Note 9 - Stockholders' Equity

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Shareholders' Equity and Share-based Payments [Text Block]

9.         Stockholders’ Equity         

Stock-Based Incentive Plans

The Company has established plans that provide for stock-based awards (“Awards”), primarily in the form of stock options and restricted stock awards (“RSAs”), to employees, directors, and consultants.  As of June 21, 2018, new Awards may only be granted under the 2018 Equity Incentive Plan, and as of December 31, 2021, an aggregate of approximately 1.6 million shares of Company common stock were available for granting of new Awards under this plan. Awards may also be made outside this plan as inducement Awards to new employees in accordance with the corporate governance rules of The Nasdaq Stock Market.

Share-based compensation expense is included in costs and expenses in the Consolidated Statements of Operations as follows:  

	Years Ended December 31,
	2021		2020
	(in thousands)
Share-based compensation expense:
Cost of revenues	$	—	$	—
Sales and marketing		149		116
Technology support		33		81
General and administrative		1,672		1,787
Share-based compensation expense		1,854		1,984
Amount capitalized to internal use software		—		—
Total share-based compensation expense	$	1,854	$	1,984

Stock Options

The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model based on the underlying common stock closing price as of the date of grant, the expected term, stock price volatility and risk-free interest rates. The expected risk-free interest rate is based on United States Treasury yield for a term consistent with the expected life of the stock option in effect at the time of grant. Expected volatility is based on the Company’s historical experience for a period equal to the expected life. The Company has used historical volatility because it has limited, or no options traded on its common stock to support the use of an implied volatility or a combination of both historical and implied volatility. The Company estimates the expected life of options granted based on historical experience, which it believes is representative of future behavior.  The dividend yield is not considered in the option-pricing formula since the Company has not paid dividends in the past and has no current plans to do so in the future. The Company elected to estimate a forfeiture rate and is based on historical experience and is adjusted based on actual experience.

The Company grants stock options at exercise prices that are not less than the fair market value of the Company’s common stock on the date of grant. Stock options generally have a seven or ten-year maximum contractual term and generally vest one-third on the first anniversary of the grant date and ratably over twenty-four months, thereafter. The vesting of certain stock options is contingent upon the optionee’s continued employment with the Company during the vesting period, and vesting may be accelerated under certain conditions, including upon a change in control of the Company, termination without cause of an employee and voluntary termination by an employee with good reason.

Awards granted under the Company’s stock option plans were estimated to have a weighted average grant date fair value of $1.96 and $1.27 for the years ended December 31, 2021 and 2020, respectively, based on the Black-Scholes option-pricing model on the date of grant using the following weighted average assumptions:

	Years Ended December 31,
	2021			2020
Expected volatility		95	%		74	%
Expected risk-free interest rate		0.8	%		0.9	%
Expected life (years)		4.8			4.6

A summary of the Company’s outstanding stock options as of December 31, 2021, and changes during the year then ended is presented below:

	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
						(years)		(thousands)
Outstanding at December 31, 2020		3,758,670		$	4.26		4.7	$	270
Granted		957,000			2.65
Exercised		(100,278	)		2.27				75
Forfeited or expired		(234,044	)		6.14
Outstanding at December 31, 2021		4,381,348			3.85		4.3		1,662
Vested and expected to vest at December 31, 2021		4,269,151		$	3.88		4.2	$	1,586
Exercisable at December 31, 2021		2,889,095		$	4.42		3.6	$	701

Service-Based Options.  During the years ended December 31, 2021 and 2020, the Company granted 957,000 and 635,000, service-based stock options, which had weighted average grant date fair values of $1.96 and $1.27, respectively. At December 31, 2021, there was approximately $1,417,000 of unamortized expense associated with 4,031,348 of these stock options that remained outstanding. The expense will be recognized over a weighted-average period of 0.6 years.

Stock option exercises. During 2021, 100,278 stock options were exercised, with an aggregate weighted average exercise price of $2.27. During 2020, there were 22,373 stock options exercised, with an aggregate weighted average exercise price of $3.35. The total intrinsic value of stock options exercised during 2021 and 2020 was immaterial.

