AutoWeb, Inc. - Annual Report: 2019 (Form 10-K)
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, 2019
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission
File Number 1-34761
AutoWeb, Inc.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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33-0711569
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification No.)
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400 North Ashley Drive, Suite 300
Tampa, Florida 33602
(Address
of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code (949) 225-4500
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Common
Stock, par value $0.001 per share
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AUTO
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The
Nasdaq Capital Market
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the
Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or
Section 15(d) of the
Act. Yes ☐ No ☒
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T
(§232.405
of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☒
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Emerging growth company☐
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If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the
Act). Yes ☐ No ☒
Based
on the closing sale price of $3.55 for our common stock on The
Nasdaq Capital Market on June 30, 2019, the aggregate market
value of outstanding shares of common stock held by non-affiliates
was approximately $31 million.
As of
March 24, 2020, there were 13,146,831
shares of our common stock
outstanding.
Documents Incorporated by Reference
Portions
of our Definitive Proxy Statement for the 2020 Annual Meeting,
expected to be filed within 120 days of our fiscal year end, are
incorporated by reference into Part III of this Annual Report on
Form 10-K.
AutoWeb, Inc.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019
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-i-
FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission
(“SEC”) encourages companies to disclose
forward-looking information so that investors can better understand
a company’s future prospects and make informed investment
decisions. This Annual Report on Form 10-K and our proxy statement,
parts of which are incorporated herein by reference, contain such
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as
“anticipates,” “could,” “may,”
“estimates,” “expects,”
“projects,” “intends,”
“pending,” “plans,” “believes,”
“will” and words of similar substance, or the negative
of those words, used in connection with any discussion of future
operations or financial performance identify forward-looking
statements. In particular, statements regarding expectations and
opportunities, new product expectations and capabilities, and our
outlook regarding our performance and growth are forward-looking
statements. This Annual Report on Form 10-K also contains
statements regarding plans, goals and objectives. There is no
assurance that we will be able to carry out our plans or achieve
our goals and objectives or that we will be able to do so
successfully on a profitable basis. These forward-looking
statements are just predictions and involve risks and
uncertainties, many of which are beyond our control, and actual
results may differ materially from these statements. Factors that
could cause actual results to differ materially from those
reflected in forward-looking statements include but are not limited
to, those discussed in “Item 1A. Risk Factors,”
and “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” Investors are
urged not to place undue reliance on forward-looking statements.
Forward-looking statements speak only as of the date on which they
were made. Except as may be required by law, we do not undertake
any obligation, and expressly disclaim any obligation, to update or
alter any forward-looking statements, whether as a result of new
information, future events or otherwise. All forward-looking
statements contained herein are qualified in their entirety by the
foregoing cautionary statements.
PART I
Item 1.
Business
AutoWeb, Inc. was incorporated on May 17, 1996,
under the laws of the State of Delaware. Unless specified
otherwise, as used in this Annual Report on Form 10-K, the terms
“we,” “us,” “our,” the “Company” or “AutoWeb” refer to AutoWeb, Inc. and its
subsidiaries.
Available Information
Our corporate website is located at
www.autoweb.com.
Information on our website is not incorporated by reference in this
Annual Report on Form 10-K. At or through the Investor Relations
section of our website we make available our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and other filings with the SEC.
Overview
We are
a digital marketing company for the automotive industry that
assists automotive retail dealers (“Dealers”) and automotive
manufacturers (“Manufacturers”) market and sell
new and used vehicles to consumers through our programs for online
lead and traffic referrals, Dealer marketing products and services,
online advertising and mobile products.
Our
consumer-facing automotive websites (“Company Websites”) provide
consumers with information and tools to aid them with their
automotive purchase decisions and the ability to submit inquiries
requesting Dealers to contact the consumers regarding purchasing or
leasing vehicles (“Leads”). Leads are
internally-generated from our Company Websites (“Internally-Generated Leads”) or
acquired from third parties (“Non-Internally-Generated Leads”)
that generate Leads from their websites (“Non-Company Websites”). Our click
traffic referral program provides consumers who are shopping for
vehicles online with targeted offers based on make, model and
geographic location. As these consumers conduct online research on
our Company Websites or on the site of one of our network of
automotive publishers, they are presented with relevant offers on a
timely basis and, upon the consumer clicking on the displayed
advertisement, are sent to the appropriate website location of one
of our Dealer, Manufacturer or advertising customers.
Products and Services
We sell Internally-Generated Leads and
Non-Internally-Generated Leads directly to Dealers and indirectly
to Dealers through a wholesale market consisting of Manufacturers
and other third parties in the automotive Lead distribution
industry. The click traffic program links consumers to
Dealers and Manufacturer websites when the consumers click on
advertisements on Company Websites as well as websites operated by
third parties that have contracted with the Company as publishers
under the click traffic program. In addition to our Leads and click
traffic programs, we also offer Dealers and Manufacturers other
products and services, including WebLeads+ and Payment
Pro®,
to assist them in capturing online, in-market customers and selling
more vehicles by improving conversion of Leads to sale
transactions.
Lead Programs
We
provide Dealers and Manufacturers with opportunities to market
their vehicles efficiently to potential vehicle
buyers. Dealers and Manufacturers participate in our
Lead programs, display advertising programs and direct marketing
programs, reaching consumers who are in the market to acquire a
vehicle. For consumers, we provide, at no cost to the consumer, an
easy way to obtain useful information to assist them in their
vehicle shopping process. Leads may be submitted by consumers
through our Company Websites or through Non-Company Websites. For
consumers using our Company Websites, we provide research
information, including vehicle specification data, safety data,
pricing data, photos, videos, regional rebate and incentive data,
and additional tools, such as the compare and configuration tools,
to assist them in this process. We also provide
additional content on our Company Websites, including our database
of articles, such as consumer and professional reviews, and other
analyses. Additional automotive information is also
available on our Company Websites to assist consumers with specific
vehicle research, such as the trade-in value of their current
vehicle.
New Vehicle Leads Program. Our Leads program for new vehicles allows
consumers to submit requests for pricing and availability of
specific makes and models. A new vehicle Lead provides a
Dealer with information regarding the make and model of a vehicle
in which the consumer is interested and the consumer’s name,
email address and/or phone number, and may also include the
consumer’s postal address.
Dealers participating in our new vehicle Leads
program are provided with iControl, our proprietary technology that
allows Dealers many options to filter and control the volume and
source of their Leads. iControl can be controlled at the dealership (or
by a representative of AutoWeb on behalf of the dealership), at the
Dealer group level from a web-based, easy-to-use console that makes
it quick and simple for dealerships to change their Lead
acquisition strategy to adjust for inventory conditions at their
dealerships and broader industry patterns (such as changes in
gas prices or changes in consumer demand). From the console,
dealerships can easily contract or expand territories and increase,
restrict or block specific models and Lead web sources, making it
much easier to target inventory challenges and focus marketing
resources more efficiently.
Our
Leads are subject to quality verification that is designed to
maintain the high-quality of our Leads and increase the Lead buy
rates for our Lead customers. Quality verification includes the
validation of name, phone number, email address and postal address.
Our quality verification also involves proprietary systems as well
as arrangements with third-party vendors specializing in customer
validation. After a Lead has been subjected to quality
verification, if we have placement coverage for the Lead within our
own Dealer network, we send the Lead to Dealers that sell the type
of vehicle requested in the consumer’s geographic area. We
also send an email message to the consumer with the Dealer’s
name and phone number, and if the Dealer has a dedicated internet
manager, the name of that manager. Dealers contact the consumer
with a price quote and availability information for the requested
vehicle. In addition to sales of Leads directly to Dealers in our
network, we also sell Leads wholesale to Manufacturers for delivery
to their Dealers and to third parties that have placement coverage
for the Lead with their own customers.
Dealers
participate in our retail new vehicle Lead program by entering into
contracts directly with us or through major Dealer groups.
Generally, our Dealer contracts may be terminated by either party
on 30 days’ notice and are non-exclusive. The majority of our
retail new vehicle Lead revenues consists of either a monthly
subscription or a per-Lead generation paid by Dealers in our
network. We reserve the right to adjust our fees to Dealers upon 30
days’ prior notice at any time during the term of the
contract. Manufacturers (directly or through their marketing
agencies) and other third parties participate in our wholesale new
vehicle Lead programs generally by entering into agreements where
either party has the right to terminate upon prior notice, with the
length of time for the notice varying by contract. Revenues from
retail new vehicle Leads accounted for approximately 17%, 18% and
19% of total revenues in 2019, 2018 and 2017, respectively.
Revenues from wholesale Leads accounted for approximately 57%, 52%
and 46% of total revenues in 2019, 2018 and 2017,
respectively.
Used Vehicle Leads Program. Our used vehicle Lead program allows
consumers to search for used vehicles according to specific search
parameters, such as the price, make, model, mileage, year and
location of the vehicle. The consumer is able to locate and display
the description, price and, if available, digital images of
vehicles that satisfy the consumer’s search
parameters. The consumer can then submit a Lead for
additional information regarding a vehicle that we then deliver to
the Dealer offering the vehicle. In addition to sending Leads
directly to Dealers through our Lead delivery system, consumers may
choose to contact the Dealer using a toll-free number posted next
to the vehicle search results. We charge each Dealer that
participates in the used vehicle Leads program a monthly
subscription or per Lead fee. Revenues from used vehicle
Leads accounted for 5%, 7% and 9% of total revenues in 2019, 2018
and 2017, respectively.
Other Dealer Products and Services
In
addition to Leads and AutoWeb traffic programs, we also offer
products and services that assist Dealers in connecting with
in-market consumers and closing vehicle sales.
WebLeads+.
Designed to work in connection with a
Dealer’s participation in our Lead programs, WebLeads+ is a
third-party product that offers a Dealer multiple coupon options
that display relevant marketing messages to consumers visiting the
Dealer’s website. When a Dealer uses
WebLeads+, consumers visiting the Dealer’s website are
encouraged to take action in two ways. First, while
interacting with the Dealer website, a consumer is presented with a
customized special offer formatted for easy Lead submission. If a
vehicle quote is requested, the Lead goes directly into the
dealership management tool so a salesperson can promptly address
the customer’s questions. Second, if the consumer
leaves the Dealer’s website but remains online, the
WebLeads+ product keeps the coupon active in a new browser,
providing the Dealer a repeat branding opportunity and giving the
consumer an easy way to re-engage with the Dealer’s website
through submission of a Lead. The additional Leads
generated by the coupons are seamlessly integrated into our
Extranet tool.
Payment Pro®.
Payment Pro®
is a Dealer website conversion tool
based on a third-party product that offers consumers real-time
online monthly payment information based on an instant evaluation
process. The payments are based on the consumer’s
credit, the actual vehicle being researched and the Dealer finance
rates without requiring the consumer to provide personal
information, such as date of birth or social security number. The
Lead goes directly into the Dealer’s management tool so that
a salesperson can promptly address the consumer’s
inquiry.
Advertising Programs
Our Company Websites attract an audience of
prospective automotive buyers that advertisers can target through
display advertising. A primary way advertisers use our Company
Websites to reach consumers is through vehicle content
targeting. This allows automotive marketers to reach
consumers while they are researching one of our automotive segments
such as mini-vans or SUVs and offer Manufacturers sponsorship
opportunities to assist in their efforts both in terms of customer
retention and conquest strategies. Our Company Websites also offer
Manufacturers the opportunity to feature their makes and models
within highly contextual content. Through their advertising
placements, Manufacturers can direct consumers to their respective
websites for further information. We believe this transfer
of focused, interested
consumers to Manufacturer sites is the most significant action
measured by Manufacturers in evaluating our performance and value
for the Manufacturer’s marketing programs. Through our
agreement with a third-party, the third-party sells our fixed
placement advertising across our Company Websites to automotive
advertisers. We also offer a direct marketing platform that enables
Manufacturers to selectively target in-market consumers during the
often-extended vehicle shopping process. Designed to keep a
specific automotive brand in consideration, our direct marketing
programs allow automotive marketers to deliver specific
communication through either email or direct mail formats to
in-market consumers during their purchase
cycle.
Our click traffic program is our
pay-per-click advertising program. The click traffic program
utilizes proprietary technology to offer consumers who are shopping
targeted offers based on make, model and geographic location. As
these consumers are conducting research on one of AutoWeb’s
consumer facing websites or on the site of one of our network of
automotive publishers, they are presented with relevant offers on a
timely basis and, upon the consumer clicking on the displayed
advertisement, are sent to the appropriate website location of one
of our Dealer, Manufacturer or advertising customers. The AutoWeb
network of publisher websites reaches and engages with millions of
potential car buyers each month, and we believe it provides
high-intent, high-quality traffic that Dealers and other customers
cannot typically reach through their own marketing
efforts. The click traffic program is flexible and in addition
to driving traffic to a vehicle detail page, it can also send
website traffic to new vehicle sales, service, used vehicles or to
any other department where a customer wants to engage with
in-market consumers. In addition, we believe that the click traffic
program can be used to conquest competitive shoppers who are
researching another brand more effectively than can typically be
done using other search engines. Advertisers only pay for the
clicks they receive, and are able to structure campaigns with
flexible budgets and no long-term commitments in order to manage
spend versus key performance indicators. Ongoing feedback from our
customers is that this traffic provides highly targeted marketing opportunities and is a
valuable tool to help Dealers sell more
vehicles.
Advertising
revenues, including direct marketing, accounted for 20%, 22% and
24% of total revenues in 2019, 2018 and 2017,
respectively.
Strategy
Our
goal is to garner a larger share of the billions of dollars spent
annually by Dealers and Manufacturers on automotive marketing
services. We plan to achieve this objective through the
following principal strategies:
Increasing The Supply of High-Quality Leads. High-quality Leads are those Leads that result
in high transaction (i.e., vehicle acquisition) closing rates for
our Dealer customers. Internally-Generated Leads are
generally higher quality than Non-Internally-Generated Leads and
increase the overall quality of our Lead portfolio.
Non-Internally-Generated Leads are of varying quality depending on
the source of these Leads. We plan to increase the supply of
high-quality Leads generated to sell to our customers primarily
by:
●
Increasing
traffic acquisition activities for our Company
Websites. Traffic to our Company Websites is monetized
primarily though the creation of Leads that are delivered to our
Dealer or Manufacturer customers to help them market and sell new
and used vehicles, and through the sale of advertising space on our
Company Websites. We plan to increase the traffic to our Company
Websites through effective search engine optimization
(“SEO”) and search engine marketing
(“SEM”) traffic acquisition activities and
enhancements to our Company Websites. SEO is the practice of
optimizing keywords in website content to drive traffic to a
website through natural search, and SEM is the practice of bidding
on keywords on search engines to drive traffic to a
website
o SEO
and SEM traffic acquisition activities. Traffic to our Company Websites is obtained
through a variety of sources and methods, including direct
navigation to our Company Websites, SEO, SEM, direct marketing and
partnering with other website publishers that provide links to our
websites. Our goal is that over time, paid traffic such
as SEM will be balanced by greater visitation from direct
navigation and SEO, which we expect to result in increased Lead
volumes and gross profit margins.
o Continuing
to enhance the quality and user experience of our Company
Websites. We continuously make enhancements to
our Company Websites, including enhancements of the design and
functionality of our Company Websites. These
enhancements are intended to position our Company Websites as
comprehensive best in class destinations for automotive purchase
research by consumers. By doing so, we believe we will increase the
volume of our Internally-Generated Leads.
●
Increasing
the conversion rate of visitors to Leads on our Company
Websites. Through
increased SEO and SEM activities and significant content, tools and
user interface enhancements to our websites, we believe we will be
able to increase the number of website visits and improve website
“engagement,” and thereby increase the conversion of
page views into Leads. We believe that an increased
conversion rate of page views into Leads could result in higher
revenue per visitor.
●
Relationships with Suppliers of High-Quality,
Non-Internally-Generated Leads. We plan to continue to develop
and maintain strong relationships with suppliers of
Non-Internally-Generated Leads that consistently provide
high-quality Leads.
Increasing Leads Sales to our Customers. Our principal source of revenue comes from sales
of Leads to our retail and wholesale Lead customers. Our goal is to
increase sales of Leads to our customers primarily
by:
●
Increasing
Lead Sales to Dealers. Sales of Leads to our Dealer network
constitute a significant source of our revenues. During
2019, we continued to focus our Dealer acquisition and retention
strategies on dealerships to which we could deliver a higher
percentage of our Internally-Generated Leads. We believe
this will result in increased vehicle sales for our Dealers and
ultimately stronger relationships with us because, based on our
evaluation of the performance data and information discussed above,
we believe our Internally-Generated Leads are of high quality. Our
goal is to increase the number of Leads sold to our retail Dealer
customers by:
o
increasing
the quality of the Leads sold to our Dealers,
o
increasing
the number of Dealers in our Dealer network,
o
reducing
Dealer churn in our Dealer network,
o
providing
customizable Lead programs to meet our Dealers’ unique
marketing requirements,
o
providing
additional value-added marketing services that help Dealers more
effectively utilize the internet to market and sell new and used
vehicles,
o
increasing
overall Dealer satisfaction by improving all aspects of our
services,
o
increasing
the size of our retail Dealer footprint,
o
focusing
on higher revenue Dealers that are more cost-effective to support,
and
o
enhancing
our internal Lead generation activities by leveraging our expanded
retail lead coverage.
●
Increasing
Lead Sales to Wholesale Customers. We currently have agreements to sell
Leads to most Manufacturer Lead programs. We intend to
continue to demonstrate the value of third-party leads to
Manufacturers by utilizing close rate and cross sell data that
demonstrate that third-party leads result in incremental sales for
the Manufacturers. Our intention is to increase revenue by
having Manufacturers enhance business rules, program capacity,
pricing and coverage so that each Manufacturer can purchase more of
our Internally-Generated Leads.
●
Focus on
Internal Traffic Acquisition Processes. We are continuing to focus on prioritizing our
internal traffic acquisition processes, by obtaining higher quality
impressions for both Dealers and wholesale customers, which we
believe would yield increased gross profit margins, as opposed to a
prior focus on raw lead volume.
Continuing to develop the click traffic program for online
automotive advertisers and publishers. Our
click traffic program uses proprietary technology and a
pay-per-click business model to analyze web traffic and adjust
advertiser costs accordingly based on traffic
quality. This traffic network is targeted to attract
high-intent, high-volume publishers and is intended to allow them
to monetize traffic that has previously been
under-monetized. In-market car shoppers are presented
with highly relevant display advertisements and benefit from an
online experience that delivers information that consumers use in
making their car buying decisions. Manufacturers benefit
from this high-quality traffic from serious in-market car
buyers. Our click traffic program enables Manufacturers
and Dealers to optimize their advertising by driving traffic to
appropriate areas of their Tier 1 (Manufacturer national
advertising), Tier 2 (Manufacturer and advertising associations
regional advertising) and Tier 3 (Dealer)
websites.
We believe that Manufacturers and Dealers will see
the measurable attribution from this click traffic and will
reallocate marketing spend from traditional channels into this
emerging medium. We also plan to grow the size of this addressable
marketplace by adding high-quality and high-volume automotive
publishers to our network, by targeting in-market consumers on a
variety of social media platforms and by continuing to optimize
this advertising platform on our consumer facing websites. In
addition, we believe that the flexibility of our solution combined
with high-quality traffic with automotive purchase intent may allow
us to grow our click advertiser
base as the level of attribution from this product is understood by
advertising partners.
Display Advertising Revenues.
As traffic to, and time spent on, our
Company Websites by consumers increases, we will seek to increase
our advertising revenues. Through our agreement with a
third-party, we benefit from the third-party’s
relationships with major automotive Manufacturers and/or the
third-party’s advertising agencies by increasing revenues for
our traditional display advertising.
Focus on Mobile Technologies. As
consumers increasingly engage with internet content using mobile
devices, AutoWeb will continue to focus on mobile technologies that
facilitate communication between Dealers and consumers on smart
phones and tablets at the time, place, and in a manner preferred by
many consumers. This focus on the mobile platform
is a core part of our strategy moving forward regarding lead
generation, automotive research, website advertising and traffic
generation.
Continuing to Expand our Products and Services. We
gather significant amounts of data on consumer intent as it relates
to purchasing vehicles. We intend to use this data to
create products and services, including direct business database
offerings, that we believe will ultimately help Manufacturers and
Dealers market and sell more new and used vehicles. Our
objective is to generate revenues from this asset in the most
effective and efficient ways possible.
Strategic Acquisitions,
Investments and Alliances. Our
goal is to grow and enhance our business. We may do so, in part,
through strategic acquisitions, investments and alliances. We
continue to review strategic opportunities that may provide
opportunities for growth. We believe that strategic acquisitions,
investments and alliances may allow us to increase market share,
benefit from advancements in technology and strengthen our business
operations by enhancing our product and service
offerings.
Our
ability to implement the foregoing strategies and plans is subject
to risks and uncertainties, many of which are beyond our
control. Accordingly, there is no assurance that we will
successfully implement our strategies and plans. See
“Item 1A. Risk Factors” of this Annual Report on Form
10-K and the discussion of “Forward-Looking Statements”
immediately preceding Part I of this Annual Report on Form
10-K.
Seasonality
Our
quarterly revenues and operating results have fluctuated in the
past and may fluctuate in the future due to various factors,
including consumer buying trends, changing economic conditions,
Manufacturer incentive programs and actual or threatened severe
weather events. Lead volume is typically highest in
summer (third quarter) and winter (first quarter) months, followed
by spring (second quarter) and fall (fourth quarter)
months.
Our intellectual property includes patents related
to our innovations, products and services; trademarks related to
our brands, products and services; copyrights in software and
creative content; trade secrets; and other intellectual property
rights and licenses of various kinds. We seek to protect our
intellectual property assets through patent, copyright, trade
secret, trademark and other laws and through contractual
provisions. We enter into confidentiality and invention assignment
agreements with our employees and contractors, and non-disclosure
agreements with third parties with whom we conduct business in
order to secure our proprietary rights and additionally limit
access to, and disclosure of, our proprietary
information. We have registered trademarks with the
United States Patent and Trademark Office, including
AutoWeb®,
AutoWeb.com®,
the global highway logo, Autobytel, Autobytel.com, MyGarage,
iControl®,
TextShield®,
and Payment Pro®.
We cannot provide any assurances that any of our intellectual
property rights will be enforceable by us in
litigation.
Additional
information regarding certain risks related to our intellectual
property is included in Part I, Item 1A “Risk
Factors” of this Annual Report on
Form 10-K.
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 2019. We continue to compete with several companies
that maintain business models similar to ours, some with greater
resources. In addition, competition has increased from larger
competitors that traditionally have competed only in the used
vehicle market. Dealers continue to invest in their
proprietary websites and traffic acquisition activities, and we
expect this trend to continue as Dealers strive to own and control
more Lead generating assets under their captive
brands. Additionally, all major Manufacturers that
market their vehicles in the U.S. have their own websites that
market their vehicles direct to consumers and generate Leads for
delivery direct to the Manufacturers’ Dealers. We compete
based on quality of our Leads and pricing.
We
believe that third-party Leads have been the standard in our
industry for many years. However, we continue to observe new
and emerging business models, including pay-per-sale and consumer
pay models, relating to the generation and delivery of
Leads. From time to time, new products and services are
introduced that take the focus away from third-party Lead
generation, which we believe is a profitable way to sell
vehicles to in-market buyers. Dealers and Manufacturers
may decide to pull back on their third-party
Lead programs to test these new approaches.
In
the display advertising marketplace, we compete with major internet
portals, transaction-based websites, automotive related companies,
numerous lifestyle websites and emerging entrants in the relatively
new automotive click revenue medium. According to Emarketer
forecasts, the top two digital advertising platforms in the U.S.
are Google and Facebook, which Emarketer expects to maintain their
dominant hold on digital advertising dollars. We also compete with
traditional marketing channels such as print, radio and
television.
