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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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 22239
autobytel.com inc.
(Exact name of Registrant as specified in its charter)
Delaware 33-0711569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
18872 MacArthur Boulevard 92612
Irvine, California (Zip Code)
(Address of principal executive offices)
(949) 225-4500
(Registrant's telephone number, including area code)
------------------------------
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [X]
As of April 30, 1999, there were 17,874,502 shares of the Registrant's Common
Stock outstanding.
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INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1: Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998........... 3
Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998 .... 5
Notes to Consolidated Financial Statements................................................... 6
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations........ 7
PART II. OTHER INFORMATION
ITEM 2: Changes in Securities and Use of Proceeds.................................................... 26
ITEM 4: Submission of Matters to a Vote of Security Holders.......................................... 26
ITEM 6: Exhibits and Reports on Form 8-K............................................................. 27
Signatures............................................................................................ 28
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AUTOBYTEL.COM INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents, includes restricted amounts of
$212 and $248, respectively $ 99,818 $ 27,984
Accounts receivable, net of allowance for doubtful accounts
of $413 and $402, respectively 2,694 2,315
Prepaid expenses and other current assets 1,487 1,353
--------- ---------
Total current assets 103,999 31,652
Property and equipment, net 2,019 2,208
Other assets 345 347
--------- ---------
Total assets $ 106,363 $ 34,207
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,564 $ 2,915
Accrued expenses 1,779 915
Deferred revenue 4,239 4,008
Customer deposits 539 345
Other current liabilities 90 33
--------- ---------
Total current liabilities 14,211 8,216
Deferred rent 122 123
--------- ---------
Total liabilities 14,333 8,339
--------- ---------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, Series A, $0.001 par value; 1,500,000 shares
authorized; no and 1,500,000 shares
issued and outstanding at March 31, 1999 and December 31, -- 2
1998, respectively
Convertible preferred stock, Series B, $0.001 par value; 967,915 shares
authorized; no and 967,915 shares issued
and outstanding at March 31, 1999 and December 31, 1998, -- 1
respectively
Convertible preferred stock, Series C, $0.001 par value; 6,977,272 shares
authorized; no and 4,968,738 shares issued
and outstanding at March 31, 1999 and December 31, 1998, -- 4
respectively
Common stock, $0.001 par value; 50,000,000 shares authorized;
17,873,241 and 8,506,455 shares issued and outstanding at 18 8
March 31, 1999 and December 31, 1998, respectively
Warrants 1,332 1,332
Additional paid-in capital 140,109 67,813
Cumulative translation adjustment (15) (19)
Accumulated deficit (49,414) (43,273)
--------- ---------
Total stockholders' equity 92,030 25,868
--------- ---------
Total liabilities and stockholders' equity $ 106,363 $ 34,207
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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AUTOBYTEL.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1999 1998
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<S> <C> <C>
Revenues $ 8,032 $ 4,632
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Operating expenses:
Sales and marketing 9,957 8,459
Product and technology
development 2,366 1,895
General and administrative 1,817 1,346
----------- -----------
Total operating expenses 14,140 11,700
----------- -----------
Loss from operations (6,108) (7,068)
Other income, net 8 185
----------- -----------
Loss before provision for income taxes (6,100) (6,883)
Provision for income taxes 41 15
----------- -----------
Net loss $ (6,141) $ (6,898)
=========== ===========
Basic and diluted net loss per share $ (0.68) $ (0.83)
=========== ===========
Shares used in computing basic and diluted
net loss per share 9,029,203 8,324,443
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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AUTOBYTEL.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,141) $ (6,898)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 360 265
Provision for bad debt 47 104
Loss on disposal of property and equipment 51 --
Amortization of deferred compensation -- 1
Fair market value of stock options in excess of exercise price 225 --
Changes in assets and liabilities:
Accounts receivable (426) 55
Prepaid expenses and other current assets (134) 424
Other assets 2 (241)
Accounts payable 4,649 727
Accrued expenses 864 8
Deferred revenue 231 224
Customer deposits 194 319
Other current liabilities 57 (15)
Deferred rent (1) 10
-------- --------
Net cash used in operating activities (22) (5,017)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (222) (321)
-------- --------
Net cash used in investing activities (222) (321)
-------- --------
Cash flows from financing activities:
Issuance of notes payable -- 157
Proceeds from sale of common stock 72,074 --
-------- --------
Net cash provided by financing activities 72,074 157
-------- --------
Effect of exchange rates on cash 4 (4)
-------- --------
Net increase in cash and cash equivalents 71,834 (5,185)
Cash and cash equivalents, at beginning of period 27,984 15,813
-------- --------
Cash and cash equivalents, at end of period $ 99,818 $ 10,628
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 41 $ 15
======== ========
Cash paid during the period for interest $ -- $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data.)
1. ORGANIZATION AND OPERATIONS OF AUTOBYTEL.COM
autobytel.com inc. (Autobytel.com) is an internationally branded Internet site
for new and pre-owned vehicle information and purchasing services. Through its
Web site (www.autobytel.com), consumers can research pricing, specifications and
other information related to new and pre-owned vehicles and, when consumers
indicate they are ready to buy, can be connected to Autobytel.com's network of
participating dealers. Autobytel.com also provides other related services such
as financing, leasing, vehicle warranties and insurance. Autobytel.com's
services are free to consumers and, to date, Autobytel.com has derived
substantially all of its revenues from fees paid by subscribing dealers located
in the United States and Canada.
Since inception, Autobytel.com has invested the majority of its efforts in
marketing its brand name and developing infrastructure to support anticipated
future operating growth. As a result, Autobytel.com has experienced significant
operating losses and had an accumulated deficit of $49,414 at March 31, 1999.
Prior to the consummation of Autobytel.com's initial public offering on March
31, 1999, such losses were financed primarily through private placements of
preferred stock (See Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements
The accompanying interim consolidated financial statements as of March 31,
1999, and for the three months ended March 31, 1999 and 1998, are unaudited. The
unaudited interim consolidated financial statements have been prepared on the
same basis as the annual consolidated financial statements and, in the opinion
of Autobytel.com's management, reflect all adjustments, which are of a normal
recurring nature, necessary to present fairly Autobytel.com's financial position
as of March 31, 1999, and the results of its operations and its cash flows for
the three months ended March 31, 1999 and March 31, 1998. Autobytel.com's
results for an interim period are not necessarily indicative of the results that
may be expected for the year.
Although Autobytel.com believes that all adjustments necessary for a fair
presentation of the interim periods presented are included and that the
disclosures are adequate, these consolidated financial statements and notes
thereto are unaudited and should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1998 included in Autobytel.com's Prospectus filed with the Securities and
Exchange Commission on March 26, 1999.
Computation of Basic and Diluted Net Loss Per Share
Net loss per share has been calculated under Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No. 128 requires
companies to compute earnings per share under two different methods (basic and
diluted). Basic net loss per share is calculated by dividing the net loss by the
weighted average shares of common stock outstanding during the period. For the
three months ended March 31, 1999 and 1998, diluted net loss per share is equal
to basic net loss per share since potential common shares from the conversion of
stock options and warrants are antidilutive. Autobytel.com evaluated the
requirements of the Securities and Exchange Commission Staff Accounting Bulletin
(SAB) No. 98, and concluded that there are no nominal issuances of common stock
or potential common stock which would be required to be shown as outstanding for
all periods as outlined in SAB No. 98.
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3. STOCKHOLDERS' EQUITY
Initial Public Offering
On March 31, 1999, Autobytel.com consummated its initial public offering and
issued 3,500,000 shares of common stock at a price of $23 per share. An
additional 1,000,000 shares of common stock was offered by selling stockholders
at a price of $23 per share. Autobytel.com received proceeds of approximately
$71,900, net of underwriting discounts, fees and other initial public offering
costs.
Simultaneously with the closing of the offering, outstanding shares of
Series A convertible preferred stock, Series B convertible preferred stock and
Series C convertible preferred stock were automatically converted to 1,666,667,
873,131 and 3,312,492 shares of common stock, respectively.
In addition, the selling stockholders granted the underwriters a 30 day
option to purchase up to an additional 637,500 shares of common stock to cover
over-allotments. The underwriters exercised this option in April 1999.
4. STOCK OPTION PLANS
1999 Stock Option Plan
In January 1999, the Board of Directors adopted the 1999 Stock Option Plan
(the 1999 Option Plan). Autobytel.com has reserved 1,800,000 shares under the
1999 Option Plan. The 1999 Option Plan provides for the granting of stock
options to key employees of Autobytel.com. Under the 1999 Option Plan, not more
than 1,000,000 shares may be granted after March 31, 1999. The 1999 Option Plan
provides for an automatic grant of an option to purchase 20,000 shares of common
stock to each non-employee director on the date on which the person first
becomes a non-employee director. In each successive year the non-employee
director will automatically be granted an option to purchase 5,000 shares on
November 1 of each subsequent year provided the non-employee director has served
on the Board for at least six months. Each option will have a term of 10 years.
