Investor Relations

Financial Statements

 
AUTOBYTEL INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except share and per-share data)
 
   
June 30,
2016
   
December 31,
2015*
  
Assets
 
(Unaudited)
         
Current assets:
             
Cash and cash equivalents
 
$
27,137
   
$
23,993
 
Accounts receivable, net of allowances for bad debts and customer credits of $1,001 and $1,045 at June 30, 2016 and December 31, 2015, respectively
   
28,687
     
28,091
 
Deferred tax asset
   
4,163
     
3,642
 
Prepaid expenses and other current assets
   
1,004
     
1,276
 
Total current assets
   
60,991
     
57,002
 
Property and equipment, net
   
4,976
     
4,296
 
Investments
   
680
     
680
 
Intangible assets, net
   
26,681
     
29,515
 
Goodwill
   
42,821
     
42,903
 
Long-term deferred tax asset
   
17,820
     
17,820
 
Other assets
   
1,631
     
1,372
 
Total assets
 
$
155,600
   
$
153,588
 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
 
$
9,857
   
$
7,643
 
Accrued expenses and other current liabilities
   
9,707
     
10,744
 
Current portion of term loan payable
   
5,250
     
 5,250
 
Total current liabilities
   
24,814
     
23,637
 
Convertible note payable
   
1,000
     
1,000
 
Long-term portion of term loan payable
   
10,125
     
12,750
 
Borrowings under revolving credit facility
   
8,000
     
8,000
 
Total liabilities
   
43,939
     
45,387
 
Commitments and contingencies
   
     
 
Stockholders’ equity:
               
Preferred stock, $0.001 par value, 11,445,187 shares authorized
               
Series A Preferred stock, none issued and outstanding
   
     
 
Series B Preferred stock, 168,007 shares issued and outstanding
   
     
 
Common stock, $0.001 par value; 55,000,000 shares authorized and 10,785,097 and 10,626,624 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
   
11
     
11
 
Additional paid-in capital
   
346,190
     
342,485
 
Accumulated deficit
   
(234,540
)
   
(234,295
)
Total stockholders’ equity
   
111,661
     
108,201
 
Total liabilities and stockholders’ equity
 
$
155,600
   
$
153,588
 
 
* Amounts were derived from audited financial statements
 
See accompanying notes to unaudited consolidated condensed financial statements
 
 
AUTOBYTEL INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands, except per-share data)

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
                         
Revenues:
                       
Lead fees
 
$
30,508
   
$
27,854
   
$
62,504
   
$
52,022
 
Advertising
   
5,275
     
2,036
     
9,041
     
3,635
 
Other revenues
   
365
     
497
     
850
     
973
 
Total revenues
   
36,148
     
30,387
     
72,395
     
56,630
 
Cost of revenues
   
22,227
     
18,617
     
44,839
     
34,762
 
Gross profit
   
13,921
     
11,770
     
27,556
     
21,868
 
Operating expenses:
                               
Sales and marketing
   
4,384
     
3,736
     
10,061
     
7,320
 
Technology support
   
3,645
     
2,546
     
7,832
     
4,377
 
General and administrative
   
3,686
     
3,208
     
7,059
     
6,254
 
Depreciation and amortization
   
1,254
     
604
     
2,540
     
1,089
 
Litigation settlements
   
4
     
(25
)
   
(1
)
   
(50
)
Total operating expenses
   
12,973
     
10,069
     
27,491
     
18,990
 
                                 
Operating income
   
948
     
1,701
     
65
     
2,878
 
Interest and other income (expense), net
   
(213
)
   
(183
)
   
(437
)
   
(330
)
Income (loss) before income tax provision (benefit)
   
735
     
1,518
     
(372
)
   
2,548
 
Income tax provision (benefit)
   
305
     
647
     
(127
)
   
903
 
Net income (loss) and comprehensive income (loss)
 
$
430
   
$
871
   
$
(245
)
 
$
1,645
 
                                 
Basic earnings (loss) per common share
 
$
0.04
   
$
0.09
   
$
(0.02
)
 
$
0.17
 
                                 
Diluted earnings (loss) per common share
 
$
0.03
   
$
0.08
   
$
(0.02
)
 
$
0.16
 

 
See accompanying notes to unaudited consolidated condensed financial statements.

 
AUTOBYTEL INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
 
   
Six Months Ended
June 30,
 
   
2016
   
2015
 
                 
Cash flows from operating activities:
               
Net income (loss)
  $ (245 )   $ 1,645  
Adjustments to reconcile net income (loss)  to net cash provided by operating activities:
               
Depreciation and amortization
    3,620       1,354  
Provision for bad debts
    141       146  
Provision for customer credits
    340       252  
Share-based compensation
    2,230       1,205  
Change in deferred tax asset
    (521 )     4,414  
Changes in assets and liabilities:
               
Accounts receivable
    (995 )     (195 )
Prepaid expenses and other current assets
    280       (1,897 )
Other assets
    116       (3,667 )
Accounts payable
    2,214       2,604  
Accrued expenses and other current liabilities
    (1,037 )     (3,137 )
Non-current liabilities
    25       (261
Net cash provided by operating activities
    6,168       2,463  
Cash flows from investing activities:
               
Purchase of Dealix/Autotegrity
          (25,011 )
Investment in GoMoto
    (375  )      
Purchases of property and equipment
    (1,466 )     (809 )
Net cash used in investing activities
    (1,841 )     (25,820 )
Cash flows from financing activities:
               
Borrowings under credit facility
          2,750  
Borrowings under term loan
          15,000  
Payments on term loan borrowings
    (2,625 )     (1,125
Proceeds from exercise of stock options
    1,467       113  
Proceeds from exercise of warrant
          1,860  
Payment of contingent fee arrangement
    (25 )     (13 )
Net cash (used in) provided by financing activities
    (1,183 )     18,585  
Net increase (decrease) in cash and cash equivalents
    3,144       (4,772 )
Cash and cash equivalents, beginning of period
    23,993       20,747  
Cash and cash equivalents, end of period
  $ 27,137     $ 15,975  
                 
Supplemental disclosure of cash flow information:
               
Cash paid for income taxes
  $ 155     $ 189  
Cash paid for interest
  $ 450     $ 370  
 
See accompanying notes to unaudited consolidated condensed financial statements.
 
 
AUTOBYTEL INC.
 
1. Organization and Operations
 
Autobytel Inc. (“ Autobytel ” or the “ Company ”) is an automotive marketing services company that assists automotive retail dealers (“ Dealers ”) and automotive manufacturers (“ Manufacturers ”) market and sell new and used vehicles through the Company’s programs for online lead referrals (“ Leads ”), Dealer marketing products and services, online advertising programs and consumer traffic referral programs and mobile products.
 