In
pay-per-click advertising, we compete with established search
engine providers as well as with a growing number of digital
marketing platforms focused on generating dealership website
traffic from inventory listings and social media campaigns. In
addition, some industry providers who have historically specialized
in inventory aggregation or on providing SEM agency services to
Dealers are now expanding into the area of website traffic
generation. Also, many dealership website providers are now
offering traffic solutions as part of their bundle of
services.
In
addition, some traditional data providers are moving to deliver
personalized digital marketing services at scale. These digital
marketing hubs and data management platforms provide marketers with
standardized access to audience data, content, workflow triggers
and operational analytics to automate execution and optimization of
multichannel campaigns. These services could be used as a source of
lead generation and website traffic by Dealers and Manufacturers
and could replace our existing product offerings.
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), Carat Detroit. During 2019, approximately 25% of our
total revenues were derived from these two customers, and
approximately 33% or $8.4 million of gross accounts receivable
related to these two customers at December 31,
2019. Urban Science Applications accounted for 15% and
13% of total revenues and accounts receivable, respectively, as of
December 31, 2019. Carat Detroit accounted for 9% and 21% of total
revenues and accounts receivable, respectively, as of December 31,
2019.
We
believe that our future success is significantly dependent upon our
ability to provide high-performance, reliable and comprehensive
websites, advertising systems; enhance consumer and Dealer product
and service offerings; maintain the highest levels of information
privacy; and ensure transactional security. Our Company Websites
and advertising systems are hosted at secure third-party data
center facilities and public cloud providers. These data centers
and public cloud systems utilize redundant power infrastructure,
redundant network connectivity, multiple locations, distributed
services, fire detection and suppression systems and security
systems to prevent unauthorized access and to provide high
availability of their services, upon which our technology is built,
deployed and operated. Our network and computer systems are built
on industry standard technology. However, our websites and
information technology systems are susceptible to outages and
interruptions, such as occurred as a result of a malware attack in
January 2020. For additional information regarding risks related to
our information technology, see Part I, Item 1A “Risk
Factors” of this Annual Report on Form 10-K.
System
enhancements are primarily intended to accommodate increased
traffic across our Company Websites, improve the speed in which
Leads and advertisements are processed and introduce new and
enhanced products and services, and provide cybersecurity
protections against evolving technology threats. System
enhancements entail the implementation of sophisticated new
technology and system processes. We implement industry standard
automation and delivery processes and employ centralized quality
assurance to improve the quality, scalability, security,
compliance, and availability of our products. We plan to continue
to make investments in technology as we believe
appropriate.
We
are subject to laws and regulations generally applicable to
providers of digital marketing services, including federal and
state laws and regulations governing data security and privacy;
voice, email and text messaging communications with consumers;
unfair and deceptive acts and practices; advertising; contests,
sweepstakes and promotions; and content regulation. For additional
important information related to government regulation of our
business, including governmental regulations relating to the
marketing and sale of automobiles, see the information set forth in
Part I, Item 1A “Risk Factors” of this Annual
Report on Form 10-K.
As
of March 24, 2020, we had 171 employees.
Item 1A.
Risk Factors
The risks described below are not the only risks
that we face. The following risks as well as risks and
uncertainties not currently known to us or that we currently deem
to be immaterial may materially and adversely affect our business,
results of operations, financial condition, earnings per share,
cash flow or the trading price of our stock, individually and
collectively referred to in these Risk Factors as our
“financial
performance.” See also the discussion
of “Forward-Looking Statements” immediately preceding
Part I of this Annual Report on Form 10-K.
We
derive more than 99% of our Lead revenues from Lead generation paid
by Dealers and Manufacturers participating in our Lead programs.
Our Lead generation decreased $6.2 million, or 6%, in 2019 compared
to 2018. Our ability to increase revenues from sales of Leads is
dependent on a mix of interrelated factors that include increasing
Lead revenues by attracting and retaining Dealers and Manufacturers
and increasing the number of high-quality Leads we sell to Dealers
and Manufacturers. We are also focused on higher revenue Dealers
that are more cost-effective to support. Our sales strategy is
intended to result in more profitable relationships with our
Dealers both in terms of cost to supply Leads and to support the
Dealers. Dealer churn impacts our revenues, and if our sales
strategy does not mitigate the loss in revenues by maintaining the
overall number of Leads sold by increasing sales to other Dealers
or Manufacturers while maintaining the overall margins we receive
from the Leads sold, our revenues will decrease. We cannot provide
any assurances that we will be able to increase Lead generation
revenues, prevent Dealer attrition or offset the revenues lost due
to Dealer attrition by other means, and our failure to do so could
materially and adversely affect our financial
performance.
Our
ability to provide increased numbers of high-quality Leads to our
customers is dependent on increasing the number of
Internally-Generated Leads and acquiring high-quality
Non-Internally-Generated Leads from third parties. Originating
Internally-Generated Leads is dependent on our ability to increase
consumer traffic to our Company Websites by providing secure and
easy to use websites with relevant and quality content for
consumers and increasing visibility of our brands to consumers and
by our SEM activities. We compete for Dealer and Manufacturer
customers and for acquisition of Non-Internally-Generated Leads
with companies that maintain automotive Lead referral businesses
that are very similar to ours. Many of these competitors are larger
than us and have greater financial resources than we have. If we
lose customers or quality Lead supply volume to our competitors, or
if our pricing or cost to acquire Leads is impacted, our financial
performance will be materially and adversely impacted.
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 impacted if we were no longer able to use Google for
generation of traffic to our websites.
Our
financial performance is affected by general economic and market
factors, conditions in the automotive industry, and the market for
automotive marketing services, including, but not limited to, the
following:
●
Pricing
and purchase incentives for vehicles;
●
The
expectation that consumers will be purchasing fewer vehicles
overall during their lifetime as a result of better-quality
vehicles and longer warranties;
●
The
impact of fuel prices on demand for the number and types of
vehicles;
●
Increases
or decreases in the number of retail Dealers or in the number of
Manufacturers and other wholesale customers in our customer
base;
●
Volatility
in spending by Manufacturers and others in their marketing budgets
and allocations;
●
The
competitive impact of consolidation in the online automotive
consumer referral industry;
●
The
effect of changes in transportation policy, including the potential
increase of public transportation options;
●
The effect of fewer vehicles being purchased as a
result of new business models and changes in consumer attitudes
regarding the need for vehicle ownership; and
●
Disruption in the
automotive manufacturing and parts supply chains caused by natural
disasters, adverse weather and other events may affect the supply
of vehicle and parts inventories to Manufacturer’s and
Dealers.
In
early 2020 and continuing as of the date of this Annual Report on
Form 10-K, the outbreak of a novel coronavirus (COVID-19) 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 and facilities, worldwide,
causing widespread disruptions to travel, economic activity and
financial markets. The outbreak 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 and availability of their labor force. Recent
volatility in the financial markets, concerns about exposure to the
virus and governmental quarantines and stay-at-home/work-from-home
orders have also impacted consumer confidence and willingness to
visit dealerships and to purchase or lease vehicles,
notwithstanding financing and leasing incentives being offered by
Manufacturers. 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 to our operations due to the overall health 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. If automotive
manufacturing and parts supply chains are impacted for an extended
period of time, vehicle production may fall, and new vehicle
inventories on Dealer lots could diminish. This may put
pressure on the new vehicle market as Dealers may likely shift to
selling used cars, assuming that Dealers are able to obtain used
vehicle inventories from trade-ins and used vehicle auctions.
Although some Manufacturers are implementing new marketing and
incentive programs, continued disruption from the impact of the
virus could cause Manufacturers to pull back on marketing and
incentives, which could materially and adversely affect our
financial performance. Concerns about the outbreak may continue to
cause volatility in the financial markets and result in further
economic downturn. 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 significantly in recent weeks, and we
are experiencing cancellations or suspensions of purchases of Leads
and other digital marketing services by our customers, which 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 Urban Science Applications (which represents
several Manufacturer programs), Carat Detroit. During 2019,
approximately 25% of our total revenues were derived from these two
customers, and approximately 33% or $8.4 million of gross accounts
receivable related to these two customers at December 31,
2019. 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. 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 relationships 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. 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
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.
California and other states may expand or create new state level
consumer financial protection agencies that could lead to increased
regulation of our business.
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.
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.
The
Company is subject to taxation in the United States. On December
22, 2017, the U.S. government enacted comprehensive tax legislation
commonly referred to as the Tax Cuts and Jobs Act
(“TCJA”). The
legislation implements many new U.S. domestic and international tax
provisions. It is possible that the TCJA, as well as existing tax
laws, statutes, rules, regulations or ordinances could be changed,
modified or applied adversely to us, and such effect could be
material to our financial performance.
If we are unable to generate positive
cash flows, we will 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, 2019, we had cash and cash equivalents of $0.9 million
and restricted cash of $5.1 million, a net loss of $15.2 million
and used $9.4 million net cash in operations. As of December 31,
2019, we had an accumulated deficit of $342.9 million and
stockholders’ equity of $21.1 million.
On January 16, 2020, the Company received a notice
of event of default and reservation of rights
(“Notice”) from PNC Bank, under the PNC Credit
Agreement advising that an event of default had occurred and is
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 Notice at this time,
AutoWeb also is not in compliance with the minimum EBITDA financial
covenant under the PNC Credit Agreement. As a result of the Notice,
PNC has increased the interest rate under the PNC Credit Agreement
by 2.0% per annum.
The
Notice advised AutoWeb that PNC (i) specifically reserves all
rights and remedies available to it under the PNC Credit Agreement
and (ii) does not waive the event of default or any other event of
default that may exist on the date of the Notice or which may occur
thereafter. The Notice further advised that any loans, advances,
and extensions of credit made to AutoWeb from time to time, will be
at the sole discretion of PNC and will not constitute a waiver of
the event of default, or a waiver by PNC of any of its rights under
the PNC Credit Agreement or any collateral 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, and the Company’s U.S.
subsidiaries Car.com, Inc. Autobytel, Inc. and AW GUA USA, Inc., as
Guarantor, and the PNC Credit Agreement was terminated. (See Note
13 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 a description of the terms of
the CNC Credit Agreement).
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.
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 generate sustainable profitability
throughout 2020, if our plans are unsuccessful, we will 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 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. To the extent
that our existing sources of liquidity are insufficient to fund our
future activities, we may need to engage in equity or additional or
alternative debt financings to secure additional
funds.
We
may 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.
We may 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. If capital is not available to us, or is
not available on favorable terms, our financial performance could
be materially and adversely affected.
We
may 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. However, additional funds
may not be available when we need them, on terms that are
acceptable to us, or at all.
Any
debt financing that we may secure in the future could involve
restrictive covenants that may make it more difficult for us to
obtain additional capital. 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.
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.
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
handling and privacy laws, rules and regulations.
Various laws, rules and regulations
govern the collection, use, retention, sale, disclosure, sharing
and security of data 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, which 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 law became effective on January 1, 2020, and final regulations
under the act are in the process of being drafted. Although it is
too soon to evaluate the impact this legislation may 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.
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 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, on
January 9, 2020 the Company discovered that its network was
impacted by malware that encrypted servers on most systems and
disrupted consumer and customer access to many of the
Company’s services, although the Company has not discovered
evidence that caused it 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.
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.
Our
business is dependent on keeping pace with advances in technology.
If we are unable to keep pace with advances in technology,
consumers may stop using our services and our revenues will
decrease. Our financial performance may be materially and adversely
impacted by material investments in
technology. The
internet and electronic commerce markets are characterized by rapid
technological change, changes in user and customer requirements,
frequent new service and product introductions embodying new
technologies, including mobile internet applications, and the
emergence of new industry standards and practices that could render
our existing websites and technology obsolete. These market
characteristics are intensified by the evolving nature of the
market and the fact that many companies are expected to introduce
new internet products and services in the near future. If we are
unable to adapt to changing technologies, our financial performance
could be materially and adversely affected. Our performance will
depend, in part, on our ability to continue to enhance our existing
services, develop new technology that addresses the increasingly
sophisticated and varied needs of our prospective customers,
license leading technologies and respond to technological advances
and emerging industry standards and practices on a timely and
cost-effective basis. The development of our websites, mobile
applications and other proprietary technology entails significant
technical and business risks. We may not be successful in using new
technologies effectively or adapting our websites or other
proprietary technology to customer requirements or to emerging
industry standards. In addition, our financial performance could be
materially and adversely affected by material investments in
technology in order to keep pace with technological
advances.
Interruptions
or failures in our information technology platforms, communication
systems or security systems could materially and adversely affect
our financial performance. Our information technology and communications
systems are susceptible to outages and interruptions due to fire,
flood, earthquake, power loss, telecommunications failures, cyber
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 materially and adversely impact our financial
performance. Despite our network security measures, our
information technology platforms are vulnerable to computer
viruses, worms, physical and electronic break-ins, sabotage,
insider threats and similar disruptions from unauthorized
tampering, as well as coordinated denial-of-service attacks. We do
not have multiple site capacity for all of our services. In the
event of delays or disruptions to services we rely on third-party
providers to perform disaster recovery planning and services on our
behalf. We are vulnerable to extended failures to the extent that
planning and services are not adequate to meet our continued
technology platform, communication or security systems’
needs. We rely on third-party providers for our primary
and secondary internet connections. Our co-location service and
public cloud services that provide infrastructure and platform
services, environmental and power support for our technology
platforms, communication systems and security systems are received
from third-party providers. We have little or no control over these
third-party providers. Any disruption of the services they provide
us or any failure of these third-party providers to effectively
design and implement sufficient security systems or plan for
increases in capacity could, in turn, cause delays or disruptions
in our services. We are insured for some, but not all, of these
events. Even for those events for which we are insured
and have coverage under the terms and conditions of the applicable
policies, there are no assurances given that the coverage limits
would be sufficient to cover all losses we might incur or
experience. We have recently conducted evaluations of our
technology and business systems, and based on these evaluations, we
believe that our technology infrastructure, our accounting and
business systems and disaster recovery procedures are in need of
upgrades and replacements. Failure to implement these updates and
upgrades could result in systems failures, inability to promptly
recover from system failures, and data security risks. We
anticipate incurring significant expenses in upgrading and
replacing technology infrastructure and business systems over the
next three years. Our financial performance may be materially and
adversely impacted by material investments in new technology
infrastructure and business systems.
On
January 9, 2020, the Company discovered that its network was
impacted by malware that encrypted servers on most systems and
disrupted consumer and customer access to many of our services. In
connection with this incident, third-party consultants and forensic
experts have been engaged to assist with the restoration and
remediation of systems and to investigate the incident. While most
impacted systems are once again operational, work is ongoing to
restore full system functionality as quickly as possible. As of the
filing of this Annual Report on Form 10-K, the Company has not
discovered evidence that causes the Company to conclude that there
has been any unauthorized access to or acquisition of any consumer
personal information or customer confidential
information.
The
Company carries insurance, including cyber and business
interruption insurance. The full scope of the costs and related
impacts of this incident, including the availability of insurance
to offset some of these costs and related impacts of this incident,
have not been fully determined. There can be no assurances that
similar network security incidents can be prevented in the
future.
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 to
provide certain support services, including disaster recovery planning and services.
Should a third-party fail to perform or perform adequately, our
financial performance could be materially and adversely
affected.
We
currently maintain website, software development and operations in
Guatemala. These overseas operations are subject to many
inherent risks, including but not limited to:
●
Political
and social instability;
●
Exposure
to different business practices and legal standards, particularly
with respect to labor and employment laws and intellectual
property;
●
Continuation
of overseas conflicts and the risk of terrorist attacks and
resulting heightened security;
●
The
imposition of governmental controls and restrictions and unexpected
changes in regulatory requirements;
●
Theft
and other crimes;
●
Nationalization
of business and blocking of cash flows;
●
Changes
in taxation and tariffs;
●
Difficulties
in staffing and managing international operations; and
●
Foreign
currency exchange fluctuations.
These
risks can significantly impact our overseas operations and
outsourcing. Increases in the cost, or disruptions, of such
operations and outsourcing, could materially and adversely affect
our financial performance. In addition, we are subject
to certain anti-corruption laws, including the U.S. Foreign Corrupt
Practices Act, in addition to the laws of the foreign countries in
which we operate. If we or any of our employees or agents violates
these laws, we could become subject to sanctions or significant
penalties that could negatively affect our reputation and financial
performance.
As
part of our business strategy we evaluate potential acquisitions
that we believe will complement or enhance our existing business.
We currently do not have any definitive agreements to acquire any
company or business, and we may not be able to identify or complete
any acquisition in the future. Acquisitions involve
numerous risks that include the following, any of which could
materially and adversely affect our financial
performance:
●
We
may not fully realize all of the anticipated benefits of an
acquisition or may not realize them in the timeframe expected,
including due to acquisitions where we expand into product and
service offerings or enter or expand into markets in which we are
not experienced;
●
In
order to complete acquisitions, we may issue common stock or
securities convertible into or exercisable for common stock,
potentially creating dilution for existing stockholders. Issuance
of equity securities may also restrict utilization of net operating
loss carryforwards because of an annual limitation due to ownership
change limitations under the Internal Revenue Code;
●
We
may borrow to finance acquisitions, and the amount and terms of any
potential future acquisition-related or other borrowings may not be
favorable to the Company and could affect our liquidity and
financial condition;
●
Acquisitions
may result in significant costs and expenses and charges to
earnings, including those related to severance pay, early
retirement costs, employee benefit costs, goodwill and asset
impairment charges, charges from the elimination of duplicative
facilities and contracts, assumed litigation and other liabilities,
legal, accounting and financial advisory fees, and required
payments to executive officers and key employees under retention
plans;
●
Our
due diligence process may fail to identify significant issues with
an acquired company that may result in unexpected or increased
costs, expenses or liabilities that could make an acquisition less
profitable or unprofitable;
●
The
failure to further our strategic objectives that may require us to
expend additional resources to develop products, services and
technology internally;
●
An
announced business combination and investment transaction may not
close timely or at all, which may cause our financial results to
differ from expectations in a given quarter; and
●
Business
combination and investment transactions may lead to litigation that
can be costly to defend or settle, even if no actual liability
exists.
●
Integrations
of acquisitions are often complex, time-consuming and expensive,
and if acquisitions are not successfully integrated they could
materially and adversely affect our financial performance. The
challenges involved with integration of acquisitions
include:
o
Diversion
of management attention to assimilating the acquired business from
other business operations and concerns;
o
Integration
of management information and accounting systems of the acquired
business into our systems, and the failure to fully realize all of
the anticipated benefits of an acquisition;
o
Difficulties
in assimilating the operations and personnel of an acquired
business into our own business;
o
Difficulties
in integrating management information and accounting systems of an
acquired business into our current systems;
o
Convincing
our customers and suppliers and the customers and suppliers of the
acquired business that the transaction will not diminish client
service standards or business focus and that they should not defer
purchasing decisions or switch to other suppliers;
o
Consolidating
and rationalizing corporate IT infrastructure, which may include
multiple legacy systems from various acquisitions and integrating
software code and business processes;
o
Persuading
employees that business cultures are compatible, maintaining
employee morale, retaining key employees and integrating employees
into the Company;
o
Coordinating
and combining administrative, manufacturing, research and
development and other operations, subsidiaries, facilities and
relationships with third parties in accordance with local laws and
other obligations while maintaining adequate standards, controls
and procedures; and
o
Managing
integration issues shortly after or pending the completion of other
independent transactions.
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 factors such
as:
●
Actual or anticipated variations in our quarterly operating
results;
●
Historical
and anticipated operating metrics such as the number of
participating Dealers, volume of Lead deliveries to Dealers, the
number of visitors to Company Websites and the frequency with which
they interact with Company Websites;
●
Announcements of new product or service
offerings;
●
Technological innovations;
●
Low trading volumes;
●
Concentration of holdings in our common stock resulting in
low public float and trading volume for our shares;
●
Decisions
by holders of large blocks of our stock to sell their holdings on
accelerated time schedules, including by reason of their decision
to liquidate investment funds that hold our stock;
●
Limited analyst coverage of the Company;
●
Competitive developments, including actions by
Manufacturers;
●
Data
or network security incidents and breaches;
●
Loan covenant defaults;
●
Changes in financial estimates by securities analysts or our
failure to meet such estimates;
●
Conditions
and trends in the internet, electronic commerce and automotive
industries;
●
Adoption
of new accounting standards affecting the technology or automotive
industry;
●
Rumors,
whether or not accurate, about us, our industry or possible
transactions or other events;
●
The
impact of open market repurchases of our common stock;
and
●
General market or economic conditions and other
factors.
Further,
the stock markets, and in particular The Nasdaq Capital Market,
have experienced price and volume fluctuations that have
particularly affected the market prices of equity securities of
many technology companies and have often been unrelated or
disproportionate to the operating performance of those companies.
These broad market factors have affected and may adversely affect
the market price of our common stock. In addition, general
economic, political and market conditions, such as recessions,
interest rate changes, energy price changes, pandemics,
international currency fluctuations, terrorist acts, political
revolutions, military actions or wars, may adversely affect the
market price of our common stock. In the past, following periods of
volatility in the market price of a company’s securities,
securities class action litigation has often been instituted
against companies with publicly traded securities.
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
Company must satisfy various continued listing requirements
established by The Nasdaq Stock Market LLC. In the event the
Company was 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 Company employees.
One of
the continued listing requirements is that the Company’s
Common Stock not trade below a minimum closing bid requirement of
$1.00 for 30 consecutive business days. Should the Company’s
Common Stock trade below the $1.00 minimum closing bid requirement
for 30 business days, Nasdaq would send the Company a deficiency
notice, advising the Company 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
the Company meet other continued listing requirements and provides
a written notice to Nasdaq that the Company intends 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 Company will continue to be able
to meet the continued listing requirements for listing of our
common stock on The Nasdaq Capital Market.
Misappropriation
or infringement of our intellectual property and proprietary
rights, enforcement actions to protect our intellectual property
and claims from third parties relating to intellectual property
could materially and adversely affect our financial
performance. Litigation
regarding intellectual property rights is common in the internet
and technology industries. We expect that internet technologies and
software products and services may be increasingly subject to
third-party infringement claims as the number of competitors in our
industry segment grows and the functionality of products in
different industry segments overlaps. Our
proprietary systems and technology are a competitive
factor. While we rely on trademark, trade secret, patent
and copyright law, confidentiality agreements and technical
measures to protect our proprietary and intellectual property
rights, we believe that the technical and creative skills of our
personnel, continued development of our proprietary systems and
technology, brand name recognition and reliable website maintenance
are more essential in establishing and maintaining a leadership
position and strengthening our brands. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our services or to obtain and use information that
we regard as proprietary. Policing unauthorized use of our
proprietary rights is difficult and may be expensive. We have no
assurance that the steps taken by us will prevent misappropriation
of technology or that the agreements entered into for that purpose
will be enforceable. Effective trademark, service mark, patent,
copyright and trade secret protection may not be available when our
products and services are made available online. In addition, if
litigation becomes necessary to enforce or protect our intellectual
property rights or to defend against claims of infringement or
invalidity, this litigation, even if successful, could result in
substantial costs and diversion of resources and management
attention. We also have no assurances that our products
and services do not infringe on the intellectual property rights of
third parties. Claims of infringement, even if unsuccessful, could
result in substantial costs and diversion of resources and
management attention. If we are not successful, we may be subject
to preliminary and permanent injunctive relief and monetary damages
which may be trebled in the case willful
infringements.
