AutoWeb, Inc. - Quarter Report: 2011 March (Form 10-Q)

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x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

Delaware	33-0711569
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer identification number)
18872 MacArthur Boulevard, Suite 200, Irvine, California	92612
(Address of principal executive offices)	(Zip Code)

 

 

Large accelerated filer  ¨	Accelerated filer  ¨	Non-accelerated filer  ¨	Smaller reporting company  x
		(Do not check if a smaller reporting company)

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	INDEX
		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Unaudited Consolidated Condensed Balance Sheets as of March 31, 2011 and December 31, 2010	3
	Unaudited Consolidated Condensed Statements of Operations and Comprehensive (Loss) Income for the Three Months Ended March 31, 2011 and the Three Months Ended March 31, 2010	4
	Unaudited Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2011 and the Three Months Ended March 31, 2010	5
	Notes to Unaudited Consolidated Condensed Financial Statements	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	20
ITEM 4.	Controls and Procedures	20
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	21
ITEM 1A.	Risk Factors	21
ITEM 6.	Exhibits	23
	Signatures	24

 

Item 1.  Financial Statements

 

 

 

		March 31,				December 31,
		2011				2010
Assets
Current assets:
Cash and cash equivalents		$	7,531			$	8,819
Restricted cash			400				400
Accounts receivable, (net of allowances for bad debts and customer credits of $431 and $621 at March 31, 2011 and December 31, 2010, respectively)			9,949				9,067
Prepaid expenses and other current assets			558				797
Total current assets			18,438				19,083
Property and equipment, net			1,820				1,733
Long-term strategic investment			1,000				1,000
Intangible assets, net			3,919				4,258
Goodwill			11,677				11,677
Other assets			81				81
Total assets		$	36,935			$	37,832
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	4,197			$	3,713
Accrued expenses and other current liabilities			3,718				4,995
Deferred revenues			418				564
Total current liabilities			8,333				9,272
Convertible note payable			5,000				5,000
Other non-current liabilities			554				457
Total liabilities			13,887				14,729
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.001 par value; 11,445,187 shares authorized; none outstanding			—				—
Common stock, $0.001 par value; 200,000,000 shares authorized and 46,040,645 and 45,689,062 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively			46				46
Additional paid-in capital			305,872				305,356
Accumulated deficit			(282,870	)			(282,299	)
Total stockholders’ equity			23,048				23,103
Total liabilities and stockholders’ equity		$	36,935			$	37,832

 

 

 

		Three Months Ended March 31,
		2011				2010
Revenues:
Purchase requests		$	14,964			$	10,733
Advertising			1,001				1,054
Other revenues			67				26
Total net revenues			16,032				11,813
Cost of revenues (excludes depreciation of $55 and $192 for the three months ended March 31, 2011 and 2010, respectively)			9,872				7,065
Gross profit			6,160				4,748
Operating expenses:
Sales and marketing			2,419				2,753
Technology support			1,725				1,240
General and administrative			2,084				2,696
Depreciation and amortization			446				189
Patent litigation settlement			(67	)			(2,763	)
Total operating expenses			6,607				4,115
Operating (loss) income			(447	)			633
Interest and other income, net			9				177
(Loss) income before income tax provision			(438	)			810
Income tax provision			133				13
Net (loss) income and comprehensive (loss) income		$	(571	)		$	797
Basic (loss) earnings per common share		$	(0.01	)		$	0.02
Diluted (loss) earnings per common share		$	(0.01	)		$	0.02
Shares used in computing net (loss) earnings per common share (in thousands):
Basic			45,676				44,803
Diluted			45,676				45,992

 

 

 

 

 

		Three Months Ended March 31,
		2011				2010
Cash flows from operating activities:
Net (loss) income		$	(571	)		$	797
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization			510				322
Provision for bad debts			46				75
Provision for customer credits			188				174
Share-based compensation			227				242
Changes in assets and liabilities:
Accounts receivable			(1,116	)			780
Prepaid expenses and other current assets			239				33
Other non-current assets			—				(15	)
Accounts payable			484				210
Accrued expenses and other liabilities			(1,194	)			(1,039	)
Deferred revenues			(146	)			(173	)
Non-current liabilities			97				(25	)
Net cash (used in) provided by operating activities			(1,236	)			1,381
Cash flows from investing activities:
Purchases of property and equipment			(258	)			(417	)
Net cash used in investing activities			(258	)			(417	)
Cash flows from financing activities:
Proceeds from exercise of stock options			289				—
Payment of contingent fee arrangement			(83	)			—
Net cash provided by financing activities			206				—
Net (decrease) increase in cash and cash equivalents			(1,288	)			964
Cash and cash equivalents, beginning of period			8,819				25,097
Cash and cash equivalents, end of period		$	7,531			$	26,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		(in thousands)
Cash		$	9,000
Convertible subordinated promissory note			5,900
Warrant to purchase 2,000,000 shares of Company Common Stock			1,260
Contingent consideration			526
Working capital adjustment			99
		$	16,785

