<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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)
<TABLE>
<S> <C>
DELAWARE 33-0711569
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
18872 MACARTHUR BOULEVARD
IRVINE, CALIFORNIA 92612
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(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 [X] No [ ]
As of October 31, 1999, there were 18,211,895 shares of the Registrant's
Common Stock outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1: Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998........................... 3
Consolidated Statements of Operations for the three months
and nine months ended September 30, 1999 and 1998
(unaudited)................................................. 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 (unaudited)............... 5
Notes to Consolidated Financial Statements.................. 6
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
PART II. OTHER INFORMATION
ITEM 2: Changes in Securities and Use of Proceeds................... 27
ITEM 4: Submission of Matters to a Vote of Security Holders......... 27
ITEM 6: Exhibits and Reports on Form 8-K............................ 28
Signature............................................................ 29
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AUTOBYTEL.COM INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents, includes restricted amounts of
$212 and $248, respectively................................. $ 90,093 $ 27,984
Accounts receivable, net of allowance for doubtful
accounts of $464 and $402, respectively................ 3,155 2,315
Prepaid expenses and other current assets................. 2,210 1,353
-------- --------
Total current assets.............................. 95,458 31,652
Property and equipment, net................................. 1,754 2,208
Other assets................................................ 412 347
-------- --------
Total assets...................................... $ 97,624 $ 34,207
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,769 $ 2,915
Accrued expenses.......................................... 2,843 915
Deferred revenue.......................................... 5,570 4,008
Customer deposits......................................... 571 345
Other current liabilities................................. 194 33
-------- --------
Total current liabilities......................... 16,947 8,216
Deferred rent............................................. 70 123
-------- --------
Total liabilities................................. 17,017 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, respectively................... -- 2
Convertible preferred stock, Series B, $0.001 par value;
967,915 shares authorized; no and 967,915 shares issued
and outstanding, respectively.......................... -- 1
Convertible preferred stock, Series C, $0.001 par value;
6,977,272 shares authorized; no and 4,968,738 shares
issued and outstanding, respectively................... -- 4
Common stock, $0.001 par value; 200,000,000 shares
authorized; 17,879,608 and 8,506,455 shares issued and
outstanding, respectively.............................. 18 8
Warrants.................................................. 1,332 1,332
Additional paid-in capital................................ 140,954 67,813
Cumulative translation adjustment......................... (8) (19)
Accumulated deficit....................................... (61,689) (43,273)
-------- --------
Total stockholders' equity........................ 80,607 25,868
-------- --------
Total liabilities and stockholders' equity........ $ 97,624 $ 34,207
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 4
AUTOBYTEL.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues.......................................... $ 10,625 $ 6,462 $ 27,860 $ 16,499
---------- --------- ---------- ---------
Operating expenses:
Sales and marketing............................. 11,049 8,320 32,033 22,249
Product and technology development.............. 4,216 2,352 9,798 6,216
General and administrative...................... 2,672 1,480 6,541 4,016
---------- --------- ---------- ---------
Total operating expenses..................... 17,937 12,152 48,372 32,481
---------- --------- ---------- ---------
Loss from operations............................ (7,312) (5,690) (20,512) (15,982)
Other income, net................................. 1,031 153 2,150 501
---------- --------- ---------- ---------
Loss before provision for income taxes.......... (6,281) (5,537) (18,362) (15,481)
Provision for income taxes........................ 10 6 54 31
---------- --------- ---------- ---------
Net loss........................................ $ (6,291) $ (5,543) $ (18,416) $ (15,512)
========== ========= ========== =========
Basic and diluted net loss per share.............. $ (0.35) $ (0.65) $ (1.23) $ (1.85)
========== ========= ========== =========
Shares used in computing basic and diluted net
loss per share.................................. 17,878,188 8,487,385 14,959,928 8,395,797
========== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
4
<PAGE> 5
AUTOBYTEL.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(18,416) $(15,512)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,013 900
Provision for bad debt................................. 189 191
Loss on disposal of property and equipment............. 51 --
Amortization of deferred compensation.................. -- 1
Issuance of preferred stock in exchange for
advertising........................................... -- 500
Fair market value of stock options in excess of
exercise price........................................ 791 --
Changes in assets and liabilities:
Accounts receivable.................................. (1,029) (524)
Prepaid expenses and other current assets............ (857) 183
Other assets......................................... (65) (255)
Accounts payable..................................... 4,854 3,120
Accrued expenses..................................... 1,928 (35)
Deferred revenue..................................... 1,562 713
Customer deposits.................................... 226 240
Other current liabilities............................ 161 (8)
Deferred rent........................................ (53) 28
-------- --------
Net cash used in operating activities............. (9,645) (10,458)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (610) (780)
-------- --------
Net cash used in investing activities............. (610) (780)
-------- --------
Cash flows from financing activities:
Issuance of notes payable................................. -- 776
Proceeds from sale of common stock, net................... 72,353 5,163
-------- --------
Net cash provided by financing activities......... 72,353 5,939
-------- --------
Effect of exchange rates on cash............................ 11 (26)
-------- --------
Net increase (decrease) in cash and cash equivalents........ 62,109 (5,325)
Cash and cash equivalents, at beginning of period........... 27,984 15,813
-------- --------
Cash and cash equivalents, at end of period................. $ 90,093 $ 10,488
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes.............. $ 54 $ 31
======== ========
Cash paid during the period for interest.................. $ 2 $ 1
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
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 $61,689 as of September 30,
1999. Management believes current cash and cash equivalents are sufficient to
meet anticipated cash needs for working capital and capital expenditures for at
least the next 12 months.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements
The accompanying interim consolidated financial statements as of September
30, 1999, and for the three months and nine months ended September 30, 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 September 30, 1999, and results of
operations and cash flows for the three months and nine months ended September
30, 1999 and 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 and nine months ended September 30, 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.
3. ACQUISITION COSTS
Autobtyel.com terminated the acquisition agreements to acquire W.G.
Nichols, Inc., the publisher of the Chilton series of auto repair manuals, and a
related company. Costs of $601, related to the terminated acquisitions, were
expensed during the three months ended September 30, 1999.
6
<PAGE> 7
AUTOBYTEL.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA.)
4. STOCK BASED COMPENSATION
From January to March 1999, Autobytel.com granted stock options to
employees and directors at exercise prices 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 $2,644 ratably over
the vesting term of one to four years. Compensation expense of $282 was
recognized during the three months ended September 30, 1999.
5. SUBSEQUENT EVENT
In October 1999, Autobytel.com agreed to acquire A.I.N. Corporation, the
parent company of CarSmart.com, an online automotive purchasing and related
services Web site for 1.8 million shares of common stock and $3.0 million in
cash. The closing of the acquisition is subject to a number of conditions,
including a satisfactory audit of A.I.N. Corporation's financial statements. The
transaction is expected to be completed in the fourth quarter of 1999.