Our
financial performance could be adversely affected by actions of
third parties that could subject us to
litigation. We could
face liability for information retrieved or obtained from or
transmitted over the internet by third parties and liability for
products sold over the internet by third parties. We could be
exposed to liability with respect to third-party information that
may be accessible through our websites, links or vehicle review
services. These claims might, for example, be made for defamation,
negligence, patent, copyright or trademark infringement, personal
injury, breach of contract, unfair competition, false advertising,
invasion of privacy or other legal theories based on the nature,
content or copying of these materials. These claims might assert,
among other things that, by directly or indirectly providing links
to websites operated by third parties we should be liable for
copyright or trademark infringement or other wrongful actions by
such third parties through those websites. It is also possible
that, if any third-party content provided on our websites contains
errors, consumers could make claims against us for losses incurred
in reliance on such information. Any claims could result in costly
litigation, divert management’s attention and resources,
cause delays in releasing new or upgrading existing services or
require us to enter into royalty or licensing
agreements.
We
also enter into agreements with other companies under which any
revenues that results from the purchase or use of services through
direct links to or from our websites or on our websites is shared.
In addition, we acquire personal information and data in the form
of Leads purchased from third-party websites involving consumers
who submitted personally identifiable information and data to the
third parties and not directly to us. These arrangements may expose
us to additional legal risks and uncertainties, including disputes
with these parties regarding revenue sharing, local, state and
federal government regulation and potential liabilities to
consumers of these services, even if we do not provide the services
ourselves or have direct contact with the consumer. These
liabilities can include liability for violations by these third
parties of laws, rules and regulations, including those related to
data security and privacy laws and regulations; unsolicited email,
text messaging, telephone or wireless voice marketing; and
licensing. We have no assurance that any indemnification provided
to us in our agreements with these third parties, if available,
will be adequate.
Our
financial performance could be materially and adversely affected by
other litigation. From time to time, we are involved in
litigation or legal matters not related to intellectual property
rights and arising from the normal course of our business
activities. The actions filed against us and other litigation or
legal matters, even if not meritorious, could result in substantial
costs and diversion of resources and management attention and an
adverse outcome in litigation could materially and adversely affect
our financial performance. Our liability insurance may not cover
all potential claims to which we are exposed and may not be
adequate to indemnify us for all liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in
excess of our insurance coverage could have a material adverse
effect on our financial performance.
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 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:
●
Require
that actions to be taken by our stockholders may be taken only at
an annual or special meeting of our stockholders and not by written
consent;
●
Specify
that special meetings of our stockholders can be called only by our
Board of Directors, a committee of the Board of Directors, the
Chairman of our Board of Directors or our President;
●
Establish
advance notice procedures for stockholders to submit nominations of
candidates for election to our Board of Directors and other
proposals to be brought before a stockholders meeting;
●
Provide
that our bylaws may be amended by our Board of Directors without
stockholder approval;
●
Allow our Board of Directors to establish the size of our
Board of Directors;
●
Provide
that vacancies on our Board of Directors or newly created
directorships resulting from an increase in the number of our
directors may be filled only by a majority of directors then in
office, even though less than a quorum; and
●
Do
not give the holders of our common stock cumulative voting rights
with respect to the election of directors.
These
provisions could make it more difficult for stockholders to effect
corporate actions such as a merger, asset sale or other change 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 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.
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. 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.
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.
Our
principal executive office is located at our Tampa, Florida office,
which consists of approximately 13,000 square feet under a lease
that expires in May 2024. Our Irvine, California office consists of
33,000 square feet of leased office space under a lease that
expires in July 2020; and we have already entered into a new
lease for office space in Irvine, California that consists of
approximately 12,000 square feet of leased office space under a
lease that expires in July 2025. Our website development operations
located in Guatemala City, Guatemala occupy approximately 10,000
square feet of leased office space under leases that expire in
March 2022. We believe that our existing facilities are adequate to
meet our needs and that existing needs and future growth can be
accommodated by leasing alternative or additional
space.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Our
common stock, par value $0.001 per share, is listed on The Nasdaq
Capital Market and trades under the symbol
“AUTO.”
As of
March 24, 2020, there were 161 holders of record of our common stock. We have
never declared or paid any cash dividends on our common stock and
we do not expect to pay any cash dividends in the foreseeable
future. Payment of any future dividends will depend on
our earnings, cash flows and financial condition and will be
subject to legal and contractual
restrictions.
Item 6.
Selected Financial Data
The tables below set forth our
selected consolidated financial data. We prepared this
information using the consolidated financial statements of AutoWeb
for the five years ended December 31, 2019. Certain
amounts in the selected consolidated financial data have been
reclassified to conform to the current year
presentation. You should read these selected
consolidated financial data together with the Consolidated
Financial Statements and related Notes to the Consolidated
Financial Statements contained in this Annual Report on Form 10-K
and also Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of
Operations.”
|
|
Years ended December 31,
|
||||
|
|
2019
|
2018 (1)
|
2017 (2)
|
2016
|
2015
|
|
|
(Amounts in thousands, except per-share data)
|
||||
|
RESULTS
OF OPERATIONS:
|
|
|
|
|
|
|
Total
revenues
|
$113,981
|
$125,589
|
$142,125
|
$156,684
|
$133,226
|
|
Net
income (loss)
|
$(15,229)
|
$(38,816)
|
$(64,964)
|
$3,871
|
$4,646
|
|
Basic
earnings (loss) per common share
|
$(1.17)
|
$(3.04)
|
$(5.48)
|
$0.36
|
$0.47
|
|
Diluted
earnings (loss) per common share
|
$(1.17)
|
$(3.04)
|
$(5.48)
|
$0.29
|
$0.37
|
|
Weighted
average diluted shares
|
13,071
|
12,756
|
11,853
|
13,303
|
12,662
|
(1)
Net loss in 2018
included DealerX License
Agreement intangible asset impairment of $9.0 million, goodwill
impairment of $5.1 million and customer relationship intangible
asset impairment of $1.6 million.
(2)
Net
loss in 2017 included goodwill impairment of $37.7 million and
$16.7 million recording of an income tax valuation
allowance.
|
|
Years ended December 31,
|
||||
|
|
2019
|
2018
|
2017
|
2016
|
2015
|
|
|
(Amounts in thousands)
|
||||
|
FINANCIAL
POSITION:
|
|
|
|
|
|
|
Cash
and cash equivalents and restricted cash
|
$5,946
|
$13,600
|
$24,993
|
$38,512
|
$23,993
|
|
Total
assets
|
$44,904
|
$57,416
|
$92,913
|
$165,281
|
$153,588
|
|
Non-current
liabilities
|
$1,497
|
$—
|
$9,000
|
$16,500
|
$21,750
|
|
Accumulated
deficit
|
$(342,945)
|
$(327,716)
|
$(288,900)
|
$(230,424)
|
$(234,295)
|
|
Stockholders’
equity
|
$21,096
|
$33,515
|
$67,167
|
$119,609
|
$108,201
|
Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
You
should read the following discussion of our results of operations
and financial condition in conjunction with the “Risk
Factors” included in Part I, Item 1A and our
Consolidated Financial Statements and related Notes thereto
included in Part II, Item 8 of this Annual Report on
Form 10-K. See also the discussion of
“Forward-Looking Statements” immediately preceding Part
I of this Annual Report on Form 10-K.
Overview
As
reflected under the section “Results of Operations” in
this Item 7, the decline in total revenues for 2019 compared to
2018 was the result of a strategic shift made in the first quarter
of 2019 to prioritize internal traffic acquisition processes on
obtaining higher quality impressions that would yield increased
gross profit margins, as opposed to a prior focus on raw lead
volume. This caused a reduction in gross impressions and flat
volume that then contributed to decreased click revenue, as there
were fewer page views to present our click product. Digital
advertising revenue was also impacted by lower revenue per click,
and a decrease in display advertising revenue. Cost of revenues
decreased compared to 2018 primarily due to decreased search engine
marketing costs as well as traffic acquisition costs associated
with both lead and click volume.
On October 5, 2017, the Company and DealerX
Partners, LLC, a Florida limited liability company
(“DealerX”), entered into a Master License and
Services Agreement (“DealerX License
Agreement”). Pursuant to
the terms of the DealerX License Agreement, AutoWeb was granted a
perpetual license to access and use DealerX’s proprietary
platform and technology for targeted, online marketing. DealerX was
to operate the platform for AutoWeb and provide enhancements to and
support for the DealerX platform for at least an initial five-year
period (“Platform Support
Obligations”), however
the Company terminated the Platform Support Obligations effective
November 2, 2018, and as a result, recorded an impairment charge to
cost of revenues. As a percentage of total revenues, gross profit
increased for 2019 compared to 2018, driven primarily by this
impairment charge.
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, revenue customer and financial performance of that
product. We do not expect desktop and mobile display advertising to
be a major area of focus for us in the future, as it represents a
secondary, not primary, stream of revenues. With a more efficient
traffic acquisition model emerging, our plan for 2020 is to grow
impressions, improve conversion, expand distribution, and increase
capacity. We believe that this focus, along with plans to develop
new, innovative products, will create opportunities for improved
quality of delivery and strengthen our position for revenue
growth.
Starting
in 2018, we began to mobile enable our core new car lead generation
websites. This was a considerable area of focus for us in 2019 as
we evolved our sites to deliver a better experience for consumers
to drive conversion. We also recently developed an approach to
mobile enable our click traffic product, which is a critical step
in our mobile enablement plan. The click product allows us to
monetize visits more effectively to our websites. Further, it
provides our clients with a unique opportunity to engage consumers
with relevant messaging in a unique format. We began testing of the
mobile enablement of our click traffic product in the first quarter
of 2019. Ultimately, mobile optimization of our websites and
products is the goal, and we still have significant work to do in
this area throughout 2020.
Our
lead generation business has 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
2020. As a result, we expect incremental cash usage in the first
half of 2020 to then be followed by growth in revenue,
profitability and overall cash generation in the second half of the
calendar year. We continue to evaluate options to improve our
ongoing liquidity and balance sheet through non-dilutive measures
and continue to have availability under the revolving credit
facility.
On
January 9, 2020, the Company discovered that its network was
impacted by malware that encrypted servers on most systems and
disrupted consumer and customer access to many of our services. The
full scope of the costs and related impacts of this incident,
including the availability of insurance to offset some of these
costs and related impacts of this incident, have not been fully
determined as of the filing of this Annual Report on Form
10-K.
In
early 2020 and continuing as of the date of this Annual Report on
Form 10-K, the outbreak of a novel coronavirus (COVID-19) 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 and facilities,
worldwide, causing widespread disruptions to travel, economic
activity and financial markets. At this time, the eventual extent
and magnitude of the disruptions caused by the outbreak on the
automotive industry in general and on the Company specifically are
not known, but vehicle sales have declined significantly in recent
weeks, and the Company is experiencing cancellations or suspensions
of purchases of Leads and other digital marketing services by the
Company’s customers, which could materially and adversely
affect our financial performance. See Note 13 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.
We
evaluate several key operating metrics that we believe are
instrumental to understanding the direction of our business,
including lead traffic, volume and sourcing; retail dealer count
and lead capacity; click traffic, click volume and revenue per
click.
Lead Traffic, Volume and Sourcing. Lead traffic is the number of consumers who
visited our entire portfolio of owned lead websites during the
applicable review period. Lead volume means the total new and used
vehicle leads invoiced to retail and wholesale customers for the
applicable review period. Lead sourcing reflects the source of our
Leads, whether Internally-Generated Leads or
Non-Internally-Generated Leads acquired from third parties.
Although we are not able at this time to disclose any guidance as
to 2020 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.
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 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. For 2020, 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 we have work to do 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 2020 as
we continue to evolve our engagement model for both retail dealers
and the top 150 dealer groups.
Click Traffic and Volume and Revenue per Click. Click traffic means the total visits to
Company-owned click referral websites during the applicable review
period. 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. Revenue per click means the total click
revenue divided by click volume for the applicable review
period. We anticipate that
click volume and revenue per click for the first quarter of 2020
will be down sequentially compared to the fourth quarter of 2019,
as the customer mix is too weighted in terms of non-endemic (i.e.,
non-automotive) advertisers. We intend to continue to focus on
shifting this mix back towards endemic (i.e., automotive)
advertisers, 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 its true
potential.
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. We rely on detailed feedback from
Manufacturers and wholesale customers to confirm the performance of
our Leads. Our Manufacturer and other wholesale customers each
match the Leads we deliver to our customers against vehicle sales
to provide us with information about vehicle purchases by the
consumers who submitted Leads that we delivered to these customers.
We also obtain vehicle registration data from a third-party
provider.
The comparison of 2018 to 2017 is located in the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 (“2018 Form
10-K”) at Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Results of
Operations-2018 Compared to
2017.
The
following table sets forth our results of operations as a
percentage of total revenues for the years ended December 31,
2019 and 2018 (certain percentages below may not sum due to
rounding):
|
|
Years Ended December 31,
|
|
|
|
2019
|
2018
|
|
Revenues:
|
|
|
|
Lead
generation
|
79.6%
|
77.2%
|
|
Digital
advertising
|
20.3
|
22.4
|
|
Other
revenues
|
0.1
|
0.4
|
|
Total
revenues
|
100.0
|
100.0
|
|
Cost
of revenues
|
80.2
|
80.7
|
|
Cost
of revenues - impairment
|
—
|
7.2
|
|
Gross
profit
|
19.8
|
12.2
|
|
Operating
expenses:
|
|
|
|
Sales
and marketing
|
9.5
|
9.9
|
|
Technology
support
|
7.8
|
11.0
|
|
General
and administrative
|
12.2
|
12.8
|
|
Depreciation
and amortization
|
3.8
|
3.9
|
|
Goodwill
impairment
|
—
|
4.1
|
|
Long-lived
asset impairment
|
—
|
1.6
|
|
Total
operating expenses
|
33.3
|
43.3
|
|
Operating
loss
|
(13.5)
|
(31.1)
|
|
Interest
and other income, net
|
0.1
|
0.2
|
|
Loss
before income tax provision
|
(13.4)
|
(30.9)
|
|
Income
tax provision (benefit)
|
—
|
—
|
|
Net
loss and comprehensive income loss
|
(13.4)%
|
(30.9)%
|
|
|
Years Ended December 31,
|
2019
vs. 2018
Change
|
|||
|
|
2019
|
2018
|
$
|
%
|
$
|
|
Revenues:
|
|
|
|
|
|
|
Lead
generation
|
$90,728
|
$96,936
|
$(6,208)
|
(6)%
|
$(10,109)
|
|
Digital
advertising
|
23,173
|
28,169
|
(4,996)
|
(18)
|
(5,973)
|
|
Other
revenues
|
80
|
484
|
(404)
|
(83)
|
(454)
|
|
Total
revenues
|
113,981
|
125,589
|
(11,608)
|
(9)
|
(16,536)
|
|
Cost
of revenues
|
91,412
|
101,315
|
(9,903)
|
(10)
|
1,963
|
|
Cost
of revenues - impairment
|
—
|
9,014
|
(9,014)
|
(100)
|
9,014
|
|
Gross
profit
|
$22,569
|
$15,260
|
$7,309
|
48%
|
$(27,513)
|
2019 Compared to 2018
Lead Generation.
Lead generation decreased $6.2 million
or 6% in 2019 compared to 2018. The decrease in Lead generation was
a result of the elimination of poor-quality traffic, decreased Lead
sales to Dealers coupled with increased Dealer churn. Further
contributing to this decrease was the strategic shift we made in
the first quarter of 2019 to prioritize internal traffic
acquisition processes on obtaining higher quality impressions, as
opposed to a prior focus on raw Lead volume.
Digital
advertising. The
$5.0 million or 18% decrease in advertising revenues in 2019
compared to 2018 was primarily due to a decrease in click revenue
as a result of both decreased click volume and pricing coupled with
a decrease in display advertising traffic.
Other
revenues. Other
revenues decreased $0.4 million or 83% in 2019 compared to
2018. The decrease in other revenues was primarily due
to SaleMove product which was written off in
2018.
Cost of Revenues.
Cost of revenues consists of Lead and
traffic acquisition costs and other costs. Lead and traffic
acquisition costs consist of payments made to our third-party Lead
providers, including internet portals and online automotive
information providers, as well as SEM costs. Other cost of revenues
consists of fees paid to third parties for data and content,
including SEO activity, included on our properties, connectivity
costs, development costs related to our websites, compensation
related expense and technology license fees, server equipment
depreciation and technology amortization directly related to the
Company Websites. SEM, sometimes referred to as “paid search
marketing”, is the practice of bidding on keywords on search
engines to drive traffic to a website.
The
$9.9 million or 10% decrease in cost of revenues in 2019 compared
to 2018 was primarily due to the decreased costs in SEM and traffic
acquisition activity. Further contributing to the decrease was
costs related to headcount. These costs were shifted to operational
roles at the beginning of 2019, as we determined these roles were
no longer directly tied to revenue generation.
Cost of Revenues –
Impairment. The Company did not
have any impairment charge in 2019 compared to the impairment
charge taken in 2018 with respect to the DealerX License
Agreement.
Gross Profit. Gross profit increased
$7.3 million, or 48%, compared to 2018 primarily due to the
one-time cost of revenue impairment charge related to the DealerX
License Agreement in the prior year. As a percentage of total
revenue, gross profit was 20% and 12% for the years ended December
31, 2019 and 2018, respectively.
Operating
expenses, interest and other income and income tax provision
(benefit) were as follows (dollars in
thousands):
|
|
Years Ended December 31,
|
2019 vs.
2018 Change
|
||
|
2019
|
2018
|
$
|
%
|
|
|
Operating
expenses:
|
|
|
|
|
|
Sales
and marketing
|
$10,805
|
$12,419
|
$(1,614)
|
(13)
|
|
Technology
support
|
8,849
|
13,838
|
(4,989)
|
(36)
|
|
General
and administrative
|
13,882
|
16,077
|
(2,195)
|
(14)
|
|
Depreciation
and amortization
|
4,371
|
4,897
|
(526)
|
(11)
|
|
Goodwill
impairment
|
—
|
5,133
|
(5,133)
|
(100)
|
|
Long-lived
asset impairment
|
—
|
1,968
|
(1,968)
|
(100)
|
|
Total
operating expenses
|
$37,907
|
$54,332
|
$(16,425)
|
(30)
|
|
|
|
|
|
|
|
Interest
and other income, net
|
$119
|
$250
|
$(131)
|
(52)
|
|
|
|
|
|
|
|
Income
tax provision (benefit)
|
$10
|
$(6)
|
$16
|
(267)%
|
Sales and
Marketing.
Sales and marketing expense include
costs for developing our brand, personnel costs, and other costs
associated with Dealer and Wholesale sales, website advertising,
Dealer support and bad debt expense.
Sales
and marketing expense for the year ended December 31, 2019
decreased $1.6 million, or 13%, compared to the 2018 period, due
primarily to a decrease in compensation and related benefits and
the elimination of certain discretionary compensation that was not
incurred in 2019. Further contributing to this decrease was
severance expense incurred during the 2018 period.
Technology
Support.
Technology support includes
compensation, benefits, software licenses and other direct costs
incurred by the Company to enhance, manage, maintain, support,
monitor and operate the Company’s websites and related
technologies, and to operate the Company's internal technology
infrastructure.
Technology
support expense for the year ended December 31, 2019 decreased $5.0
million, or 36%, compared to the year ended December 31, 2018. The
change was due primarily to lower headcount related costs coupled
with the elimination of certain discretionary compensation that was
not incurred in 2019.
General and
Administrative. General and administrative expense consists of
certain executive, financial, human resources, legal and facilities
personnel expenses and costs related to operating as a publicly
traded company.
General
and administrative expense for the year ended December 31, 2019
decreased $2.2 million, or 14%, compared to the 2018 period due
primarily to lower consulting and recruiting costs coupled with a
reduction in compensation and benefit-related expenses and certain
discretionary compensation that was not incurred in
2019.
Depreciation
and Amortization. Depreciation
and amortization expense for the year ended December 31, 2019
decreased $0.5 million to $4.4 million compared to $4.9 million in
the 2018 period.
Goodwill impairment.
The Company did not have a goodwill
impairment charge in 2019 compared to the goodwill impairment
charge taken in 2018. During the quarter ended March 31, 2018, the
Company performed an evaluation of enterprise goodwill for
impairment due to the decline in the Company’s stock price.
The carrying value of the Company was higher than its fair value
based on market capitalization at that date and as a result, a
non-cash impairment charge of $5.1 million was
recorded.
Long-lived asset
impairment. The Company records
impairment losses on long-lived assets when events and
circumstances indicate that the assets might be impaired. Events
that may indicate that the assets might be impaired include, but
are not limited to, a significant downturn in the economy, a loss
of a major customer or group of customers or a significant decrease
in the market value of an asset. The Company did not have a
long-lived asset impairment charge in 2019 compared to the
long-lived asset impairment charges taken in 2018. .During the
third quarter of 2018, the Company recorded an impairment of
approximately $0.4 million related to asset advances to SaleMove,
Inc. (“SaleMove”), which were determined to be
non-recoverable at September 30, 2018. In addition, approximately
$1.6 million was recorded as an impairment to customer
relationships related to a 2015 acquisition after an analysis
determined a significant percentage of acquired customers were no
longer part of the dealer base.
Interest and Other Income,
net. Interest and other income
was approximately $0.1 million for the year ended December 31, 2019
compared to interest and other income of approximately $0.3 million
for the year ended December 31, 2018. During 2019, we borrowed
$73.6 million on the revolving loan and made principal repayments
totaling $70.2 million. Interest expense includes interest on
outstanding borrowings and the amortization of debt issuance
costs.
Income tax provision
(benefit). Income tax expense
was $10,000 for the year ended December 31, 2019 compared to income
tax benefit of $6,000 for the year ended December 31, 2018.
Operating losses during the year ended December 31, 2019 did not
result in any tax benefit due as valuation allowances were recorded
against the deferred tax assets. The increase in income tax expense
was also driven by changes in certain state
taxes.
For
a discussion of our fiscal 2018 results compared to our fiscal 2017
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, 2018, which was filed with the Securities and
Exchange Commission on March 7, 2019.
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, 2019 and 2018 (dollars in
thousands):
|
|
Years Ended December 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Net
cash (used in) provided by operating activities
|
$(9,417)
|
$(2,920)
|
|
Net
cash used in investing activities
|
(1,390)
|
(771)
|
|
Net
cash used in financing activities
|
3,153
|
(7,702)
|
Our
principal sources of liquidity are our cash and cash equivalent
balances and borrowings under (i) the PNC Credit Agreement prior to
March 26, 2020, and (ii) the CNC Credit Agreement on or after March
26, 2020. Our cash and cash equivalents and restricted
cash totaled $5.9 million as of December 31, 2019, compared to
$13.6 million as of December 31, 2018. For the year ended
December 31, 2019, we had a net loss of $15.2 million. The net loss
is primarily attributable to operating expenses of $37.9 million
for the year ended December 31, 2019. We used net cash in
operations of $9.8 million for the year ended December 31, 2019. As
of December 31, 2019, we had an accumulated deficit of $342.9
million and stockholders' equity of $21.1 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. The plan's objective is
for the Company to generate sustainable profitability throughout
2020. However, there is no assurance
that we will be able to achieve this objective.
We
believe that our cash and cash equivalents and cashflows from
operations will be sufficient to meet our working capital
requirements for the next 12 months. However, 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. To the extent that our existing
liquidity is insufficient to fund our future activities, we may
need to engage in equity or debt financings to secure additional
funds. However, additional funds may not be available when we need
them, on terms that are acceptable to us, or at all.
Net Cash Used in Operating
Activities. Net cash
used in operating activities totaled $9.4 million for the year
ended December 31, 2019 compared to $2.9 million in the prior year.
