Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - AutoWeb, Inc.Financial_Report.xls
EX-31.2 - CFO SECTION 302 CERTIFICATION - AutoWeb, Inc.abtlex312.htm
EX-31.1 - CEO SECTION 302 CERTIFICATION - AutoWeb, Inc.abtlex311.htm
EX-32.1 - CEO AND CFO SECTION 906 CERTIFICATION - AutoWeb, Inc.abtlex321.htm
EX-10.61 - EMPLOYEE STOCK OPTION AWARD AGREEMENT - AutoWeb, Inc.abtl1061.htm





 
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 June 30, 2011
or
 
¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 .

Commission file number 1-34761

 
 
 
Autobytel Inc.
(Exact name of registrant as specified in its charter)


 
 
     
Delaware
 
33-0711569
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer identification number)
     
18872 MacArthur Boulevard, Suite 200, Irvine, California
 
92612
(Address of principal executive offices)
 
(Zip Code)
 
(949) 225-4500
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of August 1, 2011, there were 46,110,940 shares of the Registrant’s Common Stock outstanding.
 




 
     
     
     
     
     
 
PART I. FINANCIAL INFORMATION
 
     
Page
ITEM 1.
Financial Statements
 
     
 
3
     
 
4
     
 
5
     
 
6
     
ITEM 2.
16
     
ITEM 3.
21
     
ITEM 4.
21
     
 
PART II. OTHER INFORMATION
 
     
ITEM 1.
22
     
ITEM 1A.
22
     
ITEM 6.
24
     
 
25

 
2

 

PART I. FINANCIAL INFORMATION
 
 
Item 1.  Financial Statements
 

 
AUTOBYTEL INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except share and per-share data)
 
   
June 30,
   
December 31,
 
   
2011
   
2010
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 8,567     $ 8,819  
Restricted cash
    400       400  
Accounts receivable, (net of allowances for bad debts and customer credits of $440 and $621 at June 30, 2011 and December 31, 2010, respectively)
    10,018       9,067  
Prepaid expenses and other current assets
    666       797  
Total current assets
    19,651       19,083  
Property and equipment, net
    1,941       1,733  
Long-term strategic investment
    1,017       1,000  
Intangible assets, net
    3,577       4,258  
Goodwill
    11,677       11,677  
Other assets
    81       81  
Total assets
  $ 37,944     $ 37,832  
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
  $ 4,769     $ 3,713  
Accrued expenses and other current liabilities
    3,569       4,995  
Deferred revenues
    487       564  
Total current liabilities
    8,825       9,272  
Convertible note payable
    5,000       5,000  
Other non-current liabilities
    566       457  
Total liabilities
    14,391       14,729  
Commitments and contingencies (Note 9)
               
Stockholders’ equity:
               
Preferred stock, $0.001 par value; 11,445,187 shares authorized; none outstanding
           
Common stock, $0.001 par value; 200,000,000 shares authorized and 46,076,062 and 45,689,062 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively
    46       46  
Additional paid-in capital
    306,177       305,356  
Accumulated deficit
    (282,670 )     (282,299 )
Total stockholders’ equity
    23,553       23,103  
Total liabilities and stockholders’ equity
  $ 37,944     $ 37,832  
 
See accompanying notes.


 
AUTOBYTEL INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands, except per-share data)
 

 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues:
                       
Purchase requests
  $ 14,189     $ 11,245     $ 29,153     $ 21,979  
Advertising
    988       869       1,989       1,922  
Other revenues
    70       17       138       42  
Total net revenues
    15,247       12,131       31,280       23,943  
Cost of revenues (excludes depreciation of $87 and $40 for the three months ended June 30, 2011 and 2010, respectively and $142 and $76 for the six months ended June 30, 2011 and 2010, respectively)
    8,885       7,889       18,758       14,953  
Gross profit
    6,362       4,242       12,522       8,990  
Operating expenses:
                               
Sales and marketing
    2,211       2,886       4,630       5,639  
Technology support
    1,662       1,430       3,386       2,677  
General and administrative
    1,943       3,060       4,028       5,749  
Depreciation and amortization
    504       188       950       377  
Litigation settlements
    (261 )     (43 )     (328 )     (2,806 )
Total operating expenses
    6,059       7,521       12,666       11,636  
                                 
Operating income (loss)
    303       (3,279 )     (144 )     (2,646 )
Interest and other income, net
    13       313       23       490  
Income (loss) before income tax expense
    316       (2,966 )     (121 )     (2,156 )
Income tax expense
    117       35       250       48  
Net income (loss) and comprehensive income (loss)
  $ 199     $ (3,001 )   $ (371 )   $ (2,204 )
                                 
Basic and diluted earnings (loss) per common share
  $ 0.00     $ (0.07 )   $ (0.01 )   $ (0.05 )
                                 
 

 

 
See accompanying notes.


 
AUTOBYTEL INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
 

 

 
             
   
Six Months Ended June 30,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net loss
  $ (371 )   $ (2,204 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    1,075       643  
Provision for bad debts
    30       82  
Provision for customer credits
    454       287  
Share-based compensation
    500       572  
Changes in assets and liabilities:
               
Accounts receivable
    (1,435 )     766  
Prepaid expenses and other current assets
    131       (393 )
Other non-current assets
          (40 )
Accounts payable
    1,056       383  
Accrued expenses and other liabilities
    (1,259 )     (832 )
Deferred revenues
    (77 )     (63 )
Non-current liabilities
    109       (34 )
Net cash provided by (used in) operating activities
    213       (833 )
Cash flows from investing activities:
               
Purchases of property and equipment
    (602 )     (489 )
          Long-term strategic investment
    (17 )      
Net cash used in investing activities
    (619 )     (489 )
Cash flows from financing activities:
               
Proceeds from exercise of stock options
    321       102  
        Payment of contingent fee arrangement
    (167 )      
Net cash provided by financing activities
    154       102  
Net decrease in cash and cash equivalents
    (252 )     (1,220 )
Cash and cash equivalents, beginning of period
    8,819       25,097  
Cash and cash equivalents, end of period
  $ 8,567     $ 23,877  
 

 

 
See accompanying notes.


 
AUTOBYTEL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 
1. Organization and Operations
 
Autobytel Inc. (“Autobytel” or the “Company”) is an automotive marketing services company that assists automotive retail dealers (“Dealers”) and automotive manufacturers (“Manufacturers”) market and sell new and used vehicles through its internet purchase request referral programs, together with related Dealer marketing products and services, online advertising programs and data products.
 
Internet purchase request referrals (“Purchase Requests”) are internet requests from consumers seeking information or quotes regarding pricing and availability of new or used vehicles or for vehicle financing.  The Company’s network of owned, consumer-facing automotive websites (“Owned Websites”), which include our flagship website, Autobytel.com®, Autotropolis.com®, Autoweb.com®, AutoSite.com®, Car.comsm, CarSmart.com®, CarTV.com®, MyGarage.com® and MyRide.com®, provide consumers with information and tools to aid them with their automotive purchase decisions and the opportunity to submit Purchase Requests.  Purchase Requests are internally generated from the Company’s Owned Websites (“Internally-Generated Purchase Requests”) or purchased from third parties (“Other Purchase Requests”) that generate Purchase Requests from their websites (“Third Party Websites”).  Autobytel sells Internally-Generated Purchase Requests and Other Purchase Requests directly to Dealers and indirectly to Dealers through a wholesale market consisting of Manufacturers and other third parties in the automotive Purchase Request distribution industry.  In conjunction with the Company’s Purchased Request programs, Autobytel also offers Dealers and Manufacturers other products and services to assist them in capturing online, in-market customers and selling more vehicles, including the Company’s iControl by Autobyteltm, WebLeads+, Email Marketing Manager and Lead Call products and services.  Through their advertising placements on the Company’s Owned Websites, Manufacturers can direct consumers to their respective websites for further information.
 
The Company was incorporated in Delaware on May 17, 1996. Its principal corporate offices are located in Irvine, California. The Company’s common stock is listed on The NASDAQ Global Market under the symbol ABTL.