7
<PAGE> 8
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 discussed 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 participating dealers in the United States and Canada. We
introduced our new vehicle marketing service in 1995, and in 1997 commenced our
Certified Pre-owned CyberStore program. 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 ready to buy, they
can be connected to our dealer network. In addition, we continue to develop
related products and services which provide consumers with automotive solutions
throughout the lifecycle of car ownership, such as financing, insurance,
warranty and maintenance services. In the third quarter of 1999, we launched an
online consumer banking center which, in partnership with LendingTree, Inc. and
Credit Management Solutions, Inc., provides consumers with competitive loan
rates from various lenders. We also announced a partnership with I-NET Training
Technologies, a training and consulting firm specializing in automotive
e-commerce. In October, we launched our online consumer-to-consumer and
dealer-to-consumer auction site and agreed to acquire A.I.N. Corporation, the
parent company of CarSmart.com, an online automotive purchasing and related
services Web site.
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, among other things, on
the size of territory, demographics and the transmittal of purchase requests to
them. We also charged the dealers annual fees through December 31, 1997. In
January 1998, we started to eliminate annual fees and increase monthly fees to
subscribing dealers. Average monthly program fees per dealer were $1,053 and
$983 for the three months ended September 30, 1999 and 1998, respectively. We
also derive a portion of our revenues from related products and services on a
per transaction basis. For the three months ended September 30, 1999 and 1998,
related products and services were 12% and 3% of revenues, respectively.
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 $0.6 million for the three months ended September 30, 1999 and 1998. We
anticipate that amortized revenues from our initial subscription fees 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 $8.7
million and $5.0 million for the three months ended September 30, 1999 and 1998,
respectively. Annual fees were recognized ratably over twelve months. There were
no amortized revenues from annual fees for the three months ended September 30,
1999 because we began to eliminate the charging of annual fees in early 1998.
For the three months ended September 30, 1998, amortized revenues from annual
fees were $0.7 million.
Although we do not derive any direct revenues 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 336,000 in the third
quarter of 1998 to 590,000 in the
8
<PAGE> 9
third quarter of 1999, an increase of 75%. Since inception we have directed
approximately 4.1 million purchase requests to dealers.
Our revenue growth has been primarily dependent on our ability to:
- deliver quality purchase requests to our dealer network,
- increase the number of dealers and
- increase the average monthly fees paid by each dealer.
We believe our revenue growth in the foreseeable future will be dependent
on the above factors as well as our ability to generate revenues from related
products and services.
Since inception, our dealer network has expanded each quarter. As of
September 30, 1999 there were 3,143 dealers, an increase of 19% over the same
quarter in 1998. Of these dealers, 3,063 dealers pay for our service and the
remaining 80 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 third quarter of 1999, 347 paying dealers were added to our
North American dealer network and 149 dealers either terminated their
affiliation with us or were terminated by us. The net number of paying dealers
as of September 30, 1999 increased by 39% 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. 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 dealers; therefore we derive no direct
revenues from the sale of a vehicle and have no significant cost of goods sold,
no procurement, carrying or shipping costs and no inventory risk.
Sales and marketing costs consist primarily of:
- Internet marketing and advertising expenses,
- fees paid to our Internet purchase request providers,
- promotion and advertising expenses to build our brand awareness and
encourage potential customers to visit our Web site and
- personnel and other costs associated with sales, marketing, training and
support of our dealer network.
We use Internet advertising, as well as traditional media, such as
television, radio and print. The majority of our Internet advertising is
comprised of:
- sponsorship and partnership agreements with Internet portals such as
Excite and Lycos and
- 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.
- 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.
- Initial fees are amortized over the period they relate to.
- Annual fees are amortized over the period they relate to.
- Monthly fees are expensed in the month they relate to.
9
<PAGE> 10
- Variable fees are fees paid for purchase requests and are expensed in the
period the purchase requests are received.
During the three months ended September 30, 1999, total Internet marketing
and advertising costs incurred were $3.7 million, including annual, monthly and
variable fees of $0.5 million, $1.1 million, and $2.1 million, respectively.
There were no set-up or initial fees incurred in the three months ended
September 30, 1999. Also included in 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.
RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage of
revenues:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Program fees........................................... 88% 97% 90% 97%
Related products and services.......................... 12 3 10 3
--- --- --- ---
Total revenues................................. 100 100 100 100
--- --- --- ---
Operating expenses:
Sales and marketing.................................... 104 129 115 135
Product and technology development..................... 40 36 35 38
General and administrative............................. 25 23 23 24
--- --- --- ---
Total operating expenses....................... 169 188 174 197
--- --- --- ---
Loss from operations................................... (69) (88) (74) (97)
Other income, net........................................ 10 2 8 3
--- --- --- ---
Loss before provision for income taxes................. (59) (86) (66) (94)
Provision for income taxes............................... 0 0 0 0
--- --- --- ---
Net loss............................................... (59)% (86)% (66)% (94)%
=== === === ===
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues. Our revenues increased by $4.2 million, or 64%, to $10.6 million
in the third quarter of 1999, compared to $6.5 million in the same period in
1998. The growth in revenues in the third quarter of 1999 was primarily
attributable to an increase in the number of paying dealers and a $70, or 7%,
increase in the average monthly program fee charged to paying dealers. The net
number of paying dealers increased by 856, or 39%, to 3,063 as of September 30,
1999, compared to 2,207 as of September 30, 1998. Revenues from related products
and services accounted for approximately 12% of revenues in the third quarter of
1999 compared to 3% of revenues in the third quarter of 1998.
Sales and marketing expense increased by $2.7 million, or 33%, to $11.0
million in the third quarter of 1999 compared to $8.3 million in the third
quarter of 1998. The increase was primarily due to a $1.0 million, or 51%,
increase in sales expenses due to additional sales and dealer support personnel,
a $0.8 million, or 30%, increase in fees related to information search
aggregators resulting from a higher number of purchase requests, and a $0.9
million, or 25%, increase in other advertising and marketing expenses to build
brand awareness. We expect to continue to increase our sales, advertising and
marketing expenses in the foreseeable future.
Product and Technology Development. Product and technology development
expense primarily includes personnel costs relating to the introduction of
products and services and the improvement of our Web site and Dealer Real Time
system. It also includes expenses associated with our international start-up
activities and
10
<PAGE> 11
our telecommunications and computer infrastructure. Product and technology
development expense increased by $1.8 million, or 79%, to $4.2 million in the
third quarter of 1999, compared to $2.4 million in the third quarter of 1998.
The increase was primarily due to a $1.1 million, or 73%, increase for
additional personnel, recruiting and retention costs, both domestic and
international, a $0.5 million increase in start up and legal expenses due to
international product development, and a $0.2 million, or 64%, increase related
to technological infrastructure costs.
General and Administrative. General and administrative expense primarily
consists of executive, financial and legal personnel expenses and related costs.
General and administrative expense was $2.7 million and $1.5 million in the
third quarter of 1999 and 1998, respectively. General and administrative expense
increased by $1.2 million, or 81%. The increase was primarily due to a
non-recurring charge of $0.6 million related to the termination of the agreement
to acquire W.G. Nichols, a $0.3 million increase in non-cash compensation
expense associated with stock options granted in the first quarter of 1999, and
a $0.3 million, or 853%, increase in public company infrastructure costs.
Other Income, Net. Other income, net, generally consists of interest income
offset by other expenses. Other income, net increased $0.8 million, or 574%, to
$1.0 million in the third quarter of 1999, compared to $0.2 million in the third
quarter of 1998. Interest income increased due to higher cash balances resulting
from the initial public offering in the first quarter of 1999.