The Company’s consumer-facing automotive websites (“ Company Websites ”), including its flagship website Autobytel.com®, provide consumers with information and tools to aid them with their automotive purchase decisions and the ability to submit inquiries requesting Dealers to contact the consumers regarding purchasing or leasing vehicles (“ Vehicle Leads ”). For consumers who may not be able to secure loans through conventional lending sources, the Company Websites provide these consumers the ability to submit inquiries requesting Dealers or other lenders that may offer vehicle financing to these consumers to contact the consumers regarding vehicle financing (“ Finance Leads ”). The Company’s mission for consumers is to be “Your Lifetime Automotive Advisor®” by engaging consumers throughout the entire lifecycle of their automotive needs.
 
The Company was incorporated in Delaware on May 17, 1996. Its principal corporate offices are located in Irvine, California. The Company’s common stock is listed on The NASDAQ Capital Market under the symbol ABTL.
 
On October 1, 2015 (“ AutoWeb Merger Date ”), Autobytel entered into and consummated an Agreement and Plan of Merger by and among Autobytel, New Horizon Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Autobytel (“ Merger Sub ”), AutoWeb, Inc., a Delaware corporation (“ AutoWeb ”), and Jose Vargas, in his capacity as Stockholder Representative.  On the AutoWeb Merger Date, Merger Sub merged with and into AutoWeb, with AutoWeb continuing as the surviving corporation and as a wholly-owned subsidiary of Autobytel.  AutoWeb was a privately-owned company providing an automotive search engine that enables Manufacturers and Dealers to optimize advertising campaigns and reach car buyers through an auction-based marketplace.  Prior to the acquisition, the Company owned approximately 15% of the outstanding shares of AutoWeb, on a fully converted and diluted basis, and accounted for the investment on the cost basis.  See Note 4.
 
In connection with the AutoWeb acquisition, Autobytel obtained AutoWeb’s Guatemalan website, software development and operations, which were previously provided as a contract service provider organization through Endine Enterprises Corp., a British Virgin Islands business company effectively controlled by AutoWeb. The Company terminated this arrangement and now provides and maintains the forgoing services and operations under a wholly-owned, indirect Guatemalan subsidiary of Autobytel, with employees located in Guatemala.
 
On May 21, 2015 (“ Dealix/Autotegrity Acquisition Date ”), Autobytel and CDK Global, LLC, a Delaware limited liability company (“ CDK ”), entered into and consummated a Stock Purchase Agreement in which Autobytel acquired all of the issued and outstanding shares of common stock in Dealix Corporation, a California corporation (“ Dealix ”) and subsidiary of CDK, and Autotegrity, Inc., a Delaware corporation (“ Autotegrity ”) and subsidiary of CDK (Dealix and Autotegrity are collectively, “ Dealix/Autotegrity ”).  Dealix provides new and used car Leads to automotive dealerships, Dealer groups and Manufacturers, and Autotegrity is a consumer Leads acquisition and analytics business.  See Note 4. 

2. Basis of Presentation
 
The accompanying unaudited consolidated condensed financial statements are presented on the same basis as the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“ 2015 Form 10-K ”) filed with the Securities and Exchange Commission (“ SEC ”).  Autobytel has made its disclosures in accordance with U.S. generally accepted accounting principles (“ GAAP ”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation with respect to interim financial statements, have been included.  The consolidated condensed statements of operations and comprehensive income (loss) and cash flows for the periods ended June 30, 2016 and 2015 are not necessarily indicative of the results of operations or cash flows expected for the year or any other period.  The unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the 2015 Form 10-K.  
 
 
3.  Recent Accounting Pronouncements
 
  Accounting Standards Codification 606 “Revenue from Contracts with Customers.”   In May 2014, Accounting Standards Update (“ ASU ”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” was issued.  This ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in GAAP when it becomes effective.  Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method.  In August 2015, the Financial Accounting Standards Board (“ FASB ”) voted to defer the effective date and it is now effective for public entities for annual periods ending after December 15, 2017.  Early adoption of the standard is permitted, but not before the original effective date of December 15, 2016. This update permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect this guidance will have on the consolidated financial statements and related disclosures.

Accounting Standards Codification 606 “Revenue from Contracts with Customers.”   In April 2016, ASU No. 2016-10, “Identifying Performance Obligations and Licensing” was issued.  This ASU clarifies 1) the identification of performance obligations and, 2) licensing implementation guidance as it relates to Topic 606, Revenue from Contracts with Customers.  The amendments in this ASU affect the guidance in ASU 2014-09, which is effective for public entities for annual periods ending after December 15, 2017.

Accounting Standards Codification 606 “Revenue from Contracts with Customers.”   In May 2016, ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients” was issued.  This ASU addresses certain issues as it relates to assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition as it relates to Topic 606, Revenue from Contracts with Customers.  The amendments in this ASU affect the guidance in ASU 2014-09, which is effective for public entities for annual periods ending after December 15, 2017.

Accounting Standards Codification 740 “Income Taxes.”   In November 2015, ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” was issued.  This ASU requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.  The amendments in this Update apply to all entities that present a classified statement of financial position.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  The Company believes this ASU will be immaterial to the consolidated financial statements.

Accounting Standards Codification 842 “Leases.”   In February 2016, ASU No. 2016-02, “Leases (Topic 842)” was issued.  This ASU will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases of terms more than 12 months.  The ASU will require both capital and operating leases to be recognized on the balance sheet.  Qualitative and quantitative disclosures will also be required to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.  The ASU will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The Company has yet to determine if this ASU will be material to the consolidated financial statements.

Accounting Standards Codification 323 “Investments-Equity Method and Joint Ventures.”   In March 2016, ASU No. 2016-07, “Simplifying the Transition to the Equity Method of Accounting” was issued.  This ASU eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment was held.  The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.  Thus, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.  The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016.  Earlier application is permitted. The Company has yet to determine if this ASU will be material to the consolidated financial statements.

Accounting Standards Codification 718 “Compensation-Stock Compensation.”   In March 2016, ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” was issued.  This ASU provides for areas of simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted in any interim or annual period.  The Company has yet to determine if this ASU will be material to the consolidated financial statements.


4.  Acquisition
 
Acquisition of AutoWeb

On the AutoWeb Merger Date, Merger Sub merged with and into AutoWeb, with AutoWeb continuing as the surviving corporation and as a wholly-owned subsidiary of Autobytel. 
 