In June 2011, the Company launched the first phase of a multi-phase redesign of its flagship website, Autobytel.com. 
 
On September 17, 2010 (“Acquisition Date”), the Company acquired substantially all of the assets of privately-held Autotropolis, Inc., a Florida corporation, and Cyber Ventures, Inc., a Florida corporation (collectively, “Auto/Cyber”). The business acquired from Cyber Ventures, Inc. generates and sells in-market consumer automotive Purchase Requests.  The business acquired from Autotropolis, Inc., through its Autotropolis.com website, provides new vehicle Purchase Requests and related products and services directly to Dealers and expanded the Company’s ability to monetize the acquired, incremental traffic through advertising on the site.  Auto/Cyber’s results of operations are included in the Company’s consolidated financial statements beginning September 17, 2010.
 
Although the Company achieved positive cash flow for the quarter ended June 30, 2011, the Company has historically experienced negative cash flow and at June 30, 2011 had an accumulated deficit of $283 million. Based on the Company’s current operating plan for 2011, the Company expects that its net operating cash flows will improve from 2010 levels.  The Company continues to face many risks and uncertainties related to the general economic conditions and the automotive industry in particular; however, the Company 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. Basis of Presentation
 
The unaudited consolidated condensed financial statements of Autobytel presented herein are presented on the same basis as the Company’s 2010 Annual Report on Form 10-K.  Autobytel has made its disclosures in accordance with accounting principles generally accepted in the United States of America as they apply to interim reporting, but condensed or omitted certain information and disclosures normally included in notes to consolidated financial statements in accordance with the Securities and Exchange Commission’s rules and regulations. The unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in Autobytel’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2010.


 

 
AUTOBYTEL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS – (continued)
 

    In the opinion of Autobytel’s management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present Autobytel’s consolidated condensed financial position as of June 30, 2011 and the consolidated condensed statements of operations and cash flows for the three and six months ended June 30, 2011 and 2010. The statements of operations and comprehensive income (loss) and cash flows for the periods ended June 30, 2011 and 2010 are not necessarily indicative of the results of operations or cash flows expected for the year or any other period.
 
 
3. Acquisition of Autotropolis, Inc. and Cyber Ventures, Inc.
 
On the Acquisition Date, the Company acquired substantially all of the assets of Auto/Cyber.  The results of Auto/Cyber’s operations have been included in the consolidated financial statements since that date.  The businesses acquired, through proprietary content, generate and sell in-market consumer automotive Purchase Requests and, through the Autotropolis.com website, provides new car Purchase Requests and related digital products directly to automotive dealers.  Two former owners of the acquired businesses were employed by the Company upon closing of the acquisition. Payments of purchase consideration are made to entities controlled by the former owners.  Prior to the acquisition, Cyber Ventures, Inc. was a Purchase Request provider for the Company.

The Acquisition Date fair value of the consideration transferred totaled $16.8 million which consisted of the following:

   
(in thousands)
 
       
Cash
  $ 9,000  
Convertible subordinated promissory note
    5,900  
Warrant to purchase 2,000,000 shares of Company Common Stock
    1,260  
Contingent consideration
    526  
Working capital adjustment
    99  
    $ 16,785  
 
As part of the consideration paid for the acquisition, the Company issued a convertible subordinated promissory note for $5.0 million (“Note”) to the sellers.  The fair value of the Note as of the Acquisition Date was $5.9 million.  This valuation was estimated using a binomial option pricing method.  Key assumptions used in valuing the Note include a market yield of 15.0% and stock price volatility of 77.5%.  As the Note was issued with a substantial premium, the Company recorded the premium as additional paid-in capital.  Interest is payable at an annual interest rate of 6% in quarterly installments.  The entire outstanding balance of the Note is to be paid in full on September 30, 2015.  At any time after September 30, 2013, the holders of the Note may convert all or any part of, but in 200,000 minimum share increments, the then outstanding and unpaid principal of the Note into fully paid shares of the Company’s common stock at a conversion price of $0.93 per share (as adjusted for stock splits, stock dividends, combinations and other similar events).  The right to convert the Note into common stock of the Company is accelerated in the event of a change in control of the Company.  In the event of default, the entire unpaid balance of the Note will become immediately due and payable and will bear interest at the lower of 8% per year and the highest legal rate permissible under applicable law.

The warrant to purchase 2,000,000 shares of Company common stock issued in connection with the acquisition (“Warrant”) was valued as of the Acquisition Date at $0.63 per share for a total value of $1.3 million.  The Company used an option pricing model to determine the value of the Warrant.  Key assumptions used in valuing the Warrant are as follows: risk-free rate of 2.3%, stock price volatility of 77.5% and a term of 8.04 years.  The Warrant was valued based on long-term volatilities of the Company and comparable public companies as of the Acquisition Date.  The exercise price of the Warrant is $0.93 per share (as adjusted for stock splits, stock dividends, combinations and other similar events).  The Warrant becomes exercisable on the third anniversary of the issuance date and expires on the eighth anniversary of the issuance date.  The right to exercise the Warrant is accelerated in the event of a change in control of the Company.



 
AUTOBYTEL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS – (continued)
 

 
    The contingent consideration arrangement (“Contingent Consideration”) requires the Company to pay up to $1.0 million (representing quarterly payments of up to $83,334 beginning fourth quarter 2010 and ending third quarter 2013) of additional consideration to the sellers if certain quarterly Purchase Request volume, Purchase Request quality and gross margin targets are met.  The targets were met for the quarter ended June 30, 2011, and the Company will pay the sellers $83,334 for the quarter.  The fair value of the Contingent Consideration as of the Acquisition Date was $526,000. The fair value of the Contingent Consideration was estimated using a Monte Carlo Simulation.  The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820, Fair Value Measurements and Disclosures.

The key assumptions in applying the Monte Carlo Simulation consisted of minimum, maximum and modal values for the expected quarterly incremental Purchase Request volume, close rate index and gross margin growth rate as well as a triangular distribution assumption. The Company recorded an additional $237,000, $31,000 and $30,000 in fair value in the fourth quarter of 2010, the first quarter of 2011 and the second quarter of 2011, respectively, to account for changes in the range of outcomes for the Contingent Consideration recognized as a result of the acquisition of Auto/Cyber. The Company has recorded a liability of $658,000 related to the Contingent Consideration as of June 30, 2011.
 
    The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the Acquisition Date.  Because the transaction was completed near the end of the third quarter of 2010, we have not yet finalized the fair values of the assets and liabilities assumed in connection with the acquisition.
 
   
(in thousands)
 
       
Accounts receivable
  $ 1,296  
Prepaid online advertising
    12  
Property, plant and equipment
    56  
Other long-term assets
    6  
          Total tangible assets acquired
    1,370  
         
Current liabilities
    662  
Other liabilities
    100  
          Total liabilities assumed
    762  
         
Net identifiable assets acquired
    608  
         
Definite-lived intangible assets acquired
    4,500  
         
Goodwill
    11,677  
         
Net assets acquired
  $ 16,785  
 
The preliminary fair value of the acquired intangible assets was determined using the below valuation approaches. In estimating the preliminary fair value of the acquired intangible assets, the Company utilized the valuation methodology determined to be most appropriate for the individual intangible asset being valued as described below. The acquired intangible assets include the following:

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


 
AUTOBYTEL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS – (continued)
 

(1)
 
 
 
(2)
 
 
(3)
 
 
(4)
 
 
(5)
 
Determination of the estimated useful lives of the individual categories of purchased intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with definite lives are recognized over the shorter of the respective lives of the agreement or the period of time the assets are expected to contribute to future cash flows.
 
The employment/non-compete agreements fair value was derived by calculating the difference between the present value of the Company’s forecasted cash flows with the agreements in place and without the agreements in place.
 
The cost approach estimates the cost required to repurchase or reproduce the intangible assets. The method takes into account technological and economic obsolescence of the publications and software licenses.
 