Such options vest in their entirety and become exercisable on the first
anniversary of the grant date, provided that the optionee continues to serve as
a director on such date and the exercise price per share will be 100% of the
fair market value of Autobytel.com's common stock on the date of grant. The 1999
Option Plan is identical in all other material respects to the 1998 Stock Option
Plan.
Compensation Expense Related to Stock Options Granted in 1999
From January to March 1999, Autobytel.com granted stock options to purchase
5,623, 153,000 and 229,612 shares of common stock under the 1996 Incentive Stock
Plan, 1998 Stock Option Plan and 1999 Stock Option Plan, respectively. These
stock options were granted to employees and directors at exercise prices of
$13.20 and $16.00 per share which were below the fair market value at the date
of grant. In relation to these grants, Autobytel.com will recognize estimated
compensation expense of approximately $2,700 ratably over the vesting term of
one to four years. Compensation expense of $225 was recognized during the three
months ended March 31, 1999.
ITEM 2. 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 our consolidated financial statements
and related notes included elsewhere in this Form 10-Q. This discussion contains
forward-looking statements based on current expectations that involve risks and
uncertainties. Actual results and the timing of certain events may differ
significantly from those projected in such forward-looking statements due to a
number of factors, including those set forth in the section entitled "Risk
Factors" below.
OVERVIEW
We are a leading, internationally branded Internet site for new and
pre-owned vehicle information and purchasing services connecting consumers to
our network of 2,772 participating dealers, as of March 31, 1999, in the United
States and Canada. Through our Web site, www.autobytel.com, consumers can
research pricing, specifications and other information regarding new and
pre-owned vehicles. When consumers indicate they are
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ready to buy, they can be connected to Autobytel.com's dealer network. In
addition, we are continuing to develop ancillary programs for consumers such as
financing, insurance and warranty services. We introduced our new vehicle
marketing service in 1995, and in 1997 commenced our CyberStore program. In the
first quarter of 1999, our joint venture in Sweden launched its website.
We derive substantially all of our revenues from fees paid by subscribing
dealers, and we expect to be primarily dependent on our dealer network for
revenues in the foreseeable future. Dealers using our services pay initial
subscription fees, as well as ongoing monthly fees based on the aggregation and
transmittal of purchase requests to them. During 1997 and through February 1998,
we also charged the dealers annual fees, which were discontinued. Average
monthly program fees per dealer were $1,026 and $856 for the three months ended
March 31, 1999 and 1998, respectively. We also derive some of our revenues on a
per transaction basis from our ancillary services.
Since mid January 1999 and on a going forward basis, we are converting our
dealers primarily to new contracts with one year terms. The initial subscription
fee from the dealer is recognized ratably over the first twelve months of the
dealer's contract in order to match the costs of integrating and training the
dealer with revenues earned. Amortized revenues from initial subscription fees
were $0.7 million and $0.5 million for the three months ended March 31, 1999 and
1998, respectively. We anticipate that our initial subscription fee amortization
revenues will decline as a percentage of total revenues over time as monthly fee
revenues continue to grow. As our dealer network grows in absolute terms, the
number of new dealers added as a percentage of total dealers is growing at a
slower pace. Therefore, initial subscription fee revenues are declining as a
percentage of total revenues while monthly fee revenues are growing. Monthly
fees are recognized in the period the service is provided. Monthly fee revenues
were $6.6 million and $3.3 million for the three months ended March 31, 1999 and
1998, respectively. Annual fees are recognized ratably over twelve months.
Amortized revenues from annual fees were $0.3 million and $0.5 million for the
three months ended March 31, 1999 and 1998, respectively. Annual fee revenue
declined in the first quarter of 1999 because we discontinued the practice of
charging annual fees in early 1998.
Although we do not derive any direct revenue from the volume of purchase
requests, we believe our ability to increase the number of subscribing dealers
and the amount of fees paid by dealers is indirectly related to the volume of
purchase requests routed through our Web site. Vehicle purchase requests routed
through our online system increased from approximately 342,000 in the first
quarter of 1998 to 489,000 in the first quarter of 1999, an increase of 43%.
Since inception we have directed approximately 3.0 million purchase requests to
dealers.
Our revenue growth has been primarily dependent on our ability to:
o deliver quality purchase requests to our dealer network,
o increase the number of dealers and
o increase the average fees paid by each dealer.
We believe our revenue growth will be primarily dependent on the above
factors as well as our ability to generate revenues from ancillary services.
Since inception, our dealer network has expanded each quarter. As of March
31, 1999 there were 2,772 dealers, an increase of 6% over the same quarter in
1998. Of these dealers, 2,560 dealers pay for our service and the remaining 212
dealers do not pay for our service. Our non-paying dealers are generally
associated with lower volume vehicle manufacturers such as Jaguar or Suzuki or
are located in remote, low volume territories and receive purchase request
referrals without paying fees to us. We enter into agreements with non-paying
dealers to ensure the broadest geographic coverage for every make of vehicle and
to increase consumer satisfaction by offering a complete selection of vehicles.
During the first quarter of 1999, 322 paying dealers were added to our
United States dealership network and 144 dealers terminated their affiliation
with us or were terminated by us. As of March 31, 1999, the net number of our
paying dealers increased by 5.1% over the same quarter in 1998. Our inability or
failure to reduce dealer turnover could have a material adverse effect on our
business, results of operations and financial condition.
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Because our primary revenue source is from program fees, our business model
is significantly different from many other Internet commerce sites. The
automobiles requested through our site are sold by individual dealers; therefore
we derive no direct revenue from the sale of a vehicle and have no significant
cost of goods sold, no procurement, carrying or shipping costs and no inventory
risk. The only cost of goods sold incurred by us since our inception was the
cost of computer equipment sold to dealers. We discontinued selling computer
equipment in the first quarter of 1998.
Sales and marketing costs consist primarily of promotion and advertising to
build brand awareness and encourage potential customers to go to our Web site.
Our sales and marketing expenses were $10.0 million and $8.5 million in the
first quarter of 1999 and 1998, respectively. We use Internet advertising, as
well as traditional media, such as television, radio and print. The majority of
our Internet advertising is comprised of:
o sponsorship and partnership agreements with Internet portals such as
Excite and Lycos and
o advertising and marketing affiliations with online automotive information
providers such as Edmund's and Kelley Blue Book.
These Internet portals and online automotive information providers charge a
combination of set-up, initial, annual, monthly and variable fees.
o Set-up fees are incurred for the development of the link between
Autobytel.com and the Internet portal or online information provider and
are expensed in the period the link is established.
o Initial fees are prepaid annual fees which are amortized over the period
they relate to.
o Annual fees are amortized over the period they relate to.
o Monthly fees are expensed in the month they relate to.
o Variable fees are fees paid for purchase requests and are expensed in the
period the purchase requests are received.
During the three months ended March 31, 1999, total Internet marketing and
advertising costs incurred were $3.6 million, including annual, monthly and
variable fees of $0.5 million, $1.1 million, and $2.0 million, respectively.
There were no set-up or initial fees incurred in the three months ended March
31, 1999. Also included in the sales and marketing expenses are the costs
associated with signing up new dealers and their ongoing training and support.
Sales and marketing costs are recorded as an expense in the period the service
is provided. Sales and marketing expenses have historically fluctuated
quarter-to-quarter due to varied levels of marketing and advertising and we
believe this will continue in the future.
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RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage of
revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1999 1998
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<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues 100% 100%
Operating expenses:
Sales and Marketing 124 183
Product and technology 29 41
development
General and administrative 23 29
--- ----
Total operating expenses 176 253
--- ----
Loss from operations (76) (153)
Other income, net -- 4
--- ----
Loss before provision for income
taxes (76) (149)
Provision for income taxes -- --
--- ----
Net loss (76)% (149)%
=== ====
</TABLE>
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
Revenues. Our revenues increased by $3.4 million, or 73%, to $8.0 million in
the first quarter of 1999, compared to $4.6 million in the same period in 1998.
The growth in revenue in the first quarter of 1999 was primarily attributable to
an increase in the number of paying dealers and a $170, or 20%, increase in the
average monthly program fee charged to paying dealers. The number of paying
dealers increased by 789, or 45%, to 2,560 as of March 31, 1999, compared to
1,771 as of March 31, 1998. Our first quarter 1998 revenues included $0.2
million derived from computer sales, a practice we discontinued in the first
quarter of 1998. Revenues from ancillary services accounted for approximately 5%
of revenues in both the first quarter of 1999 and the first quarter of 1998.