Net cash used in 2019 was due primarily to a net loss of $15.2
million coupled with a net change in assets and liabilities of $3.4
million. Offsetting these decreases was an increase in other
non-cash expenses including depreciation and share-based
compensation of $9.2 million.
Net
cash used in operating activities totaled $2.9 million for the year
ended December 31, 2018. Net cash used in 2018 was due primarily to
a net loss of $38.8 million, offset by a $16.1 million non-cash
charge related to the impairment of goodwill and intangible assets,
$14.5 million in other non-cash expenses including depreciation and
share-based compensation, and a net change in assets and
liabilities of $5.3 million. Refer to the 2018 Form 10-K for
comparison of 2018 to 2017.
Net Cash Used in Investing
Activities. Net cash
used in investing activities of $1.4 million in 2019 primarily
related to purchase of property and equipment and expenditures
related to capitalized internal use software of $1.6 million,
offset by $0.2 million in proceeds from the sale of the GoMoto
investment.
Net
cash used in investing activities of $0.8 million in 2018 primarily
related to purchase of property and equipment and expenditures
related to capitalized internal use software of $0.9 million,
offset by $0.1 million in proceeds from the sale of the SaleMove
investment. Refer to the 2018 Form 10-K for comparison of 2018 to
2017.
Net Cash Used in Financing
Activities. Net cash used in
financing activities of $3.2 million in 2019 primarily consisted of
$3.7 million of net borrowings on the credit facility, coupled with
$0.4 million proceeds from the exercise of stock options, offset by
a $1.0 million repayment of the convertible subordinated promissory
note for $1.0 million issued to AutoNationDirect.com, Inc.in
connection with the acquisition of AutoUSA, LLC on January 13,
2014.
Net
cash used in financing activities of $7.7 million in 2018 primarily
consisted of payments of $8.0 million to pay down a prior revolving
credit facility with MUFG Union Bank, N.A. in March 2018, offset by
proceeds of $0.3 million from the issuance of common stock. Refer
to the 2018 Form 10-K for comparison of 2018 to 2017.
The
following table provides aggregated information about our
outstanding contractual obligations as of December 31, 2019
(in thousands):
|
|
Total
|
Less than 1 year
|
1-3 years
|
3-5 years
|
More than 5 years
|
|
Credit
Facility Obligations (a)
|
$3,745
|
$3,745
|
$—
|
$—
|
$—
|
|
Operating
Lease Obligations (b)
|
2,922
|
1,279
|
1,444
|
199
|
—
|
|
Total
|
$6,667
|
$5,024
|
$1,444
|
$199
|
$—
|
(a)
Credit
Facility obligations as defined by ASC 470, “Debt,” and
disclosed in Note 7 of the consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form
10-K.
(b)
Operating
lease obligations as defined by ASC 842, “Leases,” and
disclosed in Note 8 of the consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form
10-K.
Off-Balance Sheet Arrangements
We
do not have any material off-balance sheet
arrangements.
Critical
Accounting Policies and Estimates
Our
significant accounting policies are discussed in Note 2 –
Summary of Significant Accounting Policies of the Notes to
Consolidated Financial Statements included in Part II, Item 8
– Financial Statements and Supplementary Data. We consider
the accounting policies described below to be critical in preparing
our consolidated financial statements. These policies require us to
make estimates and judgments that affect the reported amounts of
certain assets, liabilities, revenues, expenses and related
disclosures of contingencies. Our assumptions, estimates and
judgments are based on historical experience, current trends and
other factors to be relevant at the time we prepare the
consolidated financial statements. Although our estimates and
assumptions are reasonable, we cannot determine future events.
Consequently, actual results could differ materially from our
assumptions and estimates.
Revenue Recognition.
Revenue is recognized when the Company
transfers control of promised goods or services to the
Company’s customers, or when the Company satisfies any
performance obligations under contract. The amount of revenue
recognized reflects the consideration the Company expects to be
entitled to in exchange for respective goods or services provided.
Further, under Accounting Standards Codification
(“ASC”) 606, Revenue from Contracts with
Customers, contract assets or contract liabilities that arise from
past performance but require further performance before obligation
can be fully satisfied must be identified and recorded on the
balance sheet until respective settlements have been
met.
The
Company performs the following steps in order to properly determine
revenue recognition and identify relevant contract assets and
contract liabilities:
●
identify
the contract with a customer;
●
identify
the performance obligations in the contract;
●
determine
the transaction price;
●
allocate
the transaction price to the performance obligations in the
contract; and
●
recognize
revenue when, or as, the Company satisfies a performance
obligation.
The
Company earns revenue by providing Leads, advertising and mobile
products and services used by Dealers and Manufacturers in their
efforts to market and sell new and used vehicles to consumers. The
Company enters into contracts that can include various combinations
of products and services, which are generally capable of being
distinct and accounted for as separate performance obligations. The
Company records revenue on distinct performance obligations at a
single point in time, when control is transferred to the
customer.
Allowances for Bad Debts and
Customer Credits. The allowance for bad debts is an estimate of bad
debt expense that could result from the inability or refusal of
customers to pay for services. Additions to the estimated allowance
for bad debts are recorded to sales and marketing expenses and are
based on factors such as historical write-off percentages, the
current business environment and known concerns within the current
aging of accounts receivable. Reductions in the estimated allowance
for bad debts due to subsequent cash recoveries are recorded as a
decrease in sales and marketing expenses. As specific bad debts are
identified, they are written-off against the previously established
estimated allowance for bad debts with no impact on operating
expenses.
The
allowance for customer credits is an estimate of adjustments for
services that do not meet the customer requirements. Additions to
the estimated allowance for customer credits are recorded as a
reduction of revenues and are based on the Company’s
historical experience of: (i) the amount of credits issued;
(ii) the length of time after services are rendered that the
credits are issued; (iii) other factors known at the time; and
(iv) future expectations. Reductions in the estimated allowance for
customer credits are recorded as an increase in revenues. As
specific customer credits are identified, they are written-off
against the previously established estimated allowance for customer
credits with no impact on revenues.
If
there is a decline in the general economic environment that
negatively affects the financial condition of the Company’s
customers or an increase in the number of customers that are
dissatisfied with their services, additional estimated allowances
for bad debts and customer credits may be required, and the impact
on the Company’s business, results of operations, financial
condition, earnings per share, cash flow or the trading price of
our stock could be material.
Capitalized Internal Use
Software and Website Development
Costs. The Company
capitalizes costs to develop internal use software in accordance
with ASC 350-40, Internal-Use Software, and ASC 350-50, Website
Development Costs, which require the capitalization of external and
internal computer software costs and website development costs,
respectively, incurred during the application development stage.
The application development stage is characterized by software
design and configuration activities, coding, testing and
installation. Training and maintenance costs are expensed as
incurred while upgrades and enhancements are capitalized if it is
probable that such expenditures will result in additional
functionality. Capitalized internal use software development costs
are amortized using the straight-line method over an estimated
useful life of three to five years. Capitalized website development
costs, once placed in service, are amortized using the
straight-line method over the estimated useful life of the related
websites.
Recent Accounting Pronouncements
See
Note 2 of the “Notes to Consolidated Financial
Statements” in Part II, Item 8, Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for recent
accounting pronouncements.
Item 7A.
Quantitative and Qualitative
Disclosures about Market Risk
Not
Applicable
Item 8.
Financial Statements and Supplementary Data
Our
Consolidated Balance Sheets as of December 31, 2019 and 2018
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, 2019,
together with the report of our independent registered public
accounting firm, begin on page F-1 of this Annual Report on Form
10-K and are incorporated herein by reference.
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
We have established and maintain disclosure
controls and procedures that are designed to ensure that material
information relating to the Company and its subsidiaries required
to be disclosed by us in the reports that are filed under the
Securities Exchange Act of 1934, as amended
(“Exchange Act”), is recorded, processed, summarized and
reported in the time periods specified in the SEC’s rules and
forms, and that this information is accumulated and communicated to
our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions
regarding required disclosure.
In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter
how well designed and operated, can provide only a reasonable
assurance of achieving the desired control objectives, and
management was necessarily required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.
Under
the supervision and with the participation of our management,
including our chief executive officer and chief financial officer,
we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of
December 31, 2019. Based on this evaluation, the chief
executive officer and chief financial officer concluded that the
Company’s disclosure controls and procedures were effective
as of December 31, 2019.
Management’s Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule
13a-15(f) and 15(d)-15(f) of the Exchange Act. The Company’s
internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.
The
Company’s internal controls over financial reporting includes
those policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles; provide
reasonable assurance that receipts and expenditures of the Company
are being made only in accordance with authorizations of management
and directors of the Company; and provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial
statements.
Because
of its inherent limitations, internal controls over financial
reporting may not prevent or detect misstatements or fraud. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under the supervision and with the participation
of management, including the Company’s chief executive
officer and chief financial officer, management conducted an
evaluation of the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2019. In
making this assessment, management used the framework established
in Internal
Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment,
management has concluded that the Company’s internal control
over financial reporting was effective as of December 31,
2019. Management reviewed the results of its assessment with the
Audit Committee of the Board of Directors.
Changes in Internal Control Over Financial Reporting
There
have been no changes in the Company’s internal controls over
financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) during the fourth fiscal quarter of the
Company’s year ended December 31, 2019, that has
materially affected, or is reasonably likely to materially affect,
the Company’s internal control over financial
reporting.
Item 9B.
Other Information
Not
applicable.
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 2019 Annual Meeting
of Stockholders that will be filed not later than 120 days after
December 31, 2019 (“2020 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 2020 Proxy Statement:
“Proposal 1-Nomination and Election of Directors;”
“Board of Directors;” “Executive Officers;”
“Delinquent Section 16(a) Reports;” and the following
paragraphs under the section “Corporate Governance
Matters,” “--Committees of the Board of
Directors—Audit Committee,” and “—Code of
Conduct and Ethics.”
Item 11
Executive Compensation
The
information called for in this Item 11 is incorporated by reference
to the following sections of the 2020 Proxy Statement:
“Executive Compensation” and “Corporate
Governance Matters--Compensation Committee Interlocks and Insider
Participation” and “--Board’s Role in Oversight
of Risk.”
Item 12
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The
information called for in this Item 12 is incorporated by reference
to the following sections of the 2020 Proxy Statement:
“Security Ownership of Certain Beneficial Owners and
Management” and “Executive Compensation--Equity
Compensation Plans.”
Item 13
Certain Relationships and Related Transactions, and Director
Independence
The
information called for in this Item 13 is incorporated by reference
to the following sections of the 2020 Proxy Statement:
“Corporate Governance Matters--Certain Relationships and
Related-Party Transactions” and “--Director
Independence.”
Item 14
Principal Accounting Fees and Services
The
information called for in this Item 14 is incorporated by reference
to the following sections of the 2020 Proxy Statement:
“Independent Registered Public Accounting Firm and Audit
Committee Report--Principal Accountant Fees and Services,”
“--Audit Fees,” “--Audit Related Fees,” and
“--Pre-Approval Policy for Services.”
PART IV
Item 15.
Exhibits, Financial Statement Schedules
(a) The
following documents are filed as a part of this Annual Report on
Form 10-K:
(1)
Financial Statements:
|
|
|
Page
|
|
|
|
|
|
F-1
|
|
|
|
|
|
F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
|
F-6
|
|
|
|
|
|
F-7
|
|
|
(2)
Financial Statement Schedules:
All
other schedules have been omitted since the required information is
presented in the financial statements and the related notes or is
not applicable.
(3)
Exhibits:
The
exhibits filed or furnished as part of this Annual Report on Form
10-K are those listed in the following Exhibit Index.
EXHIBIT INDEX
|
Number
|
Description
|
|
|
|
|
2.1
|
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).
|
|
|
|
|
3.1
|
Sixth Restated Certificate of Incorporation of
AutoWeb, Inc. (filed with the Secretary of the State of Delaware on
October 9, 2017), incorporated by reference to Exhibit
3.4 to the Current
Report on Form 8-K filed with the SEC on October 10, 2017 (SEC File
No. 001-34761).
|
|
|
|
|
3.2
|
Seventh Amended and Restated Bylaws of AutoWeb
dated 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).
|
|
|
|
|
Description of
AutoWeb, Inc. Securities Registered Pursuant to Section 12 of the
Securities Exchange Act of 1934.
|
|
|
|
|
|
4.2
|
Tax Benefit Preservation Plan dated as of May
26, 2010 between Company and Computershare Trust Company, N.A., as
rights agent, together with the following exhibits thereto: Exhibit
A – Form of Right Certificate; and Exhibit B – Summary
of Rights to Purchase Shares of Preferred Stock of Company,
incorporated by reference to Exhibit
4.1 to
the Current Report on Form 8-K filed with the SEC on June 2, 2010
(SEC File No. 000-22239); Amendment No. 1 to Tax Benefit
Preservation Plan dated as of April 14, 2014, between Company and
Computershare Trust Company, N.A., as rights agent, incorporated by
reference to Exhibit
4.1 to the Current
Report on Form 8-K filed with the SEC on April 16, 2014 (SEC File
No. 001-34761); Amendment No. 2 to Tax Benefit Preservation Plan
dated as of April 13, 2017, between Company and Computershare Trust
Company, N.A., as rights agent, incorporated by reference
to Exhibit
4.1 to
the Current Report on Form 8-K filed with the SEC on April 14, 2017
(SEC File No. 001-34761); Certificate of Adjustment Under Section
11(m) of the Tax Benefit Preservation Plan, incorporated by
reference to Exhibit
4.3 to the Quarterly
Report on Form 10-Q for the Quarterly Period ended September 30,
2012 filed with the SEC on November 8, 2012 (SEC File No.
001-34761)
|
|
|
|
|
10.1■
|
Autobytel Inc. 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
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); 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 Current
Report on Form 8-K filed with the SEC on October 3, 2008 (SEC File
No. 000-22239); 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).
|
|
|
|
|
10.2■
|
Autobytel Inc. 2010
Equity Incentive Plan, incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K filed with
the SEC on June 25, 2010 (SEC File No. 001-34761); Form of Employee
Stock Option Award Agreement, Form of 2012 Performance-Based Stock
Option Award Agreement, Form of Non-Employee Director Stock Option
Award Agreement and Form of (Management) Employee Stock Option
Award Agreement under the Autobytel Inc. 2010 Equity Incentive
Plan, incorporated by reference to Exhibits 10.58, 10.59, 10.60 and 10.61,
respectively, to the Annual Report on Form 10-K for the Year Ended
December 31, 2011 filed with the SEC on March 1, 2012 (SEC File No.
001-34761); and Form of 2013 Performance-Based Stock Option
Award Agreement under the Autobytel
Inc. 2010 Equity Incentive Plan, incorporated by reference
to Exhibit
10.79 to the Annual
Report on Form 10-K for the Year Ended December 31, 2012 filed with
the SEC on February 28, 2013 (SEC File No.
001-34761).
|
|
10.3■
|
AutoWeb, Inc. (formerly Autobytel Inc.) 2014
Equity Incentive Plan, incorporated by reference
to Exhibit
10.1 to the Current
Report on Form 8-K filed with the SEC on June 23, 2014 (SEC File
No. 001-34761); Amended and Restated AutoWeb, Inc. (formerly
Autobytel Inc.) 2014 Equity Incentive Plan (supersedes and replaces
the AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity Incentive
Plan filed under Exhibit
10.1 to the Current
Report on Form 8-K filed with the SEC on June 23, 2014 (SEC File
No. 001-34761), incorporated by reference to Exhibit
10.11 to the Annual
Report on Form 10-K for the Year Ended December 31, 2017 filed with
the SEC on March 15, 2018 (SEC File No. 001-34761); Form of
Non-Employee Director Stock Option Award Agreement under the
Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014
Equity Incentive Plan, incorporated by reference to
Exhibit
10.12 on the Annual
Report on Form 10-K for the Year Ended December 31, 2017 filed with
the SEC on March 15, 2018 (SEC File No. 001-34761); Form of
Executive Stock Option Award Agreement under the Amended and
Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity
Incentive Plan, incorporated by reference to
Exhibit
10.13 on the Annual
Report on Form 10-K for the Year Ended December 31, 2017 filed with
the SEC on March 15, 2018 (SEC File No. 001-34761); Form of
Non-Executive Employee Stock Option Award Agreement under the
Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014
Equity Incentive Plan, incorporated by reference to
Exhibit
10.14 on the Annual
Report on Form 10-K for the Year Ended December 31, 2017 filed with
the SEC on March 15, 2018 (SEC File No. 001-34761); Form of
Subsidiary Employee Stock Option Award Agreement under the Amended
and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity
Incentive Plan, incorporated by reference to
Exhibit
10.15 on the Annual
Report on Form 10-K for the Year Ended December 31, 2017 filed with
the SEC on March 15, 2018 (SEC File No. 001-34761); and Form of
Restricted Stock Award Agreement under the Amended and Restated
AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity Incentive Plan,
incorporated by reference to
Exhibit
10.16 on the Annual
Report on Form 10-K for the Year Ended December 31, 2017 filed with
the SEC on March 15, 2018 (SEC File No.
001-34761).
|
|
|
|
|
10.4■
|
AutoWeb, Inc. 2018 Equity Incentive Plan,
incorporated by reference to
Exhibit
10.1 on the Current
Report on Form 8-K filed with the SEC on June 27, 2018 (SEC File
No. 001-34761); Form of Non-Employee Director Stock Option Award
Agreement (Non-Qualified Stock Option) under the AutoWeb, Inc. 2018
Equity Incentive Plan, incorporated by reference to
Exhibit
10.8 to the Quarterly
Report on Form 10-Q for the Quarterly Period ended June 30, 2018
filed with the SEC on August 2, 2018 (SEC File No. 001-34761); Form
of Employee Stock Option Award Agreement (Non-Qualified Stock
Option) (Executive) under the AutoWeb, Inc. 2018 Equity Incentive
Plan, incorporated by reference to
Exhibit
10.9 on the Quarterly
Period ended June 30, 2018 filed with the SEC on August 2, 2018
(SEC File No. 001-34761); Form of Employee Stock Option Award
Agreement (Non-Qualified Stock Option) (Non-Executive) under the
AutoWeb, Inc. 2018 Equity Incentive Plan, incorporated by reference
to
Exhibit
10.10 on the Quarterly
Period ended June 30, 2018 filed with the SEC on August 2, 2018
(SEC File No. 001-34761); and Form of Restricted Stock Award
Agreement under the AutoWeb, Inc. 2018 Equity Incentive Plan,
incorporated by reference to
Exhibit
10.11 on the Quarterly
Period ended June 30, 2018 filed with the SEC on August 2, 2018
(SEC File No. 001-34761).
|
|
|
|
|
10.9■
|
Form of Amended and Restated Indemnification
Agreement between Company and its directors and officers,
incorporated by reference to Exhibit
99.1 to the Current
Report on Form 8-K filed with the SEC on July 22, 2010 (SEC File
No. 001-34761).
|
|
|
|
|
10.10■
|
Form of Indemnification Agreement between the
Company and its directors and officers, incorporated by reference
to Exhibit
10.24 to the Annual
Report on Form 10-K for the Year Ended December 31, 2017 filed with
the SEC on March 15, 2018 (SEC File No.
001-34761).
|
|
|
|
|
10.11■
|
Employment Agreement between Jared Rowe and
AutoWeb, Inc. dated April 12, 2018, 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); and as amended by Amendment No. 1 dated August 26,
2019, incorporated by reference to
Exhibit
10.2 to the Quarterly
Report on Form 10-Q filed with the SEC on November 7, 2019 (SEC
File No. 001-34761).
|
|
|
|
|
10.12■
|
Inducement Stock Option Award Agreement between
Jared Rowe and AutoWeb, Inc. dated April 12, 2018,
incorporated by reference
to Exhibit
10.2 to the Current
Report on Form 8-K filed with the SEC on April 18, 2018 (SEC File
No. 001-34761).
|
|
|
|
|
10.13■
|
Letter Agreement dated October 10, 2006, between
Company and Glenn Fuller, as amended by Memorandum dated April 18,
2008, Memorandum dated as of December 8, 2008, and Memorandum dated
as of March 1, 2009, incorporated by reference
to Exhibit
10.77 to the Annual
Report on Form 10-K for the Year Ended December 31, 2008 filed with
the SEC on March 13, 2009 (SEC File No. 000-22239); as amended by
Memorandum dated January 31, 2017, incorporated by reference
to Exhibit
10.13 to the Annual
Report on Form 10-K for the Year Ended December 31, 2016 filed with
the SEC on March 9, 2017 (SEC File No. 001-34761); and as amended
by Memorandum dated April 18, 2018, incorporated by reference
to
Exhibit
10.20 to the Annual
Report on Form 10-K for the Year Ended December 31, 2018 filed with
the SEC on March 7, 2019 (SEC File No.
001-34761).
|
|
|
|
|
10.14■
|
Second Amended and Restated Severance Benefits
Agreement dated as of April 12, 2018, between Company and Glenn
Fuller, incorporated by reference to Exhibit
10.4 to the
Quarterly Report on Form 10-Q filed with the SEC on May 10, 2018
(SEC File No. 001-34761).
|
|
|
|
|
10.15■
|
Offer of Employment between Joseph Hannan and
Company dated November 21, 2018, incorporated by reference to
Exhibit
10.1 to the Current
Report on Form 8-K filed with the SEC on December 17, 2018 (SEC
File No. 001-34761).
|
|
|
|
|
10.16■
|
Inducement Stock Option Award Agreement between
Joseph Hannan and Company dated December 17,
2018, incorporated by
reference to
Exhibit
10.2 to the Current
Report on Form 8-K filed with the SEC on December 17, 2018 (SEC
File No. 001-34761).
|
|
|
|
|
10.17■
|
Severance Benefits Agreement between Joseph
Hannan and Company dated December 17, 2018, incorporated by reference to
Exhibit
10.3 to the Current
Report on Form 8-K filed with the SEC on December 17, 2018 (SEC
File No. 001-34761).
|
|
|
|
|
10.18■
|
Offer of Employment between Daniel Ingle and
Company dated November 26, 2018, incorporated by reference
to
Exhibit
10.1 to the Current
Report on Form 8-K filed with the SEC on January 16, 2019 (SEC File
No. 001-34761).
|
|
|
|
|
10.19■
|
Inducement Stock Option Award Agreement dated as
of January 16, 2019, between Daniel Ingle and Company incorporated
by reference to
Exhibit
10.25 to the Annual
Report on Form 10-K for the year ended December 31, 2018, filed
with the SEC on March 7, 2019 (SEC File No.
001-34761).
|
|
|
|
|
10.20■
|
Severance Benefits Agreement dated January 16,
2019, between Daniel Ingle and Company incorporated by reference
to
Exhibit
10.26 to the Annual
Report on Form 10-K for the year ended December 31, 2018, filed
with the SEC on March 7, 2019 (SEC File No.
001-34761).
|
|
|
|
|
10.21■
|
Offer of Employment dated as of October 2, 2018,
between Company and Sara Partin, incorporated by reference
to
Exhibit
10.1 to the Quarterly
Report on Form 10-Q for the Quarterly Period ended September 30,
2018 filed with the SEC on November 8, 2018 (SEC File No.
001-34761).
|
|
|
|
|
10.22■
|
Inducement Stock Option Award Agreement dated as
of October 22, 2018, between Company and Sara Partin, incorporated
by reference to
Exhibit
10.2 to the Quarterly
Report on Form 10-Q for the Quarterly Period ended September 30,
2018 filed with the SEC on November 8, 2018 (SEC File No.
001-34761).
|
|
|
|
|
10.23■
|
Severance Benefits Agreement dated October 22,
2018, between Company and Sara Partin, incorporated by reference
to
Exhibit
10.4 to the Quarterly
Report on Form 10-Q for the Quarterly Period ended September 30,
2018 filed with the SEC on November 8, 2018 (SEC File No.