The excess of earnings method estimates a purchased intangible asset’s value based on the present value of the prospective net cash flows (or excess earnings) attributable to it. The value attributed to these intangibles was based on projected net cash inflows from existing contracts or relationships.
 
The relief from royalty method is an earnings approach which assesses the royalty savings an entity realizes since it owns the asset and doesn’t have to pay a third party a license fee for its use.
 
 
Some of the more significant estimates and assumptions inherent in the estimate of the fair value of the identifiable purchased intangible assets include all assumptions associated with forecasting cash flows and profitability. The primary assumptions used for the determination of the preliminary fair value of the purchased intangible assets were generally based upon the present value of anticipated cash flows discounted at a rate of 18%. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.

The goodwill recognized of $11.7 million is attributable primarily to expected synergies and the assembled workforce of Auto/Cyber.  Of this amount, approximately $10.3 million is amortizable for income tax purposes.  As of June 30, 2011, there were no changes in the recognized amounts of goodwill resulting from the acquisition of Auto/Cyber.

The Company incurred $687,000 of acquisition related costs related to Auto/Cyber, all of which was expensed in 2010.

The operating results of Auto/Cyber have been included in the Company’s consolidated financial statements from the Acquisition Date through June 30, 2011.  Total revenue of $4.1 million and $8.9 million and net income of $0.9 million and $1.9 million, which includes all Purchase Requests generated through Auto/Cyber, was recognized for Auto/Cyber in the three and six months ended June 30, 2011, respectively.
 
The following unaudited pro forma information presents the consolidated results of the Company and Auto/Cyber for the three and six months ended June 30, 2010 with adjustments to give effect to pro forma events that are directly attributable to the acquisition and have a continuing impact, but exclude the impact of pro forma events that are directly attributable to the acquisition and are one-time occurrences. The unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the results of operations of future periods, the results of operations that actually would have been realized had the entities been a single company during the periods presented or the results of operations that the combined company will experience after the acquisition. The unaudited pro forma information does not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with the acquisition. The unaudited pro forma information also does not include any integration costs or remaining future transaction costs that the companies may incur as a result of the acquisition and combining the operations of the companies.
 



 
AUTOBYTEL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS – (continued)
 
 
The unaudited pro forma consolidated results of operations, assuming the acquisition had occurred on January 1, 2010, are as follows:
 
   
Three Months
Ended
June 30, 2010
   
Six Months
Ended
June 30, 2010
 
   
(in thousands)
   
(in thousands)
 
Unaudited pro forma consolidated results:
           
Revenue
  $ 14,792     $ 29,138  
Net loss
  $ (3,091 )   $ (2,591 )
 
 
4.  Computation of Basic and Diluted Net Earnings (Loss) Per Share
 
Basic net earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period, excluding any unvested restricted stock. Diluted net earnings (loss) per share is computed using the weighted average number of common shares, and if dilutive, potential common shares outstanding, as determined under the treasury stock and if-converted method, during the period. Potential common shares consist of unvested restricted stock, common shares issuable upon the exercise of stock options, common shares issuable upon the exercise of the Warrant and common shares issuable upon the conversion of the Note.  The following are the share amounts utilized to compute the basic and diluted net earnings (loss) per share for the three months and six months ended June 30, 2011 and 2010:
 
                         
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Basic shares:
                       
Weighted average common shares outstanding
    46,060,009       45,256,231       45,923,287       45,212,710  
Weighted average unvested restricted stock
    (68,160 )     (296,456 )     (88,672 )     (330,977 )
Basic shares
    45,991,849       44,959,775       45,834,615       44,881,733  
                                 
Diluted Shares:
                               
Basic Shares
    45,991,849       44,959,775       45,834,615       44,881,733  
Weighted average dilutive securities
    2,691,906                    
Dilutive Shares
    48,683,755       44,959,775       45,834,615       44,881,733  
 
For the three and six months ended June 30, 2011, 10.7 million and 13.3 million anti-dilutive potential shares of common stock have been excluded from the calculation of diluted loss per share, respectively.  For both the three and six months ended June 30, 2010, 3.8 million anti-dilutive potential shares of common stock have been excluded from the calculation of diluted earnings per share.
 
 
5. Share-Based Compensation
 
Share-based compensation expense is included in costs and expenses in the accompanying Unaudited Consolidated Condensed Statements of Operations and Comprehensive Income (Loss) as follows:
 

 

 

 

 

 

 



 
AUTOBYTEL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS – (continued)
 

 
                         
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(in thousands)
   
(in thousands)
 
Share-based compensation expense:
                       
   Cost of revenues
  $ 11     $ 9     $ 12     $ 18  
   Sales and marketing
    99       55       182       114  
   Technology support
    85       33       160       65  
   General and administrative (a)
    83       233       155       375  
   Share-based compensation costs
    278       330       509       572  
                                 
Amount capitalized to internal use software
    5             9        
Total share-based compensation costs
  $ 273     $ 330     $ 500     $ 572  

(a)  Approximately $96,000 of accelerated stock compensation expense is included in the six months ended June 30, 2010 amount.  Vesting of these awards accelerated in accordance with the original award agreements.
 
Service-Based Options.  During the three months ended June 30, 2011, the Company granted 319,500 service-based stock options with weighted average grant date fair values of $0.77 and weighted average exercise prices of $1.23.  During the six months ended June 30, 2011, the Company granted 605,048 service-based stock options with weighted average grant date fair values of $0.70 and weighted average exercise prices of $1.12.  During the three months ended June 30, 2010, the Company granted 648,710 service-based stock options with weighted average grant date fair values of $0.63 and weighted average exercise prices of $1.03.  During the six months ended June 30, 2010, the Company granted 871,210 service-based stock options with weighted average grant date fair values of $0.64 and weighted average exercise prices of $1.04.  These options generally vest one-third on the first anniversary of the grant date and ratably over twenty-four months thereafter.  The vesting of these awards is contingent upon the employee’s continued employment with the Company during the vesting period.
 
  Performance-based Options.  During the six months ended June 30, 2011, the Company granted 1,259,903 performance-based stock options (“Performance Options”) to certain employees with a weighted average grant date fair value of $0.59, using a Black-Scholes option pricing model.  The Performance Options are subject to two vesting requirements and conditions: i) percentage achievement of 2011 revenues and earnings before interest, taxes, depreciation and amortization goals and ii) time vesting.
 
Market Condition Options.  In 2009 the Company granted 1,068,250 stock options to substantially all employees at exercise prices equal to the price of the stock on the grant date of $0.35, with a fair market value per option granted of $0.19, using a Black-Scholes option pricing model.  One-third of these options cliff vested on the first anniversary following the grant date and the remaining two-thirds vest ratably over twenty-four months thereafter.  In addition, the remaining two-thirds of the awards were subject to satisfaction of market price conditions for the Company’s common stock, which conditions have been satisfied.  Certain of these options will accelerate vesting upon a change in control of the Company. During the three months ended June 30, 2011, 12,550 of these market condition stock options were exercised.
 
During the three and six months ended June 30, 2011, 35,417 and 387,000 stock options (inclusive of the 12,550 and 107,720 market condition stock options exercised during the period, respectively) were exercised, with an aggregate weighted average exercise price of $0.79 and $0.81, respectively.  There were no options exercised during the three months ended March 31, 2010. During the six months ended June 30, 2010, 226,108 stock options were exercised, with an aggregate weighted average exercise price of $0.45. The grant date fair value of stock options granted during these periods was estimated using the Black-Scholes option-pricing model using the following weighted average assumptions:


 
AUTOBYTEL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS – (continued)
 

 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Dividend yield
                       
Volatility
    85 %     83 %     84 %     83 %
Risk-free interest rate
    1.5 %     1.7 %     1.6 %     1.8 %
Expected life (years)
    4.1       4.1       4.1       4.1  

Warrant.  In connection with the acquisition of Auto/Cyber, the Company issued to the sellers the Warrant described in Footnote 3 above. The Warrant was valued at $0.63 per share on the Acquisition Date using an option pricing model with the following key assumptions: risk-free rate of 2.3%, stock price volatility of 77.5% and a term of 8.04 years.
 