The AutoWeb Merger Date fair value of the consideration transferred totaled $23.8 million consisting of (i) 168,007 newly issued shares of Series B Junior Participating Convertible Preferred Stock, par value $0.001 per share, of Autobytel (“ Series B Preferred Stock ”); (ii) warrants to purchase up to 148,240 shares of Series B Preferred Stock (“ AutoWeb Warrants ”), at an exercise price per share of $184.47 (reflecting 10 times the $16.77 closing price of a share of the Company’s common stock, $0.001 par value per share (“ Common Stock ”) , plus a ten percent (10%) premium) and (iii) $0.3 million in cash to cancel vested, in-the-money options to acquire shares of AutoWeb common stock.  As a result of accounting for the transaction as a business combination achieved in stages, the Company also recorded $0.6 million as a gain to the pre-merger investment in AutoWeb.  The results of operations of AutoWeb have been included in the Company’s results of operations since the AutoWeb Merger Date.

   
(in thousands)
 
Series B Preferred Stock
 
$
20,989
 
Series B Preferred warrants to purchase 148,240 shares of Series B Preferred Stock
   
2,542
 
Cash
   
279
 
Fair value of prior ownership in AutoWeb
   
4,016
 
   
$
27,826
 

The shares of Series B Preferred Stock are convertible, subject to certain limitations, into ten (10) shares of Common Stock.  All shares will automatically convert upon stockholder approval.
 
The AutoWeb Warrants were valued at $1.72 per share for a total value of $2.5 million.  The Company used a Monte Carlo simulation model to determine the value of the AutoWeb Warrants.  Key assumptions used in valuing the AutoWeb Warrants are as follows: risk-free rate of 1.9%, stock price volatility of 74.0% and a term of 7.0 years.  The AutoWeb Warrants become exercisable on October 1, 2018, subject to the following vesting conditions: (i) with respect to the first one-third (1/3) of the warrant shares, if at any time after the issuance date of the AutoWeb Warrants and prior to the expiration date of the AutoWeb Warrants the weighted average closing price of the Common Stock for the preceding 30 trading days (adjusted for any stock splits, stock dividends, reverse stock splits or combinations of the Common Stock occurring after the issuance date) (“ Weighted Average Closing Price ”) is at or above $30.00; (ii) with respect to the second one-third (1/3) of the warrant shares, if at any time after the issuance date of the AutoWeb Warrants and prior to the expiration date the Weighted Average Closing Price is at or above $37.50; and (iii) with respect to the last one-third (1/3) of the warrant shares, if at any time after the issuance date of the AutoWeb Warrants and prior to the expiration date the Weighted Average Closing Price is at or above $45.00.  The AutoWeb Warrants expire on October 1, 2022.
 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the AutoWeb Merger Date.  
 
   
(in thousands)
 
Net identifiable assets acquired:
       
Total tangible assets acquired
 
$
4,456
 
Total liabilities assumed
   
543
 
Net identifiable assets acquired
   
3,913
 
Definite-lived intangible assets acquired
   
17,690
 
Goodwill
   
5,954
 
   
$
27,557
 

 
The fair value of the acquired intangible assets was determined using the below valuation approaches. In estimating the fair value of the acquired intangible assets, the Company utilized the valuation methodology determined to be most appropriate for the individual intangible asset being valued as described below. The intangible assets related to the AutoWeb acquisition include the following:

 
 
Valuation Method
 
Estimated
Fair Value
   
Estimated
Useful Life (1)
 
     
(in thousands)
   
(years)
 
               
Customer relationships
Excess of earnings (2)
 
$
7,470
     
4
 
Trademark/trade names
Relief from Royalty (3)
   
2,600
     
6
 
Developed technology
Excess of earnings (4)
   
7,620
     
7
 
     Total purchased intangible assets
   
$
17,690
         

(1)  
Determination of the estimated useful lives of the individual categories of purchased intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from such intangible asset. Amortization of intangible assets with definite lives is recognized over the shorter of the respective life of the agreement or the period of time the assets are expected to contribute to future cash flows.
 
 
(2)
The excess of earnings method estimates a purchased intangible asset's value based on the present value of the prospective net cash flows (or excess earnings) attributable to it. The value attributed to these intangibles was based on projected net cash inflows from existing contracts or relationships.
 
 
(3)
The relief from royalty method is an earnings approach which assesses the royalty savings an entity realizes since it owns the asset and isn’t required to pay a third party a license fee for its use.
 
 
(4)
The excess of earnings method estimates a purchased intangible asset's value based on the present value of the prospective net cash flows (or excess earnings) attributable to it. The method takes into account technological and economic obsolescence of the technology.
 
 
Additionally, in connection with the acquisition of AutoWeb, the Company entered into non-compete agreements with key executives of AutoWeb.  The fair value of the AutoWeb non-compete agreements was $270,000 and was derived by calculating the difference between the present value of the Company’s forecasted cash flows with the agreements in place and without the agreements in place.  The Company is amortizing the value of the AutoWeb non-compete agreements over two years.
 
Some of the more significant estimates and assumptions inherent in the estimate of the fair value of the identifiable purchased intangible assets include all assumptions associated with forecasting cash flows and profitability. The primary assumptions used for the determination of the fair value of the purchased intangible assets were generally based upon the discounted present value of anticipated cash flows. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.

The goodwill recognized of $6.0 million was attributable primarily to expected synergies and the assembled workforce of AutoWeb.  The Company incurred approximately $1.1 million of acquisition-related costs related to the AutoWeb acquisition, of which $52,000 was expensed in the second quarter of 2016.
 
Acquisition of Dealix/Autotegrity

On the Dealix/Autotegrity Acquisition Date, Autobytel acquired all of the issued and outstanding shares of common stock of Dealix and Autotegrity.  The Company acquired Dealix/Autotegrity to further expand its reach and influence in the industry by increasing its Dealer network.
 
The Dealix/Autotegrity Acquisition Date fair value of the consideration transferred totaled $25.0 million in cash (plus a working capital adjustment of $11,000).  The results of operations of Dealix/Autotegrity have been included in the Company’s results of operations since the Dealix/Autotegrity Acquisition Date.

 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the Dealix/Autotegrity Acquisition Date. During the six months ended June 30, 2016, the Company made adjustments to the purchase price allocation due to changes in accounts receivable and sales tax payable acquired.
   
