Selected Balance Sheet Accounts

3 Months Ended

Mar. 31, 2018

Selected Balance Sheet Accounts [Abstract]

Selected Balance Sheet Accounts

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

	March 31, 2018			December 31, 2017
	(in thousands)
Computer software and hardware	$	11,168		$	11,065
Capitalized internal use software		5,896			5,774
Furniture and equipment		1,702			1,703
Leasehold improvements		1,565			1,539
		20,331			20,081
Less—Accumulated depreciation and amortization		(16,261	)		(15,770	)
Property and Equipment, net	$	4,070		$	4,311

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

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

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

The Company has a concentration of credit risk with its automotive industry related accounts receivable balances, particularly with Urban Science Applications (which represents Acura, Audi, Honda, Nissan, Infiniti, Subaru, Toyota, Volkswagen and Volvo), Media.net Advertising and General Motors. During the first three months of 2018, approximately 38% of the Company’s total revenues was derived from these three customers, and approximately 45%, or $11.6 million of gross accounts receivables related to these three customers at March 31, 2018. During the first three months of 2017, approximately 29% of the Company’s total revenues was derived from Urban Science Applications, Ford Direct and General Motors, and approximately 40%, or $11.7 million of gross accounts receivables, related to these three customers at March 31, 2017.

Intangible Assets.  The Company amortizes specifically identified definite-lived intangible assets using the straight-line method over the estimated useful lives of the assets.

On October 5, 2017, the Company and DealerX Partners, LLC, a Florida limited liability company (“DealerX”), entered into a Master License and Services Agreement (“DealerX License Agreement”). Pursuant to the terms of the DealerX License Agreement, AutoWeb was granted a perpetual license to access and use DealerX’s proprietary platform and technology for targeted, online marketing.

The transaction consideration consisted of: (i) $8.0 million in cash paid to DealerX upon execution of the DealerX License Agreement and (ii) the right to 710,856 shares of the Company’s common stock, par value $0.001 per share, representing approximately five percent of the Company’s outstanding Common Stock as of the date the parties entered into the DealerX License Agreement (“Market Capitalization Shares”) if on or before October 5, 2022: (i) AutoWeb’s market capitalization averages at least $225.0 million over a consecutive 90 day period or (ii) there is a change in control of AutoWeb that reflects a market capitalization of at least $225.0 million. If the Market Capitalization Shares are issued to DealerX, DealerX’s Platform Support Obligations will continue in perpetuity. Alternatively, upon the occurrence of certain events prior to the issuance of the Market Capitalization Shares, AutoWeb may elect to make an additional lump-sum payment of $12.5 million (“Alternative Cash Payment”) in order to extend DealerX’s Platform Support Obligations in perpetuity. If the Alternative Cash payment is made, DealerX’s contingent right to receive the Market Capitalization Shares will be terminated. The fair value of the Market Capitalization Shares was calculated at $2.5 million. The DealerX perpetual license and related Market Capitalization Shares is being amortized over seven years.

The Company’s intangible assets will be amortized over the following estimated useful lives:

			March 31, 2018										December 31, 2017
Definite-lived Intangible Asset		Estimated Useful Life			Gross				Accumulated Amortization			Net			Gross				Accumulated Amortization			Net
			(in thousands)
Trademarks/trade names/licenses/domains	3 – 7 years		$	16,589		$	(4,602	)		$	11,987		$	16,589		$	(4,037	)		$	12,552
Software and publications	3 years			1,300			(1,300	)			—			1,300			(1,300	)			—
Customer relationships	2 - 10 years			19,563			(11,331	)			8,232			19,563			(10,555	)			9,008
Employment/non-compete agreements	1-5 years			1,510			(1,499	)			11			1,510			(1,493	)			17
Developed technology	5-7 years			8,955			(3,959	)			4,996			8,955			(3,619	)			5,336
			$	47,917		$	(22,691	)		$	25,226		$	47,917		$	(21,004	)		$	26,913

			March 31, 2018									December 31, 2017
Indefinite-lived Intangible Asset		Estimated Useful Life			Gross			Accumulated Amortization			Net			Gross			Accumulated Amortization			Net
Domain	Indefinite		$	2,200		$	—		$	2,200		$	2,200		$	—		$	2,200

Amortization expense is included in cost of revenues and depreciation and amortization in the Unaudited Consolidated Condensed Statements of Operations.  Amortization expense was $1.7 million and $1.4 million for the three months ended March 31, 2018 and 2017, respectively.

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

Year	Amortization Expense
	(in thousands)
2018	$	4,918
2019		5,236
2020		3,805
2021		3,697
2022		3,100
Thereafter		4,470
	$	25,226

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 impaired goodwill by $5.1 million during the quarter ended March 31, 2018.  

	(in thousands)
Goodwill as of December 31, 2017	$	5,133
Impairment charge		(5,133	)
Goodwill as of March 31, 2018	$	—

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

	March 31, 2018		December 31, 2017
	(in thousands)
Accrued employee-related benefits	$	1,925	$	2,411
Other accrued expenses and other current liabilities:
Other accrued expenses		6,563		6,307
Amounts due to customers		452		438
Other current liabilities		458		507
Total other accrued expenses and other current liabilities		7,473		7,252
Total accrued expenses and other current liabilities	$	9,398	$	9,663

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 included 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.  The holder of the AutoUSA Note may at any time 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).  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.