6. Selected Balance Sheet Accounts
 
Property and Equipment.  Property and equipment consists of the following:
 
             
   
June 30,
   
December 31,
 
   
2011
   
2010
 
   
(in thousands)
 
Computer software and hardware and capitalized internal use software
  $ 12,254     $ 11,651  
Furniture and equipment
    1,505       1,505  
Leasehold improvements
    1,024       1,024  
      14,783       14,180  
Less – Accumulated depreciation and amortization
    (12,842 )     (12,447 )
Property and equipment, net
  $ 1,941     $ 1,733  
 
    The Company periodically reviews long-lived assets to determine if there are any impairment indicators.  The Company assesses the impairment of these assets, or the need to accelerate amortization, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company’s judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our long-lived assets.  If such indicators exist, the Company evaluates the assets for impairment based on the estimated future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. Should the carrying amount of an asset exceed its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value. Fair value is generally determined based on a valuation process that provides an estimate of a fair value of these assets using a discounted cash flow model, which includes assumptions and estimates.
 
Concentration of Credit Risk and Risks Due to Significant Customers.  Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents are primarily maintained with three financial institutions in the United States. Deposits held by banks exceed the amount of insurance provided for such deposits. These deposits may be redeemed upon demand. Accounts receivable are primarily derived from fees billed to automotive dealers and automotive manufacturers.  The Company generally requires no collateral to support its accounts receivables and maintains an allowance for bad debts for potential credit losses.
 
The Company has a concentration of credit risk with its automotive industry related accounts receivable balances, and in particular with two Manufacturers (General Motors and Nissan). During the first six months of 2011, approximately 12% of the Company’s total revenues were derived from General Motors and Nissan, and approximately 15% or $1.5 million of gross accounts receivable related to these Manufacturers at June 30, 2011.


 
AUTOBYTEL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS – (continued)
 
 
Investments.  On August 16, 2010, the Company acquired less than a 5% interest in Driverside, Inc. for $1,000,000.  The Company made an additional investment in Driverside, Inc. in the three months ended June 30, 2011 for $16,737.  The Company recorded the investments in Driverside, Inc. at cost because the Company does not have significant influence over Driverside, Inc.  The Company reviews for indicators of impairment on a quarterly basis by evaluating whether an event or change in circumstance has occurred that may have a significant adverse effect on the value of the investment.  As of June 30, 2011, there were no changes in the recognized amount of the investment in Driverside, Inc.
 
Intangible Assets.  The Company amortizes specifically identified intangible assets using the straight-line method over the estimated useful lives of the assets.
 
In connection with the acquisition of Auto/Cyber on September 17, 2010, the Company identified $4.5 million of intangible assets.  The intangible assets will be amortized over the following estimated useful lives:
 
Intangible Asset
 
Estimated Useful Life
Trademarks/trade names
 
5 years
Software and publications
 
3 years
Customer relationships
 
3 years
Employment/non-compete agreements
 
5 years
 
Amortization expense for the remainder of the year and for the next five years is as follows:
 
Year
 
Amortization Expense
 
   
(in thousands)
 
       
2011
  $ 689  
2012
    1,356  
2013
    1,037  
2014
    286  
2015
    209  
    $ 3,577  

 
Goodwill.  The Company recognized $11.7 in goodwill related to the acquisition of Auto/Cyber in the quarter ended September 30, 2010.  Goodwill represents the excess of the purchase price over the fair value of net assets acquired.  Goodwill is not amortized and is assessed annually for impairment or whenever events or circumstances indicate that the carrying value of such assets may not be recoverable.
 
Accrued Expenses and Other Current Liabilities.  Accrued expenses and other current liabilities consisted of the following:


AUTOBYTEL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS – (continued)
 
 
   
June 30,
   
December 31,
 
   
2011
   
2010
 
   
(in thousands)
 
Compensation and related costs
  $ 1,349     $ 1,988  
Professional fees and other accrued expenses
    1,244       2,103  
Amounts due to customers
    391       367  
Other current liabilities
    585       537  
Total accrued expenses and other current liabilities
  $ 3,569     $ 4,995  
 
Long-term debt.  In connection with the acquisition of Auto/Cyber, the Company issued the Note described in Footnote 3.

In the event of default, the entire unpaid balance of the Note will become immediately due and payable and will bear interest at the lower of 8% per year and the highest legal rate permissible under applicable law.
 
7. Litigation Settlements

Dealix Patent Litigation Settlement.  In 2004, the Company brought a lawsuit for patent infringement against Dealix Corporation (“Dealix”). In December 2006, the Company entered into a settlement agreement with Dealix (“Settlement Agreement”). The Settlement Agreement required Dealix to pay the Company a total of $20.0 million in settlement payments for a mutual release of claims and a license from the Company to Dealix and its parent company, the Cobalt Group, for certain of the Company’s patent and patent applications. On March 13, 2007, the Company received the initial $12.0 million settlement payment with the remainder to be paid out in installments of $2.7 million on the next three anniversary dates of the initial payment.

The Company did not have reasonable assurance that it would receive the remaining payment on its due date and therefore had not recorded any amounts receivable related to the Settlement Agreement as of December 31, 2009.  On March 15, 2010, the Company had received the final annual installment payment of $2.7 million.  The Company recorded the payment as a patent litigation settlement in the period payment was received, as a reduction to operating expenses.

Texas and California Patent Litigation Settlements. In April 2009, the Company entered into a settlement agreement with Insweb Corporation (“Insweb”), Leadpoint, Inc. (“Leadpoint”), and Internet Brands, Inc. (“Internet Brands”) settling and dismissing with prejudice various patent-related and other claims by and against the Company. Under the settlement terms, Autobytel granted to Insweb, Leadpoint and Internet Brands, and Insweb, Leadpoint and Internet Brands each granted to Autobytel, a non-exclusive perpetual license to their respective patents as well as long-term covenants not to sue any of the parties for infringement of current or future patents; and mutual releases of claims. In connection with the settlement, (i) Autobytel and Autodata Solutions, Inc. (“Autodata”), a wholly owned subsidiary of Internet Brands, entered into a Master License and Services Agreement pursuant to which the Company will have the right to publish certain editorial content, images, shopping tools and vehicle data provided by Autodata for a term of five years; and (ii) shares of Internet Brands’ common stock previously issued to one of the Company’s subsidiaries but held by Internet Brands was released to the Company. In addition, InsWeb and Autobytel entered into a Content License Agreement pursuant to which Autobytel will receive specific auto insurance editorial content, data and interactive tools from InsWeb. The content and tools will contain links to one of InsWeb’s insurance websites, and Autobytel and InsWeb will share the revenue associated with consumer activity generated by the links. LeadPoint agreed to pay Autobytel $200,000, $100,000 of which was paid in connection with the signing of the settlement, to be followed by $50,000 installments payable on or before March 31, 2010 and September 30, 2010, respectively. The $50,000 payments were received in April and October of 2010, respectively.  In connection with the settlement, all claims brought by Insweb, Internet Brands and Leadpoint against Dominion Enterprises (“Dominion”), the purchaser of the Company’s AVV business, and Retention Performance Marketing, Inc. (“RPM”), and OneCommand, Inc. (“OneCommand”), the purchaser of the Company’s RPM business, were also dismissed with prejudice, with Internet Brands, Leadpoint, and Insweb each providing Dominion, OneCommand, and RPM covenants not to sue for infringement of the Insweb patent at issue in the litigation, and Dominion, OneCommand, and RPM each granting to Insweb, Internet Brands, and Leadpoint, and Insweb, Internet Brands and Leadpoint each granting to Dominion, OneCommand, and RPM, mutual releases of claims.