   
(in thousands)
 
Net identifiable assets acquired:
       
Total tangible assets acquired
 
$
9,778
 
Total liabilities assumed
   
2,520
 
Net identifiable assets acquired
   
7,258
 
         
Definite-lived intangible assets acquired
   
7,655
 
Indefinite-lived intangible assets acquired
   
2,200
 
Goodwill
   
7,358
 
   
$
24,471
 
 
The fair value of the acquired intangible assets was determined using the below valuation approaches. In estimating the fair value of the acquired intangible assets, the Company utilized the valuation methodology determined to be most appropriate for the individual intangible asset being valued as described below. The intangible assets related to the Dealix/Autotegrity acquisition include the following:

 
 
Valuation Method
 
Estimated
Fair Value
 
Estimated
Useful Life (1)
     
(in thousands)
 
(years)
           
Customer relationships
Excess of earnings (2)
 
$
7,020
 
10
Trademark/trade names – Autotegrity
Relief from Royalty (3)
   
120
 
3
Trademark/trade names – UsedCars.com
Relief from Royalty (3)
   
2,200
 
Indefinite
Developed technology
Cost Approach (4)
   
515
 
3
     Total purchased intangible assets
   
$
9,855
   
 
(1)  
Determination of the estimated useful lives of the individual categories of purchased intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from such intangible asset. Amortization of intangible assets with definite lives is recognized over the shorter of the respective life of the agreement or the period of time the assets are expected to contribute to future cash flows.
 
 
(2)
The excess of earnings method estimates a purchased intangible asset's value based on the present value of the prospective net cash flows (or excess earnings) attributable to it. The value attributed to these intangibles was based on projected net cash inflows from existing contracts or relationships.
 
 
(3)
The relief from royalty method is an earnings approach which assesses the royalty savings an entity realizes since it owns the asset and isn’t required to pay a third party a license fee for its use.
 
 
(4)
The cost approach estimates the cost required to repurchase or reproduce the intangible assets. The method takes into account technological and economic obsolescence of the technology.
 
 
Additionally, in connection with the acquisition of Dealix/Autotegrity, the Company entered into non-compete agreements with CDK and a key executive of Dealix/Autotegrity.  The fair values of the non-compete agreements with CDK and the key executive were $0.5 million and  $40,000, respectively, and were derived by calculating the difference between the present value of the Company’s forecasted cash flows with the agreements in place and without the agreements in place.  The Company is amortizing the value of the non-compete agreements with CDK and the key executive over two and one year(s), respectively.
 
Some of the more significant estimates and assumptions inherent in the estimate of the fair value of the identifiable purchased intangible assets include all assumptions associated with forecasting cash flows and profitability. The primary assumptions used for the determination of the fair value of the purchased intangible assets were generally based upon the discounted present value of anticipated cash flows. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.

The goodwill recognized of $7.3 million was attributable primarily to expected synergies and the assembled workforce of Dealix/Autotegrity.  The Company incurred approximately $1.7 million of acquisition-related costs related to the Dealix/Autotegrity acquisition, of which $0.1 million was expensed in the second quarter of 2016.


Pro forma information for Dealix/Autotegrity and AutoWeb

The following unaudited pro forma information presents the consolidated results of the Company, Dealix/Autotegrity and AutoWeb for the three and six months ended June 30, 2015, with adjustments to give effect to pro forma events that are directly attributable to the acquisition and have a continuing impact, but excludes the impact of pro forma events that are directly attributable to the acquisition and are one-time occurrences. The unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the results of operations of future periods, the results of operations that actually would have been realized had the entities been a single company during the periods presented or the results of operations that the combined company will experience after the acquisition. The unaudited pro forma information does not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with the acquisition. The unaudited pro forma information also does not include any integration costs or remaining future transaction costs that the companies may incur as a result of the acquisition and combining the operations of the companies.

The unaudited pro forma consolidated results of operations, assuming the acquisition had occurred on January 1, 2015, are as follows:
 
   
Three Months
Ended
June 30, 2015
   
Six Months
Ended
June 30, 2015
 
   
(in thousands)
 
Unaudited pro forma consolidated results:
           
Revenues
  $ 37,466     $ 76,100  
Net income
  $ 1,190     $ 2,692  

  5.  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, excluding any unvested restricted stock. 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 methods, during the period. Potential common shares consist of common shares issuable upon the exercise of stock options, common shares issuable upon the exercise of warrants, common shares issuable upon conversion of convertible notes and unvested restricted stock.  The following are the share amounts utilized to compute the basic and diluted net earnings (loss) per share for the three and six months ended June 30, 2016 and 2015:
 
   
Three Months Ended
June 30,
   
Six Months Ended
 June 30,
 
   
2016
   
2015
   
2016
   
2015
 
Basic Shares:
                               
Weighted average common shares outstanding
   
10,711,404
     
10,017,204
     
10,672,656
     
9,451,967
 
Weighted average unvested restricted stock
   
(118,773
)
   
(93,407
)
   
(121,887
)
   
(46,961
)
Basic Shares
   
10,592,631
     
9,923,797
     
10,550,769
     
9,405,006
 
                                 
Diluted Shares:
                               
Basic shares
   
10,592,631
     
9,923,797
     
10,550,769
     
9,405,006
 
Weighted average dilutive securities
   
2,702,724
     
1,133,317
     
     
1,013,759
 
Diluted Shares
   
13,295,355
     
11,057,114
     
10,550,769
     
10,418,765
 
 
For the three months ended June 30, 2016, weighted average dilutive securities included dilutive options, restricted stock awards, the warrant issued in connection with the acquisition of AutoUSA, LLC (“ AutoUSA ”) and shares issued in connection with the AutoWeb acquisition.  For the three months ended June 30, 2015, weighted average dilutive securities included dilutive options, restricted stock awards and the AutoUSA warrant.  For the six months ended June 30, 2015, weighted average dilutive securities included dilutive options and restricted stock awards.

 
For the three and six months ended June 30, 2016, 1.8 million and 4.5 million of potentially anti-dilutive shares of common stock have been excluded from the calculation of diluted net earnings (loss) per share, respectively.  For the three and six months ended June 30, 2015, 1.4 million and 1.5 million of potentially anti-dilutive shares of common stock have been excluded from the calculation of diluted net earnings per share, respectively.
 
  On June 7, 2012, the Company announced that its board of directors had authorized the Company to repurchase up to $2.0 million of Company Common Stock, and on September 17, 2014 the Company announced that the board of directors had approved the repurchase of up to an additional $1.0 million of Company Common Stock.  The authorization may be increased or otherwise modified, renewed, suspended or terminated by the Company at any time, without prior notice.  The Company may repurchase Common Stock from time to time on the open market or in private transactions. Shares repurchased under this program have been retired and returned to the status of authorized and unissued shares.  The Company funded repurchases and anticipates that the Company would fund future repurchases through the use of available cash. The repurchase authorization does not obligate the Company to repurchase any particular number of shares.  The timing and actual number of repurchases of additional shares, if any, under the Company’s stock repurchase program will depend upon a variety of factors, including price, market conditions, release of quarterly and annual earnings and other legal, regulatory and corporate considerations at the Company’s sole discretion.  The impact of repurchases on the Company’s Tax Benefit Preservation Plan, as amended, and on the Company’s use of its net operating loss carryovers and other tax attributes if the Company were to experience an “ownership change,” as defined in Section 382 of the Internal Revenue Code, is also a factor that the Company considers in connection with share repurchases.  No shares were repurchased in the three and six months ended June 30, 2016 and June 30, 2015, respectively.