Sales and Marketing. Sales and marketing expense primarily includes:
o advertising expenses,
o fees paid to our purchase request providers,
o expenses to develop our brand equity and
o personnel and other costs associated with sales, training and support of
our dealer network.
Sales and marketing expense increased by $1.5 million, or 18%, to $10.0
million in the first quarter of 1999, compared to $8.5 million in the first
quarter of 1998. The increase was primarily due to a $0.9 million, or 34%,
increase in fees related to information search aggregators resulting from a
higher number of purchase requests, a $0.3 million, or 26%, increase in sales
expenses due to additional dealer support personnel and a $0.2 million, or 4%,
increase in other advertising and marketing expenses to build brand awareness.
We expect to continue to increase our advertising, marketing and sales expenses
in the foreseeable future.
Product and Technology Development. Product and technology development
expense primarily includes personnel costs relating to the introduction of new
products and services and enhancing the features, content and functionality of
our Web site and Dealer Real Time system, as well as expenses associated with
our
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telecommunications and computer infrastructure. Product and technology
development expense increased by $0.5 million, or 25%, to $2.4 million in the
first quarter of 1999, compared to $1.9 million in the first quarter of 1998.
The increase was primarily due to a $0.2 million, or 20%, increase from
additional staff and $0.1 million related to the development of certain
application technology.
General and Administrative. General and administrative expense primarily
consists of executive, financial and legal personnel expenses and related costs.
General and administrative expense was $1.8 million and $1.3 million in the
first quarter of 1999 and the first quarter of 1998, respectively. General and
administrative expense increased by $0.5 million, or 35%. The increase was
primarily due to $0.2 million in compensation expense associated with stock
options granted in the first quarter of 1999 and a $0.3 million, or 64%,
increase in rent due to expansion of facilities and additional executive and
financial personnel.
Other Income, Net. Other income, net, generally consists of interest income
offset by other expenses. In the first quarter of 1999, interest income of $0.3
million was offset by $0.3 million of start up costs related to the development
of our Japanese venture. Interest income in the first quarter of 1999 increased
80% as compared to the first quarter of 1998 due to higher cash balances
resulting from the sale of preferred stock late in the fourth quarter of 1998.
Income Taxes. No provision for federal income taxes has been recorded as we
incurred net operating losses through December 31, 1998. As of December 31,
1998, we had approximately $37.1 million of federal and $18.4 million of state
net operating loss carryforwards that we believe are available to offset future
taxable income; such carryforwards expire in various years through 2018. The
amounts of and benefits from our net operating loss carryforwards became limited
upon the completion of our initial public offering in March 1999 due to a
cumulative ownership change of more than 50% over a three year period. Based on
preliminary estimates, we believe the effect of such limitation, if imposed,
will not have a material adverse effect on our business, results of operations
and financial condition.
To date, quarter to quarter growth in revenues has offset any effects due to
seasonality. However, we expect our business to experience seasonality as it
matures, reflecting seasonal fluctuations in the automotive industry, Internet
and commercial online service usage and advertising expenditures. We anticipate
that purchase requests will typically increase during the first and third
quarters when new vehicle models are introduced and will typically decline
during the second and fourth quarters. Internet and commercial online service
usage and the growth rate of such usage may be expected typically to decline
during the summer. Depending on the extent to which the Internet and commercial
online services are accepted as an advertising medium, seasonality in the level
of advertising expenditures could become more pronounced for Internet-based
advertising. Seasonality in the automotive industry, Internet and commercial
online service usage, and advertising expenditures is likely to cause
fluctuations in our operating results and could have a material adverse effect
on our business, operating results and financial condition.
STOCK OPTIONS GRANTED IN 1999
From January to March 1999, we granted stock options to purchase 5,623,
153,000 and 229,612 shares of common stock under the 1996 Incentive Stock Plan,
1998 Stock Option Plan and 1999 Stock Option Plan, respectively. These stock
options were granted to employees and directors at exercise prices of $13.20 and
$16 per share which were below the fair market value at the date of grant. In
relation to these grants, we will recognize estimated compensation expense of
approximately $2.7 million ratably over the vesting term of one to four years.
Compensation expense of approximately $1.1 million, $0.5 million, $0.5 million,
$0.5 million and $42,000 will be classified as general and administrative
expense in the years ending 1999, 2000, 2001, 2002 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In March 1999, we completed an initial public offering and issued 3,500,000
shares of common stock at a price of $23 per share. An additional 1,000,000
shares of common stock were offered by selling stockholders at a price of $23
per share. We received proceeds of approximately $71.9 million, net of
underwriting discounts fees and other offering costs.
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Simultaneously with the closing of the offering, outstanding shares of
Series A convertible preferred stock, Series B convertible preferred stock and
Series C convertible preferred stock were automatically converted to 1,666,667,
873,131 and 3,312,492 shares of common stock, respectively.
In addition, the selling stockholders granted the underwriters a 30 day
option to purchase up to an additional 637,500 shares of common stock to cover
over-allotments. The underwriters exercised this option in April 1999. We did
not receive any proceeds from sales by the selling stockholders.
Net cash used in operating activities decreased to $22,000 in the first
quarter of 1999 from $5.0 million in the first quarter of 1998. The decrease
resulted primarily from increased revenues and additional accrued expenses
related to our initial public offering, and Internet and television advertising
which were partially offset by cash used to finance accounts receivable and
prepaid expenditures.
Cash used in investing activities decreased to $0.2 million in the first
quarter of 1999 from $0.3 million in the first quarter of 1998. Cash used in
investing activities resulted primarily from purchases of property and equipment
consisting of computer hardware, telecommunications equipment, and furniture.
Cash provided by financing activities increased to $72.1 million in the
first quarter of 1999 primarily from the consummation of our initial public
offering. This was an increase from $0.2 million in the first quarter of 1998.
As of March 31, 1999, we had approximately $99.8 million in cash and cash
equivalents. We believe our current cash and cash equivalents are sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least the next 12 months.
With respect to years beyond fiscal 1999, we may be required to raise
additional capital to meet our long term operating requirements. Although we
have grown our revenues consistently since inception, our expenses have
continued to, and in the foreseeable future are expected to, exceed our
revenues. Accordingly, we do not expect to be able to fund our operations from
internally generated funds for the foreseeable future.
Our cash requirements depend on several factors, including:
o the level of expenditures on marketing and advertising,
o the rate of market acceptance,
o the ability to expand our customer base,
o the ability to increase the volume of purchase requests,
o the cost of contractual arrangements with online information providers,
search engines and other referral sources.
We cannot accurately predict the timing and amount of our cash requirements.
If capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated. We have no commitments for
any additional financing, and there can be no assurance that any such
commitments can be obtained on favorable terms, if at all.
Any additional equity financing may be dilutive to our stockholders, and
debt financing, if available, may involve restrictive covenants with respect to
dividends, raising capital and other financial and operational matters which
could restrict our operations or finances. If we are unable to obtain additional
financing as needed, we may be required to reduce the scope of our operations or
our anticipated expansion, which could have a material adverse effect on our
business, results of operations and financial condition.
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YEAR 2000 ISSUES
Because many computer applications have been written using two digits rather
than four to define the applicable year, some date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
"Year 2000 issue" could result in system failures or miscalculations causing
disruptions of operations, including disruptions of our Web site, the Dealer
Real Time system or normal business activities.
The information technology systems pertain to software applications and
database interface programs that support the consumer website, as well as the
Dealer Real Time system that manages the inventory of pre-owned vehicles and
purchase requests transmitted to our participating dealers.
Non-information technology systems include accounts receivable/payable,
payroll, banking, 401k, postal bar code, and Federal Express software that
support our daily business activities. Although we have not conducted a survey,
we believe there is no material exposure to our non-information technology
systems. We believe that we do not have any other non-information, embedded
technology systems, with potential Year 2000 issues.
We do not believe that we have material exposure to the Year 2000 issue with
respect to our own information systems since our existing systems correctly
define the Year 2000 with four digits. We are currently taking two actions to
mitigate the risk and exposure of the Year 2000 issue:
1. We are in the process of obtaining confirmation from all of our
third-party vendors that they have resolved their Year 2000 issues. These
third-party vendors can be categorized as follows:
A. information technology systems
o computer hardware vendors
o computer software vendors
o network communications vendors
o data suppliers vendors
B. non-information technology systems
o landlord who oversees the facilities and utilities
o building security company
We expect to receive replies to our Year 2000 requests from third-party
vendors by the end of the second quarter of 1999. Approximately 48% of
the third party vendors have responded. All of these vendors provided a
statement of compliance either displayed on their website or furnished in
hard copy format. The vendors who have already responded represent the
most critical vendors in our business.
2. We are continuing to simulate the Year 2000 rollover with hardware,
software, network communications vendors and certain key data suppliers
in a test lab environment. We plan to make any modifications resulting
from the test lab environment by the end of the third quarter of 1999.