Income Taxes. No provision for federal income taxes has been recorded as we
incurred net operating losses through September 30, 1999. Provision for income
taxes included in the accompanying statements of operations primarily consists
of franchise taxes paid to the state of Delaware.
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.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues. Our revenues increased $11.4 million, or 69%, to $27.9 million in
the nine months ended September 30, 1999, compared to $16.5 million in the same
period in 1998. The growth in revenues was primarily attributable to an increase
in the net number of paying dealers and a $106, or 12%, increase in the average
monthly program fee charged to paying dealers. The number of paying dealers
increased by 856, or 39%, to 3,063 as of September 30, 1999, compared to 2,207
as of September 30, 1998. Revenues from related products and services accounted
for approximately 10% of revenues for the nine months ended September 30, 1999
and 3% of revenues for the nine months ended September 30, 1998.
Sales and marketing expense increased by $9.8 million, or 44%, to $32.0
million for the nine months ended September 30, 1999 compared to $22.2 million
for the nine months ended September 30, 1998. The increase was primarily due to
a $2.5 million, or 41%, increase in sales expenses due to additional sales and
dealer support personnel, a $2.9 million, or 36%, increase in fees related to
information search aggregators resulting from a higher number of purchase
requests, a $2.2 million, or 54%, increase in television advertising, and a $2.2
million, or 55%, increase in other advertising and marketing expenses to build
brand awareness. We expect to continue to increase our sales, advertising and
marketing expenses in the foreseeable future.
Product and Technology Development. Product and technology development
expense increased by $3.6 million, or 58%, to $9.8 million in the nine months
ended September 30, 1999, compared to $6.2 million
11
<PAGE> 12
in the nine months ended September 30, 1998. The increase was primarily due to a
$1.6 million, or 39%, increase for additional personnel, recruiting and
retention costs, both domestic and international, a $0.9 million increase in
start up and legal expenses related to the development of international joint
ventures, a $0.7 million, or 83%, increase in technological infrastructure and a
$0.4 million, or 21%, increase in other product technology development costs.
General and Administrative. General and administrative expense was $6.5
million and $4.0 million for the nine months ended September 30, 1999 and 1998,
respectively. General and administrative expense increased by $2.5 million, or
63%. The increase was primarily due to a $0.8 million increase in non-cash
compensation expense associated with stock options granted in the first quarter
of 1999, a $0.7 million, or 499%, increase in accounting and other public
company infrastructure costs, a non-recurring expense of $0.6 million related to
the termination of the agreement to acquire W.G. Nichols, and a $0.4 million, or
11%, increase in payroll and related expenses for additional financial and human
resource personnel.
Other Income, Net. In the nine months ended September 30, 1999, interest
income of $2.5 million was offset by $0.3 million of costs related to our
Japanese joint venture. Interest income for the nine months ended September 30,
1999 increased 402% as compared to the nine months ended September 30, 1998 due
to higher cash balances resulting from the sale of preferred stock late in the
fourth quarter of 1998 and the initial public offering late in the first quarter
of 1999.
STOCK OPTIONS GRANTED IN 1999
From January to September 1999, we granted stock options to purchase 5,623,
153,000 and 782,612 shares of common stock under the 1996 Incentive Stock Plan,
1998 Stock Option Plan and 1999 Stock Option Plan, respectively. Certain of the
stock options granted in the first quarter of 1999 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 $40,000
will be classified as general and administrative expense in the years ending
1999, 2000, 2001, 2002 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities decreased to $9.6 million for the
nine months ended September 30, 1999 from $10.5 million for the nine months
ended September 30, 1998. The decrease resulted primarily from growth in the
number of paying dealers and additional accounts payable and accrued expenses
which were partially offset by increased prepaid expenditures and the net loss.
Cash used in investing activities decreased to $0.6 million for the nine
months ended September 30, 1999 from $0.8 million for the nine months ended
September 30, 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 $72.4 million for the
nine months ended September 30, 1999 primarily from the consummation of our
initial public offering. This was an increase from $5.9 million for the nine
months ended September 30, 1998.
As of October 31, 1999, we had approximately $87.5 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 our
revenues have grown 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.
12
<PAGE> 13
Our cash requirements depend on several factors, including:
- the level of expenditures on marketing and advertising,
- the rate of market acceptance,
- the ability to expand our customer base,
- the ability to increase the volume of purchase requests,
- the cost of contractual arrangements with Internet portals, online
information providers, and other referral sources, and
- the cash portion of acquisition transactions.
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.
YEAR 2000 ISSUE
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 Web site, 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, 401(k), 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 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
- computer hardware vendors
- computer software vendors
- network communications vendors
- data supplier vendors
13
<PAGE> 14
B. non-information technology systems
- landlord who oversees the facilities and utilities
- building security company
As of October 31, 1999, all of the information technology system vendors
have responded. Of these responses, 90% are in compliance and 10% have
provided a 1999 expected compliance date. The two vendors included in
non-information technology systems have also responded that they are in
compliance. All of these vendors provided a statement of compliance either
displayed on their Web site or have furnished us a hard copy.
2. We simulated the Year 2000 rollover with hardware, software,
network communications vendors and certain key data suppliers in a test lab
environment. We successfully tested the two information systems, the A Web
site and the Dealer Real Time system, with rollover periods that included
three critical timeframes:
- the turn of 1999 to 2000,
- leap month, and
- the turn of 2000 to 2001.
Based on the test results, if any vendor is found to be
non-compliant, our contingency plan in order of priority is:
- to find a replacement vendor,
- to assist such vendor in becoming Year 2000 compliant, and
- 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 have established a front-end application for screening
data. Data determined to be non-compliant will either be modified or
rejected and replaced, depending on the nature of the data.
Due to changes in technology and new products, we re-tested the
Autobytel.com Web site and the Dealer Real Time system in a test lab environment
reflecting these enhancements. We completed the testing of the first critical
time frame, the turn of 1999 to 2000. Both systems were found to be in
compliance. We plan to test leap month prior to the end of the year. However,
due to the rapidly changing nature of the Internet business, we expect that in
2000 our applications will be dramatically different from our current
applications. We, therefore, determined not to retest the turn of 2000 to 2001
at the present time.
Thus far, our test results have not warranted the activation of our
contingency plan.
The worst-case scenario pertaining to the 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 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.
14
<PAGE> 15
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 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 senior 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 $61.7 million and $43.3
million as of September 30, 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:
- generate increased vehicle buyer traffic to our Web site,
- continue to send new and pre-owned vehicle purchase requests to dealers
that result in sufficient dealer transactions to justify our fees,
- continue to expand the number of dealers in our network and enhance the
quality of dealers,
- respond to competitive developments,
- increase our brand name visibility,
- successfully introduce new services,
- continue to attract, retain and motivate qualified personnel, and
- 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 REVENUES DERIVED FROM
THIS NETWORK MAY DECREASE.