Warrants.   The warrant to purchase 69,930 shares of Company common stock issued in connection with the acquisition of AutoUSA on January 13, 2014 (“ AutoUSA Acquisition Date ”) was valued at $7.35 per share for a total value of $0.5 million (“ AutoUSA Warrant ”).  The Company used an option pricing model to determine the value of the AutoUSA Warrant.  Key assumptions used in valuing the AutoUSA Warrant are as follows: risk-free rate of 1.6%, stock price volatility of 65.0% and a term of 5.0 years.  The AutoUSA Warrant was valued based on long-term stock price volatilities of the Company.  The exercise price of the AutoUSA Warrant is $14.30 per share (as may be adjusted for stock splits, stock dividends, combinations and other similar events).  The AutoUSA Warrant becomes exercisable on January 13, 2017 and expires on January 13, 2019.  The right to exercise the AutoUSA Warrant is accelerated in the event of a change in control of the Company.

For information regarding the AutoWeb Warrants, see Note 4.
 
6. Share-Based Compensation
 
Share-based compensation expense is included in costs and expenses in the accompanying Unaudited Consolidated Condensed Statements of Operations and Comprehensive Income (Loss) as follows:

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
   
(in thousands)
 
Share-based compensation expense:
                       
Cost of revenues
 
$
14
   
$
38
   
$
28
   
$
63
 
Sales and marketing [1]
   
341
     
146
     
974
     
287
 
Technology support [2]
   
98
     
153
     
429
     
227
 
General and administrative [3]
   
418
     
217
     
807
     
634
 
Share-based compensation costs
   
871
     
554
     
2,238
     
1,211
 
                                 
Amount capitalized to internal use software
   
5
     
2
     
8
     
6
 
Total share-based compensation costs
 
$
866
   
$
552
   
$
2,230
   
$
1,205
 
 
(1) 
Certain awards were modified in connection with the termination of an executive officer’s employment with the Company and their vesting accelerated in accordance with the terms of the applicable option agreements.  The total expense related to these modifications and acceleration of vested awards was approximately $0.3 million in the six months ended June 30, 2016.

(2) 
The vesting of certain awards was accelerated in accordance with the terms of the applicable option agreements in connection with the termination of an executive officer’s employment with the Company.  The total expense related to acceleration of vested awards was approximately $0.2 million in the six months ended June 30, 2016.

(3) 
Certain awards were modified in accordance with the Company’s former Chief Financial Officer’s consulting agreement and their vesting accelerated in accordance with the terms of the applicable option agreements.  The total expense related to these modifications and acceleration of vested awards was approximately $0.2 million in the six months ended June 30, 2015.
 
 
Service-Based Options.   The Company granted the following service-based options for the three and six months ended June 30, 2016 and 2015:  
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
                         
Number of service-based options granted
   
62,500
     
269,500
     
491,400
     
584,550
 
Weighted average grant date fair value
 
$
6.75
   
$
6.75
   
$
7.94
   
$
5.62
 
Weighted average exercise price
 
$
14.18
   
$
14.60
   
$
16.75
   
$
12.24
 

These options are valued using a Black-Scholes option pricing model and generally vest one-third on the first anniversary of the grant date and ratably over twenty-four months thereafter.  The vesting of these awards is contingent upon the employee’s continued employment with the Company during the vesting period.
 
Market Condition Options.   On January 21, 2016, the Company granted 100,000 stock options to its chief executive officer with an exercise price of $17.09 and grant date fair value of $2.94 per option, using a Monte Carlo simulation model (“ CEO Market Condition Options ”).  The CEO Market Condition Options are subject to both stock price-based and service-based vesting requirements that must be satisfied for the CEO Market Condition Options to vest and become exercisable. The CEO Market Condition Options provide that the stock price-based vesting condition will be met (i) with respect to the first one-third (1/3) of the CEO Market Condition Options, if at any time after the grant date and prior to the expiration date of the CEO Market Condition Options the weighted average closing price of the Company’s common stock on The Nasdaq Capital Market for the preceding thirty (30) trading days (adjusted for any stock splits, stock dividends, reverse stock splits or combinations occurring after the issuance date) (“ Weighted Average Closing Price ”) is at or above $30.00; (ii) with respect to the second one-third (1/3) of the CEO Market Condition Options, if at any time after the grant date and prior to the expiration date the Weighted Average Closing Price is at or above $37.50; and (iii) with respect to the last one-third (1/3) of the CEO Market Condition Options, if at any time after the grant date and prior to the expiration date the Weighted Average Closing Price is at or above $45.00. With respect to any of the CEO Market Condition Options for which the stock price-based requirements are met, these options are also subject to the following service-based vesting schedule: (i) thirty-three and one-third percent (33 1/3%) of these options will vest and become exercisable on January 21, 2017 and (ii) one thirty-sixth (1/36 th ) of these options will vest and become exercisable on each successive monthly anniversary thereafter for the following twenty-four months ending on January 21, 2019.
 
Stock option exercises .  The following stock options were exercised for the three and six months ended June 30, 2016 and 2015, respectively:  
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
                         
Number of stock options exercised
   
104,634
     
18,821
     
158,473
     
19,074
 
Weighted average exercise price
 
$
7.35
   
$
5.90
   
$
9.26
   
$
5.92
 

The grant date fair value of stock options granted during these periods was estimated using the Black-Scholes option pricing model using the following weighted average assumptions:
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
                         
Dividend yield
   
     
     
     
 
Volatility
   
59
%
   
57%
     
58
%
   
56
%
Risk-free interest rate
   
1.1
%
   
1.3%
     
1.3
%
   
1.3
%
Expected life (years)
   
4.4
     
4.4
     
4.4
     
4.4
 

 
Restricted Stock Awards.   The Company granted an aggregate of 125,000 restricted stock awards (“ RSAs ”) on April 23, 2015 in connection with the promotion of one of its executive officers.  Of the 125,000 RSAs, 25,000 were service-based 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.  This executive officer was also awarded 100,000 shares of the Company’s common stock in the form of performance-based restricted stock.  The shares are subject to forfeiture upon the earlier of (such earliest date being referred to as the “ Termination Date ”) (i) a termination of the executive officer’s employment with the Company; (ii) March 31, 2018; and (iii) other events of forfeiture set forth in the award agreement, subject to the following: (i) the forfeiture restrictions with respect to 50,000 of the restricted shares will lapse if any time prior to the Termination Date the weighted average closing price of the Company’s common stock for the preceding 30 trading days is at or above $30.00 per share, and (ii) the forfeiture restrictions with respect to any of the restricted shares that remain subject to forfeiture restrictions will lapse if any time prior to the Termination Date the weighted average closing price of the Company’s common stock for the preceding 30 trading days is at or above $45.00 per share.  None of the forfeiture restrictions had lapsed during the six months ended June 30, 2016.
 