 

 

 

 

 

		(in thousands)
Accounts receivable		$	1,296
Prepaid online advertising			12
Property, plant and equipment			56
Other long-term assets			6
Total tangible assets acquired			1,370
Current liabilities			662
Other liabilities			100
Total liabilities assumed			762
Net identifiable assets acquired			608
Definite-lived intangible assets acquired			4,500
Goodwill			11,677
Net assets acquired		$	16,785

 

	Valuation Method		Estimated Fair Value				Estimated Useful Life (1)
			(in thousands)				(years)
Employment/non-compete agreements	Discounted Cash Flow (2)		$	500				5
Publications	Cost Approach (3)			500				3
Customer relationships	Excess of Earnings (4)			1,870				3
Trademarks and trade names	Relief from Royalty (5)			830				5
Software	Cost Approach (3)			800				3
Total purchased intangible assets			$	4,500

 

 

 

(1)     (2)     (3)   (4)     (5)

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 the intangible asset. Amortization of intangible assets with definite lives are recognized over the shorter of the respective lives of the agreement or the period of time the assets are expected to contribute to future cash flows.   The employment/non-compete agreements fair value 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 cost approach estimates the cost required to repurchase or reproduce the intangible assets. The method takes into account technological and economic obsolescence of the publications and software licenses.   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.   The relief from royalty method is an earnings approach which assesses the royalty savings an entity realizes since it owns the asset and doesn’t have to pay a third party a license fee for its use.

 

 

 

 

 

 

 

		Three Months Ended March 31, 2010
		(in thousands)
Unaudited pro forma consolidated results:
Revenue		$	14,347
Net income		$	500

 

 

 

		Three Months Ended March 31,
		2011				2010
Basic shares:
Weighted average common shares outstanding			45,785,045				45,168,706
Weighted average unvested restricted stock			(109,412	)			(365,881	)
Basic shares			45,675,633				44,802,825
Diluted shares:
Basic shares			45,675,633				44,802,825
Weighted average diluted securities			—				1,189,607
Dilutive shares			45,675,633				45,992,432

 

 

 

		Three Months Ended March 31,
		2011				2010
		(in thousands)
Share-based compensation expense:
Cost of revenues		$	1			$	9
Sales and marketing			83				59
Technology support			71				32
General and administrative			72				142
Share-based compensation expense			227				242
Amount capitalized to internal use software			4				—
Total share-based compensation costs		$	231			$	242

 

 

 

 

 

 

		Three Months Ended March 31,
		2011				2010
Dividend yield			—				—
Volatility			84	%			82	%
Risk-free interest rate			1.61	%			2.0	%
Expected life (years)			4.1				4.1

 

 

 

 

 

 

 

		March 31,				December 31,
		2011				2010
		(in thousands)
Computer software and hardware and capitalized internal use software		$	11,909			$	11,651
Furniture and equipment			1,505				1,505
Leasehold improvements			1,024				1,024
			14,438				14,180
Less – Accumulated depreciation and amortization			(12,618	)			(12,447	)
Property and equipment, net		$	1,820			$	1,733

 

 

 

 

 

 

 

 

 

Intangible Asset		Estimated Useful Life
Trademarks/trade names		5 years
Software and publications		3 years
Customer relationships		3 years
Employment/non-compete agreements		5 years

 

 

Year		Amortization Expense
		(in thousands)
2011		$	1,031
2012			1,356
2013			1,037
2014			286
2015			209
		$	3,919

 

 

		March 31,				December 31,
		2011				2010
		(in thousands)
Compensation and related costs		$	1,247			$	1,988
Professional fees and other accrued expenses			1,552				2,103
Amounts due to customers			367				367
Other current liabilities			552				537
Total accrued expenses and other current liabilities		$	3,718			$	4,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	General economic and automotive industry conditions, including:

 

·	The adverse effect of high unemployment on the number of vehicle purchasers; and

 

·	The lack of available consumer credit to finance vehicle purchases.