 
AUTOBYTEL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS – (continued)
 

8.  Taxes

The Company was audited in June 2011 by the New York State Department of Taxation and Finance for sales tax for the period December 1, 2003 through February 28, 2011 and is awaiting the results of the state’s audit.  The Company is also in an on-going income tax examination by the New York State Department of Taxation and Finance for the period January 1, 2006 through December 31, 2008.  The Company believes it has made adequate reserves for state tax items through June 30, 2011.
 
 
9. Commitments and Contingencies
 
Employment Agreements

The Company has employment agreements and retention agreements with certain key employees. A number of these agreements require severance payments, continuation of certain insurance benefits and acceleration of vesting of stock options and restricted stock units in the event of a termination of employment by the Company without cause or by the employee for good reason. In addition, these employees were also granted stock options and awarded restricted stock, the agreements for which provide for acceleration of vesting upon a change in control of the Company.
 
Litigation
 
In August 2001, a purported class action lawsuit was filed in the United States District Court for the Southern District of New York against Autobytel, certain of the Company’s current and former directors and officers (“Autobytel Individual Defendants”) and underwriters involved in the Company’s initial public offering. A Consolidated Amended Complaint, which is now the operative complaint, was filed on April 19, 2002. This action purports to allege violations of the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). Plaintiffs allege that the underwriter defendants agreed to allocate stock in the Company’s initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases of stock in the aftermarket at predetermined prices. Plaintiffs allege that the prospectus for the Company’s initial public offering was false and misleading in violation of the securities laws because it did not disclose these arrangements. The action seeks damages in an unspecified amount. The action is being coordinated with approximately 300 other nearly identical actions filed against other companies. The parties in the approximately 300 coordinated cases, including the parties in the Autobytel case, reached a settlement. The insurers for the issuer defendants in the coordinated cases will make the settlement payment on behalf of the issuers, including Autobytel. On October 6, 2009, the Court granted final approval of the settlement. The settlement approval was appealed to the United States Court of Appeals for the Second Circuit.  One appeal was dismissed and the second appeal was remanded to the district court to determine if the appellant is a class member with standing to appeal.  Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of this matter. If the settlement does not survive appeal, and Autobytel is found liable, it is possible that damages could be greater than Autobytel’s insurance coverage, and the impact on Autobytel’s financial statements could be material.

Between April and September 2001, eight separate purported class actions virtually identical to the one filed against Autobytel were filed against Autoweb.com, Inc. (“Autoweb”), certain of Autoweb’s former directors and officers (“Autoweb Individual Defendants”) and underwriters involved in Autoweb’s initial public offering. A Consolidated Amended Complaint, which is now the operative complaint, was filed on April 19, 2002. It purports to allege violations of the Securities Act and the Exchange Act. Plaintiffs allege that the underwriter defendants agreed to allocate stock in Autoweb’s initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases of stock in the aftermarket at predetermined prices. Plaintiffs also allege that the prospectus for Autoweb’s initial public offering was false and misleading in violation of the securities laws because it did not disclose these arrangements. The action seeks damages in an unspecified amount. The action is being coordinated with approximately 300 other nearly identical actions filed against other companies. The parties in the approximately 300 coordinated cases, including Autoweb’s case, reached a settlement. The insurers for the issuer defendants in the coordinated cases will make the settlement payment on behalf of the issuers, including Autoweb. On October 6, 2009, the Court granted final approval of the settlement. The settlement approval was appealed to the United States Court of Appeals for the Second Circuit.  One appeal was dismissed and the second appeal was remanded to the district court to determine if the appellant is a class member with standing to appeal.  Due to inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of this matter. If the settlement does not survive that appeal, and Autoweb is found liable, it is possible tha damages could be greater than Autoweb’s insurance coverage and the impact on Autobytel’s financial statements could be material.



From time to time, the Company may be involved in other litigation matters arising from the normal course of its business activities. The actions filed against the Company and other litigation, even if not meritorious, could result in substantial costs and diversion of resources and management attention, and an adverse outcome in litigation could materially adversely affect its business, results of operations, financial condition, and cash flows.
 

 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words of similar substance used in connection with any discussion of future operations or financial performance identify forward-looking statements. In particular, statements regarding expectations and opportunities, industry trends, new product expectations and capabilities, and our outlook regarding our performance and growth are forward-looking statements. This Quarterly Report on Form 10-Q also contains statements regarding plans, goals and objectives. There is no assurance that we will be able to carry out our plans or achieve our goals and objectives or that we will be able to do so successfully on a profitable basis. These forward-looking statements are just predictions and involve risks and uncertainties, many of which are beyond our control, and actual results may differ materially from these statements. Factors that could cause actual results to differ materially from those reflected in forward-looking statements include, but are not limited to, those discussed in this Item 2 and under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2010. Investors are urged not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date on which they were made. Except as may be required by law, we do not undertake any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained herein are qualified in their entirety by the foregoing cautionary statements.
 
You should read the following discussion of our results of operations and financial condition in conjunction with our unaudited consolidated condensed financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the notes thereto in Autobytel’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
Our corporate website is located at www.autobytel.com. Information on our website is not incorporated by reference in this Quarterly Report. At or through the Investor Relations section of our website we make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports as soon as practicable after that material is electronically filed with or furnished to the SEC. Our Code of Conduct and Ethics for Employees, Officers and Directors is available at the Corporate Governance link of the Investor Relations section of our website.
 
 
Basis of Presentation
 
The unaudited consolidated condensed financial statements presented herein are presented on the same basis as the Company’s 2010 Annual Report on Form 10-K.  We have made the disclosures in accordance with accounting principles generally accepted in the United States of America as they apply to interim reporting, but condensed or omitted certain information and disclosures normally included in notes to consolidated financial statements in accordance with the SEC’s rules and regulations. The unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto in our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2010.
 
On the Acquisition Date, the Company acquired substantially all of the assets of Auto/Cyber.  The results of Auto/Cyber’s operations have been included in the consolidated financial statements since that date.  The acquired businesses, through proprietary content, generate and sell in-market consumer automotive Purchase Requests and, through the Autotropolis.com website, provides new car Purchase Requests and related digital products directly to automotive dealers.


 

 
Overview
 
We are an automotive marketing services company that assists automotive retail dealers (“Dealers”) and automotive manufacturers (“Manufacturers”) market and sell new and used vehicles through our internet purchase request referral programs, together with related Dealer marketing products and services, online advertising programs and data products.
 
Internet purchase request referrals (“Purchase Requests”) are internet requests from consumers seeking information or quotes regarding pricing and availability of new or used vehicles or for vehicle financing.  Our network of owned, consumer-facing automotive websites (“Owned Websites”), which include our flagship website, Autobytel.com®, Autotropolis.com®, Autoweb.com®, AutoSite.com®, Car.comsm, CarSmart.com®, CarTV.com®, MyGarage.com® and MyRide.com®, provide consumers with information and tools to aid them with their automotive purchase decisions and the opportunity to submit Purchase Requests.  Purchase Requests are internally generated from the Company’s Owned Websites (“Internally-Generated Purchase Requests”) or purchased from third parties (“Other Purchase Requests”) that generate Purchase Requests from their websites (“Third Party Websites”).  We sell Internally-Generated Purchase Requests and Other Purchase Requests directly to Dealers and indirectly to Dealers through a wholesale market consisting of Manufacturers and other third parties in the automotive Purchase Request distribution industry.  In conjunction with our Purchase Request programs, we also offer Dealers and Manufacturers other products and services to assist them in capturing online, in-market customers and selling more vehicles, including our iControl by Autobyteltm, WebLeads+, Email Marketing Manager, and Lead Call products and services.
 
Our Owned Websites offer Manufacturers the opportunity to feature their makes and models within highly contextual content.  Through their advertising placements on the Company’s Owned Websites, Manufacturers can direct consumers to their respective websites for further information.  We believe this transfer of consumers from our Owned Websites to Manufacturer sites is the most significant action measured by Manufacturers in evaluating our performance and value as a marketing partner.  Most of the Manufacturers advertising on our Owned Websites have benefitted from all-time highs at times during 2010 with regard to our performance metrics such as click-through rates and actions taken once consumers reach the Manufacturer’s site.  One hundred percent of the consumer page views generated from Manufacturer advertising on our Owned Websites are transferred to Manufacturer sites.  We have also developed, internally or in partnership with others, data and market analytics products utilizing information from users of our Owned Websites.  These products provide marketing insights to advertisers and agencies demanding better performance from their advertising dollars across online and offline sources.