Substantially all of our revenues are derived from fees paid by our network
of subscribing dealers. 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 dealers 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. A significant number of
the agreements are for a one year term. 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 as a result of joining alternative marketing programs. Our
business is dependent upon our ability to attract and retain qualified new and
pre-owned vehicle dealers. During the third quarter of 1999, we added 347
subscribing dealers to our North
15
<PAGE> 16
American dealer network and 149 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 reduce or reconfigure
the exclusive territories currently assigned to dealers in order to serve
consumers more effectively. If a dealer is unwilling to accept a reduction or
reconfiguration of its territory, it may terminate its relationship with us. The
loss of dealers will cause a subsequent reduction in revenues unless we are able
to mitigate this loss by adding new dealers or increasing the fees we receive
from 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
dealers 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:
- our ability to retain existing dealers, attract new dealers and maintain
dealer and customer satisfaction,
- the announcement or introduction of new or enhanced sites, services and
products by us or our competitors,
- general economic conditions and economic conditions specific to the
Internet, online commerce or the automobile industry,
- 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,
- our ability to upgrade and develop our systems and infrastructure and to
attract new personnel in a timely and effective manner,
- the level of traffic on our Web site and other sites that refer traffic
to our Web site,
- technical difficulties, system downtime or Internet brownouts,
16
<PAGE> 17
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure,
- governmental regulation, and
- unforeseen events affecting the industry.
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, Carsdirect.com 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:
- brand recognition,
- speed and quality of fulfillment,
- variety of related products and services,
- ease of use,
- customer satisfaction,
- quality of service, and
- technical expertise.
17
<PAGE> 18
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 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 nine
months ended September 30, 1999 and the years ended December 31,1998 and
December 31, 1997, approximately 23%, 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.
IF WE CANNOT 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, MARKETING, MANAGERIAL AND TECHNICAL
PERSONNEL, OUR BUSINESS MAY SUFFER.
Our future success depends on our ability to identify, hire, train and
retain highly qualified sales, marketing, managerial and technical personnel. In
addition, as we introduce new services we 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, 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
18
<PAGE> 19
Ann M. 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 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 and related services. We
also intend to enter into new markets overseas. 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 revenues 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 September 30, 1999, we had 209 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:
- test, introduce and develop new services and products, including
enhancing our Web site,
- expand the breadth of products and services offered,
- expand our market presence through relationships with third parties, and
- 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, if 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 court of appeals 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 subject 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 dealers in Texas are charged
uniform fees based on the population density of their particular geographic area
and to make our program open to all dealers 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 a financial broker license in the state of Florida. If we
are required to be licensed elsewhere, it 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
19
<PAGE> 20
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 so consumers can receive real time quotes
for insurance coverage from InsurQuote Systems Incorporated and submit
applications online. Participants in the program include MetLife(R) Auto & Home
Insurance, The Hartford (Hartford Financial Services Group, Inc.), Fireman's
Fund Insurance Company and The GE Auto Insurance Program. As of October 31,
1999, the service is available only to consumers in California, Florida,
Illinois, New York, Pennsylvania, Texas, Washington and Wisconsin. We receive
fees from such participants in connection with this advertising activity.
We also 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 the above activities require 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 or are otherwise authorized to transact insurance in
the following jurisdictions:
<TABLE>
<S> <C> <C> <C>
- - Alabama - Georgia - Michigan - North Carolina
- - Alaska - Idaho - Minnesota - North Dakota
- - Arizona - Illinois - Mississippi - Oklahoma
- - Arkansas - Indiana - Missouri - Pennsylvania
- - California - Iowa - Montana - South Dakota
- - Colorado - Kansas - Nebraska - Tennessee
- - Connecticut - Kentucky - Nevada - Utah
- - Delaware - Louisiana - New Hampshire - Virginia
- - District of Columbia - Maine - New Jersey - Wisconsin
- - Florida - Maryland - New York - Wyoming
</TABLE>
We have applied for insurance agent licenses in eight other 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.
THERE ARE MANY RISKS ASSOCIATED WITH CONSUMMATED AND POTENTIAL ACQUISITIONS.
We recently entered into an agreement to acquire A.I.N. Corporation. The
closing of the acquisition is subject to a number of conditions, including a
satisfactory audit of A.I.N. Corporation's financial statements. We expect to
close the acquisition in the fourth quarter of 1999. Acquisitions involve
numerous risks. For example:
- It may be difficult to assimilate the operations and personnel of an
acquired business into our own business;
- Management information and accounting systems of an acquired business
must be integrated into our current systems;
- Our management must devote its attention to assimilating the acquired
business which diverts attention from other business concerns;
- We may enter markets in which we have limited prior experience; and
- We may lose key employees of an acquired business.
20
<PAGE> 21
We intend to continue to evaluate potential acquisitions which we believe
will complement or enhance our existing business. If we acquire other companies
in the future, it may result in the issuance of equity securities that could
dilute existing stockholders' ownership. We may also incur debt and amortize
expenses related to goodwill and other intangible assets if we acquire another
company, and this could negatively impact our results of operations. Except for
the pending acquisition of A.I.N. Corporation, we currently do not have any
agreements to acquire any company or business, and we cannot guarantee that we
will be able to identify or complete any acquisition in the future.
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 KEEPING PACE WITH ADVANCES IN TECHNOLOGY. IF WE ARE
UNABLE TO KEEP PACE WITH ADVANCES IN TECHNOLOGY, CONSUMERS MAY STOP USING OUR
SERVICES AND OUR REVENUES WILL DECREASE.
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
21
<PAGE> 22
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 offsite backup servers are
available from outside sources, 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 revenues, 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.
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:
- actual or anticipated variations in our quarterly operating results,
- announcements of new product or service offerings,
22
<PAGE> 23
- technological innovations,
- competitive developments,
- changes in financial estimates by securities analysts,
- conditions and trends in the Internet and electronic commerce industries,
- adoption of new accounting standards affecting the automotive industry,
and
- 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. 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 used vehicle dealers who do not
subscribe to our 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.
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.
Our licensees have launched Web sites in the United Kingdom, Sweden and
Japan. We intend to expand our new vehicle purchasing service into other 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.
23
<PAGE> 24
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:
- changes in political conditions,
- regulatory requirements,
- potentially weaker intellectual property protections,
- tariffs and other trade barriers, fluctuations in currency exchange
rates, or potentially adverse tax consequences,
- difficulties in managing or overseeing foreign operations, and
- 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 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.
24
<PAGE> 25
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 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. As of October 31, 1999,
our executive officers and directors beneficially own or control approximately
4,525,549 shares or 22.4% 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.
25
<PAGE> 26
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 18,211,895 shares
that were outstanding as of October 31, 1999, 10,284,063 shares are eligible for
sale in the public market without restriction and 2,118,855 shares are subject
to restrictions on sale in the public market. In addition, 5,808,977 shares of
common stock are currently restricted until December 22, 1999 under lock-up
agreements with the underwriters for our initial public offering. 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 Rule
144 under the Securities Act and any contractual restrictions on their transfer,
as applicable. Deutsche Banc Alex. Brown 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 11,609,192 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 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"
26
<PAGE> 27
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
In October 1999, Autobytel.com agreed to acquire A.I.N. Corporation, the
parent company of CarSmart.com, an online automotive purchasing and related
services Web site, for 1.8 million shares of common stock and $3.0 million in
cash. The closing of the acquisition is subject to a number of conditions,
including a satisfactory audit of A.I.N. Corporation's financial statements. The
transaction is expected to be completed in the fourth quarter of 1999.