Based on the test results, if any vendor is found to be non-compliant, our
contingency plan in priority order is:
o to find a replacement vendor,
o to assist such vendor in becoming Year 2000 compliant.
o to set up a front-end application to screen all non-compliant data or to
receive the data and modify it so that the data is Year 2000 compliant. We
plan to establish our front-end application screen in the third quarter of
1999.
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The worst-case scenario pertaining to Year 2000 issue would be an overall
failure of the national Internet and telecommunications infrastructure. This may
require alternative means for users to gain connection to our servers.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", and we adopted this statement in the first quarter of
1998. The statement requires companies to report a new measurement of income.
Comprehensive income (loss) is to include foreign currency translation gains and
losses and other unrealized gains and losses that have historically been
excluded from net income (loss) and reflected instead in equity. Currently, no
material differences exist between our net income or loss and comprehensive net
income or loss.
In March 1998, the American Institute of Certified Public Accounts (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained For Internal Use," which is effective for fiscal
years beginning after December 15, 1998. SOP No. 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use and defines specific criteria that determine when such costs are required to
be expensed, and when such costs may be capitalized. Management believes the
adoption of SOP 98-1 will not have a material effect on our consolidated
financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-up
Activities," which will be adopted by us in the beginning of our fiscal year
beginning January 1, 1999. SOP No. 98-5 provides guidance on the financial
reporting of start-up costs and organization costs and requires such costs to be
expensed as incurred. We believe the adoption of SOP 98-5 will not have a
material effect on our financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which will be adopted by us in our fiscal
year beginning January 1, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments by requiring every derivative
instrument to be recorded in the balance sheet as a liability or an asset at
fair market value. Any changes to a derivatives fair market value must be
recognized currently in earnings unless specific hedge accounting criteria are
met. We do not have any derivative instruments or undertake any hedging
activities and do not anticipate doing so, therefore the adoption of SFAS No.
133 will not have a material effect on our financial statements.
LIMITATION ON NET OPERATING LOSS CARRYFORWARDS
We had approximately $37.1 million in federal net operating loss
carryforwards as of December 31, 1998 which could be available to reduce the
amount of United States federal income taxes payable by us in the future.
However, we are limited in the use of the net operating loss carryforwards
because the initial public offering resulted in an ownership change within the
meaning of Section 382 of the Internal Revenue Code
Based on an estimated company value of $411 million, we will be permitted to
offset against any taxable income $19 million of net operating loss
carryforwards per year using pre-charge net operating losses based on a
long-term tax exempt rate of 4.7% and the offering share price of $23.
RISK FACTORS
In addition to the factors discussed in the "Overview" and "Liquidity and
Capital Resources" sections of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations", the following additional factors
may affect our future results. Unless specified otherwise as used herein, the
terms "we," "us" or "our" refers to autobytel.com inc. and its wholly owned
subsidiaries.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT NET LOSSES FOR THE FORESEEABLE
FUTURE. IF WE CONTINUE TO LOSE MONEY, OUR OPERATIONS WILL NOT BE FINANCIALLY
VIABLE.
We were formed in January 1995 as Auto-By-Tel LLC, and first received
revenues from operations in March
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1995. We therefore have a limited operating history upon which an investor may
evaluate our operations and future prospects. Because of the recent emergence of
the Internet-based vehicle information and purchasing industry, none of our
executives has significant experience in the industry. This limited operating
history and management experience means it is difficult for us to predict future
operating results. We have incurred losses every quarter since inception and
expect to continue to incur losses for the foreseeable future. We had an
accumulated deficit of $49.9 million and $43.3 million as of March 31, 1999 and
December 31, 1998, respectively. Our potential for future profitability must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in the early stages of development,
particularly companies in new and rapidly evolving markets, such as the market
for Internet commerce. To achieve profitability, we must, among other things:
o generate increased vehicle buyer traffic to our Web site,
o continue to send new and pre-owned vehicle purchase requests to dealers
that result in sufficient dealer transactions to justify our fees,
o continue to expand the number of dealers in our network and enhance the
quality of dealers,
o respond to competitive developments,
o increase our brand name visibility,
o successfully introduce new services,
o continue to attract, retain and motivate qualified personnel, and
o continue to upgrade and enhance our technologies to accommodate expanded
service offerings and increased consumer traffic.
We cannot be certain that we will be successful in achieving these goals.
IF OUR DEALER TURNOVER INCREASES, OUR DEALER NETWORK AND REVENUE DERIVED FROM
THIS NETWORK MAY DECREASE.
Substantially all of our revenues are derived from fees paid by our network
of subscribing dealerships. If dealer turnover increases and we are unable to
add new dealers to mitigate any turnover, our revenues will decrease as our
network of dealers decreases. If the number of dealers in our network declines
our revenues may decrease and our business, results of operations and financial
condition will be materially and adversely affected. A material factor affecting
dealer turnover is our ability to provide dealers with high quality purchase
requests. High quality purchase requests are those that result in high closing
ratios. Closing ratio is the ratio of the number of vehicles purchased at a
dealer generated from purchase requests to the total number of purchase requests
sent to that dealer. All of our subscribing dealerships have entered into
written marketing agreements with us having a stated term of one year or five
years, but they are cancelable by the dealer upon 30 days notice. We cannot
assure that dealers will not terminate their agreements with us. Subscribing
dealers may terminate their relationship with us for any reason, including an
unwillingness to accept our subscription terms or in order to join alternative
marketing programs. Our business is dependent upon our ability to attract and
retain qualified new and pre-owned vehicle dealers. During the first quarter of
1999, we added 322 subscribing dealers to our United States dealership network
and 144 subscribing dealers terminated their affiliation with us or were
terminated by us. In order for us to grow or maintain our dealer network, we may
need to reduce dealer turnover.
WE MAY LOSE SUBSCRIBING DEALERS IF WE RECONFIGURE DEALER TERRITORIES. IF WE LOSE
DEALERS, WE WILL LOSE THE REVENUES ASSOCIATED WITH THOSE DEALERS.
If the volume of purchase requests increases, we may need to reduce or
reconfigure the exclusive territories currently assigned to dealerships in order
to serve consumers more effectively. If a dealer is unwilling to accept a
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reduction or reconfiguration of its territory, it may terminate its relationship
with us. The loss of dealers will cause a subsequent reduction in revenue unless
we are able to mitigate this loss by adding new dealers or increasing the fees
we receive from our other dealers. A dealer also could sue us to prevent such
reduction or reconfiguration, or collect damages from us. We have experienced
one such lawsuit. A material decrease in the number of dealers subscribing to
our network or litigation with dealers could have a material adverse effect on
our business, results of operations and financial condition.
WE RELY HEAVILY ON OUR PARTICIPATING DEALERS TO PROMOTE OUR BRAND VALUE BY
PROVIDING HIGH QUALITY SERVICES TO OUR CONSUMERS. IF DEALERS DO NOT PROVIDE OUR
CONSUMERS HIGH QUALITY SERVICES, OUR BRAND VALUE WILL DIMINISH AND THE NUMBER OF
CONSUMERS WHO USE OUR SERVICES MAY DECLINE CAUSING A DECREASE IN OUR REVENUES.
Promotion of our brand value depends on our ability to provide consumers a
high quality experience for purchasing vehicles throughout the purchasing
process. If our dealers do not provide consumers with high quality service, the
value of our brand could be damaged and the number of consumers using our
services may decrease. We devote significant efforts to train participating
dealerships in practices that are intended to increase consumer satisfaction.
Our inability to train dealers effectively, or the failure by participating
dealers to adopt recommended practices, respond rapidly and professionally to
vehicle inquiries, or sell and lease vehicles in accordance with our marketing
strategies, could result in low consumer satisfaction, damage our brand name and
could materially and adversely affect our business, results of operations and
financial condition.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS WHICH
MAY MAKE IT DIFFICULT FOR INVESTORS TO PREDICT OUR FUTURE PERFORMANCE.
Our quarterly operating results may fluctuate due to many factors. Our
expense levels are based in part on our expectations of future revenues which
may vary significantly. We plan our business operations based on increased
revenues and if our revenues do not increase faster than our expenses, our
business, results of operations and financial condition will be materially and
adversely affected. Other factors that may adversely affect our quarterly
operating results include:
o our ability to retain existing dealers, attract new dealers and maintain
dealer and customer satisfaction,
o the announcement or introduction of new or enhanced sites, services and
products by us or our competitors,
o general economic conditions and economic conditions specific to the
Internet, online commerce or the automobile industry,
o a decline in the usage levels of online services and consumer acceptance
of the Internet and commercial online services for the purchase of
consumer products and services such as those offered by us,
o our ability to upgrade and develop our systems and infrastructure and to
attract new personnel in a timely and effective manner,
o the level of traffic on our Web site and other sites that refer traffic to
our Web site,
o technical difficulties, system downtime or Internet brownouts,
o the amount and timing of operating costs and capital expenditures relating
to expansion of our business, operations and infrastructure,
o governmental regulation, and
o unforeseen events affecting the industry.