7. Investments

  The Company’s investments at June 30, 2016 and December 31, 2015 consisted primarily of investments in privately-held SaleMove, Inc., a Delaware corporation (“ SaleMove ”),   and GoMoto, Inc ., a Delaware corporation (“GoMoto”) .

In September 2013, the Company entered into a Convertible Note Purchase Agreement with SaleMove in which Autobytel invested $150,000 in SaleMove in the form of an interest bearing, convertible promissory note.  In November 2014, the Company invested an additional $400,000 in SaleMove in the form of an interest bearing, convertible promissory note.  Upon closing of a preferred stock financing by SaleMove in July 2015, these two notes were converted in accordance with their terms into an aggregate of 190,997 Series A Preferred Stock, which shares are classified as a long-term investment on the consolidated balance sheet as of June 30, 2016.
 
In October 2013, the Company entered into a Reseller Agreement with SaleMove to become a reseller of SaleMove’s technology for enhancing communications with consumers.  SaleMove’s technology allows Dealers and Manufacturers to enhance the online shopping experience by interacting with consumers in real-time, including live video, audio and text-based chat or by phone. The Company and SaleMove will equally share in revenues from automotive-related sales of the SaleMove products and services. In connection with this reseller arrangement, the Company advanced to  SaleMove $1.0 million to fund SaleMove’s fifty percent share of various product development, marketing and sales costs and expenses, with the advanced funds to be recovered by the Company from SaleMove’s share of sales revenue.  SaleMove advances are repaid to the Company from SaleMove’s share of net revenues from the reseller agreement.  As of June 30, 2016, the net advances due from SaleMove totaled $631,000.
 
In December 2014, the Company entered into a Series Seed Preferred Stock Purchase Agreement with GoMoto in which the Company paid $100,000 for 317,460 shares of Series Seed Preferred Stock, $0.001 par value per share.  The $100,000 investment in GoMoto was recorded at cost because the Company does not have significant influence over GoMoto.  In October 2015 and May 2016, the Company invested an additional $375,000 and $375,000, respectively, in GoMoto 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 on or after October 28, 2017 upon demand or at GoMoto’s option ten days’ written notice unless converted prior to the maturity date.  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 the maturity date of the convertible note.  The GoMoto Notes are recorded at cost and classified as an other long-term asset on the consolidated balance sheet as of June 30, 2016.

8. Selected Balance Sheet Accounts
 
Property and Equipment .  Property and equipment consists of the following:
 
   
June 30,
   
December 31,
 
   
2016
   
2015
 
   
(in thousands)
 
Computer software and hardware and capitalized internal use software
 
$
17,189
   
$
15,741
 
Furniture and equipment
   
1,431
     
1,419
 
Leasehold improvements
   
1,429
     
1,424
 
     
20,049
     
18,584
 
Less – Accumulated depreciation and amortization
   
(15,073
)
   
(14,288
)
Property and equipment, net
 
$
4,976
   
$
4,296
 
 
 
The Company periodically reviews long-lived assets to determine if there are any impairment indicators.  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. The Company’s judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of the Company’s long-lived assets.  If such indicators exist, the Company evaluates 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. Should the carrying amount of an asset exceed 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 the fair value of these assets using an undiscounted cash flow model, which includes assumptions and estimates.
 
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 and accounts receivable. Cash and cash equivalents are primarily maintained with two high credit quality financial institutions in the United States. Deposits held by banks exceed the amount of insurance provided for such deposits. These deposits may be redeemed upon demand.
 
 Accounts receivable are primarily derived from fees billed to Dealers and Manufacturers.  The Company generally requires no collateral to support its accounts receivables and maintains an allowance for bad debts for potential credit losses.
 
The Company has a concentration of credit risk with its automotive industry related accounts receivable balances, particularly with Urban Science Applications (which represents Acura, Audi, Honda, Nissan, Infiniti, Scion, Subaru, Toyota, Volkswagen and Volvo), General Motors and Ford Direct. During the first six months of 2016, approximately 27% of the Company’s total revenues was derived from these three customers, and approximately 43%, or $12.8 million of gross accounts receivables, related to these three customers at June 30, 2016.
 
During the first six months of 2015, approximately 29% of the Company’s total revenues was derived from General Motors, Urban Science Applications and Ford Direct, and approximately 37%, or $10.3 million of gross accounts receivables, related to these three customers at June 30, 2015.
 
Intangible Assets.   The Company amortizes specifically identified intangible assets using the straight-line method over the estimated useful lives of the assets. In connection with the acquisitions of Cyber Ventures, Inc., Advanced Mobile, LLC, AutoUSA, Dealix/Autotegrity and AutoWeb, the Company identified $38.1 million of intangible assets.  The Company’s intangible assets are amortized over the following estimated useful lives:
 
         
June 30, 2016
   
December 31, 2015
 
Intangible Asset
   
Estimated
Useful Life
   
Gross
Accumulated
Amortization
   
Net
   
Gross
   
Accumulated Amortization
   
Net
 
           
(in thousands)
 
Trademarks/trade names/licenses/domains
   
5 years – Indefinite
    $ 11,494     $ (6,416 )   $ 5,078     $ 11,494     $ (6,071 )   $ 5,423  
Software and publications
   
3 years
      1,300       (1,300 )           1,300       (1,300 )      
Customer relationships
   
2-10 years
      19,563       (5,903 )     13,660       19,563       (4,341 )     15,222  
Employment/non-compete agreements
   
5 years
      1,510       (1,064 )     446       1,510       (849 )     661  
Developed technology
   
1-5 years
      8,955       (1,458 )     7,497       8,955       (746 )     8,209  
            $ 42,822     $ (16,141 )   $ 26,681     $ 42,822     $ (13,307 )   $ 29,515  
 
 
Amortization expense for the remainder of the year and for the next five years is as follows:

Year
 
Amortization Expense
 
   
(in thousands)
 
2016
 
$
2,807
 
2017
   
5,427
 
2018
   
5,052
 
2019
   
3,655
 
2020
   
2,224
 
2021
   
2,116
 
   
$
21,281
 
 
Goodwill.   Goodwill represents the excess of the purchase price over the fair value of net assets acquired.  Goodwill is not amortized and is assessed annually for impairment or earlier, when events or circumstances indicate that the carrying value of such assets may not be recoverable.  The Company did not record impairment related to goodwill as of December 31, 2015 and June 30, 2016.