Autobytel.com has no specific plans at this time for the use of the balance
of the 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
Autobytel.com held its Annual Meeting of Stockholders on July 22, 1999. The
following is a brief description of each matter voted upon at the meeting and
the number of votes cast for, withheld or against with respect to each matter.
Each director proposed by Autobytel.com was elected and the other two matters
submitted for stockholder vote were approved.
(a) The stockholders reelected the three nominees for Autobytel.com's
board of directors:
<TABLE>
<CAPTION>
DIRECTOR FOR WITHHELD AUTHORITY
-------- --- ------------------
<S> <C> <C>
Mark W. Lorimer........................ 15,454,370 27,691
Richard A. Post........................ 15,454,370 25,691
Peter Titz............................. 15,454,370 25,691
</TABLE>
The term of office as director for Jeffrey Coats, Michael J. Fuchs, Robert
S. Grimes, Mark N. Kaplan and Kenneth J. Orton continued after the meeting.
(b) The stockholders approved the proposed amendment to
Autobytel.com's Amended and Restated Certificate of Incorporation
increasing the number of authorized shares of common stock from 50 million
to 200 million.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINING
--- ------- ----------
<S> <C> <C>
15,302,426 159,915 19,720
</TABLE>
(c) The stockholders approved the appointment of Arthur Andersen LLP
as independent public accountants.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINING
--- ------- ----------
<S> <C> <C>
15,451,789 16,283 13,989
</TABLE>
27
<PAGE> 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
10.1 Amendment No.1 to the autobytel.com inc. 1999 Stock Option
Plan, dated September 22, 1999
10.2 Amendment No.1 to the autobytel.com inc. 1998 Stock Option
Plan, dated September 22, 1999
10.3 Employment Agreement dated as of July 9, 1999 between
Autobytel.com and Marc Benjamin
10.4 First Amendment dated as of December 31, 1998 to Employment
Agreement between Autobytel.com and Ann Marie Delligatta
10.5 First Amendment, dated as of July 31, 1998 to Employment
Agreement between Autobytel.com and Mark W. Lorimer
27.1 Financial Data Schedule (EDGAR version only)
</TABLE>
(b) Reports on Form 8-K
1. On July 30, 1999, Autobytel.com filed a Report on Form 8-K, dated
July 29, 1999, announcing its financial results for the second quarter of
1999 and its intent to acquire W.G. Nichols, Inc. and a related company
named Marine Information Technology, LLC.
28
<PAGE> 29
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: November 11, 1999 By: /s/ HOSHI PRINTER
------------------------------------
Hoshi Printer
Senior Vice President
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
By: /s/ AMIT KOTHARI
------------------------------------
Amit Kothari
Vice President and Corporate
Controller
(Principal Accounting Officer)
29
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.1 Amendment No. 1 to the autobytel.com inc. 1999 Stock Option
Plan, dated September 22, 1999
10.2 Amendment No. 1 to the autobytel.com inc. 1998 Stock Option
Plan, dated September 22, 1999
10.3 Employment Agreement dated as of July 9, 1999 between
Autobytel.com and Marc Benjamin
10.4 First Amendment, dated as of December 31, 1998, to
Employment Agreement between Autobytel.com and Ann Marie
Delligatta
10.5 First Amendment, dated as of July 31, 1998, to Employment
Agreement between Autobytel.com and Mark W. Lorimer
27.1 Financial Data Schedule (EDGAR version only)
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 1 TO THE
AUTOBYTEL.COM INC. 1999 STOCK OPTION PLAN
This Amendment No. 1 dated as of September 22, 1999 to the
autobytel.com inc. 1999 Stock Option Plan (the "Plan") is adopted by the Board
of Directors (the "Board") of autobytel.com inc. (the "Company") pursuant to
Section 8.1 of the Plan.
Effective as of September 22, 1999, the Plan is hereby amended by
deleting Section 3.1 in its entirety and inserting in lieu thereof the
following:
3.1 The Plan shall be administered, in the discretion of the
Board from time to time, by the Board or by the Committee acting
as the Administrator. The Committee shall be appointed by the
Board, in a manner consistent with the Company's Bylaws, and shall
consist of two (2) or more members, each of whom is an outside
director (within the meaning of Code Section 162(m) and the
Treasury Regulations thereunder) as well as a non-employee
director (within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended). The Board may from time to time
remove members from, or add members to, the Committee. The Board
shall fill vacancies on the Committee however caused. The Board
may appoint one (1) of the members of the Committee as Chairman.
The Administrator shall hold meetings at such times and places as
it may determine. Acts of a majority of the Administrator at which
a quorum is present, or acts reduced to or approved in writing by
the unanimous consent of the members of the Administrator, shall
be the valid acts of the Administrator. Additionally, and
notwithstanding anything to the contrary contained in the Plan,
the Board or Committee may delegate to a committee of one or more
members of the Board the authority to grant options and to specify
the terms and conditions thereof to certain eligible persons who
are not subject to the requirements of Section 16 of the
Securities Exchange Act of 1934, as amended, in accordance with
guidelines approved by the Board or Committee.
Except as specifically amended hereby, the Plan shall remain in full
force and effect as in existence on September 22, 1999, and any reference to the
Plan shall mean the Plan as amended hereby.
In witness whereof, the Board has caused this Amendment No. 1 to the
Plan to be duly executed as of the day and year first above written.
autobytel.com inc.
By: /s/Ariel Amir
--------------------------------------
Title: Secretary of the Board of Directors
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 1 TO THE
AUTOBYTEL.COM INC. 1998 STOCK OPTION PLAN
This Amendment No. 1 dated as of September 22, 1999 to the
autobytel.com inc. 1998 Stock Option Plan (the "Plan") is adopted by the Board
of Directors of autobytel.com inc. (the "Company") pursuant to Section 8.1 of
the Plan.
Effective as of September 22, 1999, the Plan is hereby amended by
deleting Section 3.1 in its entirety and inserting in lieu thereof the
following:
3.1 The Plan shall be administered, in the discretion of the
Board from time to time, by the Board or by the Committee acting
as the Administrator. The Committee shall be appointed by the
Board, in a manner consistent with the Company's Bylaws, and shall
consist of two (2) or more members, each of whom is an outside
director (within the meaning of Code Section 162(m) and the
Treasury Regulations thereunder) as well as a non-employee
director (within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended). The Board may from time to time
remove members from, or add members to, the Committee. The Board
shall fill vacancies on the Committee however caused. The Board
may appoint one (1) of the members of the Committee as Chairman.
The Administrator shall hold meetings at such times and places as
it may determine. Acts of a majority of the Administrator at which
a quorum is present, or acts reduced to or approved in writing by
the unanimous consent of the members of the Administrator, shall
be the valid acts of the Administrator. Additionally, and
notwithstanding anything to the contrary contained in the Plan,
the Board or Committee may delegate to a committee of one or more
members of the Board the authority to grant options and to specify
the terms and conditions thereof to certain eligible persons who
are not subject to the requirements of Section 16 of the
Securities Exchange Act of 1934, as amended, in accordance with
guidelines approved by the Board or Committee.
Except as specifically amended hereby, the Plan shall remain in full
force and effect as in existence on September 22, 1999, and any reference to the
Plan shall mean the Plan as amended hereby.
In witness whereof, the Board has caused this Amendment No. 1 to the
Plan to be duly executed as of the day and year first above written.
autobytel.com inc.