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SEASONALITY IS LIKELY TO CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS. INVESTORS
MAY NOT BE ABLE TO PREDICT OUR ANNUAL OPERATING RESULTS BASED ON A QUARTER TO
QUARTER COMPARISON OF OUR OPERATING RESULTS.
To date, our quarter to quarter growth in revenues have offset any effects
due to seasonality. However, we expect our business to experience seasonality as
it matures. If this occurs, investors may not be able to predict our annual
operating results based on a quarter to quarter comparison of our operating
results. Seasonality in the automotive industry, Internet and commercial online
service usage and advertising expenditures is likely to cause fluctuations in
our operating results and could have a material adverse effect on our business,
operating results and financial condition. We anticipate that purchase requests
will typically increase during the first and third quarters when new vehicle
models are introduced and will typically decline during the second and fourth
quarters. Internet and commercial online service usage and the growth rate of
such usage typically declines during the summer.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE. OUR MARKET IS COMPETITIVE NOT ONLY BECAUSE THE INTERNET HAS MINIMAL
BARRIERS TO ENTRY, BUT ALSO BECAUSE WE COMPETE DIRECTLY WITH OTHER COMPANIES IN
THE OFFLINE ENVIRONMENT.
Our vehicle purchasing services compete against a variety of Internet and
traditional vehicle purchasing services and automotive brokers. Therefore, we
are affected by the competitive factors faced by both Internet commerce
companies as well as traditional, offline companies within the automotive and
automotive-related industries. The market for Internet-based commercial services
is new, and competition among commercial Web sites is expected to increase
significantly in the future. Our business is characterized by minimal barriers
to entry, and new competitors can launch a competitive service at relatively low
cost. To compete successfully as an Internet-based commercial entity, we must
significantly increase awareness of our services and brand name. Failure to
achieve these objectives will cause our revenues to decline and would have a
material adverse effect on our business, results of operations and financial
condition.
We compete with other entities which maintain similar commercial Web sites
including Autoweb.com, Cendant Membership Service, Inc.'s AutoVantage, Microsoft
Corporation's Carpoint and Stoneage Corporation. AutoNation, a large
consolidator of dealers, has launched a Web site for marketing vehicles. We also
compete indirectly against vehicle brokerage firms and affinity programs offered
by several companies, including Costco Wholesale Corporation and Wal-Mart
Stores, Inc. In addition, all major vehicle manufacturers have their own Web
sites and many have recently launched or announced plans to launch online buying
services, such as General Motors Corporation's BuyPower. We also compete with
vehicle insurers, lenders and lessors as well as other dealers that are not part
of our network. Such companies may already maintain or may introduce Web sites
which compete with ours.
We believe that the principal competitive factors in the online market are:
o brand recognition,
o speed and quality of fulfillment,
o variety of value-added services,
o ease of use,
o customer satisfaction,
o quality of service, and
o technical expertise.
We cannot assure that we can compete successfully against current or future
competitors, many of which have substantially more capital, existing brand
recognition, resources and access to additional financing. In addition,
competitive pressures may result in increased marketing costs, decreased Web
site traffic or loss of market share
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or otherwise may materially and adversely affect our business, results of
operations and financial condition.
IF ANY OF OUR RELATIONSHIPS WITH INTERNET SEARCH ENGINES OR ONLINE AUTOMOTIVE
INFORMATION PROVIDERS TERMINATES, OUR PURCHASE REQUEST VOLUME COULD DECLINE. IF
OUR PURCHASE REQUEST VOLUME DECLINES, OUR PARTICIPATING DEALERS MAY NOT BE
SATISFIED WITH OUR SERVICES AND MAY TERMINATE THEIR RELATIONSHIP WITH US OR
FORCE US TO DECREASE THE FEES WE CHARGE FOR OUR SERVICE. IF THIS OCCURS, OUR
REVENUES WOULD DECREASE.
We depend on a number of strategic relationships to direct a substantial
amount of purchase requests and traffic to our Web site. The termination of any
of these relationships or any significant reduction in traffic to Web sites on
which our services are advertised or offered, or the failure to develop
additional referral sources, would cause our purchase request volume to decline.
Since our dealers would be receiving fewer purchase requests, they may no longer
be satisfied with our service and may terminate their relationships with us or
force us to decrease the fees we charge for our services. If our dealers
terminate their relationship with us or force us to decrease the fees we charge
for our services, our revenues will decline which will have a material adverse
effect on our business, results of operations and financial condition. We
receive a significant number of purchase requests through a limited number of
Internet search engines, such as Excite, and online automotive information
providers, such as Edmund's and Kelley Blue Book. For example, during the first
quarter of 1999 and the years ended December 31,1998 and December 31, 1997,
approximately 24%, 34% and 49%, respectively, of our purchase requests came
through Edmund's. We may not be able to maintain our relationship with Edmund's
or other online service providers or find alternative, comparable marketing
partners capable of originating significant numbers of purchase requests on
terms satisfactory to us. In addition, we periodically negotiate revisions to
existing agreements and these revisions could increase our costs in future
periods. A number of our agreements with online service providers may be
terminated without cause. Our agreement with Excite relating to our sponsorship
of Netscape Communications Corporation's NetCenter Auto Channel is conditioned
on Excite's NetCenter agreement with Netscape remaining in effect. We were
informed that the NetCenter agreement between Excite and Netscape will be
terminated effective June 17, 1999.
IF WE CAN NOT BUILD STRONG BRAND LOYALTY OUR BUSINESS MAY SUFFER.
We believe that the importance of brand recognition will increase as more
companies engage in commerce over the Internet. Development and awareness of the
Autobytel.com brand will depend largely on our ability to obtain a leadership
position in Internet commerce. If dealers do not perceive us as an effective
channel for increasing vehicle sales, or consumers do not perceive us as
offering reliable information concerning new and pre-owned vehicles, as well as
referrals to high quality dealers, in a user-friendly manner that reduces the
time spent for vehicle purchases, we will be unsuccessful in promoting and
maintaining our brand. Our brand may not be able to gain widespread acceptance
among consumers or dealers. Our failure to develop our brand sufficiently would
have a material adverse effect on our business, results of operations and
financial condition.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT, TRAIN AND RETAIN
ADDITIONAL HIGHLY QUALIFIED SALES AND MARKETING, MANAGERIAL AND TECHNICAL
PERSONNEL, OUR BUSINESS MAY SUFFER.
Our future success depends on our ability to identify, hire, train and
retain highly qualified sales and marketing, managerial and technical personnel.
In addition, as we introduce new services we will need to hire a significant
number of personnel. Competition for such personnel is intense, and we may not
be able to attract, assimilate or retain such personnel in the future. The
inability to attract and retain the necessary managerial, technical and sales
and marketing personnel could have a material adverse effect on our business,
results of operations and financial condition.
Our business and operations are substantially dependent on the performance
of our executive officers and key employees, some of whom are employed on an
at-will basis and all of whom have worked together for only a short period of
time. We maintain "key person" life insurance in the amount of $3.0 million on
the life of Mark W. Lorimer, our Chief Executive Officer and President. The loss
of the services of Mr. Lorimer or Ann Marie Delligatta, Executive Vice President
and Chief Operating Officer, or one or more of our other executive officers or
key employees could have a material adverse effect on our business, results of
operations and financial
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condition.
WE ARE A NEW BUSINESS IN A NEW INDUSTRY AND NEED TO MANAGE OUR GROWTH AND OUR
ENTRY INTO NEW BUSINESS AREAS IN ORDER TO AVOID INCREASED EXPENSES WITHOUT
CORRESPONDING REVENUES.
We are constantly expanding our operations and introducing new services to
consumers and dealers in order to establish ourselves as a leader in the
evolving market for Internet-based vehicle purchasing services. We also intend
to enter into new foreign markets. The growth of our operations requires us to
increase expenditures before we generate revenues. For example, we need to hire
personnel to oversee the introduction of new services before we generate revenue
from these services. Our inability to generate satisfactory revenues from such
expanded services to offset costs could have a material adverse effect on our
business, financial condition and results of operations. As of March 31, 1999,
we had 188 employees, compared to 180 employees as of December 31, 1998, and 159
employees as of December 31, 1997.
We believe establishing industry leadership also requires us to:
o test, introduce and develop new services and products, including enhancing
our Web site,
o expand the breadth of products and services offered,
o expand our market presence through relationships with third parties, and
o acquire new or complementary businesses, products or technologies.
We cannot assure you that we can successfully manage these tasks.
