Selected Balance Sheet Accounts

9 Months Ended

Sep. 30, 2016

Selected Balance Sheet Accounts [Abstract]

Selected Balance Sheet Accounts

Property and Equipment.  Property and equipment consists of the following:

	September 30,			December 31,
	2016			2015
	(in thousands)
Computer software and hardware and capitalized internal use software	$	17,576		$	15,741
Furniture and equipment		1,450			1,419
Leasehold improvements		1,429			1,424
		20,455			18,584
Less – Accumulated depreciation and amortization		(15,436	)		(14,288	)
Property and equipment, net	$	5,019		$	4,296

The Company periodically reviews long-lived assets to determine if there are any impairment indicators.  The Company assesses the impairment of these assets, or the need to accelerate amortization, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company’s judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of the Company’s long-lived assets.  If such indicators exist, the Company evaluates the assets for impairment based on the estimated future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. Should the carrying amount of an asset exceed its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value. Fair value is generally determined based on a valuation process that provides an estimate of the fair value of these assets using an undiscounted cash flow model, which includes assumptions and estimates.

Concentration of Credit Risk and Risks Due to Significant Customers.  Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents are primarily maintained with two high credit quality financial institutions in the United States. Deposits held by banks exceed the amount of insurance provided for such deposits. These deposits may be redeemed upon demand.

 Accounts receivable are primarily derived from fees billed to Dealers and Manufacturers.  The Company generally requires no collateral to support its accounts receivables and maintains an allowance for bad debts for potential credit losses.

The Company has a concentration of credit risk with its automotive industry related accounts receivable balances, particularly with Urban Science Applications (which represents Acura, Audi, Nissan, Scion, Subaru, Toyota, Volkswagen and Volvo), Ford Direct and Trilogy. During the first nine months of 2016, approximately 27% of the Company’s total revenues was derived from these three customers, and approximately 40%, or $13.0 million of gross accounts receivables, related to these three customers at September 30, 2016.

During the first nine months of 2015, approximately 28% of the Company’s total revenues was derived from General Motors, Urban Science Applications and Jumpstart Automotive, and approximately 35%, or $10.1 million of gross accounts receivables, related to these three customers at September 30, 2015.

Intangible Assets.  The Company amortizes specifically identified intangible assets using the straight-line method over the estimated useful lives of the assets. In connection with the acquisitions of Cyber Ventures, Inc., Advanced Mobile, LLC, AutoUSA, Dealix/Autotegrity and AutoWeb, the Company identified $38.1 million of intangible assets.  The Company’s intangible assets are amortized over the following estimated useful lives:

		September 30, 2016							December 31, 2015
Intangible Asset	Estimated Useful Life	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
		(in thousands)
Trademarks/trade names/licenses/domains	5 years – Indefinite	$	11,494	$	(6,586	)	$	4,908	$	11,494	$	(6,071	)	$	5,423
Software and publications	3 years		1,300		(1,300	)		—		1,300		(1,300	)		—
Customer relationships	2-10 years		19,563		(6,678	)		12,885		19,563		(4,341	)		15,222
Employment/non-compete agreements	5 years		1,510		(1,172	)		338		1,510		(849	)		661
Developed technology	1-5 years		8,955		(1,915	)		7,040		8,955		(746	)		8,209
		$	42,822	$	(17,651	)	$	25,171	$	42,822	$	(13,307	)	$	29,515

Amortization expense for the remainder of the year and for the next five years is as follows:

Year	Amortization Expense
	(in thousands)
2016	$	1,388
2017		5,366
2018		5,028
2019		3,655
2020		2,224
2021		2,116
	$	19,777

Goodwill.  Goodwill represents the excess of the purchase price over the fair value of net assets acquired.  Goodwill is not amortized and is assessed annually for impairment or earlier, when events or circumstances indicate that the carrying value of such assets may not be recoverable.  The Company did not record impairment related to goodwill as of December 31, 2015 and September 30, 2016.

Goodwill consisted of the following (in thousands):

Goodwill as of December 31, 2015	$	42,903
Current year activity		(82	)
Goodwill as of September 30, 2016	$	42,821

During the nine months ended September 30, 2016, the Company made adjustments to the Dealix/Autotegrity purchase price allocation due to changes in accounts receivable and sales tax payable acquired, and adjusted goodwill accordingly.

Accrued Expenses and Other Current Liabilities.  Accrued expenses and other current liabilities consisted of the following:

	September 30,		December 31,
	2016		2015
	(in thousands)
Compensation and related costs and professional fees	$	3,366	$	3,981
Other accrued expenses		6,547		5,715
Amounts due to customers		519		486
Other current liabilities		501		562
Total accrued expenses and other current liabilities	$	10,933	$	10,744

Convertible Notes Payable.  In connection with the acquisition of AutoUSA, the Company issued a convertible subordinated promissory note for $1.0 million (“AutoUSA Note”) to AutoNationDirect.com, Inc.  The fair value of the AutoUSA Note as of the AutoUSA Acquisition Date was $1.3 million.  This valuation was estimated using a binomial option pricing method.  Key assumptions used by the Company’s outside valuation consultants in valuing the AutoUSA Note include a market yield of 1.6% and stock price volatility of 65.0%.  As the AutoUSA Note was issued with a substantial premium, the Company recorded the premium as additional paid-in capital.  Interest is payable at an annual interest rate of 6% in quarterly installments.  The entire outstanding balance of the AutoUSA Note is to be paid in full on January 31, 2019.  At any time after January 31, 2017, the holder of the AutoUSA Note may convert all or any part, but at least 30,600 shares, of the then outstanding and unpaid principal of the AutoUSA Note into fully paid shares of the Company's common stock at a conversion price of $16.34 per share (as adjusted for stock splits, stock dividends, combinations and other similar events).  The right to convert the AutoUSA Note into common stock of the Company is accelerated in the event of a change in control of the Company.  In the event of default, the entire unpaid balance of the AutoUSA Note will become immediately due and payable and will bear interest at the lower of 8% per year and the highest legal rate permissible under applicable law.