By: /s/Ariel Amir
--------------------------------------
Title: Secretary of the Board of Directors
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into, at Irvine,
California, as of July 9, 1999, by and between AUTOBYTEL.COM INC., a corporation
duly organized under the laws of the State of Delaware, with its principal
offices at 18872 MacArthur Blvd., Second Floor, Irvine, California, 92612-1400,
a Delaware Corporation, and its affiliated companies, including DealerSites.com
Corporation, a corporation duly organized under the laws of the State of
Delaware, with offices in Houston, Texas, (hereinafter, collectively referred to
as the "Company"), and MARC BENJAMIN, domiciled at 2922 Western Avenue, Unit
612, Seattle, Washington 98121.
WHEREAS: Company desires to employ Marc Benjamin (hereinafter, sometimes
referred to herein as "Employee"), as Chief Marketing Officer for
the Company.
WHEREAS: Employee desires to be so employed by the Company, subject to the
following terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and with reference to the above recitals, the parties hereby
agree as follows:
ARTICLE 1. TERM OF EMPLOYMENT
Section 1.1 The Company hereby employs Marc Benjamin as Chief Marketing
Officer of the Company, on an "at-will" basis and Employee hereby
accepts such employment by the Company, on such basis, commencing on
July 15, 1999.
ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE
Section 2.1 Employee shall be employed as a full time employee of the
Company. In such capacity, Employee shall do and perform all services,
acts, or things necessary or advisable as Chief Marketing Officer of
the Company, subject at all times to all present and future policies
and requirements of the Company in connection with Company's business.
Employee shall perform all services required hereunder to the best of
his/her ability.
ARTICLE 3. OBLIGATIONS OF THE COMPANY
Section 3.1 The Company shall provide Employee with the compensation,
incentives, benefits, and business expense reimbursement specified
elsewhere in this Agreement. Employee and the Company acknowledge that
such compensation, incentives, benefits, and business expense
reimbursement are commensurate with the duties and obligations required
of Employee hereunder.
<PAGE> 2
ARTICLE 4. COMPENSATION OF EMPLOYEE
Section 4.1 As compensation for services to be rendered by Employee
pursuant to this Agreement, the Company hereby agrees to pay Employee a
semi-monthly (twenty-four (24) pay periods per year) salary of
$8,333.33 payable at such times or on such dates that Employees of the
Company are regularly and customarily paid.
Section 4.2 In lieu of participating in any ABT bonus plans or
arrangements, Employee will receive an annual bonus of not less than
$75,000.00 unless terminated for Cause as defined below.
As used herein, the term "for Cause" shall refer to the termination of
your employment as a result of any one or more of the following: (i)
your conviction for a felony; (ii) your gross willful misconduct which
has a direct and material injurious effect on the business or
reputation of ABT; or (iii) your gross dishonesty which is directly and
materially injurious to the business and reputation of ABT.
Section 4.3 Upon commencement of employment with ABT, Employee will
receive a signing bonus of $50,000.00.
Section 4.4 The Company shall have the right to deduct or withhold from
the compensation due to Employee hereunder any and all sums required
for federal income and social security taxes and all state or local
taxes now applicable or that may be enacted and become applicable
during the Term.
Section 4.5 Additionally, Employee will be granted stock options under
ABT's 1999 Stock Option Plan to purchase 150,000 shares of ABT common
stock at an exercise price equal to the closing price of ABT's common
stock on the date approved by the compensation committee. One-fourth of
the option grant will vest on the first anniversary of the date of
grant and the remainder of the option grant will vest at a rate of
1/48th of the entire grant per month, with the entire grant also
vesting as otherwise provided in such plan.
2
<PAGE> 3
Section 4.6 Employee will be eligible to receive reimbursement of up to
$15,000.00 of valid expenses resulting from relocation to Orange County
California. Moving expenses are reimbursable, and should be submitted
and approved through the Company's standard expense reimbursement
process.
o Includes:
o Hotels
o Travel
o Home sale charges or charges resulting from breaking of lease *
o Moving Company *
* Expenses will be reflected on W-2 as earnings
ARTICLE 5. EMPLOYEE BENEFITS
Section 5.1 The Company agrees that Employee shall be eligible to
participate in the company's group benefits package. The company will
pay for all or part of the premium costs based upon plan selection and
dependents' covered. Medical, dental and life insurance benefits are
effective on the 1st of the month following 30 days of employment.
Section 5.2 Employee shall be eligible to participate in the Company's
401(k) retirement savings plan on the first enrollment period following
90 days of employment. Enrollment in the Plan takes place on January
1st and July 1st of each year.
Section 5.3 Paid vacation is provided to all regular full-time ABT
personnel. Vacation is accrued monthly at a rate equal to two (2) weeks
(80 hours) per year during the first five years of employment. After
completing five (5) years of employment, employees will begin to accrue
at a rate equal to three (3) weeks (120 hours) per year. Employees
begin accruing vacation in the first month in which they have completed
120 hours of service. However, paid vacation may not be taken until an
employee has completed six (6) months of service. Vacation taken prior
to six (6) months will be unpaid, and may only be taken with supervisor
approval. Only accrued, but unused vacation will be paid out to
employees in the event of termination.
Section 5.4 Regular full-time employees are eligible for up to six (6)
days of paid sick time off per year. Employees who have been employed
since January 1st will be eligible for the full six (6) days of paid
sick time off. Employees hired after the first of the year will receive
a pro-rated amount of time based upon their date of hire. Because sick
time does not accrue, balances are not paid out to an employee in the
event of termination.
3
<PAGE> 4
ARTICLE 6. BUSINESS EXPENSES
Section 6.1 The Company shall pay or reimburse Employee for all
reasonable and authorized business expenses incurred by Employee during
the Term; such payment or reimbursement shall not be unreasonably
withheld so long as said business expenses have been incurred for and
promote the business of the Company and are normally and customarily
incurred by employees in comparable positions at other comparable
businesses in the same or similar market. Notwithstanding the above,
the Company shall not pay or reimburse Employee for the costs of any
membership fees or dues for private clubs, civic organizations, and
similar organizations or entities, unless and until such organizations
and the fees and costs associated therewith have been approved in
writing by the Board of Directors of the Company.
Section 6.2 The Company shall reimburse Employee for business-related
mileage at the reimbursement rate approved by the United States
Internal Revenue Service, as such rate may change from time to time.
Notwithstanding the foregoing, the Company shall not reimburse Employee
for mileage traveled to the Company's office from Employee's residence,
or from the Company's office to Employee's residence. Nothing contained
in this Section 6.2 shall be construed as requiring the Company to
reimburse Employee for the cost of gasoline for his/her motor vehicle.
Section 6.3 As a condition to reimbursement, Employee shall furnish to
the Company adequate records and other documentary evidence required by
federal and state statutes and regulations for the substantiation of
each expenditure as an income tax deduction. Employee acknowledges and
agrees that failure to furnish the required documentation may result in
the Company denying all or part of the expense for which reimbursement
is sought.
ARTICLE 7. TERMINATION OF EMPLOYMENT
ABT is an "At-Will" employer. You are free to terminate your employment
with ABT at any time, with or without reason, and ABT has the right to
terminate your employment at any time with or without reason. Although
ABT may choose to terminate employment for cause, cause is not
required.