In June 2011, we launched the first phase of a multi-phase redesign of its flagship website, Autobytel.com.  The new website delivers a comprehensive consumer proposition of Your Lifetime Automotive Advisor® by assisting consumers as they navigate all stages of the automotive shopping, buying and ownership experiences.  By engaging consumers throughout the entire lifecycle of their automotive lives, Autobytel enhances its opportunity to further scale its brand and market penetration.
 
For the three and six months ended June 30, 2011, our results of operations were affected and may continue to be affected in the future, by market and economic factors, including, but not limited to, the following:
 
·  
General economic and automotive industry conditions, including:
 
·  
The adverse effect of high unemployment on the number of vehicle purchasers,
 
·  
Availability of, and interest rates for, financing for vehicle purchases,
 
·  
Pricing and purchase incentives for vehicles,
 
·  
Rising gasoline prices, and
 
·  
The pace of recovery in vehicle production by Japanese Manufacturers post the March 2011 earthquake and tsunami in Japan.
 
·  
The market for Purchase Requests, including:
 
·  
The effects of competition and Purchase Request sourcing (i.e., Purchase Requests from our Owned Websites versus Other Purchase Requests acquired from third parties) on our supply and acquisition costs of quality Purchase Requests and the resulting effects on sales, pricing and margins for our services and products, and
 
·  
Increases or decreases in the number of Dealers in our Dealer base.
 
·  
The market for advertising services, including:
 
·  
Continued volatility in spending by Manufacturers and others in marketing allocations,
 
·  
The amount of visits (traffic) to our Owned Websites,
 

 
·  
The cost of acquiring traffic to our Owned Websites, and
 
·  
The rates attainable from our advertisers.
 

Results of Operations
 
 Three Months Ended June 30, 2011 Compared to the Three Months Ended June 30, 2010

                               
   
2011
   
% of total net revenues
   
2010
   
% of total net revenues
   
$ Change
   
% Change
 
   
(Dollar amounts in thousands)
       
Revenues:
                                   
Purchase requests
  $ 14,189       93 %   $ 11,245       93 %   $ 2,944       26 %
Advertising
    988       7       869       7       119       14  
Other revenues
    70             17             53       312  
Total net revenues
    15,247       100       12,131       100       3,116       26  
Cost of revenues (excludes depreciation of $87 and $40 for the three months ended June 30, 2011 and 2010, respectively)
    8,885       58       7,889       65       996       13  
Gross profit
    6,362       42       4,242       35       2,120       50  
Operating expenses:
                                               
Sales and marketing
    2,211       15       2,886       24       (675 )     (23 )
Technology support
    1,662       11       1,430       12       232       16  
General and administrative
    1,943       13       3,060       25       (1,117 )     (37 )
Depreciation and amortization
    504       3       188       1       316       168  
Litigation settlements
    (261 )     (2 )     (43 )           (218 )     507  
Total operating expenses
    6,059       40       7,521       62       (1,462 )     (19 )
Operating income (loss)
    303       2       (3,279 )     (27 )     3,582       (109 )
       Interest and other income
    13             313       3       (300 )     (96 )
Income (loss) before income tax expense
    316       2       (2,966 )     (24 )     3,282       (111 )
       Income tax expense
    117       1       35             82       234  
Net income (loss)
  $ 199       1 %   $ (3,001 )     (24 )%   $ 3,200       (107 %)
 
Purchase Requests.  Purchase Requests revenue increased $2.9 million or 26% in the second quarter of 2011 compared to the second quarter of 2010 primarily due to the acquisition of Auto/Cyber.  The volume of new and used retail automotive Purchase Requests delivered decreased 11%, but was offset by an increase of 75% in the volume of automotive Purchase Requests delivered to Manufacturers and other wholesale purchasers.
 
Advertising. Advertising revenues increased $0.1 million or 14% in the second quarter of 2011 compared to the second quarter of 2010 due primarily to an increase in direct email marketing revenue.

Cost of Revenues.  Cost of revenues consists of Purchase Request and traffic acquisition costs, and other cost of revenues. Purchase Request and traffic acquisition costs consist of payments made to our Purchase Request providers, including internet portals and on-line automotive information providers. Other cost of revenues consists of search engine marketing (“SEM”) and fees paid to third parties for data and content, including search engine optimization (“SEO”) activity, included on our properties, connectivity costs, development costs related to our websites, compensation related expense and technology license fees, server equipment depreciation and technology amortization directly related to the Company’s websites. SEM, sometimes referred to as paid search marketing, is the practice of bidding on keywords on search engines to drive traffic to a website.  
 
The $1.0 million or 13% increase in the cost of revenues in the second quarter of 2011 compared to the second quarter of 2010 was due primarily to an increase in SEM costs associated with the acquisition of Auto/Cyber.


 
Sales and Marketing. Sales and marketing expense includes costs for developing our brand equity, personnel costs, and other costs associated with Dealer sales, website advertising, Dealer support, and bad debt expense. Sales and marketing expense in the second quarter of 2011 decreased by $0.7 million or 23% compared to the second quarter of 2010 due principally to lower headcount-related compensation costs.
 
Technology Support. Technology support expense includes compensation, benefits, software licenses and other direct costs incurred by the Company to enhance, manage, maintain, support, monitor and operate the Company’s websites and related technologies, and to operate the Company’s internal technology infrastructure. Technology support expenses in the second quarter of 2011 increased by $0.2 million or 16% compared to the second quarter of 2010 due to increased personnel costs associated with the Auto/Cyber acquisition and increased website hosting fees.
 
General and Administrative. General and administrative expense consists of executive, financial and legal personnel expenses and costs related to being a public company. General and administrative expense in the second quarter of 2011 decreased by $1.1 million or 37% compared to the second quarter of 2010 due to decreased headcount-related compensation costs and a decrease in other controllable costs.
 
Depreciation and amortization.  Depreciation and amortization expense for the second quarter of 2011 increased by $0.3 million primarily due to the addition of intangible assets related to the Auto/Cyber acquisition in the third quarter of 2010.
 
Litigation settlements.  Patent and other litigation settlements for the second quarter of 2011 was $0.3 million, primarily from the settlement of an arbitration claim seeking indemnification from a third party supplier relating to the third party’s method of soliciting Purchase Requests.  The arbitration settlement represented the recovery of legal fees and other related expenses previously expensed under General and Administrative operating expenses.
 
Interest and other income.  Interest and other income was $13,000 in the second quarter of 2011 compared to $0.3 million in the second quarter of 2010.  Interest and other income consisted primarily of patent licensing fees received.
 
Income taxes. Income tax expense was $0.1 million in the second quarter of 2011compared to $35,000 in the second quarter of 2010. The current quarter tax expense was primarily related to state taxes in Texas, Michigan and Florida and the increase in the deferred tax liability related to tax deductible goodwill amortization.
 