IF FEDERAL OR STATE FRANCHISE LAWS APPLY TO US WE MAY BE REQUIRED TO MODIFY OR
ELIMINATE OUR MARKETING PROGRAMS. IF WE ARE UNABLE TO MARKET OUR SERVICES IN THE
MANNER WE CURRENTLY DO OUR REVENUES MAY DECREASE AND OUR BUSINESS MAY SUFFER.
We believe that neither our relationship with our dealers nor our dealer
subscription agreements constitute "franchises" under federal or state franchise
laws and that we are not subject to the coverage of state and motor vehicle
dealer licensing laws. However, in the event that any state's regulatory
requirements relating to franchises or our method of business impose additional
requirements on us or include us within an industry-specific regulatory scheme,
we may be required to modify our marketing programs in such states in a manner
which undermines the program's attractiveness to consumers or dealers, we may
become subject to fines or other penalties or if we determine that the licensing
and related requirements are overly burdensome, we may elect to terminate
operations in such state. In each case, our revenues may decline and our
business, results of operations and financial condition could be materially and
adversely affected.
A Federal district court in Michigan has ruled that our dealer subscription
agreement is not a "franchise" under Michigan law. However, if our relationship
or written agreement with our dealers were found to be a "franchise" under
federal or state franchise laws, then we could be subjected to other
regulations, such as franchise disclosure and registration requirements and
limitations on our ability to effect changes in our relationships without our
dealers. We also believe that our dealer marketing service does not qualify as
an automobile brokerage activity and therefore state broker licensing
requirements do not apply to us. In response to Texas Department of
Transportation concerns, we modified our marketing program in that state to
include a pricing model under which all subscribing dealerships in Texas are
charged uniform fees based on the population density of their particular
geographic area and to make our program open to all dealerships who wish to
apply.
IF FINANCIAL BROKER AND INSURANCE LICENSING REQUIREMENTS APPLY TO US IN STATES
WHERE WE ARE NOT CURRENTLY LICENSED, WE WILL BE REQUIRED TO OBTAIN ADDITIONAL
LICENSES AND OUR BUSINESS MAY SUFFER.
We currently hold financial broker licenses in the states of Florida,
Indiana and Wisconsin and have applied for renewal in the state of Colorado. If
we are required to be licensed elsewhere, it
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may result in an expensive and time-consuming process that could divert the
effort of management away from day-to-day operations. In the event other states
require us to be licensed and we are unable to do so, or are otherwise unable to
comply with regulations required by changes in current operations or the
introduction of new services, we could be subject to fines or other penalties,
and our business, results of operations and financial condition could be
materially and adversely affected.
We provide a link on our Web site to an online insurance application program
offered by the American International Group. We receive fees from a member
company of the American International Group in connection with this advertising
activity. We do not believe that this activity requires us to be licensed under
state insurance laws. The use of the Internet in the marketing of insurance
products, however, is a relatively new practice. It is not clear whether or to
what extent state insurance licensing laws apply to activities similar to ours.
Given these uncertainties, we currently hold, through a wholly-owned subsidiary,
insurance agent licenses in California, Colorado, Connecticut, Indiana, Maine,
Nebraska, New Jersey, and Utah. We have applied for insurance agent licenses in
the remaining thirty-two states that issue corporate licensing and are awaiting
approval. In the event other states require us to be licensed and we are unable
to do so, or are otherwise unable to comply with regulations required by changes
in current operations or the introduction of new services, we could be subject
to fines or other penalties, and our business, results of operations and
financial condition could be materially and adversely affected.
INTERNET COMMERCE HAS YET TO ATTRACT SIGNIFICANT REGULATION. GOVERNMENT
REGULATIONS MAY RESULT IN ADMINISTRATIVE MONETARY FINES, PENALTIES OR TAXES THAT
MAY REDUCE OUR FUTURE EARNINGS.
There are currently few laws or regulations that apply directly to the
Internet. Because our business is dependent on the Internet, the adoption of new
local, state, national or international laws or regulations may decrease the
growth of Internet usage or the acceptance of Internet commerce which could, in
turn, decrease the demand for our services and increase our costs or otherwise
have a material adverse effect on our business, results of operations and
financial condition.
Tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in Internet commerce. New state
tax regulations may subject us to additional state sales, use and income taxes.
EVOLVING GOVERNMENT REGULATIONS MAY REQUIRE FUTURE LICENSING WHICH COULD
INCREASE ADMINISTRATIVE COSTS OR ADVERSELY AFFECT OUR REVENUES.
In a regulatory climate that is uncertain, our operations may be subject to
direct and indirect adoption, expansion or reinterpretation of various domestic
and foreign laws and regulations. Compliance with these future laws and
regulations may require us to obtain appropriate licenses at an undeterminable
and possibly significant initial monetary and annual expense. These additional
monetary expenditures may increase future overhead, thereby potentially reducing
our future results of operations.
We have identified what we believe are the areas of domestic government
regulation, which if changed, would be costly to us. These laws and regulations
include franchise laws, motor vehicle brokerage licensing laws, insurance
licensing laws, and motor vehicle dealership licensing laws, which may be
applicable to aspects of our business. There could be laws and regulations
applicable to our business which we have not identified or which, if changed,
may be costly to us.
The introduction of new services and expansion of our operations to foreign
countries may require us to comply with additional, yet undetermined, laws and
regulations. Compliance may require obtaining appropriate business licenses,
filing of bonds, appointment of foreign agents and periodic business reporting
activity. The failure to adequately comply with these future laws and
regulations may delay or possibly prevent some of our products or services from
being offered in a particular foreign country, thereby having an adverse affect
on our results of operations.
OUR SUCCESS IS DEPENDENT ON OUR KEEPING PACE WITH ADVANCES IN TECHNOLOGY. IF WE
ARE UNABLE TO KEEP PACE
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WITH ADVANCES IN TECHNOLOGY, CONSUMERS MAY STOP USING OUR SERVICES AND OUR
REVENUES WILL DECREASE.
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 and the emergence
of new industry standards and practices that could render our existing Web site
and technology obsolete. If we are unable to adapt to changing technologies, our
business, results of operations and financial condition 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 Web site, Dealer Real Time system and other proprietary
technology entails significant technical and business risks. We may not be
successful in using new technologies effectively or adapting our Web site,
Dealer Real Time system, or other proprietary technology to customer
requirements or to emerging industry standards.
WE ARE VULNERABLE TO COMMUNICATIONS SYSTEM INTERRUPTIONS BECAUSE ALL OF OUR
PRIMARY SERVERS ARE LOCATED IN A SINGLE LOCATION. IF COMMUNICATIONS TO THAT
LOCATION WERE INTERRUPTED, OUR OPERATIONS COULD BE ADVERSELY AFFECTED.
We host our Web site and Dealer Real Time system at our corporate
headquarters in Irvine, California. Although we maintain redundant local offsite
backup servers, all of our primary servers are located at our corporate
headquarters and are vulnerable to interruption by damage from fire, earthquake,
flood, power loss, telecommunications failure, break-ins and other events beyond
our control. In the event that we experience significant system disruptions, our
business, results of operations and financial condition would be materially and
adversely affected. We have, from time to time, experienced periodic systems
interruptions and anticipate that such interruptions will occur in the future.
We maintain business interruption insurance which pays up to $6 million for the
actual loss of business income sustained due to the suspension of operations as
a result of direct physical loss of or damage to property at our offices.
However, in the event of a prolonged interruption, this business interruption
insurance may not be sufficient to fully compensate us for the resulting losses.
INTERNET COMMERCE IS NEW AND EVOLVING WITH FEW PROFITABLE BUSINESS MODELS. WE
CANNOT ASSURE THAT OUR BUSINESS MODEL WILL BE PROFITABLE.
The market for Internet-based purchasing services has only recently begun to
develop and is rapidly evolving. While many Internet commerce companies have
grown in terms of revenue, few are profitable. We can not assure that we will be
profitable. As is typical for a new and rapidly evolving industry, demand and
market acceptance for recently introduced services and products over the
Internet are subject to a high level of uncertainty and there are few proven
services and products. Moreover, since the market for our services is new and
evolving, it is difficult to predict the future growth rate, if any, and size of
this market.
IF CONSUMERS DO NOT ADOPT INTERNET COMMERCE AS A MAINSTREAM MEDIUM OF COMMERCE,
OUR REVENUES MAY NOT GROW AND OUR EARNINGS MAY SUFFER.
The success of our services will depend upon the adoption of the Internet by
consumers and dealers as a mainstream medium for commerce. While we believe that
our services offer significant advantages to consumers and dealers, there can be
no assurance that widespread acceptance of Internet commerce in general, or of
our services in particular, will occur. Our success assumes that consumers and
dealers who have historically relied upon traditional means of commerce to
purchase or lease vehicles, and to procure vehicle financing and insurance, will
accept new methods of conducting business and exchanging information. In
addition, dealers must be persuaded to adopt new selling models and be trained
to use and invest in developing technologies. Moreover, critical issues
concerning the commercial use of the Internet, such as, ease of access,
security, reliability, cost, and quality of service, remain unresolved and may
impact the growth of Internet use. If the market for Internet-based vehicle
marketing services fails to develop, develops slower than expected or becomes
saturated with competitors, or if our services do not achieve market acceptance,
our business, results of operations and financial condition will be materially
and adversely affected.
