| 16,662 | (772) | (588) | 721 | 2,482 | 7,369 |
| | | |
| Total income tax expense | $25,439 | $2,815 | $3,433 | |
| Total income tax expense (benefit) | | $10 | $(6) |
The reconciliations of the U.S. federal statutory rate to the effective income tax rate for the years ended December 31, 2017, 20162020, 2019 and 20152018, are as follows:
| | | | | | | |
| Tax provision at U.S. federal statutory rates | 34.0% | 21.0% |
| State income taxes net of federal benefit | 2.7 | 3.1 | 2.3 | 2.1 | 3.0 | 3.2 |
| Deferred tax asset adjustments – NOL related | (12.1) | 16.1 | 6.8 | 0.0 | (0.4) | (0.2) |
| Non-deductible permanent items | (0.1) | — | 0.7 | (1.1) | (0.3) | (0.2) |
| Stock options | (0.1) | — | (28.0) | (3.2) | (3.4) |
| Acquisition costs | — | 7.0 | |
| Goodwill impairment | (17.5) | — | 0.0 | — | (1.5) |
| Other | 0.3 | 0.4 | (1.0) | 0.0 | (3.9) | (0.2) |
| Transition tax adjustment | 0.2 | — | |
| Change in rate | (29.6) | — | |
| Change in valuation allowance | (42.2) | (11.5) | (7.3) | 5.8 | (16.3) | (18.7) |
| Effective income tax rate | (64.4%) | 42.1% | 42.5% | (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, 20172020 and 20162019 are as follows:
| | | |
| | |
| Deferred tax assets: | | |
| Allowance for doubtful accounts | $225 | $381 |
| Accrued liabilities | 574 | 1,596 |
| Net operating loss carry-forwards | 17,286 | 25,563 |
| Intangible assets | 161 | — |
| Share-based compensation expense | 2,727 | 3,225 |
| Other | 1,062 | 1,191 |
| Total gross deferred tax assets | 22,035 | 31,956 |
| Valuation allowance | (21,318) | (4,656) |
| | 717 | 27,300 |
| | | |
| Deferred tax liabilities: | | |
| Fixed assets | (25) | (114) |
| Intangible assets | — | (7,698) |
| Unremitted foreign earnings | — | (20) |
| Total gross deferred tax liabilities | (25) | (7,832) |
| Net deferred tax assets | $692 | $19,468 |
| | | |
| | |
| 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 establishesestablished new tax laws that will take effect in 2018, including, but not limited to (1)(i) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2)(ii) elimination of the corporate AMT; (3)(iii) a new limitation on deductible interest expense; (4)(iv) the Transition Tax; (5)(v) limitations on the deductibility of certain executive compensation; (6)(vi) changes to the bonus depreciation rules for fixed asset additions:additions; and (7)(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'sTCJA’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 accordance with SAB 118, a company must reflect the income tax2017, we recorded provisional amounts for certain enactment date effects of those aspects of the TCJA, for which the accounting under ASC 740 is complete. Tohad not been finalized, by applying the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimateguidance in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.
SAB 118. At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the TCJA; however, the Company has made a reasonable estimate of the effects of the TCJA’s change in the federal rate and revalued its deferred tax assets based on the rates at which they are expected to reverse in the future, which is generally the new 21% federal corporate tax rate plus applicable state tax rate. 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. The Company’s provisional estimates will be adjusted duringAccordingly, the measurement period defined under SAB 118, based upon ongoing analysis of data and tax positions along withCompany completed our accounting for the new guidance from regulators and interpretationseffects of the law.
TCJA in 2018 and did not recognize any material adjustments to the 2017 provisional income tax expense.
The Company adopted the provisions of ASU 2016-09TCJA created a provision known as of January 1, 2017, which requires recognition through opening retainedGILTI 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, pre-adoption date NOL carryforwards from nonqualified stock options and other employee share-based payments (e.g., restricted shares and share appreciation rights), as well as recognition of alla current income tax effects from share-based payments arising on or after January 1, 2017expense in income tax expense. As a result,the period incurred.
During 2020 and 2019, the Company has recognized $18.4continued 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 of pre-adoption date NOL carryforwards with remaining carryforward periods of at least seven years. The Company recognized excess tax benefits of $6.5and $2.5 million as an increase toagainst its deferred tax assets during the years ended 2020 and a cumulative-effect adjustment to retained earnings of $6.5 million.2019, respectively. Based on the weight of available evidence, the Company believes that it is more likely than not that these NOLsdeferred tax assets will not be realized and has placed a valuation allowance against the deferred tax asset.realized.
During 2017, management assessed
In response to the available positive and negative evidencecoronavirus 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 estimate if sufficient futurefive years, which was not previously allowed under the TCJA. The CARES Act also eliminates the 80% of taxable income will be generatedlimitations 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 existing deferredsum of 50% of adjusted taxable income plus business interest income (30% limit under the TCJA) for tax assets. A significant pieceyears 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 objective negative evidence evaluated was the cumulative losses incurredcredits instead of recovering the credits through refunds over a period of years, as originally enacted by the three-year periodTCJA. 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, 2017. The Company was projecting pre-tax income for 2017 until the three months ended December 31, 2017, in which the Company incurred a significant pre-tax loss due2020, or to goodwill impairment. The Company experienced increased costs in servicing its customers and started to see a decrease in market share as a result of more competition. The Company also projects that 2018 pre-tax profits may not offset the cumulative three-year pre-tax lossnet deferred tax assets as of December 31, 2017. Based2020.