Six Months Ended June 30, 2011 Compared to the Six Months Ended June 30, 2010

                               
   
2011
   
% of total net revenues
   
2010
   
% of total net revenues
   
$ Change
   
% Change
 
   
(Dollar amounts in thousands)
       
Revenues:
                                   
Purchase requests
  $ 29,153       93 %   $ 21,979       92 %   $ 7,174       33 %
Advertising
    1,989       7       1,922       8       67       3  
Other revenues
    138             42             96       229  
Total net revenues
    31,280       100       23,943       100       7,337       31  
Cost of revenues (excludes depreciation of $142 and $76 for the six months ended June 30, 2011 and 2010, respectively)
    18,758       60       14,953       62       3,805       25  
Gross profit
    12,522       40       8,990       38       3,532       39  
Operating expenses:
                                               
Sales and marketing
    4,630       15       5,639       24       (1,009 )     (18 )
Technology support
    3,386       11       2,677       11       709       26  
General and administrative
    4,028       12       5,749       24       (1,721 )     (30 )
Depreciation and amortization
    950       3       377       2       573       152  
Litigation settlements
    (328 )     (1 )     (2,806 )     (12 )     2,478       (88 )
Total operating expenses
    12,666       40       11,636       49       1,030       9  
Operating loss
    (144 )           (2,646 )     (11 )     2,502       (95 )
       Interest and other income
    23             490       2       (467 )     (95 )
Loss before income tax expense
    (121 )           (2,156 )     (9 )     2,035       (94 )
       Income tax expense
    250       1       48             202       421  
Net loss
  $ (371 )     (1 )%   $ (2,204 )     (9 )%   $ 1,833       (83 %)
 


 

Purchase Requests.  Purchase Requests increased $7.2 million or 33% in the first six months of 2011 compared to the first six months of 2010 primarily due to the acquisition of Auto/Cyber.  The volume of new and used retail automotive Purchase Requests delivered decreased 7%, but was offset by an increase of 96% in the volume of automotive Purchase Requests delivered to Manufacturers and other wholesale purchasers.
 
Advertising. Advertising revenues increased $67,000 or 3% in the first six months of 2011 compared to the first six months of 2010 due primarily to an increase in direct email marketing revenue.

Cost of Revenues.  Cost of revenues consists of Purchase Request and traffic acquisition costs, and other cost of revenues. Purchase Request and traffic acquisition costs consist of payments made to our Purchase Request providers, including internet portals and on-line automotive information providers. Other cost of revenues consists of SEM and fees paid to third parties for data and content, including SEO activity, included on our properties, connectivity costs, development costs related to our websites, compensation related expense and technology license fees, server equipment depreciation and technology amortization directly related to the Company’s websites.
 
The $3.8 million or 25% increase in the cost of revenues in the first six months of 2011 compared to the first six months of 2010 was due primarily to an increase in SEM costs associated with the acquisition of Auto/Cyber.
 
Sales and Marketing. Sales and marketing expense includes costs for developing our brand equity, personnel costs, and other costs associated with Dealer sales, website advertising, Dealer support, and bad debt expense. Sales and marketing expense in the first six months of 2011 decreased by $1.0 million or 18% compared to the first six months of 2010 due principally to lower headcount-related compensation costs.
 
Technology Support. Technology support expense includes compensation, benefits, software licenses and other direct costs incurred by the Company to enhance, manage, maintain, support, monitor and operate the Company’s websites and related technologies, and to operate the Company’s internal technology infrastructure. Technology support expenses in the first six months of 2011 increased by $0.7 million or 26% compared to the first six months of 2010 due to increased personnel costs associated with the Auto/Cyber acquisition and increased website hosting fees.
 
General and Administrative. General and administrative expense consists of executive, financial and legal personnel expenses and costs related to being a public company. General and administrative expense in the first six months of 2011 decreased by $1.7 million or 30% compared to the first six months of 2010 due to decreased headcount-related compensation costs and a decrease in other controllable costs.
 
Depreciation and amortization.  Depreciation and amortization expense for the first six months of 2011 increased by $0.6 million primarily due to the addition of intangible assets related to the Auto/Cyber acquisition after the first six months of 2010.
 
Litigation settlements.  Patent and other litigation settlements for the first six months of 2011 were $0.3 million compared to $2.8 million in the first six months of 2010.  The $0.3 million in the first six months of 2011 was primarily from the settlement of an arbitration claim seeking indemnification from a third party supplier relating to the third party’s method of soliciting Purchase Requests.  The arbitration settlement represented the recovery of legal fees and other related expenses previously expensed under General and Administrative operating expenses.  The Company received $2.7 million in the first six months of 2010, which represented the final installment of the settlement of the Company’s patent infringement against Dealix Corporation.
 
Interest and other income.  Interest and other income was $23,000 in the first six months of 2011 compared to $0.5 million in the first six months of 2010.  Interest and other income consisted primarily of patent licensing fees received.
 
Income taxes. Income tax expense was $0.3 million in the first six months of 2011compared to $48,000 in the first six months of 2010. The current quarter tax expense was primarily related to state taxes in Texas, Michigan and Florida and the increase in the deferred tax liability related to tax deductible goodwill amortization.

 
 Employees
 
As of August 1, 2011 we had 120 employees. We also use independent contractors as required. None of our employees are represented by labor unions. We have not experienced any work stoppages and consider our employee relations to be generally good.
 



 
Liquidity and Capital Resources
 
The table below sets forth a summary of our cash flows for the six months ended June 30, 2011 and 2010:
 
   
Six Months Ended June 30,
 
   
2011
   
2010
 
   
(in thousands)
 
Net cash provided by (used in) operating activities
  $ 213     $ (833 )
Net cash used in investing activities
    (619 )     (489 )
Net cash provided by financing activities
    154       102  
 
Our principal sources of liquidity are our cash and cash equivalents balances.  Our cash and cash equivalents totaled $8.6 million as of June 30, 2011 compared to cash and cash equivalents of $8.8 million as of December 31, 2010.
 
Net Cash  Provided by (Used in) Operating Activities.  Net cash provided by operating activities in the six months ended June 30, 2011 of $0.2 million resulted primarily from net losses of $0.4 million, as adjusted for non-cash charges to earnings, in addition to cash used to reduce accrued liabilities of $1.3 million primarily related to the payment of annual incentive compensation amounts and severance accrued in 2010 and paid in the first six months of 2011 and a $1.4 million decrease in our accounts receivable balance.  Net cash used in operating activities in the six months ended June 30, 2010 of $0.8 million resulted primarily from net losses, as adjusted for non-cash charges to earnings, $0.8 million of cash received related to our accounts receivable, partially offset by cash used to reduce accrued liabilities of $0.8 million primarily related to the payment of annual incentive compensation amounts accrued in 2009 and paid in the first six months of 2010.
 
Net Cash Used in Investing Activities.  Net cash used in investing activities was $0.6 million and $0.5 million in the six months ended June 30, 2011 and 2010, respectively, and is related primarily to the investment in upgrading our internal information technology infrastructure.
 
Net Cash Provided by Financing Activities.  Our primary source of cash from financing activities is from the exercise of stock options.  387,000 stock options were exercised in the six months ended June 30, 2011 resulting in $0.3 million of cash inflow.  In addition, contingent payments of $167,000 were made related to the Auto/Cyber acquisition.  226,108 stock options were exercised in the six months ended June 30, 2010, resulting in $0.1 million of cash inflow.  Our future cash flows from employee stock options, if any, will depend on the future timing, exercise price, and amount of stock option exercises.
 
Off-Balance Sheet Arrangements
 
At June 30, 2011, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(D)(ii) of Regulation S-K.
 
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
For the three months ended June 30, 2011 there were no material changes in the information required to be provided under Item 305 of Regulation S-K from the information disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
 
Item 4.
Controls and Procedures
 
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer believe that, as of the end of the period covered by this Quarterly Report on Form  10-Q, our disclosure controls and procedures were effective at ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.

 
As of the end of the period covered by this Quarterly Report on Form 10-Q, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
 
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
 
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
 

 
PART II. OTHER INFORMATION
 

 
Item 1.  Legal Proceedings
 
See the discussion at Part I, Item 1, Note 9, “Commitments and Contingencies – Litigation” to the unaudited consolidated condensed financial statements, which is incorporated herein by reference.
 
 
Item 1A.  Risk Factors

The following factors, which supplement or update the risk factors set forth in Part I, Item 1A, “Risk Factors” of our 2010 Annual Report on Form 10-K, may affect our future financial condition and results of operations.  The risks described below are not the only risks we face.  In addition to the risks set forth in the 2010 Annual Report on Form 10-K, as supplemented or superseded below, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business.
 
We are affected by general economic conditions and, in particular, conditions in the automotive industry.
 