001-34761).
|
|
|
|
|
10.24■
|
Offer of Employment dated as of November 28,
2018, between Company and Timothy Branham incorporated by reference
to
Exhibit
10.30 to the Annual
Report on Form 10-K for the year ended December 31, 2018, filed
with the SEC on March 7, 2019 (SEC File No.
001-34761).
|
|
10.25■
|
Inducement Stock Option Award Agreement dated as
of December 17, 2018, between Company and Timothy Branham
incorporated by reference to
Exhibit
10.31 to the Annual
Report on Form 10-K for the year ended December 31, 2018, filed
with the SEC on March 7, 2019 (SEC File No.
001-34761).
|
|
|
|
|
10.26
|
Fourth
Amended and Restated Stockholder Agreement dated as of March 1,
2017, incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K filed with
the SEC on March 2, 2017 (SEC File No. 001-34761).
|
|
|
|
|
10.27
|
Revolving Credit and Security Agreement by and
among PNC Bank, National Association, as Agent, the Lenders Party
thereto, and AutoWeb, Inc., as Borrower, and Car.com, Inc.,
Autobytel, Inc., and AW GUA USA, Inc., as guarantors, dated April
30, 2019, incorporated by reference to
Exhibit
10.1 to the Current
Report on Form 8-K filed with the SEC on May 1, 2019 (SEC File No.
001-34761); and as amended by First Amendment dated October 29,
2019, incorporated by reference to Exhibit
10.1 to the Current
Report on Form 8-K filed with the SEC on October 30, 2019 (SEC File
No. 001-34761).
|
|
|
|
|
10.28
|
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 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); as amended by
Amendment No. 15 dated October 31, 2012 to Irvine Lease,
incorporated by reference to Exhibit
10.69 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); as amended
by Amendment No. 16 to Irvine Lease dated August 7, 2015,
incorporated by reference to Exhibit
10.32 to the Annual
Report on Form 10-K filed with the SEC on March 10, 2016 (SEC File
No. 001-34761); and as amended by Amendment No. 17 dated April 14,
2017 to the Irvine Lease 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).
|
|
|
|
|
10.29
|
Lease Agreement dated December 9, 2015 between
Rivergate Tower Owner, LLC and the Company, as amended by Amendment
No. 1 dated November 21, 2016, incorporated by reference to
Exhibit
10.35 to the Annual
Report on Form 10-K filed with the SEC on March 9, 2017 (SEC File
No. 001-34761).
|
|
|
|
|
10.30
|
Contract for Lease and Deposit dated June 1, 2016
between AW GUA, Limitada, and Mertech, Sociedad Anonima, for office
No. 1101, incorporated by reference to
Exhibit
10.33 to Annual Report on
Form 10-K filed with the SEC on March 9, 2017 (SEC File No.
001-34761).
|
|
|
|
|
10.31
|
Contract for Lease and Deposit dated June 1, 2016
between AW GUA, Limitada, and Mertech, Sociedad Anonima, for office
No. 1102, incorporated by reference to
Exhibit
10.34 to Annual Report on
Form 10-K filed with the SEC on March 9, 2017 (SEC File No.
001-34761).
|
|
Letter
Agreements for Lease Extension dated December 18, 2019 and January
6, 2020, between AW GUA, Limitada, and Mertech, Sociedad Anonima,
for office No. 1101.
|
|
|
|
|
|
Letter
Agreements for Lease Extension dated December 18, 2019 and January
6, 2020, between AW GUA, Limitada, and Mertech, Sociedad Anonima,
for office No. 1102.
|
|
|
|
|
|
10.34
|
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).
|
|
|
|
|
10.35
|
Tax Benefit Preservation Plan Exemption
Agreement and Irrevocable Proxy dated November 15, 2017, by and
between AutoWeb, Piton Capital Partners LLC, a Delaware limited
liability company (“Piton
Capital”), and Piton
Capital’s managing members, incorporated by reference
to Exhibits
10.1 and 10.2,
respectively, to the Current Report on Form 8-K filed with the SEC
on November 17, 2017 (SEC File No. 001-34761).
|
|
10.36
|
Tax Benefit Preservation Plan Exemption
Agreement and Irrevocable Proxies, effective as of November 30,
2018, by and between AutoWeb, Inc. and Daniel M. Negari, The 1 8
999 Trust, a trust organized under the laws of Nevada, Michael R.
Ambrose, and The Insight Trust, a trust organized under the laws of
Nevada, incorporated by reference to Exhibits
10.1,
10.2,
10.3,
10.4 and
10.5,
respectively, to the Current Report on Form 8-K filed with the SEC
on November 30, 2018 (SEC File No. 001-34761).
|
|
|
|
|
10.37
|
Transitional License and Linking Agreement, made
as of January 1, 2017, by and among Internet Brands, Inc., a
Delaware corporation, Car.com, Inc., a Delaware corporation, and
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).
|
|
|
|
|
10.38
|
Form of Warrant to Purchase Common Stock (on an
as-converted basis following the conversion of Series B Junior
Preferred Stock) dated as of October 1, 2015 issued by the Company
to the persons listed on Schedule A thereto, which is incorporated
herein by reference to Exhibit
10.1 to the Current
Report on Form 8-K filed with the SEC on October 6, 2015 (SEC File
No. 001-34761).
|
|
10.39
|
Loan,
Security and Guarantee Agreement by and among CIT Northbridge
Credit LLC, as Agent, the Lenders Party thereto, and AutoWeb, Inc.,
as Borrower, and Car.com, Inc., Autobytel, Inc., and AW GUA USA,
Inc., as Guarantors, dated March 26, 2020 incorporated by reference
to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on March 26, 2020 (SEC File No. 001-34761).
|
|
|
|
|
10.40
|
Lease Agreement dated March 11, 2020, by and among
The Irvine Company LLC and the Company incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on March 16, 2020 (SEC File No. 001-34761).
|
|
|
|
|
Subsidiaries
of AutoWeb, Inc.
|
|
|
|
|
|
Consent
of Independent Registered Public Accounting Firm, Moss Adams
LLP.
|
|
|
|
|
|
Power
of Attorney (included in the signature page hereto).
|
|
|
|
|
|
Chief
Executive Officer Section 302 Certification of Periodic Report
dated March 27, 2020.
|
|
|
|
|
|
Chief
Financial Officer Section 302 Certification of Periodic Report
dated March 27, 2020.
|
|
|
|
|
|
Chief
Executive Officer and Chief Financial Officer Section 906
Certification of Periodic Report dated March 27, 2020.
|
|
|
|
|
|
101.INS††
|
XBRL
Instance Document.
|
|
|
|
|
101.SCH††
|
XBRL
Taxonomy Extension Schema Document.
|
|
|
|
|
101.CAL††
|
XBRL
Taxonomy Calculation Linkbase Document.
|
|
|
|
|
101.DEF††
|
XBRL
Taxonomy Extension Definition Document.
|
|
|
|
|
101.LAB††
|
XBRL
Taxonomy Label Linkbase Document.
|
|
|
|
|
101.PRE††
|
XBRL
Taxonomy Presentation Linkbase Document.
|
|
|
|
|
*
|
Filed
herewith.
|
|
|
|
|
■
|
Management
Contract or Compensatory Plan or Arrangement.
|
|
|
|
|
††
|
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.
|
Item
16.
Form 10-K Summary
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized, on the 27th day of March 2020.
|
|
AUTOWEB,
INC.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
JARED R. ROWE
|
|
|
|
|
Jared
R. Rowe
|
|
|
|
|
President, Chief Executive Officer and Director
|
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of
AutoWeb, Inc., a Delaware corporation (“Company”),
and the undersigned Directors and Officers of AutoWeb, Inc. hereby
constitute and appoint Jared R. Rowe, Joseph P. Hannan 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 27, 2020
|
|
|
|
|
|
|
|
/s/ JARED
R. ROWE
Jared R. Rowe
|
President,
Chief Executive Officer and Director
(Principal
Executive Officer)
|
March 27, 2020
|
|
|
|
|
|
|
|
/s/ JOSEPH
P. HANNAN
Joseph P. Hannan
|
Executive
Vice President and Chief Financial Officer
(Principal
Financial Officer and Accounting Officer)
|
March 27, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ MICHAEL
A. CARPENTER
Michael A. Carpenter
|
Director
|
March 27, 2020
|
|
|
|
|
|
|
|
/s/ MATIAS
DE TEZANOS
Matias de Tezanos
|
Director
|
March 27, 2020
|
|
|
|
|
|
|
|
/s/ CHAN
GALBATO
Chan Galbato
|
Director
|
March 27, 2020
|
|
|
|
|
|
|
|
/s/ MARK
N. KAPLAN
Mark N. Kaplan
|
Director
|
March 27, 2020
|
|
|
|
|
|
|
|
/s/ JANET
M. THOMPSON
Janet M. Thompson
|
Director
|
March 27, 2020
|
|
|
|
|
|
|
|
/s/ JOSE
VARGAS
Jose Vargas
|
Director
|
March 27, 2020
|
|
AUTOWEB, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
|
F-6
|
|
|
|
|
|
F-7
|
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Shareholders and the Board of Directors of
AutoWeb,
Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of AutoWeb,
Inc. (the “Company”) as of December 31, 2019 and
2018, the related consolidated statements of operations and
comprehensive income (loss), stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2019,
and the related notes and schedule (collectively referred to as the
“consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the
Company as of December 31, 2019 and 2018, and the consolidated
results of its operations and its cash flows for each of the three
years in the period ended
December 31, 2019, in conformity with accounting principles
generally accepted in the United States of America.
Change in Accounting Principle
As
discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for leases in 2019 and as
discussed in Note 3, its method of accounting for revenue
recognition in 2018.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we
are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such
opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due
to error or fraud, and performing procedures to respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
consolidated
financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/
Moss Adams LLP
San
Diego, California
March
27, 2020
We have
served as the Company’s auditor since 2012.
AUTOWEB, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per-share and share data)
|
|
December 31,
2019
|
December 31,
2018
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$892
|
$13,600
|
|
Restricted
cash
|
5,054
|
—
|
|
Accounts receivable, net of allowances for bad
debts and customer credits of $740 and $566 at December 31, 2019 and 2018,
respectively
|
24,051
|
26,898
|
|
Prepaid
expenses and other current assets
|
1,265
|
1,245
|
|
Total
current assets
|
31,262
|
41,743
|
|
Property
and equipment, net
|
3,349
|
3,181
|
|
Right-of-use
assets
|
2,528
|
—
|
|
Intangible
assets, net
|
7,104
|
11,976
|
|
Other
assets
|
661
|
516
|
|
Total
assets
|
$44,904
|
$57,416
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$14,080
|
$17,572
|
|
Borrowings
under revolving credit facility
|
3,745
|
—
|
|
Accrued
employee-related benefits
|
1,004
|
3,125
|
|
Other
accrued expenses and other current liabilities
|
2,315
|
2,204
|
|
Current
portion of lease liabilities
|
1,167
|
—
|
|
Convertible
note payable
|
—
|
1,000
|
|
Total
current liabilities
|
22,311
|
23,901
|
|
Lease
liabilities, net of current portion
|
1,497
|
—
|
|
Total
liabilities
|
23,808
|
23,901
|
|
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
|
—
|
—
|
|
Common
stock, $0.001 par value; 55,000,000 shares authorized; 13,146,831
and 12,960,450 shares issued and outstanding at December 31,
2019 and 2018, respectively
|
13
|
13
|
|
Additional
paid-in capital
|
364,028
|
361,218
|
|
Accumulated
deficit
|
(342,945)
|
(327,716)
|
|
Total
stockholders’ equity
|
21,096
|
33,515
|
|
Total
liabilities and stockholders’ equity
|
$44,904
|
$57,416
|
The
accompanying notes are an integral part of these consolidated
financial statements.
AUTOWEB, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(in thousands, except per-share data)
|
|
Years Ended December 31,
|
||
|
|
2019
|
2018
|
2017
|
|
Revenues:
|
|
|
|
|
Lead
generation
|
$90,728
|
$96,936
|
$107,045
|
|
Digital
advertising
|
23,173
|
28,169
|
34,142
|
|
Other
revenues
|
80
|
484
|
938
|
|
Total
revenues
|
113,981
|
125,589
|
142,125
|
|
Cost
of revenues
|
91,412
|
101,315
|
99,352
|
|
Cost
of revenues – impairment
|
—
|
9,014
|
—
|
|
Gross
profit
|
22,569
|
15,260
|
42,773
|
|
Operating
expenses:
|
|
|
|
|
Sales
and marketing
|
10,805
|
12,419
|
14,315
|
|
Technology
support
|
8,849
|
13,838
|
12,567
|
|
General
and administrative
|
13,882
|
16,077
|
12,001
|
|
Depreciation
and amortization
|
4,371
|
4,897
|
4,781
|
|
Goodwill
impairment
|
—
|
5,133
|
37,688
|
|
Long-lived
asset impairment
|
—
|
1,968
|
—
|
|
Total
operating expenses
|
37,907
|
54,332
|
81,352
|
|
Operating
loss
|
(15,338)
|
(39,072)
|
(38,579)
|
|
Interest
and other income (expense), net
|
119
|
250
|
(946)
|
|
Loss
before income tax provision
|
(15,219)
|
(38,822)
|
(39,525)
|
|
Income
tax provision (benefit)
|
10
|
(6)
|
25,439
|
|
Net
loss and comprehensive loss
|
$(15,229)
|
$(38,816)
|
$(64,964)
|
|
|
|
|
|
|
Basic
loss per common share
|
$(1.17)
|
$(3.04)
|
$(5.48)
|
|
Diluted
loss per common share
|
$(1.17)
|
$(3.04)
|
$(5.48)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
AUTOWEB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
|
|
Common
Stock
|
Preferred
Stock
|
|
|
|
||
|
|
Number
of
Shares
|
Amount
|
Number
of
Shares
|
Amount
|
Additional Paid-In- Capital
|
Accumulated
Deficit
|
Total |
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 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
|
|
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
|
The
accompanying notes are an integral part of these consolidated
financial statements.
AUTOWEB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Years Ended December 31,
|
||
|
|
2019
|
2018
|
2017
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net
loss and comprehensive loss
|
$(15,229)
|
$(38,816)
|
$(64,964)
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
|
|
|
|
Depreciation
and amortization
|
6,454
|
8,544
|
7,653
|
|
Goodwill
impairment
|
—
|
5,133
|
37,688
|
|
Intangible
asset impairment
|
—
|
9,014
|
—
|
|
Provision
for bad debt
|
293
|
241
|
346
|
|
Provision
for customer credits
|
250
|
217
|
247
|
|
Share-based
compensation
|
2,402
|
4,866
|
4,103
|
|
Right-of-use-assets
|
1,697
|
—
|
—
|
|
Lease
Liabilities
|
(1,706)
|
—
|
—
|
|
Write-down
of assets
|
59
|
—
|
8
|
|
Long-lived
asset impairment
|
—
|
1,968
|
—
|
|
(Gain)/loss
on investment
|
(250)
|
(25)
|
580
|
|
Change
in deferred tax assets
|
—
|
692
|
25,264
|
|
Changes
in assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
2,304
|
(1,445)
|
7,130
|
|
Prepaid
expenses and other current assets
|
(20)
|
814
|
(904)
|
|
Other
non-current assets
|
(145)
|
(278)
|
200
|
|
Accounts
payable
|
(3,492)
|
4,873
|
(2,954)
|
|
Accrued
expenses and other current liabilities
|
(2,034)
|
1,282
|
(2,909)
|
|
Net
cash provided by (used in) operating activities
|
(9,417)
|
(2,920)
|
11,488
|
|
Cash
flows from investing activities:
|
|
|
|
|
Purchases
of property and equipment
|
(1,640)
|
(896)
|
(1,799)
|
|
Purchase
of intangible assets
|
—
|
—
|
(8,600)
|
|
Proceeds
from sale of investment
|
250
|
125
|
—
|
|
Change
in short-term investment
|
—
|
—
|
—
|
|
Net
cash used in investing activities
|
(1,390)
|
(771)
|
(10,402)
|
|
Cash
flows from financing activities:
|
|
|
|
|
Borrowings
under revolving credit facility
|
73,968
|
—
|
—
|
|
Principal
payments on revolving credit facility
|
(70,223)
|
(8,000)
|
—
|
|
Repurchase
of common stock
|
—
|
—
|
(1,897)
|
|
Proceeds
from issuance of common stock
|
—
|
200
|
—
|
|
Payments
on term loan borrowings
|
(1,000)
|
—
|
(14,063)
|
|
Net
proceeds from stock option exercises
|
408
|
98
|
1,355
|
|
Net
cash provided by (used in) financing activities
|
3,153
|
(7,702)
|
(14,605)
|
|
Net
decrease in cash and cash equivalents
|
(7,654)
|
(11,393)
|
(13,519)
|
|
Cash
and cash equivalents, beginning of period
|
13,600
|
24,993
|
38,512
|
|
Cash
and cash equivalents and restricted cash, end of
period
|
$5,946
|
$13,600
|
$24,993
|
|
|
|
|
|
|
Reconciliation
of cash and cash equivalents and restricted cash
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
$13,600
|
$24,993
|
$38,512
|
|
Restricted
cash at beginning of period
|
|
—
|
—
|
|
Cash
and cash equivalents at beginning of period
|
$13,600
|
$24,993
|
$38,512
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
$892
|
$13,600
|
$38,512
|
|
Restricted
cash at end of period
|
5,054
|
—
|
—
|
|
Cash
and cash equivalents and restricted cash at end of
period
|
$5,946
|
$13,600
|
$38,512
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
Cash
paid for income taxes
|
$12
|
$4
|
$650
|
|
Cash
refunds for income taxes
|
$128
|
$223
|
$—
|
|
Cash
paid for interest
|
$176
|
$118
|
$948
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|
|
|
|
DealerX
License Agreement contingent consideration
|
$—
|
$—
|
$2,470
|
The
accompanying notes are an integral part of these consolidated
financial statements.
AUTOWEB, INC.
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 enhancing products and services.
The Company’s consumer-facing automotive
websites (“Company
Websites”) provide
consumers with information and tools to aid them with their
automotive purchase decisions and the ability to connect with
Dealers regarding purchasing or leasing vehicles
(“Leads”). The Company’s click traffic
referral program provides consumers who are shopping for vehicles
online with targeted offers based on make, model and geographic
location. As these consumers conduct online research on Company
Websites or on the site of one of 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 the Company’s Dealer, Manufacturer or advertising
customers.
The
Company was incorporated in Delaware on May 17, 1996. The
Company’s common stock is listed on The NASDAQ Capital Market
under the symbol AUTO.
2.
Summary of Significant Accounting Policies
Basis of
Presentation. The
accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in
consolidation. Certain prior year amounts have been
reclassified for consistency with the current period
presentation. These reclassifications had no effect on
the reported results of operations.
Use of Estimates in the
Preparation of Financial Statements. The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) requires the Company to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant
estimates include, but are not limited to, allowances for bad debts
and customer credits, useful lives of depreciable assets and
capitalized software costs, long-lived asset impairments, goodwill
and purchased intangible asset valuations, accrued liabilities,
contingent payment provisions, debt valuation and valuation
allowance for deferred tax assets, warrant valuation and
stock-based compensation expense. Actual results could differ from
those estimates.
Cash and Cash
Equivalents. For
purposes of the Consolidated Balance Sheets and the Consolidated
Statements of Cash Flows, the Company considers all highly liquid
investments with an original maturity of 90 days or less at the
date of purchase to be cash equivalents. Cash and cash equivalents
represent amounts held by the Company for use by the Company
and are recorded at cost, which approximates fair
value.
Restricted
Cash: For
purposes of the Consolidated Balance Sheets and the Consolidated
Statements of Cash Flows, restricted cash primarily consists of
cash pledged pursuant to the PNC 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 sales and marketing expenses and are
based on factors such as historical write-off percentages, the
current business environment and known concerns within the current
aging of accounts receivable. Reductions in the estimated allowance
for bad debts due to subsequent cash recoveries are recorded as a
decrease in sales and marketing expenses. As specific bad debts are
identified, they are written-off against the previously established
estimated allowance for bad debts with no impact on operating
expenses.
The
allowance for customer credits is an estimate of adjustments for
services that do not meet the customer requirements. Additions to
the estimated allowance for customer credits are recorded as a
reduction of revenues and are based on the Company’s
historical experience of: (i) the amount of credits issued;
(ii) the length of time after services are rendered that the
credits are issued; (iii) other factors known at the time; and
(iv) future expectations. Reductions in the estimated allowance for
customer credits are recorded as an increase in revenues. As
specific customer credits are identified, they are written-off
against the previously established estimated allowance for customer
credits with no impact on revenues.
Fair Value of Financial
Instruments. The
Company records its financial assets and liabilities at fair value,
which is defined under the applicable accounting standards as the
exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measure
date. The Company uses valuation techniques to measure
fair value, maximizing the use of observable outputs and minimizing
the use of unobservable inputs. The standard describes a
fair value hierarchy based on three levels of inputs, of which the
first two are considered observable and the last unobservable, that
may be used to measure fair value which are the
following:
Level
1 – Quoted prices in active markets for identical assets or
liabilities.
Level
2 – Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level
3 – Inputs include management’s best estimate of what
market participants would use in pricing the asset or liability at
the measurement date. The inputs are unobservable in the
market and significant to the instrument’s
valuation.
Cash
equivalents, restricted cash, accounts receivable, net of
allowance, accounts payable and accrued liabilities, are carried at
cost, which management believes approximates fair value because of
the short-term maturity of these instruments.
The Company’s investments during the years
ended December 31, 2018 and 2017, consisted of investments in
SaleMove and GoMoto that were accounted for under the cost method.
During the year ended December 31, 2017, the Company recorded a
write-off related to it its investment in SaleMove of $0.6 million.
Subsequently during the year ended December 31, 2018, the Company
sold its interest back to
SaleMove for $0.1 million. See
Note 5 for further discussion.
Concentration of Credit Risk
and Risks Due to Significant
Customers. Financial
instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents,
investments and accounts receivable. Cash and cash equivalents are
primarily maintained with two financial institutions in the United
States. Deposits held by banks exceed the amount of insurance
provided for such deposits. Generally, these deposits may be
redeemed upon demand.
If
there is a decline in the general economic environment that
negatively affects the financial condition of the Company’s
customers or an increase in the number of customers that are
dissatisfied with their services, additional estimated allowances
for bad debts and customer credits may be required, and the impact
on the Company’s business, results of operations, financial
condition, earnings per share, cash flow or the trading price of
our stock could be material.
The
Company has a concentration of credit risk with its automotive
industry related accounts receivable balances, particularly with
Urban Science Applications (which represents several Manufacturer
programs) and Carat Detroit. During 2019, approximately
25% of our total revenues were derived from these two customers,
and approximately 33% or $8.4 million of gross accounts receivable
related to these two customers at December 31,
2019. Urban Science Applications accounted for 15% and
13% of total revenues and accounts receivable, respectively, as of
December 31, 2019. Carat Detroit accounted for 9% and 21% of total
revenues and accounts receivable, respectively, as of December 31,
2019.
During
2018, approximately 37% of our total revenues were derived from
Urban Science Applications (which represents several Manufacturer
programs), General Motors and media.net Advertising and
approximately 41% or $11.2 million of gross accounts receivable
related to these three customers at December 31,
2018. Urban Science Applications accounted for 18% and
21% of total revenues and accounts receivable, respectively, as of
December 31, 2018. Media.net Advertising accounted for 10% and
6% of total revenues and accounts receivable, respectively, as of
December 31, 2018. General Motors accounted for 9% and 13% of
total revenues and accounts receivable, respectively, as of
December 31, 2018.