 

·	The market for Purchase Requests, including:

 

·

The effects of competition and Purchase Request sourcing (i.e., Purchase Requests from our Owned Websites versus Other Purchase Requests acquired from third parties) on our supply and acquisition costs of quality Purchase Requests and the resulting effects on sales, pricing and margins for our services and products, and

 

·	Increases or decreases in the number of Dealers in our Dealer base.

 

·	The market for advertising services, including:

 

·	Continued volatility in spending by Manufacturers and others in marketing allocations,

 

·	The amount of visits (traffic) to our Owned Websites,

 

·	The cost of acquiring traffic to our Owned Websites, and

 

·	The rates attainable from our advertisers.

 

 

		2011				% of total net revenues				2010				% of total net revenues				$ Change				% Change
		(Dollar amounts in thousands)
Revenues:
Purchase requests		$	14,964				94	%		$	10,733				91	%		$	4,231				39	%
Advertising			1,001				6				1,054				9				(53	)			(5	)
Other			67				—				26				—				41				158
Total net revenues			16,032				100				11,813				100				4,219				36
Cost of revenues (excludes depreciation of $55 and $192 for the three months ended March 31, 2011 and 2010, respectively)			9,872				62				7,065				60				2,807				40
Gross profit			6,160				38				4,748				40				1,412				30
Operating expenses:
Sales and marketing			2,419				14				2,753				23				(334	)			(12	)
Technology support			1,725				11				1,240				10				485				39
General and administrative			2,084				13				2,696				23				(612	)			(23	)
Depreciation and amortization			446				3				189				2				257				136
Patent litigation settlement			(67	)			—				(2,763	)			(23	)			2,696				(98	)
Total operating expenses			6,607				41				4,115				35				2,492				61
Operating (loss) income			(447	)			(3	)			633				5				(1,080	)			(171	)
Interest and other income			9				—				177				2				(168	)			(95	)
(Loss) income before income tax expense			(438	)			(3	)			810				7				(1,248	)			(154	)
Income tax expense			133				1				13				—				120				923
Net (loss) income		$	(571	)			(4	)%		$	797				7	%		$	(1,368	)			(172	%)

 

 

 

 

 

 

 

 

 

 

 

 

 

		Three Months Ended March 31,
		2011				2010
		(in thousands)
Net cash (used in) provided by operating activities		$	(1,236	)		$	1,381
Net cash used in investing activities			(258	)			(417	)
Net cash provided by financing activities			206				—

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

 

Item 4.

Controls and Procedures

 

 

 

 

 

 

 

 

 

Item 1.  Legal Proceedings

 

 

Item 1A.  Risk Factors

 

 

 

 

·	The adverse effect of high unemployment on the number of vehicle purchasers;

 

·	The availability  of consumer credit to finance vehicle purchases; and

 

·	Disruption in U.S. automobile sales during 2011, and potentially a reduction in total vehicle sales for 2011, due to rising gasoline prices and recent announcements by both Japanese and domestic auto manufacturers regarding production delays resulting from the earthquake and tsunami in Japan.

 

·	The market for Purchase Requests, including:

 

·

The effects of competition and Purchase Request sourcing (i.e., Purchase Requests from our Owned Websites versus Other Purchase Requests acquired from third parties) on our supply and acquisition costs of quality Purchase Requests and the resulting effects on sales, pricing and margins for our services and products; and

 

·	Increases or decreases in the number of Dealers in our Dealer base.

 

·	The market for advertising services, including:

 

·	Continued volatility in spending by Manufacturers and others in marketing allocations;

 

·	The amount of visits (traffic) to our Owned Websites;

 

·	The cost of acquiring traffic to our Owned Websites; and

 

·	The rates attainable from our advertisers.

 

 

 

 

 

 