Our business and results of operations and financial condition is affected by general economic conditions, and, in particular, conditions in the automotive industry. These conditions include:
 
·  
The adverse effect of high unemployment on the number of vehicle purchasers,
 
·  
Availability of, and interest rates for, financing for vehicle purchases,
 
·  
Pricing and purchase incentives for vehicles,
 
·  
Rising gasoline prices, and
 
·  
The pace of recovery in vehicle production by Japanese Manufacturers post the March 2011 earthquake and tsunami in Japan.
 
·  
The market for Purchase Requests, including:
 
·  
The effects of competition and Purchase Request sourcing (i.e., Purchase Requests from our Owned Websites versus Other Purchase Requests acquired from third parties) on our supply and acquisition costs of quality Purchase Requests and the resulting effects on sales, pricing and margins for our services and products, and
 
·  
Increases or decreases in the number of Dealers in our Dealer base.
 
·  
The market for advertising services, including:


 
·  
Continued volatility in spending by Manufacturers and others in marketing allocations,
 
·  
The amount of visits (traffic) to our Owned Websites,
 
·  
The cost of acquiring traffic to our Owned Websites, and
 
·  
The rates attainable from our advertisers.
 
Changes in the taxation of internet commerce may result in increased costs.
 
Because our business is dependent on the internet, the adoption of new local, state or federal tax laws or regulations or new interpretations of existing laws or regulations by governmental authorities may subject us to additional local, state or federal sales, use or income taxes and could decrease the growth of internet usage or marketing or the acceptance of internet commerce which could, in turn, decrease the demand for our services and increase our costs.  As a result, our business, results of operations and financial condition could be materially and adversely affected. Tax authorities in a number of states are currently reviewing and re-evaluating the tax treatment of companies engaged in internet commerce, including the application of sales taxes to internet marketing businesses similar to ours. We accrue for tax contingencies based upon our estimate of the taxes ultimately expected to be paid, which we update over time as more information becomes available.  The amounts ultimately paid in resolution of reviews or audits by taxing authorities could be materially different from the amounts we have accrued and result in additional tax expense, and our business, results of operations and financial condition could be materially and adversely affected.  The Company was audited in June 2011 by the New York State Department of Taxation and Finance for sales tax for the period December 1, 2003 through February 28, 2011 and we are awaiting the results of the state’s audit.  The Company is also in an on-going income tax examination by the New York State Department of Taxation and Finance for the period January 1, 2006 through December 31, 2008.  The Company believes it has made adequate reserves for state tax items through June 30, 2011.
 

 
 




 
Item 6.  Exhibits
 
2.1‡
Asset Purchase Agreement dated as of  September 16, 2010, by and among Autotropolis, Inc., a Florida corporation, Cyber Ventures, Inc., a Florida corporation, William Ferriolo, Ian Bentley and the Ian Bentley Revocable Trust created U/A/D 3/1/2005, Autobytel Inc., a Delaware corporation, and Autobytel Acquisition Subsidiary, Inc., a Delaware corporation, which is incorporated herein by reference to Exhibit 2.1 of the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 filed with the SEC on November 12, 2010 (SEC File No. 1-34761)
   
3.1
Fifth Amended and Restated Certificate of Incorporation of Autobytel Inc. (formerly Autobytel.com Inc. (“Autobytel” or the “Company”)) certified by the Secretary of State of Delaware (filed December 14, 1998), as amended by Certificate of Amendment dated March 1, 1999, Second Certificate of Amendment of the Fifth Amended and Restated Certificate of Incorporation of Autobytel dated July 22, 1999, Third Certificate of Amendment of the Fifth Amended and Restated Certificate of Incorporation of Autobytel dated August 14, 2001, Certificate of Designation of Series A Junior Participating Preferred Stock dated July 30, 2004, and Amended Certificate of Designation of Series A Junior Participating Preferred Stock dated April 24, 2009, which is incorporated herein by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 filed with the SEC on April 24, 2009 (SEC File No. 000-22239)
   
3.2
Third Amended and Restated Bylaws of Autobytel dated April 27, 2011, which is incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the SEC on April 29, 2011 (SEC File No. 1-34761)
   
4.1
Form of Common Stock Certificate of Autobytel is incorporated herein by reference to Exhibit 4.1 of the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 filed with the SEC on November 14, 2001 (SEC File No. 000-22239)
   
4.2
Tax Benefit Preservation Plan, dated as of May 26, 2010, between Autobytel Inc. and Computershare Trust Company, N.A., as rights agent, together with the following exhibits thereto: Exhibit A – Form of Right Certificate; Exhibit B – Summary of Rights to Purchase Shares of Preferred Stock of Autobytel Inc. is incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on June 2, 2010 (SEC File No. 000-22239)
   
10.61*
Form of Employee Stock Option Award Agreement under the Autobytel Inc. 2010 Equity Incentive Plan
   
31.1*
Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer
   
31.2*
Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer
   
32.1*
Section 1350 Certification by Principal Executive Officer and Principal Financial Officer

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


 
 
 
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 INC.
 
           
 
 Date: August 5, 2011
 
By:
/s/ Curtis E. DeWalt
 
       
Curtis E. DeWalt
 
       
Senior Vice President and Chief Financial Officer
 
       
(Duly Authorized Officer and Principal Financial Officer)
 
 
           
           
 
 Date: August 5, 2011
 
By:
/s/ Wesley Ozima
 
       
Wesley Ozima
 
       
Vice President and Controller
 
       
(Principal Accounting Officer)
 
 



EXHIBIT INDEX

 
 
2.1‡
Asset Purchase Agreement dated as of  September 16, 2010, by and among Autotropolis, Inc., a Florida corporation, Cyber Ventures, Inc., a Florida corporation, William Ferriolo, Ian Bentley and the Ian Bentley Revocable Trust created U/A/D 3/1/2005, Autobytel Inc., a Delaware corporation, and Autobytel Acquisition Subsidiary, Inc., a Delaware corporation, which is incorporated herein by reference to Exhibit 2.1 of the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 filed with the SEC on November 12, 2010 (SEC File No. 1-34761)
   
3.1
Fifth Amended and Restated Certificate of Incorporation of Autobytel Inc. (formerly Autobytel.com Inc. (“Autobytel” or the “Company”)) certified by the Secretary of State of Delaware (filed December 14, 1998), as amended by Certificate of Amendment dated March 1, 1999, Second Certificate of Amendment of the Fifth Amended and Restated Certificate of Incorporation of Autobytel dated July 22, 1999, Third Certificate of Amendment of the Fifth Amended and Restated Certificate of Incorporation of Autobytel dated August 14, 2001, Certificate of Designation of Series A Junior Participating Preferred Stock dated July 30, 2004, and Amended Certificate of Designation of Series A Junior Participating Preferred Stock dated April 24, 2009, which is incorporated herein by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 filed with the SEC on April 24, 2009 (SEC File No. 000-22239)
   
3.2
Third Amended and Restated Bylaws of Autobytel dated April 27, 2011, which is incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the SEC on April 29, 2011 (SEC File No. 1-34761)
   
4.1
Form of Common Stock Certificate of Autobytel is incorporated herein by reference to Exhibit 4.1 of the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 filed with the SEC on November 14, 2001 (SEC File No. 000-22239)
   
4.2
Tax Benefit Preservation Plan, dated as of May 26, 2010, between Autobytel Inc. and Computershare Trust Company, N.A., as rights agent, together with the following exhibits thereto: Exhibit A – Form of Right Certificate; Exhibit B – Summary of Rights to Purchase Shares of Preferred Stock of Autobytel Inc. is incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on June 2, 2010 (SEC File No. 000-22239)
   
10.61*
Form of Employee Stock Option Award Agreement under the Autobytel Inc. 2010 Equity Incentive Plan
   
31.1*
Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer
   
31.2*
Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer
   
32.1*
Section 1350 Certification by Principal Executive Officer and Principal Financial Officer

*
Filed herewith

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

26