During
2017, approximately 34% of the Company’s total revenues were
derived from these same three customers in 2018, and approximately
43% or $11.6 million of gross accounts receivable related to these
three customers at December 31, 2017. Urban
Science Applications accounted for 15% and 20% of total revenues
and total accounts receivable as of December 31, 2017,
respectively. Media.net Advertising accounted for 11% of both total
revenues and accounts receivable as of December 31, 2017,
respectively.
Property and
Equipment. Property
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line
method over the estimated useful lives of the respective assets,
generally three years. Amortization of leasehold improvements is
provided using the straight-line method over the shorter of the
remaining lease term or the estimated useful lives of the
improvements. Repair and maintenance costs are charged to operating
expenses as incurred. Gains or losses resulting from the retirement
or sale of property and equipment are recorded as operating income,
respectively.
Operating
Leases. The Company
leases office space and certain office equipment under operating
lease agreements which expire on various dates through 2024, with
options to renew on expiration of the original lease terms. These
operating lease agreements include one material related party
agreement, whereby the Company incurred $0.2 million of operating
lease payments during 2019.
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
Software”, and ASC
350-50, “Website Development
Costs”, which require the
capitalization of external and internal computer software costs and
website development costs, respectively, incurred during the
application development stage. The application development stage is
characterized by software design and configuration activities,
coding, testing and installation. Training and maintenance costs
are expensed as incurred while upgrades and enhancements are
capitalized if it is probable that such expenditures will result in
additional functionality. Capitalized internal use software
development costs are amortized using the straight-line method over
an estimated useful life of three to five years. Capitalized
website development costs, once placed in service, are amortized
using the straight-line method over the estimated useful life of
the related websites. The Company capitalized $0.4
million, $0.5 million and $0.5 million of such costs for the years
ended December 31, 2019, 2018 and 2017,
respectively.
Indefinite-lived intangible
assets. 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.
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.
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. The Company recorded impairment of $0.6 million related
to its investment in SaleMove in 2017. In 2018, the Company
recorded impairments totaling $11.0 million, primarily attributable
to a $9.0 million charge due to our decision to terminate the
support provisions of the DealerX License Agreement, which
significantly impacted the usability of the asset. The
remaining $2.0 million is
comprised of a $1.6 million customer relationships impairment
related to a 2015 acquisition after determining that a significant
percentage of acquired customers were no longer part of the dealer
base, and the write-off of $0.4 million in cash advances to
SaleMove. The Company did not record any impairment of long-lived
assets and intangible assets in 2019.
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 million in 2017. The Company impaired
the remaining $5.1 million goodwill balance in
2018.
Cost of Revenues.
Cost of revenues consists of Lead and
traffic acquisition costs and other cost of revenues. Lead and
traffic acquisition costs consist of payments made to the
Company’s Lead providers, including internet portals and
on-line automotive information providers. Other cost of revenues
consists of search engine marketing (“SEM”) and fees paid to third parties for data
and content, including search engine optimization
(“SEO”) activity, included on the Company’s
properties, connectivity costs and development costs related to the
Company Websites, compensation related expense and technology
license fees, server equipment depreciation and technology
amortization directly related to Company Websites. SEM,
sometimes referred to as paid search marketing, is the practice of
bidding on keywords on search engines to drive traffic to a
website.
Income
Taxes. The Company
accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company
records a valuation allowance, if necessary, to reduce deferred tax
assets to an amount it believes is more likely than not to be
realized.
On December 22, 2017, the U.S. government enacted
comprehensive tax legislation known as the Tax Cuts and Jobs Act
(“TCJA”). The TCJA established new tax laws that
took 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 staff of the
Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 118
(“SAB
118”), which provides
guidance on accounting for the tax effects of the TCJA. SAB 118
provides a measurement period that should not extend beyond one
year from the TCJA enactment date for companies to complete the
accounting under ASC 740.
In
2017, we recorded provisional amounts for certain enactment-date
effects of the TCJA, for which the accounting had not been
finalized, by applying the guidance in SAB 118. The Company
recorded a decrease in deferred tax assets of $11.7 million, with a
corresponding net adjustment to deferred income tax expense of
$11.7 million for the year ended December 31, 2017. In addition,
the Company recognized a deemed repatriation of $0.6 million of
deferred foreign income from its Guatemala subsidiary, which did
not result in any incremental tax cost after application of foreign
tax credits. Accordingly, we completed our accounting for the
effects of the TCJA in 2018 and did not recognize any material
adjustments to the 2017 provisional income tax
expense.
The TCJA created a provision known as 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.
Computation of Basic and
Diluted Net Earnings (Loss) per
Share. Basic net
earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the
period. Diluted net earnings (loss) per share is
computed using the weighted average number of common shares, and if
dilutive, potential common shares outstanding, as determined under
the treasury stock and if-converted method, during the period.
Potential common shares consist of unvested restricted stock, common shares issuable
upon the exercise of stock options, the exercise of
warrants, and conversion of
convertible notes.
The
following are the share amounts utilized to compute the basic and
diluted net earnings (loss) per share for the years ended
December 31:
|
|
2019
|
2018
|
2017
|
|
Basic
Shares:
|
|
|
|
|
Weighted
average common shares outstanding
|
13,070,898
|
12,756,191
|
11,910,906
|
|
Weighted
average common shares repurchased
|
—
|
—
|
(58,367)
|
|
Basic
Shares
|
13,070,898
|
12,756,191
|
11,852,539
|
|
|
|
|
|
|
Diluted
Shares:
|
|
|
|
|
Basic
Shares
|
13,070,898
|
12,756,191
|
11,852,539
|
|
Weighted
average dilutive securities
|
—
|
—
|
—
|
|
Dilutive
Shares
|
13,070,898
|
12,756,191
|
11,852,539
|
For
the years ended December 31, 2019, 2018 and 2017, basic and diluted
weighted average shares are the same as the Company generated a net
loss for the period and potentially dilutive securities are
excluded because they have an anti-dilutive impact.
Potentially
dilutive securities representing approximately 4.4 million, 3.5
million, and 3.7 million shares of common stock for the years ended
December 31, 2019, 2018, and 2017, respectively, were excluded
from the computation of diluted income per share for these periods
because their effect would have been anti-dilutive.
Share-Based
Compensation. The
Company grants stock-based awards (“Awards”) primarily in the form of stock options
and restricted stock awards (“RSAs”) under several of its stock-based
compensation Plans (the “Plans”), that are more fully described in Note
10. The Company recognizes share-based compensation
based on the Awards’ fair value, net of estimated forfeitures
on a straight-line basis over the requisite service periods, which
is generally over the awards’ respective vesting period, or
on an accelerated basis over the estimated performance periods for
options with performance conditions.
Restricted
stock fair value is measured on the grant date based on the quoted
market price of the Company’s common stock, and the stock
option fair value is estimated on the grant date using the
Black-Scholes option pricing model based on the underlying common
stock closing price as of the date of grant, the expected term,
stock price volatility and risk-free interest rates.
Business Segment.
The Company conducts its business
within the United States and within one business segment which is
defined as providing automotive and marketing
services. The Company’s operations are aggregated
into a single reportable operating segment based upon similar
economic and operating characteristics as well as similar
markets.
Advertising
Expense. Advertising
costs are expensed in the period incurred and the majority of
advertising expense is recorded in sales and marketing expense.
Advertising expense in the years ended December 31, 2019, 2018 and
2017 was $0.6 million, $1.4 million and $1.7 million,
respectively.
Recently Adopted by the Company
ASC 220 “Comprehensive
Income.” In February
2018, the FASB issued Accounting Standard Update
(“ASU”) No. 2018-02, “Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive
Income.” The new guidance
allows a reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from
the Tax Cuts and Jobs Act and will improve the usefulness of
information reported to financial statement users. On January 1,
2019, the Company adopted ASU No. 2018-02 and it did not have a
material effect on the consolidated financial statements and
related disclosures.
ASC 842
“Leases.” In
February 2016, ASU No. 2016-02, “Leases (Topic
842)” was issued. This
ASU was issued to increase transparency and comparability among
organizations by requiring lessees to (i) recognize right-of-use
(“ROU”) assets and lease liabilities on the
balance sheet to represent the right to use the leased asset for
the lease term and the obligation to make lease payments and (ii)
disclose key information about leasing arrangements. Some changes
to the lessor accounting guidance were made to align both of the
following: (i) the lessor accounting guidance with certain changes
made to the lessee accounting guidance and (ii) key aspects of the
lessor accounting model with revenue recognition
guidance.
The
Company adopted the ASU effective January 1, 2019 utilizing the
modified retrospective approach for adoption for all leases that
existed at or commenced after the date of initial application with
an option to use certain practical expedients. The package of
practical expedients allowed the Company to not reassess: (i)
whether any expired or existing contracts are or contain leases,
(ii) lease classification for any expired or existing leases, and
(iii) initial direct costs for any expired or existing leases. The
Company also used (i) hindsight when evaluating contractual lease
options, (ii) the practical expedient that allows lessees to treat
lease and non-lease components of leases as a single lease
component, and (iii) the portfolio approach which allows similar
leased assets to be grouped and accounted for together. In
addition, the Company implemented additional internal controls to
evaluate future transactions in accordance with the
standard.
The
adoption of ASC 842 had a material impact on the consolidated
balance sheet due to the recognition of ROU assets and lease
liabilities. The adoption of this ASU did not have a material
impact on the consolidated statement of operations or the
consolidated statement of cash flows. The Company did not recognize
a material cumulative effect adjustment to the opening balance
sheet retained earnings on January 1, 2019. Because the modified
retrospective approach was elected, the ASU was not applied to
periods prior to adoption and did not have an impact on previously
reported results. At adoption, the Company recognized operating
lease ROU assets and lease liabilities that reflect the present
value of the future payments. As the rate implicit in the lease
could not be determined for any of the Company’s leases, an
estimated incremental borrowing rate of 5.5% was used to determine
the present value of lease payments. Based on the impact of ASC 842
on the lease population, the Company recorded $4.4 million in lease
liabilities and $4.2 million for ROU assets based upon the lease
liabilities adjusted for deferred rent. See Note 8 for additional
information on leases.
SEC Release No. 33-10532,
Disclosure Update and Simplification. In August 2018, the SEC adopted the final rule
under SEC Release No. 33-10532, “Disclosure Update and
Simplification”, amending
certain disclosure requirements that were redundant, duplicative,
overlapping, outdated or superseded. In addition, the amendments
expanded the disclosure requirements on the analysis of
stockholders’ equity for interim financial statements. Under
the amendments, an analysis of changes in each caption of
stockholders’ equity presented in the balance sheet must be
provided in a note or separate statement. The analysis should
present a reconciliation of the beginning balance to the ending
balance of each period for which a statement of comprehensive
income is required to be filed. This final rule became effective on
November 5, 2018, and the Company adopted the requirements in
the first quarter of 2019.
3.
Revenue Recognition
Revenue
is recognized when the Company transfers control of promised goods
or services to the Company’s customers, or when the Company
satisfies any performance obligations under contract. The amount of
revenue recognized reflects the consideration the Company expects
to be entitled to in exchange for respective goods or services
provided. Further, under ASC 606, contract assets or contract
liabilities that arise from past performance but require further
performance before obligation can be fully satisfied must be
identified and recorded on the balance sheet until respective
settlements have been met.
The
Company performs the following steps in order to properly determine
revenue recognition and identify relevant contract assets and
contract liabilities:
●
identify
the contract with a customer;
●
identify
the performance obligations in the contract;
●
determine
the transaction price;
●
allocate
the transaction price to the performance obligations in the
contract; and
●
recognize
revenue when, or as, the Company satisfies a performance
obligation.
The
Company earns revenue by providing lead generation, digital
advertising, and mobile products and services used by Dealers and
Manufacturers in their efforts to market and sell new and used
vehicles to consumers. The Company enters into contracts that can
include various combinations of products and services, which are
generally capable of being distinct and accounted for as separate
performance obligations. The Company records revenue on distinct
performance obligations at a single point in time, when control is
transferred to the customer.
The
Company has three main revenue sources – Lead generation,
Digital advertising, and Other revenue. Accordingly, the Company
recognizes revenue for each source as described below:
●
Lead
generation – paid by Dealers and Manufacturers participating
in the Company’s Lead programs and are comprised of Lead
transaction and/or monthly subscription fees. Lead generation are
recognized in the period when service is provided.
●
Digital
advertising – fees paid by Dealers and Manufacturers for (i)
display advertising on the Company’s websites and
(ii) fees from the Company’s click traffic program.
Revenue is recognized in the period advertisements are displayed on
the Company’s websites or the period in which clicks have
been delivered, as applicable. The Company recognizes gross revenue
from the delivery of action-based advertisements in the period in
which a user takes the action for which the marketer contracted for
with the Company. For advertising revenue arrangements where the
Company is not the principal, the Company recognizes revenue on a
net basis.
●
Other
revenues – consists primarily of revenues from the
Company’s mobile products and revenues from the
Company’s Reseller Agreement with SaleMove, Inc. Revenue is
recognized in the period in which products or services are
sold.
Variable Consideration
The
Company’s products, namely 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 are
estimable, 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. Allowance for customer credits totaled $194,000 and
$121,000 as of December 31, 2019 and 2018,
respectively.
See
further discussion below on significant judgments exercised by the
Company in regard to variable consideration.
Contract Assets and Contract Liabilities Unbilled
Revenue
Timing
of revenue recognition may differ from the timing of invoicing to
customers. The Company records a receivable when revenue is
recognized prior to invoicing. From time to time, the Company may
have balances on its balance sheet representing revenue that has
been recognized by the Company upon satisfaction of performance
obligations and earning a right to receive payment. These not-yet
invoiced receivable balances are driven by the timing of
administrative transaction processing, and are not indicative of
partially complete performance obligations, or unbilled revenue.
Unbilled revenue represents revenue that is partially earned,
whereby control of promised services has not yet transferred to the
customer, and for which the Company has not earned the complete
right to payment. The Company had zero unbilled revenue included in
its consolidated balance sheets as of December 31, 2019 and
2018.
Deferred Revenue
The
Company defers the recognition of revenue when cash payments are
received or due in advance of satisfying its performance
obligations, including amounts which are refundable. Such activity
is not a common practice of operation for the Company. The Company
had zero deferred revenue included in its consolidated balance
sheets as of December 31, 2019 and 2018. Payment terms and
conditions can vary by contract type. Generally, payment terms
within the Company’s customer contracts include a requirement
of payment within 30 to 60 days from date of invoice. Typically,
customers make payments after receipt of invoice for billed
services, and less typically, in advance of rendered
services.
Practical Expedients and Exemptions
The
Company excludes from the transaction price all sales taxes related
to revenue producing transactions collected from the customer for a
governmental authority. The Company applies the new revenue
standard requirements to a portfolio of contracts (or performance
obligations) with similar characteristics for transactions where it
is expected that the effects of applying the revenue recognition
guidance to the portfolio would not differ materially on the
financial statements from that of applying the same guidance to the
individual contracts (or performance obligations) within that
portfolio. The Company generally expenses incremental costs of
obtaining a contract when incurred because the amortization period
would be less than one year. These costs primarily relate to sales
commissions and are recorded in selling, marketing, and
distribution expense.
Significant Judgments
The
Company provides Dealers and Manufacturers with various
opportunities to market their vehicles to potential vehicle buyers,
namely via consumer lead and click traffic referrals and online
advertising products and services. Proper revenue recognition of
digital marketing activities, as well as proper recognition of
assets and liabilities related to these activities, requires
management to exercise significant judgment with the following
items:
●
Arrangements with Multiple Performance Obligations
The
Company enters into contracts with customers that often include
multiple products and services to a customer. Determining whether
products and/or services are distinct performance obligations that
should be accounted for singularly or separately may require
significant judgment.
●
Variable Consideration and Customer Credits
The
Company’s products are generally sold with a right-of-return.
Additionally, the Company will sometimes provide customer credits
or sales incentives. These items are accounted for as variable
consideration when determining the allocation of the transaction
price to performance obligations under a contract. The allowance
for customer credits is an estimate of adjustments for services
that do not meet customer requirements. Additions to the estimated
allowance for customer credits are recorded as a reduction of
revenues and are based on the Company’s historical experience
of: (i) the amount of credits issued; (ii) the length of
time after services are rendered that the credits are issued;
(iii) other factors known at the time; and (iv) future
expectations. Reductions in the estimated allowance for customer
credits are recorded as an increase in revenues.
As
specific customer credits are identified, they are charged against
this allowance with no impact on revenues. Returns and credits are
measured at contract inception, with respective obligations
reviewed each reporting period or as further information becomes
available, whichever is earlier, and only to the extent that it is
probable that a significant reversal of any incremental revenue
will not occur. The allowance for customer credits is included in
the net accounts receivable balances of the Company’s balance
sheets as of December 31, 2019 and 2018.
Disaggregation of Revenue
The
Company disaggregates revenue from contracts with customers by
revenue source and has determined that disaggregating revenue into
these categories sufficiently depicts the differences in the
nature, amount, timing, and uncertainty of its revenue streams. The
Company has three main sources of revenue: lead generation, digital
advertising, and other revenues.
|
|
Years Ended December 31,
|
||
|
|
2019
|
2018
|
2017
|
|
|
(in thousands)
|
||
|
Lead
generation
|
$90,728
|
$96,936
|
$107,045
|
|
Digital
advertising
|
|
|
|
|
Clicks
|
19,599
|
23,387
|
28,262
|
|
Display
and other advertising
|
3,574
|
4,782
|
5,880
|
|
Other
revenues
|
80
|
484
|
938
|
|
Total
revenues
|
$113,981
|
$125,589
|
$142,125
|
4.
Disposals
Disposal of Specialty Finance Leads Product
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 (“Transition
Agreement”). The Company recorded a gain on sale of
approximately $2.2 million in connection with the transaction in
the fourth quarter of 2016.
Under
the Transition Agreement, Car.com and AutoWeb provide Internet
Brands certain transition services and arrangements (i) Internet
Brands will pay AutoWeb $1.6 million in fees over the five-year
term of the Transition Agreement; and (ii) Car.com (1) granted
Internet Brands a limited, non-exclusive, non-transferable license
to use the Car.com logo and name solely for sales and marketing
purposes in Internet Brand’s automotive specialty finance
leads business; and (2) provided certain redirect linking of
consumer traffic from the Company’s specialty finance leads
application forms to a landing page designated by Internet Brands.
The Company received $0.3 million, $0.4 million and $0.4 million
during the years ended December 31, 2019, 2018 and 2017,
respectively, related to the Transition Agreement.
5.
Investments
SaleMove
In September 2013, the Company entered into a Convertible Note
Purchase Agreement with SaleMove in which AutoWeb invested $150,000
in SaleMove in the form of an interest bearing, convertible
promissory note. In November 2014, the Company invested an
additional $400,000 in SaleMove in the form of an interest bearing,
convertible promissory note. Upon closing of a preferred
stock financing by SaleMove in July 2015, these two notes were
converted in accordance with their terms into an aggregate of
190,997 Series A Preferred Stock, which shares are classified as a
long-term investment on the consolidated balance sheet as of
December 31, 2016. The Company recorded an impairment charge of
$0.6 million in SaleMove in 2017. On June 5, 2018, the Company sold
its shares of Series A Preferred stock back to SaleMove for
$125,000. The gain of $125,000 is recorded in Interest and other
income (expense) on the Consolidated Condensed Statement of
Operations and Comprehensive Income (Loss) for year ended December
31, 2018.
In
October 2013, the Company entered into a Reseller Agreement with
SaleMove to become a reseller of SaleMove’s technology for
enhancing communications with
consumers. SaleMove’s technology allows Dealers
and Manufacturers to enhance the online shopping experience by
interacting with consumers in real-time, including live video,
audio and text-based chat or by phone. The Company and SaleMove
equally share in revenues from automotive-related sales of the
SaleMove products and services. In connection with this reseller
arrangement, the Company advanced $1.0 million to SaleMove to fund
SaleMove’s 50% share of various product development,
marketing and sales costs and expenses. These previously advanced
funds are repaid to the Company from SaleMove’s share of net
revenues and expenses from the Reseller Agreement each reporting
period. During the three months ended September 30, 2018, the
Company performed a qualitative review of the agreement with
SaleMove and, based on several factors related to the trend in
operating results from this reseller arrangement and costs being
incurred by the Company, the parties agreed to allow the
arrangement to expire November 30, 2018, one month earlier than the
original expiration date of December 31, 2018. Upon expiration of
the Reseller Agreement, the remaining outstanding advances are no
longer recoverable from SaleMove, and, accordingly, the Company has
impaired the remaining balance of $364,000 of advances due from
SaleMove. The impairment charge is included in “Long-lived
asset impairment” in the Consolidated Condensed Statement of
Operations and Comprehensive (Loss) Income for the year ended
December 31, 2018.
GoMoto
In December 2014, the Company entered into a
Series Seed Preferred Stock Purchase Agreement with GoMoto in which
the Company paid $100,000 for 317,460 shares of Series Seed
Preferred Stock, $0.001 par value per share. The
$100,000 investment in GoMoto was recorded at cost because the
Company does not have significant influence over
GoMoto. In October 2015 and May 2016, the Company
invested an additional $375,000 and $375,000 in each period in the
form of convertible promissory notes (“GoMoto Notes”). The GoMoto Notes accrue interest at an
annual rate of 4.0% and are due and payable in full upon demand by
the Company or at GoMoto’s option ten days’ written
notice unless converted prior to the repayment of the GoMoto Notes.
The GoMoto Notes will be converted into preferred stock of GoMoto
in the event of a preferred stock financing by GoMoto of at least
$1.0 million prior to repayment of the GoMoto
Notes. At December 31, 2018 and
2017, both the GoMoto Notes and related interest receivable are
fully reserved on the Consolidated Condensed Balance Sheets because
the Company believed the amounts were not recoverable. Further, the
three months ended September 30, 2018, represented the third
consecutive quarter of declining operating results for GoMoto and,
as such, the Company performed a qualitative review of its
investment in GoMoto. Based on continuing deterioration in
GoMoto’s financial position, the Company believed that
uncertainty existed in the recoverability of its remaining
investment of $100,000 in GoMoto and, accordingly, recognized a
loss on the investment which has been recorded in “Interest
and other income (expense)” on the Consolidated Condensed
Statement of Operations and Comprehensive (Loss) Income for the
year ended December 31, 2018.
On
January 29, 2019, the GoMoto Notes were converted into 1,781,047
shares of GoMoto’s Series A-2 Preferred Stock, $0.001 par
value per share. The outstanding principal plus accrued interest
under the GoMoto Notes was converted in accordance with the terms
of the notes upon the closing of a new preferred stock financing
and based on a discount to the price paid by the new investor for
the investor’s preferred shares. On July 30, 2019, the
Company entered into a Repurchase Agreement with GoMoto, pursuant
to which GoMoto repurchased these 317,460 shares of Series Seed
Preferred Stock and 1,781,047 shares of Series A-2 Preferred Stock
from the Company for an aggregate purchase price of
$250,000.
6.