If employment is terminated without Cause, Employee will receive six
months base salary plus the greater of (i) six month's bonus and (ii)
accrued portion of Employee's annual bonus, in each case, payable
monthly over the first six months following such termination.
Termination without cause shall include termination by Employee due to
material diminution of Employee's status, duties or reporting
structure.
4
<PAGE> 5
ARTICLE 8. RESTRICTIVE COVENANTS
Section 8.1 Employee shall devote all or substantially all of his/her
entire productive time, ability and attention to the business of the
Company during the Term. Employee shall not engage in any other
business duties or pursuits whatsoever, or directly or indirectly
render any services of a business, commercial, or professional nature
to any other person or organization, including, but not limited to,
providing services to any business that is in competition with or
similar in nature to the Company, whether for compensation or
otherwise, without the prior written consent of the Company's Board of
Directors. However, the expenditure of reasonable amounts of time for
educational, charitable, or professional activities shall not be deemed
a breach of the Agreement, if those activities do not materially
interfere with the services required under this Agreement, and shall
not require the prior written consent of the Company's Board of
Directors. Notwithstanding anything herein contained to the contrary,
this Agreement shall not be construed to prohibit Employee from making
passive personal investments or conducting private business affairs if
those activities do not materially interfere with the services required
hereunder.
Section 8.2 During the Term and following termination of this
Agreement, Employee agrees that, without the Company's prior written
consent, he will not disclose to any person, firm, association,
partnership, entity or corporation, any information concerning: (a) the
business operations or internal structure of the Company; (b) the
customers of the Company; (c) the financial condition of the Company;
and (d) other confidential information pertaining to the Company,
including without limitation, trade secrets, technical data, marketing
analyses and studies, operating procedures, customer and/or inventor
lists, or the existence or nature of any of the Company's agreements;
provided, however, that Employee shall be entitled to disclose such
information: (i) to the extent the same shall have otherwise become
publicly available (unless made publicly available by Employee); or
(ii) during the course of or in connection with any litigation,
arbitration, or other proceeding based upon or in connection with the
subject matter of this Agreement.
Section 8.3 Employee acknowledges that a breach or violation of the
covenants contained in Section 8.2 will cause severe and irreparable
harm to the Company and that recovery by the Company of monetary
damages will not constitute an adequate remedy. Accordingly, in the
event of any breach or violation of such covenants by Employee, and
with the Company not having an adequate remedy at law, the Company will
have the right to have Section 8.2 of this Agreement specifically
enforced by any court having equity jurisdiction, without requirement
of bond or showing of actual damages, provided that nothing contained
herein shall limit or restrict any other rights or remedies that the
Company may have. Each of the rights and remedies of the Company
enumerated in this Section shall be independent of the other, and shall
be in addition
5
<PAGE> 6
to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity.
ARTICLE 9. GENERAL PROVISIONS
Section 9.1 This document contains the entire agreement between the
parties with respect to the subject matter hereof.
Section 9.2 No waiver, by conduct or otherwise, by any party of any
term, provision, or condition of this Agreement, shall be deemed or
construed as a further or continuing waiver of any such term,
provision, or condition.
Section 9.3 No modification, waiver, amendment, discharge or change of
this Agreement, shall be valid unless the same is in writing and signed
by the party against whom enforcement of such modification, waiver,
amendment, discharge, or change is sought.
Section 9.4 Except as hereinafter provided, all claims, disputes and
other matters in question between the parties hereto arising out of, or
relating to this Agreement or the breach thereof, shall be resolved
solely by mediation and arbitration in accordance with the provisions
of this Section 9.4.
9.4.1 With respect to any dispute between the parties, the
parties shall attempt in good faith first to mediate
such dispute and use their best efforts to reach
agreement on the matters in dispute. After a written
request for non-binding mediation, which shall specify
in detail the facts of this dispute, and within ten
(10) business days from the date of delivery of the
demand, the matter shall be submitted to a mediator
mutually agreeable to the parties (the "Mediator") in
Irvine, California. The party who did not initiate the
mediation may submit a statement of facts to the
Mediator, and provide a copy to the other party within
five (5) business days of the mediation hearing. The
mediator shall hear the matter and provide an informal
opinion and advice, none of which shall be binding upon
the parties, but is expected by the parties to help
resolve the dispute. Pursuant to Evidence Code Section
1152.5(c) the parties agree: (i) Evidence of anything
said or of any admission made in the course of the
mediation is not admissible in evidence, and disclosure
of any such evidence shall not be compelled, in any
arbitration proceeding or civil action in which,
pursuant to law, testimony can be compelled to be
given; (ii) Unless the document otherwise provides, no
document prepared for the purpose of, or in the course
of, or pursuant to, the mediation, or copy thereof, is
admissible in evidence, and disclosure of any such
document shall not be compelled, in any arbitration
proceeding or civil action in which, pursuant to law,
testimony can be compelled to be given; and (iii) The
Mediator's fee shall be shared equally
6
<PAGE> 7
by the parties. If the dispute has not been resolved,
the matter shall then be submitted to arbitration in
accordance with section 9.4.2
7
<PAGE> 8
9.4.2 Any dispute between the parties that is to be resolved
by arbitration as provided in Section 9.4.1 shall be
conducted pursuant to the provisions of California Code
of Civil Procedure Sections 1280 through 1287.6, except
as provided below. Any such arbitration shall be held
and conducted in Irvine, California, and shall be
conducted by a sole arbitrator mutually selected by the
parties. If the parties cannot agree on a sole
arbitrator within ten (10) business days from the first
request for arbitration, each party shall each select
one arbitrator and the two (2) selected arbitrators
shall select the third arbitrator. The parties further
agree: (i) Any request for arbitration shall be in
writing and must be made within a reasonable time after
the claim, dispute or other matter in question has
arisen; provided, however, that in no event shall the
demand for arbitration be made after the date that
institution of legal or equitable proceedings based on
such claim, dispute, or other matter would be barred by
the applicable statute of limitations; (ii) The
arbitrator or arbitrators appointed must be former or
retired judges or attorneys at law with at least ten
(10) years experience in employment, financing, and
other matters; (iii) All proceedings involving the
parties shall be reported by a certified shorthand
court reporter and written transcripts of the
proceedings shall be prepared and made available to the
parties; (iv) The arbitrator or arbitrators shall
prepare in writing and provide to the parties an award
together with the reasons upon which the award of the
arbitrators is based; (v) The final award by the
arbitrator or arbitrators must be made within ninety
(90) days from the date the arbitration proceedings are
initiated; (vi) The prevailing parties shall be awarded
reasonable attorney's fees, expert and non-expert
witness costs and expenses, and other costs and
expenses incurred in connection with the arbitration,
unless the arbitrator or arbitrators for good cause
determine otherwise; (vii) Costs and fees of the
arbitrator or arbitrators shall be borne by the
non-prevailing parties, unless the arbitrator or
arbitrators for good cause determine otherwise; and
(viii) The award or decision of the arbitrator or
arbitrators, which may include equitable relief, shall
be final and judgment may be entered on it in
accordance with applicable law in any court having
jurisdiction over the matter.