Goodwill consisted of the following (in thousands):

Goodwill as of December 31, 2015
 
$
42,903
 
Current year activity
   
(82
)
Goodwill as of June 30, 2016
 
$
42,821
 
 
During the six months ended June 30, 2016, the Company made adjustments to the Dealix/Autotegrity purchase price allocation due to changes in accounts receivable and sales tax payable acquired, and adjusted goodwill accordingly.

Accrued Expenses and Other Current Liabilities .  Accrued expenses and other current liabilities consisted of the following:
 
   
June 30,
   
December 31,
 
   
2016
   
2015
 
   
(in thousands)
 
Compensation and related costs and professional fees
 
$
2,907
   
$
3,981
 
Other accrued expenses
   
5,722
     
5,715
 
Amounts due to customers
   
556
     
486
 
Other current liabilities
   
522
     
562
 
Total accrued expenses and other current liabilities
 
$
9,707
   
$
10,744
 
  
Convertible notes payable .  In connection with the acquisition of AutoUSA, 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 include a market yield of 1.6% and stock price volatility of 65.0%.  As the AutoUSA Note was issued with a substantial premium, the Company recorded the premium as additional paid-in capital.  Interest is payable at an annual interest rate of 6% in quarterly installments.  The entire outstanding balance of the AutoUSA Note is to be paid in full on January 31, 2019.  At any time after January 31, 2017, the holder of the AutoUSA Note may convert all or any part, but at least 30,600 shares, of the then outstanding and unpaid principal of the AutoUSA Note into fully paid shares of the Company's common stock at a conversion price of $16.34 per share (as adjusted for stock splits, stock dividends, combinations and other similar events).  The right to convert the AutoUSA Note into common stock of the Company is accelerated in the event of a change in control of the Company.  In the event of default, the entire unpaid balance of the AutoUSA Note will become immediately due and payable and will bear interest at the lower of 8% per year and the highest legal rate permissible under applicable law.
 
 
9. Credit Facility

On June 1, 2016, the Company entered into a Fourth Amendment to Loan Agreement (“ Credit Facility Amendment ”) with MUFG Union Bank, N.A., formerly Union Bank, N.A. (“ Union Bank ”), amending the Company’s existing Loan Agreement with Union Bank initially entered into on February 26, 2013, as amended on September 10, 2013, January 13, 2014 and May 20, 2015 (the existing Loan Agreement, as amended to date, is referred to collectively as the “ Credit Facility Agreement ”).  The Credit Facility Agreement provided for a $9.0 million term loan (“ Term Loan 1 ”).  The Credit Facility Amendment provides for (i) a new $15.0 million term loan (“ Term Loan 2 ”); (ii) the amendment of certain financial covenants in the Credit Facility Agreement; and (iii) amendments to the Company’s existing $8.0 million working capital revolving line of credit (“ Revolving Loan ”).

Term Loan 1 is amortized over a period of four years, with fixed quarterly principal payments of $562,500. Borrowings under Term Loan 1 bear interest at either (i) the bank’s Reference Rate (prime rate) minus 0.50% or (ii) the LIBOR plus 2.50%, at the option of the Company. Interest under Term Loan 1 adjusts (i) at the end of each LIBOR rate period (1, 2, 3, 6 or 12 months terms) selected by the Company, if the LIBOR rate is selected; or (ii) with changes in Union Bank’s Reference Rate, if the Reference Rate is selected.  Borrowings under Term Loan 1 are secured by a first priority security interest on all of the Company’s personal property (including, but not limited to, accounts receivable) and proceeds thereof. Term Loan 1 matures on December 31, 2017.  Borrowing under Term Loan 1 was limited to use for the acquisition of AutoUSA, and the Company drew down the entire $9.0 million of Term Loan 1, together with $1.0 million under the Revolving Loan, in financing this acquisition.  The outstanding balance of Term Loan 1 as of June 30, 2016 was $3.4 million.
 
Term Loan 2 is amortized over a period of five years, with fixed quarterly principal payments of $750,000. Borrowings under Term Loan 2 bear interest at either (i) the London Interbank Offering Rate (“ LIBOR ”) plus 3.00% or (ii) the bank’s Reference Rate (prime rate), at the option of the Company. Borrowings under the Revolving Loan bear interest at either (i) the LIBOR plus 2.50% or (ii) the bank’s Reference Rate (prime rate) minus 0.50%, at the option of the Company. Interest under both Term Loan 2 and the Revolving Loan adjust (i) at the end of each LIBOR rate period (1, 2, 3, 6 or 12 months terms) selected by the Company, if the LIBOR rate is selected; or (ii) with changes in Union Bank’s Reference Rate, if the Reference Rate is selected. The Company paid an upfront fee of .10% of the Term Loan 2 principal amount upon drawing upon Term Loan 2 and also pays a commitment fee of 0.10% per year on the unused portion of the Revolving Loan, payable quarterly in arrears. Borrowings under Term Loan 2 and the Revolving Loan are secured by a first priority security interest on all of the Company’s personal property (including, but not limited to, accounts receivable) and proceeds thereof. Term Loan 2 matures June 30, 2020, and the maturity date of the Revolving Loan was extended from March 31, 2017 to April 30, 2018. Borrowings under the Revolving Loan may be used as a source to finance working capital, capital expenditures, acquisitions and stock buybacks and for other general corporate purposes. Borrowing under Term Loan 2 was limited to use for the acquisition of Dealix/Autotegrity, and the Company drew down the entire $15.0 million of Term Loan 2, together with $2.75 million under the Revolving Loan and $6.76 million from available cash on hand, in financing this acquisition.  The outstanding balances of Term Loan 2 and the Revolving Loan as of June 30, 2016 were $12.0 million and $8.0 million, respectively.

The Credit Facility Agreement contains certain customary affirmative and negative covenants and restrictive and financial covenants, including that the Company maintain specified levels of minimum consolidated liquidity and quarterly and annual earnings before interest, taxes and depreciation and amortization, which the Company was in compliance with as of June 30, 2016.
 
10. Commitments and Contingencies
 
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 by the Company without cause or by the employee 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. The actions filed against the Company and other 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.