Selected Balance Sheet Accounts
Property
and equipment consist of the following:
|
|
As of December 31,
|
|
|
|
2019
|
2018
|
|
|
(in thousands)
|
|
|
Computer
software and hardware
|
$12,804
|
$11,393
|
|
Capitalized
internal use software
|
5,878
|
6,228
|
|
Furniture
and equipment
|
1,743
|
1,743
|
|
Leasehold
improvements
|
1,613
|
1,613
|
|
|
22,038
|
20,977
|
|
Less—Accumulated
depreciation and amortization
|
(18,689)
|
(17,796)
|
|
Property
and equipment, net
|
$3,349
|
$3,181
|
As
of December 31, 2019, and 2018, capitalized internal use
software, net of amortization, was $0.6 million and $1.2 million,
respectively. Depreciation and amortization expense
related to property and equipment was $1.6 million for the year
ended December 31, 2019. Of this amount, $0.9
million was recorded in cost of revenues and $0.7 million was
recorded in operating expenses for the year ended December 31,
2019. Depreciation and amortization expense related to property and
equipment was $2.0 million for the year ended December 31,
2018. Of this amount, $1.2 million was recorded in cost
of revenues and $0.8 million was recorded in operating expenses for
the year ended December 31, 2018. Depreciation and amortization
expense related to property and equipment was $1.9 million for the
year ended December 31, 2017. Of this amount, $1.1
million was recorded in cost of revenues and $0.8 million was
recorded in operating expenses for the year ended December 31,
2017.
The
Company amortizes specifically identified definite-lived intangible
assets using the straight-line method over the estimated useful
lives of the assets.
On October 5, 2017, the Company and DealerX
Partners, LLC, a Florida limited liability company
(“DealerX”), entered into a Master License and
Services Agreement (“DealerX License
Agreement”). Pursuant to
the terms of the DealerX License Agreement, AutoWeb was granted a
perpetual license to access and use DealerX’s proprietary
platform and technology for targeted, online marketing. DealerX was
to operate the platform for AutoWeb and provide enhancements to and
support for the DealerX platform for at least an initial five-year
period (“Platform Support
Obligations”), however
the Company terminated the Platform Support Obligations effective
November 2, 2018, and as a result, recorded an impairment
charge.
The transaction consideration consisted of: (i)
$8.0 million in cash paid to DealerX upon execution of the DealerX
License Agreement and (ii) the right to 710,856 shares of the
Company’s common stock, par value $0.001 per share,
representing approximately 5% of the Company’s outstanding
Common Stock as of the date the parties entered into the DealerX
License Agreement (“Market Capitalization
Shares”) if on or before
October 5, 2022: (i) AutoWeb’s market capitalization averages
at least $225.0 million over a consecutive 90-day period or (ii)
there is a change in control of AutoWeb that reflects a market
capitalization of at least $225.0 million. If the Market
Capitalization Shares are issued to DealerX, DealerX’s
obligation to continue to support the platform
(“Platform Support
Obligations”) will
continue in perpetuity. Alternatively, upon the occurrence of
certain events prior to the issuance of the Market Capitalization
Shares, AutoWeb may elect to make an additional lump-sum payment of
$12.5 million (“Alternative Cash
Payment”) in order to
extend DealerX’s Platform Support Obligations in perpetuity.
If the Alternative Cash payment were made, DealerX’s
contingent right to receive the Market Capitalization Shares would
be terminated. The fair value of the Market Capitalization Shares
was calculated at $2.5 million. At the transaction date, the
Company recorded approximately $10.5 million as a definite-lived
intangible asset which was amortized over its expected useful life
of seven years.
The
Company makes judgments about the recoverability of purchased
intangible assets with definite lives whenever events or changes in
circumstances indicate that an impairment may exist. Recoverability
of purchased intangible assets with definite lives is measured by
comparing the carrying amount of the asset to the future
undiscounted cashflows the asset is expected to generate. In the
third quarter of 2018, the Company performed an analysis of its
planned future use of two intangible assets in the licenses and
customer relationships asset groups. As a result of realignment
activities finalized in the third quarter, 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 Condensed Statements of Operations and
Comprehensive Income (Loss) for the year ended December 31,
2018.
A
quantitative analysis was performed by the Company in 2018 on its
customer relationship intangible assets, whereby it examined
available data, namely historical activity and cashflows resulting
from the customer relationships of previous acquisitions, in
concert with projected future use of acquired customer
relationships within the parameters of the Company’s future
strategic plans. As a result of this analysis, the Company
determined there to be impairment of $1.6 million related to
customer relationship intangible assets acquired in a 2015
acquisition for which projected cashflows did not support the
carrying values. Additionally, the Company determined that the
estimated useful life of these customer relationship intangible
assets had changed from 10 years to 5 years. This change in
estimate will impact amortization expense in future periods as
amortization will be accelerated over the remaining estimated
useful life of this asset due to the change in
estimate.
The
Company’s intangible assets will be amortized over the
following estimated useful lives (in thousands):
|
|
|
December
31, 2019
|
December
31, 2018
|
||||
|
Intangible
Asset
|
Estimated
Useful Life
|
Gross
|
Accumulated
Amortization
|
Net
|
Gross
|
Accumulated
Amortization
|
Net
|
|
Trademarks/trade
names/licenses/ domains
|
3
– 7 years
|
$16,589
|
$(15,442)
|
$1,147
|
$16,589
|
$(14,914)
|
$1,675
|
|
Customer
relationships
|
2 -
5 years
|
19,563
|
(18,800)
|
763
|
19,563
|
(15,544)
|
4,019
|
|
Developed
technology
|
5-7
years
|
8,955
|
(5,961)
|
2,994
|
8,955
|
(4,873)
|
4,082
|
|
|
$45,107
|
$(40,203)
|
$4,904
|
$45,107
|
$(35,331)
|
$9,776
|
|
|
|
|
December
31, 2019
|
December
31, 2018
|
||||
|
Indefinite-lived
Intangible
Asset
|
Estimated
Useful Life
|
Gross
|
Accumulated
Amortization
|
Net
|
Gross
|
Accumulated
Amortization
|
Net
|
|
Domain
|
Indefinite
|
$2,200
|
$—
|
$2,200
|
$2,200
|
$—
|
$2,200
|
Amortization
expense is included in “Cost of revenues” and
“Depreciation and amortization” in the Statements of
Operations and Comprehensive Income (Loss). Amortization
expense was $4.9 million, $8.1 million and $5.7 million in 2019,
2018 and 2017, 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 five years is as
follows:
|
Year
|
Amortization
Expense
|
|
|
(in thousands)
|
|
|
|
|
2020
|
$2,371
|
|
2021
|
1,499
|
|
2022
|
902
|
|
2023
|
86
|
|
2024
|
46
|
|
|
$4,904
|
Goodwill
represents the excess of the purchase price over the fair value of
net assets acquired. Goodwill is not amortized and is
assessed annually for impairment or whenever events or
circumstances indicate that the carrying value of such assets may
not be recoverable. The Company impaired goodwill by
$5.1 million and $37.7 million during the years ended December 31,
2018 and 2017, respectively.
As
of December 31, 2019, and 2018, accrued expenses and other
current liabilities consisted of the following:
|
|
As of December 31,
|
|
|
|
2019
|
2018
|
|
|
(in thousands)
|
|
|
Accrued
employee related benefits
|
$1,004
|
$3,125
|
|
Other
accrued expenses and other current liabilities:
|
|
|
|
Other
accrued expenses
|
1,264
|
1,346
|
|
Amounts
due to customers
|
355
|
424
|
|
Other
current liabilities
|
1,239
|
434
|
|
Total
other accrued expenses and other current liabilities
|
2,858
|
2,204
|
|
|
|
|
|
Total
accrued expenses and other current liabilities
|
$3,862
|
$5,329
|
In connection with the acquisition of AutoUSA, LLC
(“AutoUSA”) on January 13, 2014, the Company issued a
convertible subordinated promissory note for $1.0 million
(“AutoUSA Note”)
to AutoNationDirect.com, Inc. The fair value of the AutoUSA
Note as of the AutoUSA Acquisition Date was $1.3 million.
This valuation was estimated using a binomial option pricing
method. Key assumptions used by the Company’s
outside valuation consultants in valuing the AutoUSA Note
included a market yield of 1.6% and stock price volatility of
65.0%. As the AutoUSA Note was issued with a substantial
premium, the Company recorded the premium as additional paid-in
capital. Interest is payable at an annual interest rate of 6%
in quarterly installments. The entire outstanding balance of
the AutoUSA Note plus accrued interest was paid in full on January
31, 2019.
The Company and MUFG Union Bank, N.A.
(“Union Bank”), entered into a Loan Agreement dated
February 26, 2013, as amended on September 10, 2013, January 13,
2014, May 20, 2015, June 1, 2016, June 28, 2017 and December 27,
2017 (the original Loan Agreement, as amended to date, is referred
to collectively as the “Credit Facility
Agreement.” The Credit
Facility Agreement provided for (i) a $9.0 million term loan
(“Term
Loan 1”); (ii) a $15.0
million term loan (“Term Loan 2”); and (iii) an $8.0 million working
capital revolving line of credit (“Revolving
Loan”). The term loans
were fully paid as of December 31, 2017. The Revolving Loan was
fully paid as of March 31, 2018, at which time the Credit Facility
Agreement was terminated.
Borrowings
under the Revolving Loan bear interest at either (i) the London
Interbank Offering Rate (“LIBOR”) plus 2.50% or (ii)
the bank’s Reference Rate (prime rate) minus 0.50%, at the
option of the Company. Interest under the Revolving Loan adjusts
(i) at the end of each LIBOR rate period (1, 2, 3, 6 or 12 months
terms) selected by the Company, if the LIBOR rate is selected; or
(ii) with changes in Union Bank’s Reference Rate, if the
Reference Rate is selected. The Company paid a commitment fee of
0.10% per year on the unused portion of the Revolving Loan, payable
quarterly in arrears.
Term
Loan 1 was amortized over a period of four years, with fixed
quarterly principal payments of $562,500. Borrowings under Term
Loan 1 bore interest at either (i) the bank’s Reference Rate
(prime rate) minus 0.50% or (ii) LIBOR plus 2.50%, at the option of
the Company. Interest under Term Loan 1 adjusted (i) at the end of
each LIBOR rate period (1, 2, 3, 6 or 12 months terms) selected by
the Company, if the LIBOR rate was selected; or (ii) with changes
in Union Bank’s Reference Rate, if the Reference Rate was
selected.
Term
Loan 2 was amortized over a period of five years, with fixed
quarterly principal payments of $750,000. Borrowings under Term
Loan 2 bore interest at either (i) LIBOR plus 3.00% or (ii) the
bank’s Reference Rate (prime rate), at the option of the
Company. Interest under Term Loan 2 adjusted (i) at the end of each
LIBOR rate period (1, 2, 3, 6 or 12 months terms) selected by the
Company, if the LIBOR rate was selected; or (ii) with changes in
Union Bank’s Reference Rate, if the Reference Rate was
selected. The Company paid an upfront fee of 0.10% of the Term Loan
2 principal amount upon drawing upon Term Loan 2.
On April 30, 2019, the Company entered into a
$25.0 million Revolving Credit and Security
Agreement ("PNC Credit
Agreement" or
“Revolving
Loan”) 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.,
as Guarantors (“Company
Subsidiaries”). The
obligations under the PNC Credit Agreement are guaranteed by the
Company Subsidiaries and secured by a first priority lien on all of
the Company’s and the Company Subsidiaries’ tangible
and intangible assets. The PNC Credit Agreement provides a
subfacility of up to $5.0 million for letters of credit. The PNC
Credit Agreement expires on April 30, 2022. As of December 31,
2019, the Company had $3.7 million outstanding under its credit
facility. Financing costs related to the credit facility, net of
accumulated amortization, of approximately $0.3 million, have been
deferred over the initial term of the loan and are included in
other assets as of December 31, 2019.
The interest rates per annum applicable to
borrowings under the PNC Credit Agreement will be, 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
will be the highest of (i) the base commercial lending rate of
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 provides 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 are 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 PNC Credit Agreement contains customary
representations and warranties and covenants that restrict the
Company and the Company Subsidiaries from engaging in or taking
various actions, including, among other things (but except as
otherwise permitted by the PNC Credit Agreement): (i) incurring or
guaranteeing additional indebtedness; (ii) making any loans,
investments or acquisitions; (iii) selling or otherwise
transferring or disposing of assets other than in the ordinary
course of business; (iv) engaging in transactions with affiliates;
and (v) declaring or making distributions on their stock or other
equity interests. The Company is also required to maintain a $5.0
million pledged interest-bearing deposit account with Lender until
the Company’s consolidated EBITDA is greater than $10.0
million. As of December 31,
2019, the Company had restricted cash related to the credit
facility of approximately $5.1 million. The restricted cash accrues
interest at a variable rate currently averaging 1.64% per
annum.
On October 29, 2019, the Company, the Company
Subsidiaries and PNC entered into a First Amendment to the PNC
Credit Agreement (“PNC Credit Agreement First
Amendment”) that provides
for an amended financial covenant related to the Company’s
minimum required EBITDA (as defined in the PNC Credit Agreement).
This amended financial covenant requires 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 ending 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 adds 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 fails to comply with the minimum
EBITDA requirements or the Fixed Charge Coverage Ratio, the Company
has 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 may not be exercised more than three
times during the term of the PNC Credit Agreement and any proceeds
from a sale of equity interests must 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
(“Notice”) from PNC Bank, under the PNC Credit
Agreement advising that an event of default has occurred and is
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 Notice at this time,
AutoWeb also is not in compliance with the minimum EBITDA financial
covenant under the PNC Credit Agreement. As a result of the Notice,
PNC has increased the interest rate under the PNC Credit Agreement
by 2.0% per annum.
The
Notice advised AutoWeb that PNC (i) specifically reserves all
rights and remedies available to it under the PNC Credit Agreement
and (ii) does not waive the event of default or any other event of
default that may exist on the date of the Notice or which may occur
thereafter. The Notice further advised that any loans, advances,
and extensions of credit made to AutoWeb from time to time, will be
at the sole discretion of PNC and will not constitute a waiver of
the event of default, or a waiver by PNC of any of its rights under
the PNC Credit Agreement or any collateral agreement.
On March 26, 2020, the Company entered into a
$20.0 million Loan, Security and Guarantee Agreement
(“the
CNC Credit
Agreement”) with CIT
Northbridge Credit LLC, as agent, and the Company’s U.S.
subsidiaries Car.com, Inc. Autobytel, Inc. and AW GUA USA, Inc., as
Guarantors. The obligations under the CNC Credit Agreement are
guaranteed by the Company Subsidiaries and secured by a lien on all
the Company’s and the Company Subsidiaries’ assets. The
CNC Credit Agreement expires on March 26, 2023.
The
interest rate per annum applicable to borrowings under the CNC
Credit Agreement will be the LIBO Rate plus 5.5%. The LIBO Rate
will be 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). Upon commencement,
the interest rate will be 7.25%.
Operating Leases
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. 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 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, 2019, consist of the
following:
|
Current
portion of lease liabilities
|
$1,167
|
|
Long-term
lease liabilities, net of current portion
|
1,497
|
|
Total
lease liabilities
|
$2,664
|
The
Company leases its facilities and certain office equipment under
operating leases which expire on various dates through
2025. The Company’s future minimum lease payments
on leases with non-cancelable terms in excess of one year were as
follows (in thousands):
|
Years Ending December 31,
|
|
|
2020
|
$1,430
|
|
2021
|
924
|
|
2022
|
791
|
|
2023
|
786
|
|
2024
|
528
|
|
Thereafter
|
197
|
|
|
$4,656
|
On March 11, 2020, the Company entered into a
Lease Agreement (“Lease”) with The Irvine Company LLC, a Delaware
limited liability company, pursuant to which the Company will lease
approximately 12,000 square feet of office space located in Irvine,
California. The term of the Lease will commence on August 1, 2020,
upon completion of tenant improvements to the Premises and shall
continue for a period of approximately five years, unless earlier
terminated in accordance with the terms of the Lease. The company
has the option to extend the Lease Term for one additional period
of five years. The new office space will replace the
Company’s current approximately 39,361 square feet of office
space in Irvine, California, the lease for which expires July 31,
2020. The Company included this lease within the future minimum
lease payment table above.
Operating lease cost included in operating
expenses was $2.0 million, $1.7 million and $2.0 million for the
years ended December 31, 2019, 2018 and 2017,
respectively. In June 2017, the
Company subleased one of its buildings to a third-party for the
remainder of the lease term which expired in February 2019. Rent
expense for the years ended December 31, 2019, 2018 and 2017 is net
of sublease income of $26,000, $0.2 million, $0.1 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 in the years ended December
31, 2019, 2018 and 2017 was $0.3 million.
10.
Stockholders’ Equity
Stock-Based Incentive Plans
The Company has established plans that provide for
stock-based awards (“Awards”), primarily in the form of stock options
and restricted stock awards (“RSAs”), to employees, directors, and
consultants. As of June 21, 2018, new Awards may only be
granted under the 2018 Equity Incentive Plan, and as of December
31, 2019, an aggregate of approximately 2.0 million shares of
Company common stock were available for granting of new Awards
under the 2018 Equity Incentive Plan.
Share-based
compensation expense is included in costs and expenses in the
Consolidated Statements of Operations and Comprehensive Income
(Loss) as follows:
|
|
Years Ended December 31,
|
||
|
|
2019
|
2018
|
2017
|
|
|
(in thousands)
|
||
|
Share-based
compensation expense:
|
|
|
|
|
Cost
of revenues
|
$—
|
$23
|
$78
|
|
Sales
and marketing
|
304
|
982
|
1,703
|
|
Technology
support
|
197
|
1,247
|
586
|
|
General
and administrative
|
1,901
|
2,615
|
1,739
|
|
Share-based
compensation expense
|
2,402
|
4,867
|
4,106
|
|
|
|
|
|
|
Amount
capitalized to internal use software
|
—
|
1
|
3
|
|
|
|
|
|
|
Total
share-based compensation expense
|
$2,402
|
$4,866
|
$4,103
|
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.
As
of December 31, 2019, 2018 and 2017, there was approximately
$3.0 million, $2.6 million and $3.9 million, respectively, of
unrecognized compensation expense related to unvested stock
options. This expense is expected to be recognized over a weighted
average period of approximately 1.9 years.
Stock Options
The fair value of stock options is estimated on
the grant date using the Black-Scholes option pricing model based
on the underlying common stock closing price as of the date of
grant, the expected term, stock price volatility and risk-free
interest rates. The expected risk-free interest rate is based on
United States Treasury yield for a term consistent with the
expected life of the stock option in effect at the time of
grant. Expected volatility is based on the
Company’s historical experience for a period equal to the
expected life. The Company has used historical volatility because
it has limited, or no options traded on its common stock to support
the use of an implied volatility or a combination of both
historical and implied volatility. The Company estimates the
expected life of options granted based on historical experience,
which it believes is representative of future
behavior. The dividend yield is not considered in the
option-pricing formula since the Company has not paid dividends in
the past and has no current plans to do so in the future. The
Company elected to estimate a forfeiture rate and is based on
historical experience and is adjusted based on actual
experience.
The
Company grants its options at exercise prices that are not less
than the fair market value of the Company’s common stock on
the date of grant. Stock options generally have a seven or ten-year
maximum contractual term and generally vest one-third on the first
anniversary of the grant date and ratably over twenty-four months,
thereafter. The vesting of certain stock options is contingent upon
the employees continued employment with the Company during the
vesting period and vesting may be accelerated under certain
conditions, including upon a change in control of the Company,
termination without cause of an employee and voluntary termination
by an employee with good reason.
Awards
granted under the Company’s stock option plans were estimated
to have a weighted average grant date fair value per share of
$1.77, $1.75 and $6.23 for the years ended December 31, 2019,
2018 and 2017, respectively, based on the Black-Scholes
option-pricing model on the date of grant using the following
weighted average assumptions:
|
|
Years Ended December 31,
|
||
|
|
2019
|
2018
|
2017
|
|
Expected
volatility
|
65%
|
68%
|
62%
|
|
Expected
risk-free interest rate
|
2.2%
|
2.6%
|
1.8%
|
|
Expected
life (years)
|
4.4
|
4.5
|
4.4
|
A
summary of the Company’s outstanding stock options as of
December 31, 2019, and changes during the year then ended is
presented below:
|
|
Number of
Options
|
Weighted
Average
Exercise Price
per Share
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|
|
|
|
(years)
|
(thousands)
|
|
Outstanding
at December 31, 2018
|
3,346,066
|
$7.10
|
4.3
|
$450
|
|
Granted
|
1,697,883
|
3.32
|
|
|
|
Exercised
|
(213,048)
|
1.92
|
|
476
|
|
Forfeited
or expired
|
(469,295)
|
7.86
|
|
|
|
Outstanding
at December 31, 2019
|
4,361,606
|
$5.80
|
4.8
|
$37
|
|
Vested
and expected to vest at December 31, 2019
|
4,101,178
|
$5.97
|
4.7
|
$35
|
|
Exercisable
at December 31, 2019
|
2,014,021
|
$8.78
|
3.3
|
$12
|
Service-Based
Options. During the
years ended December 31, 2019, 2018 and 2017, the Company granted
1,697,883, 2,056,700, and 466,600 service-based stock options,
which had weighted average grant date fair values of $1.77, $1.75
and $6.23, respectively.
Stock option
exercises. During 2019, there
were 213,048 options exercised, with an aggregate weighted average
exercise price of $1.92. During 2018, there were 28,467 options
were exercised, with an aggregate weighted average exercise price
of $3.39. During 2017, there were 248,344 options were exercised,
with an aggregate weighted average exercise price of $5.46. The
total intrinsic value of options exercised during 2019, 2018 and
2017 was $0.5 million, $0.1 million and $1.6 million,
respectively.
In
April 2018, the Company entered into an Inducement Stock Option
Award Agreement with the Company’s chief executive officer,
Jared Rowe (“Rowe Option
Award Agreement”). Pursuant to the Rowe Option Award
Agreement, Mr. Rowe was granted stock options to purchase 1,000,000
shares of common stock (“Rowe
Employment Options”), which will vest monthly in 36
monthly installments on the first day of each calendar month
following the date of grant. These options have an exercise price
of $3.26 per share and a term of seven years from the date of
grant. Upon a change in control of the Company or in the event of a
termination of Mr. Rowe’s employment by the Company without
cause or by Mr. Rowe with good reason, all unvested options will
vest. In the event of a termination of Mr. Rowe’s employment
with the Company by reason of Mr. Rowe’s death or disability,
the lesser of: (i) one-third of the total number of these options
and (ii) the total number of unvested options will vest upon the
date of termination.
Market Condition
Options. On January 21, 2016,
the Company granted 100,000 stock options to its former chief
executive officer (“Former
CEO”) with an exercise
price of $17.09 and grant date fair value of $1.47 per option,
using a Monte Carlo simulation model (“Former CEO Market Condition
Options”).
The Former CEO Market Condition Options were previously valued at
$2.94 per option but were revalued when the requisite stockholder
approval for the Company’s Amended and Restated 2014 Equity
Incentive Plan was obtained in June 2016. The Former CEO Market
Condition Options were subject to both stock price-based and
service-based vesting requirements.. On April 12, 2018, pursuant to the
stock option award agreement, vesting of then-unvested Former CEO
Market Condition Options was accelerated with the termination of
employment of the Former CEO, resulting in the recognition of
approximately $0.8 million of non-recurring share-based
compensation expense during the first quarter of 2018. The Former
CEO Market Condition Options may be exercised at any time on or
before April 13, 2020.
Market Condition
Options. In August 2019, the
Company awarded a total of 455,000 stock options of the
Company’s common stock to certain officers under the 2018
Equity Incentive Plan. In addition to the service-based
vesting described above, vesting of these options is subject to the
achievement of a performance condition based on the weighted
average closing price of the Company’s common stock on The
Nasdaq Capital Market reaching Five Dollars ($5.00) for 10
consecutive trading days. The weighted average grant date fair
value of these stock options was $1.69.