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<PAGE> 22
\
THE PUBLIC MARKET FOR OUR COMMON STOCK MAY CONTINUE TO BE VOLATILE, ESPECIALLY
SINCE MARKET PRICES FOR INTERNET-RELATED AND TECHNOLOGY STOCKS HAVE OFTEN BEEN
UNRELATED TO OPERATING PERFORMANCE.
Prior to the initial public offering of our common stock in March 1999,
there was no public market for our common stock. We cannot assure that an active
trading market will be sustained or that the market price of the common stock
will not decline. Even if an active trading market does develop, the market
price of the common stock is likely to continue to be highly volatile and could
be subject to wide fluctuations in response to factors such as:
o actual or anticipated variations in our quarterly operating results,
o announcements of new product or service offerings,
o technological innovations,
o competitive developments,
o changes in financial estimates by securities analysts,
o conditions and trends in the Internet and electronic commerce industries,
o adoption of new accounting standards affecting the automotive industry,
and
o general market conditions and other factors.
Further, the stock markets, and in particular the NASDAQ National Market,
have experienced extreme 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
such companies. The trading prices of many technology companies' stocks are at
or near historical highs. We cannot assure that such high trading prices will be
sustained. These broad market factors may adversely affect the market price of
our common stock. In addition, general economic, political and market conditions
such as recessions, interest rates or international currency fluctuations, may
adversely affect the market price of the 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. Such litigation, if instituted, could result in
substantial costs and a diversion of management's attention and resources, which
would have a material adverse effect on our business, results of operations and
financial condition.
WE FACE UNCERTAINTIES WITH CHANGING LEGISLATION IN THE AUTOMOTIVE INDUSTRY WHICH
COULD REQUIRE INCREASED REGULATORY AND LOBBYING COSTS AND MAY HARM OUR BUSINESS.
Our purchasing service may result in changing the way vehicles are sold
which may be viewed as threatening by new and pre-owned vehicle dealers who do
not subscribe to the Autobytel.com program. Such businesses are often
represented by influential lobbying organizations, and such organizations or
other persons may propose legislation which could impact the evolving marketing
and distribution model which our service promotes. Should current laws be
changed or new laws passed, our business, results of operations and financial
condition could be materially and adversely affected. As we introduce new
services, we may need to comply with additional licensing regulations and
regulatory requirements.
To date, we have not spent significant resources on lobbying or related
government affairs issues but we may need to do so in the future. A significant
increase in the amount we spend on lobbying or related activities would have a
material adverse effect on our results of operations and financial condition.
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<PAGE> 23
OUR INTERNATIONAL EXPANSION MAY REQUIRE US TO COMPLY WITH BURDENSOME REGULATORY,
TARIFF AND LICENSING REQUIREMENTS. OUR NEED TO COMPLY WITH BURDENSOME
GOVERNMENTAL REQUIREMENTS MAY ADVERSELY AFFECT OUR ABILITY TO GROW OUR BUSINESS.
We intend to expand our new vehicle purchasing service to foreign markets
through licensing our technology, business processes and trade names and by
establishing relationships with vehicle dealers and strategic partners located
in foreign markets.
By expanding our operations to various other countries, we may become
subject to laws or treaties that regulate the marketing, distribution and sale
of motor vehicles. We will need to spend our resources to determine whether the
laws of the countries in which we seek to operate require us to modify, or
prohibit the use of, our Autobytel.com system. In addition, the laws of other
countries may impose licensing, bonding or similar requirements on us as a
condition to doing business in these countries.
WE HAVE LIMITED EXPERIENCE IN PROVIDING OUR INTERNET-BASED MARKETING SERVICE
ABROAD. WE MAY NOT BE SUCCESSFUL IN ESTABLISHING OUR BUSINESS ABROAD WHICH MAY
LIMIT OUR FUTURE GROWTH.
We have had limited experience in providing our Internet-based marketing
service abroad and we cannot be certain that we will be successful in
introducing or marketing our services abroad. In addition, there are risks
inherent in conducting business in international markets, such as:
o changes in political conditions,
o regulatory requirements,
o potentially weaker intellectual property protections,
o tariffs and other trade barriers, fluctuations in currency exchange rates,
or potentially adverse tax consequences,
o difficulties in managing or overseeing foreign operations, and
o educating consumers and dealers who may be unfamiliar with the benefits of
online marketing and commerce.
One or more of such factors may have a material adverse effect on our
current or future international operations and, consequently, on our business,
results of operations and financial condition.
OUR COMPUTER INFRASTRUCTURE MAY BE VULNERABLE TO SECURITY BREACHES. ANY SUCH
PROBLEMS COULD JEOPARDIZE CONFIDENTIAL INFORMATION TRANSMITTED OVER THE
INTERNET, CAUSE INTERRUPTIONS IN OUR OPERATIONS OR CAUSE US TO HAVE LIABILITY TO
THIRD PERSONS.
Our computer infrastructure is potentially vulnerable to physical or
electronic computer break-ins, viruses and similar disruptive problems and
security breaches. Any such problems or security breach could cause us to have
liability to one or more third parties and disrupt all or part of our
operations. Any of these events would have a material adverse effect on our
business, results of operations and financial condition. A party who is able to
circumvent our security measures could misappropriate proprietary information,
jeopardize the confidential nature of information transmitted over the Internet
or cause interruptions in our operations. Concerns over the security of Internet
transactions and the privacy of users could also inhibit the growth of the
Internet in general, particularly as a means of conducting commercial
transactions. To the extent that our activities or those of third party
contractors involve the storage and transmission of proprietary information such
as personal financial information, security breaches could expose us to a risk
of financial loss, litigation and other liabilities. Our insurance does not
currently protect against such losses.
WE DEPEND ON CONTINUED TECHNOLOGICAL IMPROVEMENTS IN OUR SYSTEMS AND IN THE
INTERNET OVERALL. IF WE ARE
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<PAGE> 24
UNABLE TO HANDLE AN UNEXPECTEDLY LARGE INCREASE IN VOLUME OF CONSUMERS USING OUR
WEB SITE, WE CANNOT ASSURE OUR CONSUMERS OR DEALERS THAT PURCHASE REQUESTS WILL
BE EFFICIENTLY PROCESSED AND OUR BUSINESS MAY SUFFER.
If the Internet continues to experience significant growth in the number of
users and the level of use, then the Internet infrastructure may not be able to
continue to support the demands placed on it by such potential growth. The
Internet may not prove to be a viable commercial medium because of inadequate
development of the necessary infrastructure, timely development of complementary
products such as high speed modems, delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet activity
or increased government regulation.
An unexpectedly large increase in the volume or pace of traffic on our Web
site or the number of orders placed by customers may require us to expand and
further upgrade our technology, transaction-processing systems and network
infrastructure. We may not be able to accurately project the rate or timing of
increases, if any, in the use of our Web site or expand and upgrade our systems
and infrastructure to accommodate such increases. In addition, we cannot assure
that our dealers will efficiently process purchase requests.
OUR BUSINESS COULD BE INTERRUPTED BY YEAR 2000 PROBLEMS IF OUR VENDORS,
CONSUMERS OR DEALERS ARE UNABLE TO CONVERT THEIR SYSTEMS. THEIR FAILURE TO
CONVERT THEIR SYSTEMS MAY AFFECT THE ABILITY OF OUR CONSUMERS AND DEALERS TO
ACCESS OUR WEB SITE OR THE DEALER REAL TIME SYSTEM. OUR BUSINESS WOULD SUFFER IF
SUCH FAILURE PREVENTED ACCESS TO OUR ONLINE SYSTEMS.
Because many computer applications have been written using two digits rather
than four to define the applicable year, date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This "Year 2000
issue" could result in system failures or miscalculations causing disruptions of
operations, including disruptions of our Web site, the Dealer Real Time system
or normal business activities.
We cannot predict the extent to which the Year 2000 issue will affect our
vendors, consumers or dealers, or the extent to which we would be vulnerable if
such parties fail to resolve any Year 2000 issues on a timely basis. The failure
of such parties to convert their systems on a timely basis or effect a
conversion that is compatible with our systems in order to avoid any Year 2000
issues could have a material adverse effect on us. In addition, to the extent
our customers are unable to access our Web site or dealers are unable to access
the Dealer Real Time system, such failures would have a material adverse effect
on our business, results of operations, or financial condition.