 
11. Income Taxes
 
On an interim basis, the Company estimates what its anticipated annual effective tax rate will be and records a quarterly income tax provision (benefit) in accordance with the estimated annual rate, plus the tax effect of certain discrete items that arise during the quarter.  As the fiscal year progresses, the Company refines its estimates based on actual events and financial results during the year.  This process can result in significant changes to the Company’s estimated effective tax rate.  When this occurs, the income tax provision (benefit) is adjusted during the quarter in which the estimates are refined so that the year-to-date provision reflects the estimated annual effective tax rate.  These changes, along with adjustments to the Company's deferred taxes and related valuation allowance, may create fluctuations in the overall effective tax rate from quarter to quarter.
 
The Company’s effective tax rate for the three and six months ended June 30, 2016 differed from the U.S. federal statutory rate primarily due to unrecognized tax benefits, state income taxes and permanent non-deductible tax items.
 
The total amount of unrecognized tax benefits, excluding associated interest and penalties, was $0.5 million as of June 30, 2016, all of which, if subsequently recognized, would have affected the Company’s tax rate.
 
The total balance of accrued interest and penalties related to uncertain tax positions was $11,000 and $10,000 as of June 30, 2016 and December 31, 2015, respectively.  The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense, and the accrued interest and penalties are included in deferred and other long-term liabilities in the Company’s condensed consolidated balance sheets.  There were no material interest or penalties included in income tax expense (benefit) for the three and six months ended June 30, 2016 and June 30, 2015.
 
The Company is subject to taxation in the U.S. and in various foreign and state jurisdictions.  Due to expired statutes of limitation, the Company’s federal income tax returns for years prior to calendar year 2012 are not subject to examination by the U.S. Internal Revenue Service.  Generally, for the majority of state jurisdictions where the Company does business, periods prior to calendar year 2011 are no longer subject to examination.  The Company is currently under examination by the State of Michigan for the years 2011 through 2014, but does not anticipate any material adjustments.  The Company does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.  Audit outcomes and the timing of settlements are subject to significant uncertainty.
 
 
 

 
 
AUTOBYTEL INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Amounts in thousands, except per-share data)
 
 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Lead fees
 
$
36,202
 
 
$
36,459
 
 
$
98,706
 
 
$
88,480
 
Advertising
 
 
7,371
 
 
 
3,211
 
 
 
16,412
 
 
 
6,846
 
Other revenues
 
 
338
 
 
 
505
 
 
 
1,188
 
 
 
1,479
 
Total revenues
 
 
43,911
 
 
 
40,175
 
 
 
116,306
 
 
 
96,805
 
Cost of revenues
 
 
28,156
 
 
 
24,878
 
 
 
72,995
 
 
 
59,639
 
Gross profit
 
 
15,755
 
 
 
15,297
 
 
 
43,311
 
 
 
37,166
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
 
 
3,964
 
 
 
4,109
 
 
 
14,026
 
 
 
11,430
 
Technology support
 
 
2,943
 
 
 
3,574
 
 
 
10,775
 
 
 
7,952
 
General and administrative
 
 
3,346
 
 
 
3,600
 
 
 
10,405
 
 
 
9,854
 
Depreciation and amortization
 
 
1,270
 
 
 
720
 
 
 
3,809
 
 
 
1,808
 
Litigation settlements
 
 
(24
)
 
 
(25
)
 
 
(25
)
 
 
(75
)
Total operating expenses
 
 
11,499
 
 
 
11,978
 
 
 
38,990
 
 
 
30,969
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
 
4,256
 
 
 
3,319
 
 
 
4,321
 
 
 
6,197
 
Interest and other income (expense), net
 
 
(206
)
 
 
(216
)
 
 
(643
)
 
 
(546
)
Income before income tax provision
 
 
4,050
 
 
 
3,103
 
 
 
3,678
 
 
 
5,651
 
Income tax provision
 
 
1,312
 
 
 
1,488
 
 
 
1,185
 
 
 
2,391
 
Net income and comprehensive income
 
$
2,738
 
 
$
1,615
 
 
$
2,493
 
 
$
3,260
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.26
 
 
$
0.16
 
 
$
0.23
 
 
$
0.33
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
0.21
 
 
$
0.14
 
 
$
0.19
 
 
$
0.30
 
 
See accompanying notes to unaudited consolidated condensed financial statements.
 
 
 
-2-
AUTOBYTEL INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
 
 
 
Nine Months Ended
September 30,
 
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
 
 
Net income
 
$
2,493
 
 
$
3,260
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
5,492
 
 
 
2,262
 
Provision for bad debts
 
 
225
 
 
 
343
 
Provision for customer credits
 
 
411
 
 
 
716
 
Share-based compensation
 
 
3,171
 
 
 
1,889
 
Change in deferred tax asset
 
 
553
 
 
 
5,663
 
Changes in assets and liabilities:
 
 
 
 
 
 
 
 
Accounts receivable
 
 
(4,590
)
 
 
(1,159
)
Prepaid expenses and other current assets
 
 
196
 
 
 
(1,217
)
Other assets
 
 
156
 
 
 
(3,627
)
Accounts payable
 
 
3,747
 
 
 
1,879
 
Accrued expenses and other current liabilities
 
 
189
 
 
 
(2,137
)
Non-current liabilities
 
 
38
 
 
 
(261
)
Net cash provided by operating activities
 
 
12,081
 
 
 
7,611
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
Purchase of Dealix/Autotegrity
 
 
 
 
 
(25,011
)
Investment in GoMoto
 
 
(375
)
 
 
 
Purchases of property and equipment
 
 
(1,871
)
 
 
(1,810
)
Net cash used in investing activities
 
 
(2,246
)
 
 
(26,821
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
Borrowings under credit facility
 
 
 
 
 
2,750
 
Borrowings under term loan
 
 
 
 
 
15,000
 
Payments on term loan borrowings
 
 
(3,938
)
 
 
(2,437
)
Proceeds from exercise of stock options
 
 
2,877
 
 
 
113
 
Proceeds from exercise of warrant
 
 
 
 
 
1,860
 
Payment of contingent fee arrangement
 
 
(38
)
 
 
(25
)
Net cash (used in) provided by financing activities
 
 
(1,099
)
 
 
17,261
 
Net increase (decrease) in cash and cash equivalents
 
 
8,736
 
 
 
(1,949
)
Cash and cash equivalents, beginning of period
 
 
23,993
 
 
 
20,747
 
Cash and cash equivalents, end of period
 
$
32,729
 
 
$
18,798
 
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
 
Cash paid for income taxes
 
$
261
 
 
$
329
 
Cash paid for interest
 
$
661
 
 
$
659
 
 
See accompanying notes to unaudited consolidated condensed financial statements.
 
 
 
-3-