Restricted Stock Awards. The Company
granted an aggregate of 125,000 RSAs on April 23, 2015 in
connection with the promotion of one of its executive officers. Of
these 125,000 RSAs, 25,000 were service-based and 100,000 were
performance-based. The forfeiture restrictions of the service-based
RSAs lapse with respect to one-third of the restricted stock on
each of the first, second, and third anniversaries of the date of
the award. Forfeiture restrictions lapsed on 8,333 shares and 8,333
shares of restricted stock on April 23, 2016 and April 23, 2017,
respectively. During the year ended December 31, 2018, 8,333
of the foregoing service-based RSAs and 100,000 of the
performance-based RSAs were forfeited upon the resignation of this
executive officer.
The
Company granted an aggregate of 345,000 RSAs on September 27, 2017
to senior officers of the Company. These RSAs are service-based and
the forfeiture restrictions lapse with respect to one-third of the
restricted stock on each of the first, second, and third
anniversaries of the date of the award. During the year ended
December 31, 2018, 80,000 shares of RSAs were forfeited upon the
resignation of two executive officers, the forfeiture restrictions
on 175,000 shares of RSA lapsed upon the termination of employment
of the Former CEO and three officers of the Company, and the
forfeiture restrictions on 40,000 shares of RSAs were modified upon
the entry into a consulting agreement with a former executive
officer (with 26,666 of these 40,000 shares being forfeited in
2019). The Company recognized expense of $0.8 million related to
the acceleration of vesting and modification of these RSAs during
the year ended December 31, 2018. During the year ended December
31, 2019, the forfeiture restrictions on 3,333 shares of RSA lapsed
upon the termination of employment of a former officer of the
Company, and the Company recognized a de minims amount of expense
related to the acceleration of vesting of these RSAs during the
year ended December 31, 2019. As of December 31, 2019, 13,333
shares of RSAs remain unvested.
Options and Warrants Outstanding and Shares Available for New
Awards Under Stockholder-Approved Plans
As
of December 31, 2019, the Company had outstanding the following
options and warrants to purchase shares of common stock and shares
available for new Awards under stockholder-approved
plans:
|
|
Number
of Shares
|
|
Stock
options outstanding
|
4,361,606
|
|
Authorized
for future Award grants under stockholder-approved stock-based
incentive plans
|
1,974,833
|
|
Warrants
outstanding
|
1,482,400
|
|
Total
|
7,818,839
|
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,
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
$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 4.9% 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, 2020 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 2017 Annual
Meeting of Stockholders and will expire on May 26, 2020 unless that
date is advanced or extended by the Company’s Board of
Directors.
Warrant
On October 1, 2015 (“AWI Merger
Date”), AutoWeb entered
into and consummated an Agreement and Plan of Merger by and among
AutoWeb, New Horizon Acquisition Corp., a Delaware corporation and
a wholly owned subsidiary of AutoWeb (“Merger Sub”), Autobytel, Inc. (formerly AutoWeb,
Inc.), a Delaware corporation (“AWI”), and Jose Vargas, in his capacity as
Stockholder Representative. On the AWI Merger Date,
Merger Sub merged with and into AWI, with AWI continuing as the
surviving corporation and as a wholly owned subsidiary of
AutoWeb. AWI was a privately-owned company providing an
automotive search engine that enables Manufacturers and Dealers to
optimize advertising campaigns and reach highly-targeted car buyers
through an auction-based click marketplace. Prior to the
acquisition, the Company previously owned approximately 15% of the
outstanding shares of AWI, on a fully converted and diluted basis,
and accounted for the investment on the cost
basis.
The warrant to purchase up to 148,240 shares of
Series B Preferred Stock issued in connection with the acquisition
of AWI (“AWI Warrant”) was valued at $1.72 per share for a total
value of $2.5 million. The Company used an option
pricing model to determine the value of the AWI
Warrant. Key assumptions used in valuing the AWI Warrant
are as follows: risk-free rate of 1.9%, stock price volatility of
74.0% and a term of 7.0 years. The AWI Warrant was
valued based on long-term stock price volatilities of the
Company’s common stock. On June 22, 2017, the
Company received stockholder approval which resulted in the
automatic conversion of the AWI Warrant into warrants to acquire up
to 1,482,400 shares of the Company’s common stock at an
exercise price of $18.45 per share of common stock. The AWI Warrant
became exercisable on October 1, 2018, subject to the following
vesting conditions: (i) with respect to the first one-third of the
warrant shares, if at any time after the issuance date of the AWI
Warrant and prior to the expiration date of the AWI Warrant the
Weighted Average Closing Price of the Company’s common stock
is at or above $30.00; (ii) with respect to the second one-third of
the warrant shares, if at any time after the issuance date of the
AWI Warrant and prior to the expiration date the Weighted Average
Closing Price is at or above $37.50; and (iii) with respect to the
last one-third of the warrant shares, if at any time after the
issuance date of the AWI Warrant and prior to the expiration date
the Weighted Average Closing Price is at or above
$45.00. The AWI Warrant expires on October 1,
2022.
Stock Repurchase
On June 7, 2012, September 17, 2014 and September
6, 2017, the Company announced that its Board of Directors had
authorized the Company to repurchase up to $2.0 million, $1.0
million and $3.0 million of the Company’s common stock,
respectively. Under these repurchase programs, the Company
may repurchase common stock from time to time on the open market or
in private transactions. These authorizations do not require the
Company to purchase a specific number of shares, and the Board of
Directors may suspend, modify or terminate the programs at any
time. The Company will fund future repurchases through the use of
available cash. 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 2019 or 2018. As
of December 31, 2019, $2.3 million remains available for stock
repurchases under the program.
11.
Income Taxes
The
components of income (loss) before income tax provision are as
follows for the years ended December 31:
|
|
2019
|
2018
|
2017
|
|
|
(in thousands)
|
||
|
|
|
|
|
|
United
States
|
$(15,647)
|
$(39,334)
|
$(40,090)
|
|
International
|
428
|
512
|
565
|
|
Total
loss before income tax provision
|
$(15,219)
|
$(38,822)
|
$(39,525)
|
Income
tax expense (benefit) from continuing operations consists of the
following for the years ended December 31:
|
|
2019
|
2018
|
2017
|
|
|
(in thousands)
|
||
|
Current:
|
|
|
|
|
Federal
|
$—
|
$32
|
$—
|
|
State
|
10
|
(6)
|
36
|
|
Foreign
|
—
|
—
|
139
|
|
|
10
|
26
|
175
|
|
Deferred:
|
|
|
|
|
Federal
|
(2,065)
|
(6,213)
|
(2,916)
|
|
State
|
(417)
|
(1,188)
|
(175)
|
|
Foreign
|
—
|
—
|
—
|
|
|
(2,482)
|
(7,401)
|
(3,091)
|
|
|
|
|
|
|
Change
in federal tax rate
|
—
|
—
|
11,693
|
|
|
|
|
|
|
Valuation
allowance
|
2,482
|
7,369
|
16,662
|
|
|
|
|
|
|
Total
income tax expense (benefit)
|
$10
|
$(6)
|
$25,439
|
The
reconciliations of the U.S. federal statutory rate to the effective
income tax rate for the years ended December 31, 2019, 2018
and 2017 are as follows:
|
|
2019
|
2018
|
2017
|
|
Tax
provision at U.S. federal statutory rates
|
21.0%
|
21.0%
|
34.0%
|
|
State
income taxes net of federal benefit
|
3.0
|
3.2
|
2.7
|
|
Deferred
tax asset adjustments – NOL related
|
(0.4)
|
(0.2)
|
(12.1)
|
|
Non-deductible
permanent items
|
(0.3)
|
(0.2)
|
(0.1)
|
|
Stock
options
|
(3.2)
|
(3.4)
|
(0.1)
|
|
Goodwill
impairment
|
—
|
(1.5)
|
(17.5)
|
|
Other
|
(3.9)
|
(0.2)
|
0.3
|
|
Transition
tax adjustment
|
—
|
—
|
0.2
|
|
Change
in rate
|
—
|
—
|
(29.6)
|
|
Change
in valuation allowance
|
(16.3)
|
(18.7)
|
(42.2)
|
|
Effective
income tax rate
|
(0.1)%
|
0.0%
|
(64.4)%
|
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, 2019 and 2018 are as
follows:
|
|
2019
|
2018
|
|
|
(in thousands)
|
|
|
Deferred
tax assets:
|
|
|
|
Allowance
for doubtful accounts
|
$187
|
$143
|
|
Accrued
liabilities
|
826
|
781
|
|
Net
operating loss carryforwards
|
23,933
|
20,686
|
|
Intangible
assets
|
4,334
|
4,473
|
|
Share-based
compensation expense
|
2,120
|
2,250
|
|
Other
|
406
|
363
|
|
Total
gross deferred tax assets
|
31,806
|
28,696
|
|
Valuation
allowance
|
(31,168)
|
(28,687)
|
|
Total
deferred tax assets
|
638
|
9
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
Right
of use assets
|
(638)
|
—
|
|
Fixed
assets
|
—
|
(9)
|
|
Total
gross deferred tax liabilities
|
(638)
|
(9)
|
|
Net
deferred tax assets
|
$—
|
$—
|
On
December 22, 2017, the U.S. government enacted comprehensive tax
legislation known as the TCJA. The TCJA established new tax laws
that will take effect in 2018, including, but not limited to (i)
reduction of the U.S. federal corporate tax rate from a maximum of
35% to 21%; (ii) elimination of the corporate AMT; (iii) a new
limitation on deductible interest expense; (iv) the Transition Tax;
(v) limitations on the deductibility of certain executive
compensation; (vi) changes to the bonus depreciation rules for
fixed asset additions: and (vii) limitations on NOLs generated
after December 31, 2017, to 80% of taxable income.
ASC 740, “Income
Taxes”, requires the
effects of changes in tax laws to be recognized in the period in
which the legislation is enacted. However, due to the complexity
and significance of the TCJA’s provisions, the SEC staff
issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting
for the tax effects of the TCJA. SAB 118 provides a measurement
period that should not extend beyond one year from the TCJA
enactment date for companies to complete the accounting under ASC
740.
In
2017, we recorded provisional amounts for certain enactment date
effects of the TCJA, for which the accounting had not been
finalized, by applying the guidance in SAB 118. At December 31,
2017, the Company recorded a decrease in deferred tax assets and
deferred tax liabilities of $11.7 million and $0.0 million,
respectively, with a corresponding net adjustment to deferred
income tax expense of $11.7 million for the year ended December 31,
2017. In addition, the Company recognized a deemed repatriation of
$0.6 million of deferred foreign income from its Guatemala
subsidiary, which did not result in any incremental tax cost after
application of foreign tax credits. Accordingly, we completed our
accounting for the effects of the TCJA in 2018 and did not
recognize any material adjustments to the 2017 provisional income
tax expense.
The
TCJA created a provision known as GILTI that imposes a U.S. tax on
certain earnings of foreign subsidiaries that are subject to
foreign tax below a certain threshold. We have made an accounting
policy election to reflect GILTI taxes, if any, as a current income
tax expense in the period incurred.
The
Company adopted the provisions of ASU 2016-09 as of January 1,
2017, which requires recognition through opening retained earnings
of 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
all income tax effects from share-based payments arising on or
after January 1, 2017 in income tax expense. As a result, the
Company has recognized $18.4 million of pre-adoption date NOL
carryforwards with remaining carryforward periods of at least seven
years. The Company recognized excess tax benefits of $6.5 million
as an increase to deferred tax assets and a cumulative-effect
adjustment to retained earnings of $6.5 million. Based on the
weight of available evidence, the Company believes that it is more
likely than not that these NOLs will not be realized and has placed
a valuation allowance against the deferred tax asset.
During
2017, management assessed the available positive and negative
evidence to estimate if sufficient future taxable income will be
generated to utilize the existing deferred tax assets. A
significant piece of objective negative evidence evaluated was the
cumulative losses incurred over the three-year period 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 due to goodwill
impairment. The Company experienced increased costs in servicing
its customers, as well as a decrease in market share resulting from
increased competition. Additionally, the Company also projected
that 2018 pre-tax profits, if any, may not offset the cumulative
three-year pre-tax loss as of December 31, 2017. Based on this
evaluation, the Company recorded an additional valuation allowance
of $16.7 million against its deferred tax assets during the year
ended December 31, 2017. At December 31, 2017, the Company has
recorded a valuation allowance of $21.3 million against its
deferred tax assets.
During
2019 and 2018, the Company continued to experience losses and is
not projecting taxable income in the near future. Based on this
evaluation, the Company recorded an additional valuation allowance
of $2.5 million and $7.4 million against its deferred tax assets
during the years ended 2019 and 2018, respectively. Based on the
weight of available evidence, the Company believes that it is more
likely than not that these deferred tax assets will not be
realized
At
December 31, 2019, the Company had federal and state NOLs of
approximately $100.5 million and $46.2 million,
respectively. $26.4 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 2038 as
follows (in millions):
The
federal NOLs expire through 2035 as follows (in
millions):
|
2025
|
$4.2
|
|
2026
|
25.5
|
|
2027
|
15.5
|
|
2028
|
5.2
|
|
2029
|
7.7
|
|
2030
|
10.6
|
|
2031
|
1.3
|
|
2032
|
—
|
|
2033
|
0.1
|
|
2034
|
2.5
|
|
2035
|
1.5
|
|
Do
not expire
|
26.4
|
|
|
$100.5
|
The
state NOLs expire through 2038 as follows (in
millions):
|
2028
|
$2.6
|
|
2029
|
5.8
|
|
2030
|
11.0
|
|
2034
|
1.4
|
|
2035
|
0.8
|
|
2038
|
2.3
|
|
2039
|
2.4
|
|
California
NOLs
|
26.3
|
|
Other
State NOLs
|
19.9
|
|
Total
State NOLs
|
$46.2
|
Utilization
of the NOLs and tax credit carry-forwards may be subject to a
substantial annual limitation due to ownership change limitations
that may have occurred or that could occur in the future, as
required by Section 382 of the IRC, as well as similar state
provisions. These ownership changes may limit the amount of NOLs
and research and development credit carry-forwards that can be
utilized annually to offset future taxable income and tax,
respectively. A Section 382 ownership change occurred in
2006 and any changes have been reflected in the NOLs presented
above as of December 31, 2019. As a result of an
acquisition in 2001, approximately $9.9 million of the NOLs are
subject to an annual limitation of approximately $0.5 million per
year.
The
federal and state NOLs begin to expire in 2025 and 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, 2019, the Company has federal and state research and
development tax credit carryforwards of $0.3 million and $0.2
million, respectively. The federal credits begin to
expire in 2021. The state credits do not
expire.
As
of December 31, 2019, and 2018, the Company had unrecognized tax
benefits of approximately $0.5 million and $0.5 million,
respectively, all of which, if subsequently recognized, would have
affected the Company’s tax rate. A reconciliation
of the beginning and ending amount of unrecognized tax benefits is
as follows:
|
|
2019
|
2018
|
|
|
(in thousands)
|
|
|
Balance
at January 1,
|
$464
|
$464
|
|
Reductions
based on tax positions related to prior years and
settlements
|
—
|
—
|
|
Balance
at December 31,
|
$464
|
$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 2015 (except for the use of tax losses generated
prior to 2015 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,
2019 and 2018.
12.
Selected Quarterly Financial Data (Unaudited)
The
following table presents quarterly unaudited consolidated financial
information for the eight quarters preceding December 31,
2019. Such information is presented on the same basis as the annual
information presented in the accompanying consolidated financial
statements. In management’s opinion, this information
reflects all normal recurring adjustments that are necessary for a
fair statement of the results for these periods.
|
|
Quarter Ended
|
|||||||
|
|
Dec 31,
2019
|
Sep 30,
2019
|
Jun 30,
2019
|
Mar 31,
2019
|
Dec 31,
2018
|
Sep 30,
2018 (1)
|
Jun 30,
2018
|
Mar 31,
2018 (2)
|
|
|
(in thousands, except per-share amounts)
|
|||||||
|
Total
net revenues
|
$26,687
|
$28,552
|
$27,142
|
$31,604
|
$32,253
|
$31,695
|
$29,292
|
$32,349
|
|
Gross
profit (loss)
|
$5,522
|
$5,907
|
$5,384
|
$5,757
|
$5,640
|
$(3,597)
|
$5,527
|
$7,690
|
|
Net
income (loss)
|
$(3,177)
|
$(1,739)
|
$(4,953)
|
$(5,360)
|
$(5,285)
|
$(18,036)
|
$(5,217)
|
$(10,279)
|
|
Basic
earnings (loss) per share
|
$(0.24)
|
$(0.13)
|
$(0.38)
|
$(0.41)
|
$(0.41)
|
$(1.41)
|
$(0.41)
|
$(0.81)
|
|
Diluted
earnings (loss) per share
|
$(0.24)
|
$(0.13)
|
$(0.38)
|
$(0.41)
|
$(0.41)
|
$(1.41)
|
$(0.41)
|
$(0.81)
|
(1)
Net
loss in the quarter ended September 30, 2018 included license
intangible asset impairment of $9.0 million and customer
relationship intangible asset impairment of $1.6
million.
(2)
Net
loss in the quarter ended March 31, 2018 included goodwill
impairment of $5.1 million.
13.
Subsequent Events
New Credit Facility
On
March 26, 2020, the Company entered into a Loan, Security and
Guarantee Agreement (“CNC
Credit Agreement”) by and among CIT Northbridge Credit
LLC, as Agent (“Lender”), the Company, as
Borrower, and the Company’s U.S. subsidiaries Car.com, Inc.,
Autobytel, Inc., and AW GUA USA, Inc., as Guarantors
(“Company
Subsidiaries”).
The CNC
Credit Agreement provides for a $20,000,000 revolving credit
facility (“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 Subsidiaries and secured by a first priority lien on
all of the Company’s and the Company Subsidiaries’
tangible and intangible assets. The CNC Credit Agreement has a
minimum borrowing usage requirement of $8,000,000, which will
increase to $10,000,000 on June 30, 2020, and the Company is
required to maintain a minimum of $3,000,000 of availability under
the CNC Credit Agreement.
The
interest rate per annum applicable to borrowings under the CNC
Credit Agreement will be the LIBO Rate plus 5.5%. The LIBO Rate
will be equal to the greater of (i) 1.75% and (ii) the rate
determined by the Lender to be equal to the quotient obtained by
dividing (1) the LIBO Base Rate (i.e., the rate per annum
determined by Lender 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). In the event
LIBOR-based rates or loans are no longer available or quoted, then
Lender and the Company may replace LIBOR with an alternate
benchmark rate (any such proposed rate, a “LIBOR Successor Rate”); provided
that if no LIBOR Successor Rate has been determined or agreed upon,
(i) the obligation of lenders to make or maintain LIBOR loans
shall be suspended, and (ii) the LIBO Base Rate component
shall no longer be utilized in determining the Base Rate. In
such an event, the Company may revoke any pending request for a
borrowing based on LIBOR loans or, failing that, will be deemed to
have converted the borrowing request into a request for a borrowing
bearing interest at the Base Rate (i.e., for any day 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; and (iii)
the most recently available LIBO Base Rate (as adjusted by any
minimum LIBO Rate floor) plus 1%) plus 5.5%. Upon commencement, the
interest rate will be 7.25%.
There
is a one-time origination fee of $300,000. In addition, the Company
will pay annual fees of (i) 0.5% on any unused portion of the
Credit Facility and (ii) 0.15% of the aggregate revolver amount as
an administration fee.
Subject
to customary provisions regarding earlier termination, the CNC
Credit Agreement expires on March 26, 2023.
The CNC
Credit Agreement contains customary representations and warranties
and certain covenants that limit the ability of the Company and the
Company Subsidiaries to, among other things: (i) incur or guarantee
additional indebtedness; (ii) create or suffer to exist any liens
on Company assets; (iii) make investments or acquisitions; (iv)
dissolve, liquidate, consolidate, merge or wind-up its affairs; (v)
sell or otherwise transfer or dispose of assets; (vi) engage in
transactions with affiliates; (vii) make loans; or (viii) declare
or make distributions on its equity interest.
F-28
The CNC
Credit Agreement also contains customary events of default
including, without limitation: a breach of the representations and
warranties made in the loan documents entered into in connection
with the CNC Credit Agreement; failure to make required payments;
failure to comply with certain agreements or covenants;
cross-defaults to certain other indebtedness in excess of specified
amounts; certain events of bankruptcy and insolvency; failure to
pay certain judgments; a change in control; or any event that or
conditions exists that has a material adverse effect on the Company
or impairs the ability of the Company to perform its obligations
under the CNC Credit Agreement or the ability of the Lender or
lenders to enforce their rights under the CNC Credit Agreement. If
such an event of default occurs, the Lender would be entitled to
take various actions set forth in the CNC Credit Agreement,
including the acceleration of amounts due thereunder and all
actions permitted to be taken by a creditor.
Concurrently with
entering into the CNC Credit Agreement, the Company terminated its
Revolving Credit and Security Agreement dated April 30, 2019 by and
among PNC Bank, National Association, as Agent, the Company and the
Company Subsidiaries.
On
January 9, 2020, the Company discovered that its network was
impacted by malware that encrypted servers on most systems and
disrupted consumer and customer access to many of our services. In
connection with this incident, third-party consultants and forensic
experts have been engaged to assist with the restoration and
remediation of systems and to investigate the incident. All
impacted systems are now operational, and the Company has not
discovered evidence that causes the Company to conclude that there
was any unauthorized access to or acquisition of any consumer
personal information or customer confidential
information.
Coronavirus
In
early 2020 and continuing as of the date of this Annual Report on
Form 10-K, the outbreak of a novel coronavirus (COVID-19) 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 and facilities, worldwide,
causing widespread disruptions to travel, economic activity and
financial markets. The outbreak has led the Company’s
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 and
availability of their labor force. Recent volatility in the
financial markets, concerns about exposure to the virus and
governmental quarantines and stay-at-home/work-from-home orders
have also impacted consumer confidence and willingness to visit
dealerships and to purchase or lease vehicles. These disruptions
have impacted the willingness or desire of the Company’s
customers to acquire vehicle Leads or other digital marketing
services from the Company. The Company is also experiencing direct
disruptions in its operations due to the overall health 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. At this time, the
eventual extent and magnitude of the disruptions caused by the
outbreak on the automotive industry in general and on the Company
specifically are not known, but vehicle sales have declined
significantly in recent weeks, and the Company is experiencing
cancellations or suspensions of purchases of Leads and other
digital marketing services by its customers, which could materially
and adversely affect the Company’s business, results of operations, financial
condition, earnings per share, cash flow or the trading price of
the Company’s stock.
SCHEDULE II—VALUATION
AND QUALIFYING ACCOUNTS
|
|
Years Ended December 31,
|
||
|
|
2019
|
2018
|
2017
|
|
|
(in thousands)
|
||
|
Allowance
for bad debts:
|
|
|
|
|
Beginning
balance
|
$445
|
$679
|
$643
|
|
Additions
|
330
|
241
|
347
|
|
Write-offs
|
(229)
|
(475)
|
(311)
|
|
Ending
balance
|
$546
|
$445
|
$679
|
|
Allowance
for customer credits:
|
|
|
|
|
Beginning
balance
|
$121
|
$213
|
$371
|
|
Additions
|
250
|
198
|
247
|
|
Write-offs
|
(177)
|
(290)
|
(405)
|
|
Ending
balance
|
$194
|
$121
|
$213
|
|
Tax
valuation allowance:
|
|
|
|
|
Beginning
balance
|
$28,687
|
$21,318
|
$4,656
|
|
Charged
(credited) to tax expense
|
2,481
|
7,369
|
21,247
|
|
Charged
(credited) to retained earnings
|
—
|
—
|
(4,585)
|
|
Ending
balance
|
$31,168
|
$28,687
|
$21,318
|
F-30