2.1‡	Asset Purchase Agreement dated as of  September 16, 2010, by and among Autotropolis, Inc., a Florida corporation, Cyber Ventures, Inc., a Florida corporation, William Ferriolo, Ian Bentley and the Ian Bentley Revocable Trust created U/A/D 3/1/2005, Autobytel Inc., a Delaware corporation, and Autobytel Acquisition Subsidiary, Inc., a Delaware corporation, which is incorporated herein by reference to Exhibit 2.1 of the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 filed with the SEC on November 12, 2010 (SEC File No. 1-34761)
3.1	Fifth Amended and Restated Certificate of Incorporation of Autobytel Inc. (formerly Autobytel.com Inc. (“Autobytel” or the “Company”)) certified by the Secretary of State of Delaware (filed December 14, 1998), as amended by Certificate of Amendment dated March 1, 1999, Second Certificate of Amendment of the Fifth Amended and Restated Certificate of Incorporation of Autobytel dated July 22, 1999, Third Certificate of Amendment of the Fifth Amended and Restated Certificate of Incorporation of Autobytel dated August 14, 2001, Certificate of Designation of Series A Junior Participating Preferred Stock dated July 30, 2004, and Amended Certificate of Designation of Series A Junior Participating Preferred Stock dated April 24, 2009, which is incorporated herein by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 filed with the SEC on April 24, 2009 (SEC File No. 000-22239)
3.2	Third Amended and Restated Bylaws of Autobytel dated April 27, 2011, which is incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the SEC on April 29, 2011 (SEC File No. 1-34761)
4.1	Form of Common Stock Certificate of Autobytel is incorporated herein by reference to Exhibit 4.1 of the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 filed with the SEC on November 14, 2001 (SEC File No. 000-22239)
4.2	Tax Benefit Preservation Plan, dated as of May 26, 2010, between Autobytel Inc. and Computershare Trust Company, N.A., as rights agent, together with the following exhibits thereto: Exhibit A – Form of Right Certificate; Exhibit B – Summary of Rights to Purchase Shares of Preferred Stock of Autobytel Inc. is incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on June 2, 2010 (SEC File No. 000-22239)
31.1*	Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer
31.2*	Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer
32.1*	Section 1350 Certification by Principal Executive Officer and Principal Financial Officer

*	Filed herewith

‡

Certain schedules in this Exhibit have been omitted in accordance with Item 601(b)(2) of Regulation S-K.  Autobytel Inc. will furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request; provided, however, that Autobytel Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.

 

			AUTOBYTEL INC.
	Date: May 6, 2011		By:	/s/ Curtis E. DeWalt
				Curtis E. DeWalt
				Senior Vice President and Chief Financial Officer
				(Duly Authorized Officer and Principal Financial Officer)

	Date: May 6, 2011		By:	/s/ Wesley Ozima
				Wesley Ozima
				Vice President and Controller
				(Principal Accounting Officer)

2.1‡	Asset Purchase Agreement dated as of  September 16, 2010, by and among Autotropolis, Inc., a Florida corporation, Cyber Ventures, Inc., a Florida corporation, William Ferriolo, Ian Bentley and the Ian Bentley Revocable Trust created U/A/D 3/1/2005, Autobytel Inc., a Delaware corporation, and Autobytel Acquisition Subsidiary, Inc., a Delaware corporation, which is incorporated herein by reference to Exhibit 2.1 of the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 filed with the SEC on November 12, 2010 (SEC File No. 1-34761)
3.1	Fifth Amended and Restated Certificate of Incorporation of Autobytel Inc. (formerly Autobytel.com Inc. (“Autobytel” or the “Company”)) certified by the Secretary of State of Delaware (filed December 14, 1998), as amended by Certificate of Amendment dated March 1, 1999, Second Certificate of Amendment of the Fifth Amended and Restated Certificate of Incorporation of Autobytel dated July 22, 1999, Third Certificate of Amendment of the Fifth Amended and Restated Certificate of Incorporation of Autobytel dated August 14, 2001, Certificate of Designation of Series A Junior Participating Preferred Stock dated July 30, 2004, and Amended Certificate of Designation of Series A Junior Participating Preferred Stock dated April 24, 2009, which is incorporated herein by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 filed with the SEC on April 24, 2009 (SEC File No. 000-22239)
3.2	Third Amended and Restated Bylaws of Autobytel dated April 27, 2011, which is incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the SEC on April 29, 2011 (SEC File No. 1-34761)
4.1	Form of Common Stock Certificate of Autobytel is incorporated herein by reference to Exhibit 4.1 of the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 filed with the SEC on November 14, 2001 (SEC File No. 000-22239)
4.2	Tax Benefit Preservation Plan, dated as of May 26, 2010, between Autobytel Inc. and Computershare Trust Company, N.A., as rights agent, together with the following exhibits thereto: Exhibit A – Form of Right Certificate; Exhibit B – Summary of Rights to Purchase Shares of Preferred Stock of Autobytel Inc. is incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on June 2, 2010 (SEC File No. 000-22239)
31.1*	Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer
31.2*	Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer
32.1*	Section 1350 Certification by Principal Executive Officer and Principal Financial Officer

*	Filed herewith

‡

Certain schedules in this Exhibit have been omitted in accordance with Item 601(b)(2) of Regulation S-K.  Autobytel Inc. will furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request; provided, however, that Autobytel Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.