The worst-case scenario related to the Year 2000 issue would be an overall
failure of the national Internet and telecommunications infrastructure. If this
failure were to prevent users and dealers from accessing the Internet, we would
attempt to provide alternative means to allow users to connect to our servers.
Any national disruption to the telecommunications systems used by our business
will have a material adverse effect on our business, results of operations, or
financial condition.
MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS COULD
IMPAIR OUR COMPETITIVE POSITION.
Our ability to compete depends upon our proprietary systems and technology.
While we rely on trademark, trade secret and copyright law, confidentiality
agreements and technical measures to protect our proprietary 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
Web site maintenance are more essential in establishing and maintaining a
leadership position and strengthening our brand. 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. We cannot
assure that the steps taken by us will prevent misappropriation of technology or
that the agreements entered into for that purpose will be enforceable.
Misappropriation of our intellectual property or potential litigation would have
a material adverse effect on our business, results of operations and financial
condition. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our products and
services are made available online. In addition, litigation may be necessary in
the future to enforce
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<PAGE> 25
or protect our intellectual property rights or to defend against claims or
infringement or invalidity. As part of our confidentiality procedures, we
generally enter into agreements with our employees and consultants and limit
access to our trade secrets and technology.
OUR FOUNDERS, OFFICERS AND DIRECTORS AND THEIR AFFILIATES HAVE SUBSTANTIAL
CONTROL OF OUR VOTING STOCK AND HAVE THE ABILITY TO MAKE DECISIONS THAT COULD
ADVERSELY AFFECT STOCKHOLDERS. SUCH DECISIONS COULD ADVERSELY AFFECT OUR STOCK
PRICE.
The control of a large amount of our stock by insiders could have an adverse
effect on the market price of our common stock. Our executive officers and
directors beneficially own or control approximately 6,174,352 shares or 31% of
the outstanding shares of our common stock. In addition, our founders, Peter
Ellis and John Bedrosian beneficially own or control approximately 17% and 15%,
respectively, of the outstanding shares of our common stock. Our officers,
directors, founders and their affiliates, assuming they vote together, have the
ability to control the election of our board of directors and the outcome of
corporate actions requiring stockholder approval, including mergers and other
changes of corporate control, going private transactions and other extraordinary
transactions.
SUBSTANTIAL SALES OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY
DEPRESS OUR STOCK PRICE. SINCE THE MARKET PRICES FOR INTERNET-RELATED STOCKS ARE
LIKELY TO REMAIN VOLATILE, OUR STOCK PRICE MAY BE MORE ADVERSELY AFFECTED THAN
OTHER COMPANIES BY SUCH FUTURE SALES.
Sale of substantial numbers of shares of common stock in the public market
could adversely affect the market price of our common stock and make it more
difficult for us to raise funds through equity offerings in the future. A
substantial number of outstanding shares of common stock and shares of common
stock issuable upon exercise of outstanding stock options will become available
for resale in the public market at prescribed times. Of the 17,874,502 shares
that were outstanding as of April 30, 1999, 4,877,560 shares are eligible for
sale in the public market without restriction. 7,122,481 shares of common stock
are currently restricted until September 26, 1999 under lock-up agreements with
the underwriters for our initial public offering, and another 5,808,977 shares
are restricted until December 26, 1999 under lock-up agreements with these same
underwriters. Upon the expiration of these lock-up agreements, such shares of
common stock will become eligible for sale in the public market in accordance
with the provisions of Rules 144 and 701 under the Securities Act and any
contractual restrictions on their transfer, as applicable. BT Alex. Brown
Incorporated may, in its sole discretion and at any time without notice, release
all or any portion of the shares subject to lock-up agreements. In addition,
holders of approximately 12,997,957 shares of common stock are entitled to
certain registration rights with respect to such shares until such time as the
holders of such common stock may sell such shares under Rule 144 of the
Securities Act.
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING WE MAY NOT BE
ABLE TO CONTINUE TO OPERATE OUR BUSINESS.
We currently anticipate that our cash, cash equivalents and short-term
investments will be sufficient to meet our anticipated needs for working capital
and other cash requirements at least for the next 12 months. We may need to
raise additional funds sooner, however, in order to fund more rapid expansion,
to develop new or enhance existing services or products, to respond to
competitive pressures or to acquire complementary products, businesses or
technologies. There can be no assurance that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of potential acquisition opportunities, develop or
enhance services or products or respond to competitive pressures would be
significantly limited. Such limitation could have a material adverse effect on
our business, results of operations, financial condition and prospects.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS 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 amended and restated certificate of incorporation and
bylaws relating to our corporate governance could make it difficult for a third
party to acquire us, and could discourage a third party from
25
<PAGE> 26
attempting to acquire control of us. These provisions allow us to issue
preferred stock with rights senior to those of the common stock without any
further vote or action by the stockholders. These provisions provide that the
board of directors is divided into three classes, which may have the effect of
delaying or preventing changes in control or change in our management because
less than a majority of the board of directors are up for election at each
annual meeting. In addition, these provisions impose various procedural and
other requirements which could make it more difficult for stockholders to effect
corporate actions such as a merger, asset sale or other change of control of us.
Such charter provisions could limit the price that certain 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.
We are also subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. In general, the statute prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns or did own 15% or more of the corporation's voting stock.
OUR ACTUAL RESULTS COULD DIFFER FROM FORWARD-LOOKING STATEMENTS IN THIS REPORT.
This report contains forward-looking statements based on current
expectations which involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of many factors, including the risk factors set forth above and
elsewhere in this report. The cautionary statements made in this report should
be read as being applicable to all forward-looking statements wherever they
appear in this report.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 25, 1999, in connection with Autobytel.com's initial public
offering, a Registration Statement on Form S-1 (No. 333-70261) was declared
effective by the Securities and Exchange Commission, pursuant to which 3,500,000
shares of Autobytel.com's common stock were offered and sold for the account of
Autobytel.com at a price of $23 per share, generating gross offering proceeds of
$80.5 million. Of such shares, 3,250,000 shares were sold to an underwriting
syndicate and 250,000 shares were sold to potential and existing international
strategic investors. The managing underwriters were BT Alex. Brown, Lehman
Brothers and PaineWebber Incorporated. After deducting approximately $5.6
million in underwriting discounts and $3.0 million in other related expenses,
the net proceeds to Autobytel.com were approximately $71.9 million.
In addition, two selling stockholders sold 1,637,500 shares to the
underwriting syndicate at the same price per share raising gross proceeds of
approximately $37.7 million. Autobytel.com did not receive any monies from the
sale of shares of its common stock by these selling stockholders.
The net proceeds to Autobytel.com were invested in short-term,
investment-grade interest-bearing securities. Autobytel.com has no specific
plans at this time for use of the net proceeds and expects to use such proceeds
for working capital and general corporate purposes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By written consent effective as of February 15, 1999, holders of the
outstanding shares of common stock, Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock approved the 1998 Stock Option Plan and the
1999 Stock Option Plan of Autobytel.com and an amendment to the Fifth Amended
and Restated Certificate of
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<PAGE> 27
Incorporation providing that immediately prior to the closing of the initial
public offering of common stock of Autobytel.com (i) all unissued shares of
Series C Preferred Stock are retired and restored to the status of authorized,
undesignated and unissued shares of preferred stock, (ii) upon conversion of all
shares of any class or series of preferred stock such shares are retired and
restored to the status of authorized, undesignated and unissued shares of
preferred stock and (iii) the board of directors be divided into three classes
effective upon closing of such initial public offering.
All of the holders of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock and holders of 8,361,518 shares of common stock,
representing approximately 98.2% of the outstanding shares of common stock,
consented to such actions. The initial public offering was consummated on March
31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements 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.
autobytel.com inc.
Date: May 14, 1999 By: /s/ HOSHI PRINTER
----------------------------------
Hoshi Printer
Senior Vice President
Chief Financial Officer and Duly
Authorized Officer
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<PAGE> 29
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
27.1 Financial Data Schedule (EDGAR version only)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 99,818
<SECURITIES> 0
<RECEIVABLES> 3,107
<ALLOWANCES> 413
<INVENTORY> 0
<CURRENT-ASSETS> 103,999
<PP&E> 4,721
<DEPRECIATION> 2,702
<TOTAL-ASSETS> 106,363
<CURRENT-LIABILITIES> 14,211
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 92,012
<TOTAL-LIABILITY-AND-EQUITY> 106,363
<SALES> 8,032
<TOTAL-REVENUES> 8,032
<CGS> 0
<TOTAL-COSTS> 8,459
<OTHER-EXPENSES> 1,895
<LOSS-PROVISION> 47
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,100)
<INCOME-TAX> 41
<INCOME-CONTINUING> (6,141)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,141)
<EPS-PRIMARY> (0.68)
<EPS-DILUTED> (0.68)
</TABLE>