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 this evaluation, the Company recorded an additional valuation allowance of $16.7 million against its deferredCompany’s 2020 Federal tax assets during the year. Atreturn.
On December 31, 2017, the Company has recorded a valuation allowance of $21.3 million against its deferred tax assets.
At December 31, 2017,2020, the Company had federal and state NOLs of approximately $74.0$104.1 million and $26.2$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 | $4.1 | $4.2 |
| 2026 | 25.5 | 25.5 |
| 2027 | 15.5 | 15.5 |
| 2028 | 5.2 | 5.2 |
| 2029 | 7.7 | 7.7 |
| 2030 | 10.6 | 10.6 |
| 2031 | 1.3 | 1.3 |
| 2032 | — | — |
| 2033 | 0.1 | 0.1 |
| 2034 | 2.5 | 2.5 |
| 2035 | 1.5 | 1.5 |
| Do not expire | | 30.0 |
| | $74.0 | $104.1 |
The state NOLs expire through 20352040 as follows (in millions):
| 2028 | $2.7 | $2.6 |
| 2029 | 5.8 | 5.8 |
| 2030 | 11.0 | 11.0 |
| 2034 | 1.5 | 1.4 |
| 2035 | 0.8 | 0.8 |
| 2038 | | 2.3 |
| 2039 | | 2.2 |
| 2040 | | 0.6 |
| California NOLs | 21.8 | 26.8 |
| Other State NOLs | 4.4 | 22.1 |
| Total State NOLs | $26.2 | $48.9 |
Utilization of the net operating lossNOLs and tax credit carry-forwardscarryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the IRC, as well as similar state provisions. These ownership changes may limit the amount of NOLs and research and development credit carry-forwardscarryforwards 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, 2017. As a result of an acquisition in 2001, approximately $9.9 million of the NOLs are subject to an annual limitation of approximately $0.5 million per year.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, 2017,2020, the Company has federal and state research and development tax credit carry-forwardscarryforwards of $0.3 million$0.2 million. The previous federal tax credits have been written off in the current year and $0.2 million, respectively. The federal credits begin to expire in 2021. Thethe state credits do not expire.
As of December 31, 20172020, and 2016,2019, the Company had unrecognized tax benefits of approximately $0.5$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:
| | | | | |
| | | |
| Balance at January 1, | $464 | $527 | $464 |
| Reductions based on tax positions related to prior years and settlements | — | (63) | (275) | — |
| Balance at December 31, | $464 | $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 20132017 and 2016, respectively (except for the use of tax losses generated prior to 20132017 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, 20172020 and 2016.2019.
12.
Selected Quarterly Financial Data (Unaudited)
Below is a summary table of the Company’s quarterly data for the years ended December 31, 2017 and December 31, 2016.
| | |
| | | | | | | | | |
| | (in thousands, except per-share amounts) |
| Total net revenues | $33,321 | $36,872 | $34,591 | $37,341 | $40,378 | $43,911 | $36,148 | $36,247 |
| Gross profit | $8,139 | $11,086 | $10,636 | $12,911 | $14,601 | $15,755 | $13,921 | $13,635 |
| Net income (loss) | $(65,840) | $69 | $322 | $484 | $1,378 | $2,738 | $430 | $(676) |
| Basic earnings (loss) per share | $(5.22) | $0.01 | $0.03 | $0.04 | $0.13 | $0.26 | $0.04 | $(0.06) |
| Diluted earnings (loss) per share | $(5.22) | $0.01 | $0.02 | $0.04 | $0.10 | $0.21 | $0.03 | $(0.06) |
(1)| | |
| | | | | | | | | |
| | (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) |
Net income in the quarter ended December 31, 2017 included goodwill impairment of $37.7 million, tax provision related to valuation allowance of $16.7 million, tax provision of $11.7 million due to TCJA and a $0.6 million write-off related to SaleMove.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
| | | |
| | | | | | | |
| | | | |
| Allowance for bad debts: | | |
| Beginning balance | $643 | $605 | $490 | $546 | $445 | $679 |
| Additions | 346 | 344 | 379 | 470 | 330 | 241 |
| Write-offs | (311) | (306) | (264) | (674) | (229) | (475) |
| Ending balance | $678 | $643 | $605 | $342 | $546 | $445 |
| Allowance for customer credits: | | |
| Beginning balance | $371 | $439 | $280 | $194 | $121 | $213 |
| Additions | 247 | 592 | 803 | (26) | 250 | 198 |
| Write-offs | (405) | (660) | (644) | (104) | (177) | (290) |
| Ending balance | $213 | $371 | $439 | $64 | $194 | $121 |
| Tax valuation allowance: | | |
| Beginning balance | $4,656 | $5,427 | $6,015 | $31,168 | $28,687 | $21,318 |
| Charged (credited) to tax expense | 21,247 | (771) | (588) | (721) | 2,481 | 7,369 |
| Charged (credited) to retained earnings | (4,585) | — | — |
| Ending balance | $21,318 | $4,656 | $5,427 | $30,447 | $31,168 | $28,687 |