8
<PAGE> 9
NOTICE: BY INITIALING IN THE SPACE BELOW THE PARTIES ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THIS SECTION DECIDED BY NEUTRAL
ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND THE PARTIES ARE GIVING UP ANY
RIGHTS THE PARTIES MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN COURT OR JURY
TRIAL. BY INITIALING IN THE SPACE BELOW THE PARTIES ARE GIVING UP THEIR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN
THE PROVISIONS OF THIS SECTION. IF THE PARTIES REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, THE PARTIES MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. THEIR AGREEMENT
TO THE ARBITRATION PROVISION IS VOLUNTARY.
THE PARTIES HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THIS SECTION TO NEUTRAL ARBITRATION.
Company Initials AD Employee's Initials MB
-------- --------
Section 9.5 The rights under this Agreement, or by law or equity, shall
be cumulative and may be exercised at any time and from time to time.
No failure by any party to exercise, and no delay in exercising, any
rights shall be construed or deemed to be a waiver thereof, nor shall
any single or partial exercise by any party preclude any other or
future exercise thereof or the exercise of any other right.
Section 9.6 Except as otherwise provided in this Agreement, any notice,
approval, consent, waiver or other communication required or permitted
to be given or to be served upon any person in connection with this
Agreement shall be in writing. Such notice shall be personally served,
sent by telegram, tested telex or cable, or sent prepaid by registered
or certified mail with return receipt requested and shall be deemed
given (i) if personally served, when delivered to the person to whom
such notice is addressed, (ii) if given by telegram, telex or cable,
when sent, or (ii) if given by mail, two (2) business days following
deposit in the United States mail. Any notice given by telegram, telex
or cable shall be confirmed in writing within forty-eight (48) hours
after being sent. Such notices shall be addressed to the party to whom
such notice is to be given at the party's address set forth below or as
such party shall otherwise direct.
IF TO THE COMPANY, TO: IF TO EMPLOYEE:
AUTOBYTEL.COM INC. Marc Benjamin
18872 MacArthur Blvd., Second Floor 2922 Western Avenue, Unit 612
Irvine, California 92612-1400 Seattle, Washington 98121
Attn.: Mark W. Lorimer
President/Chief Executive Officer
9
<PAGE> 10
Section 9.7 The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the successors and assigns of the
parties hereto.
Section 9.8 This Agreement shall be construed and enforced in
accordance with the laws of the State of California.
Section 9.9 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of
which shall constitute one instrument.
Section 9.10 The provisions of this Agreement are agreed to be
severable, and if any provision, or application thereof, is held
invalid or unenforceable, then such holding shall not effect any other
provision or application.
Section 9.11 As used herein, and as the circumstances require, the
plural term shall include the singular, the singular shall include the
plural, the neuter term shall include the masculine and feminine
genders, and the feminine term shall include the neuter and the
masculine genders.
Section 9.12 Each party hereto shall pay its or their own expenses
incident to the negotiation, preparation and consummation of this
Agreement, including all fees and expenses of its or their respective
counsel.
ARTICLE 10. EMPLOYEE CONFIDENTIALITY AGREEMENT
As a further condition of his/her employment by Company, Employee
agrees to execute an "Employee Confidentiality Agreement".
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AUTOBYTEL.COM INC. EMPLOYEE:
By: /s/Ann Delligatta /s/ Marc Benjamin
---------------------------------- ------------------------------
Ann Delligatta Marc Benjamin
Executive Vice President and Chief
Operating Officer
10
<PAGE> 1
EXHIBIT 10.4
FIRST AMENDMENT
This First Amendment ("Amendment"), dated as of December 31, 1998
to that certain Employment Agreement ("Agreement") dated as of December
17, 1998, by and between autobytel.com inc., a corporation duly organized
under the laws of the State of Delaware (the "Company"), with offices at
18872 MacArthur Blvd., Second Floor, Irvine, California, 92612-1400, and
Ann Marie Delligatta (hereinafter referred to as the "Executive"), who
resides at 14400 Navarro Place, Orange, California 92689.
WHEREAS, The parties desire to amend the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereby agree as follows:
1. The first sentence of Article 1 of the Agreement is hereby amended in
its entirety to read as follows:
"The Company hereby employs the Executive as Executive Vice
President and Chief Operating Officer of the Company and the
Executive hereby accepts such employment by the Company for a
period of three (3) years (the "Term") commencing from October
1, 1998 (the "Commencement Date"), which Term shall
automatically renew for one year periods unless either party
notifies the other of its election not to renew at least 30
days prior to the applicable anniversary of the Commencement
Date."
2. The other terms and conditions of the Agreement shall remain in effect
and not be affected by this Amendment.
3. This Amendment shall be construed and enforced in accordance with the
laws of the State of California, without giving effect to the principles
of conflict of laws thereof.
4. This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
autobytel.com inc.
By /s/Mark Lorimer
-------------------------------------
Mark W. Lorimer
President and Chief Executive Officer
/s/ Ann Marie Delligatta
-----------------------------------------
Ann Marie Delligatta
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT
This First Amendment ("Amendment"), dated as of July 31, 1998 to
that certain Employment Agreement ("Agreement") dated as of July 1, 1998,
by and between autobytel.com inc., a corporation duly organized under the
laws of the State of Delaware (the "Company"), with offices at 18872
MacArthur Blvd., Second Floor, Irvine, California, 92612-1400, and Mark
W. Lorimer (hereinafter referred to as the "Executive"), who resides at
2624 Calle Onice, San Clemente, California 92673.
WHEREAS, The parties desire to amend the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereby agree as follows:
1. The first sentence of Article 1 of the Agreement is hereby amended in
its entirety to read as follows:
"The Company hereby employs the Executive as President and
Chief Executive Officer of the Company and the Executive
hereby accepts such employment by the Company for a period of
three (3) years (the "Term") commencing from July 1, 1998 (the
"Commencement Date"), which Term shall automatically renew for
one year periods unless either party notifies the other of its
election not to renew at least 30 days prior to the applicable
anniversary of the Commencement Date."
2. The other terms and conditions of the Agreement shall remain in effect
and not be affected by this Amendment.
3. This Amendment shall be construed and enforced in accordance with the
laws of the State of California, without giving effect to the principles
of conflict of laws thereof.
4. This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
autobytel.com inc.
By /s/ Michael Fuchs
-------------------------------------
Michael J. Fuchs
Chairman of the Board
/s/ Mark Lorimer
-----------------------------------------
Mark W. Lorimer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTMEBER 30, 1999 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS
ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 90,093
<SECURITIES> 0
<RECEIVABLES> 3,619
<ALLOWANCES> 464
<INVENTORY> 12
<CURRENT-ASSETS> 95,458
<PP&E> 5,109
<DEPRECIATION> 3,355
<TOTAL-ASSETS> 97,624
<CURRENT-LIABILITIES> 16,947
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 80,589
<TOTAL-LIABILITY-AND-EQUITY> 97,624
<SALES> 27,860
<TOTAL-REVENUES> 27,860
<CGS> 0
<TOTAL-COSTS> 32,033
<OTHER-EXPENSES> 9,798
<LOSS-PROVISION> 189
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (18,362)
<INCOME-TAX> 54
<INCOME-CONTINUING> (18,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,416)
<EPS-BASIC> (1.23)
<EPS-DILUTED> (1.23)
</TABLE>