Market Condition Options. In August 2019, the Company awarded a total of 455,000 stock options of the Company’s common stock to certain officers under the 2018 Equity Incentive Plan.  In addition to the service-based vesting described above, vesting of these stock options is subject to the achievement of a performance condition based on the weighted average closing price of the Company’s common stock on The Nasdaq Capital Market reaching Five Dollars ($5.00) for 10 consecutive trading days. The weighted average grant date fair value of these stock options was $1.69. As of December 31, 2021, the performance condition has not been met. These stock options expire seven years from the grant date. At December 31, 2021, there was approximately $111,000 of unamortized expense associated with 355,000 of these stock options that remained outstanding. The expense will be recognized over a weighted-average period of 0.6 years.

Restricted Stock Awards. The Company granted an aggregate of 220,000 RSAs in the first quarter of 2021 to certain executive officers of the Company.  The RSAs are service-based and the forfeiture restrictions lapse with respect to one-third of the restricted stock on each of the first, second and third anniversaries of the date of the award.  Lapsing of the forfeiture restrictions may be accelerated under certain conditions, including in the event of a change in control of the Company, termination of the holder of the RSA’s employment by the Company without cause, voluntary termination of the holder’s employment by the holder with good reason, and upon the death or disability of the holder of the RSA. At December 31, 2021, there was a total of $351,074 unamortized expense associated with 185,082 unvested RSAs. The expense will be recognized over a weighted-average period of 2.2 years.

Options and Warrants Outstanding and Shares Available for New Awards Under Stockholder-Approved Plans

As of December 31, 2021, the following options and warrants to purchase shares of common stock and shares available for new Awards under stockholder-approved plans were outstanding:

	Number of Shares
Stock options outstanding		4,381,348
Authorized for future Award grants under stockholder-approved stock-based incentive plans		1,553,142
Warrants outstanding		1,482,400
Total		7,416,890

Tax Benefit Preservation Plan

The Company’s Tax Benefit Preservation Plan dated as of May 26, 2010 between AutoWeb and Computershare Trust Company, N.A., as rights agent, as amended by Amendment No. 1 to Tax Benefit Preservation Plan dated as of April 14, 2014, Amendment No. 2 to Tax Benefit Preservation Plan dated as of April 13, 2017, Amendment No. 3 to Tax Benefit Preservation Plan dated as of March 31, 2020, and Certificate of Adjustment Under Section 11(m) of the Tax Benefit Preservation Plan dated July 12, 2012 (collectively, the “Tax Benefit Preservation Plan”) was adopted by the Company’s Board of Directors to protect stockholder value by preserving the Company’s net operating loss carryovers and other tax attributes that the Tax Benefit Preservation Plan is intended to preserve (“Tax Benefits”).  Under the Tax Benefit Preservation Plan, rights to purchase capital stock of the Company (“Rights”) have been distributed as a dividend at the rate of five Rights for each share of common stock.  Each Right entitles its holder, upon triggering of the Rights, to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company at a price of $20.00 (as such price may be adjusted under the Tax Benefit Preservation Plan) or, in certain circumstances, to instead acquire shares of common stock. The Rights will convert into a right to acquire common stock or other capital stock of the Company in certain circumstances and subject to certain exceptions.  The Rights will be triggered upon the acquisition of 4.9% or more of the Company’s outstanding common stock or future acquisitions by any existing holder of 4.9% or more of the Company’s outstanding common stock. If a person or group acquires 4.9% or more of the Company’s common stock, all rights holders, except the acquirer, will be entitled to acquire, at the then exercise price of a Right, that number of shares of the Company common stock which, at the time, has a market value of two times the exercise price of the Right. The Rights will expire upon the earliest of: (i) the close of business on May 26, 2023 unless that date is advanced or extended, (ii) the time at which the Rights are redeemed or exchanged under the Tax Benefit Preservation Plan, (iii)  the repeal of Section 382 or any successor statute if the Board determines that the Tax Benefit Preservation Plan is no longer necessary for the preservation of the Company’s Tax Benefits, (iv) the beginning of a taxable year of the Company to which the Board determines that no Tax Benefits may be carried forward, or (v) such time as the Board determines that a limitation on the use of the Tax Benefits under Section 382 would no longer be material to the Company. The Tax Benefit Preservation Plan was reapproved by the Company’s stockholders at the Company’s 2020 Annual Meeting of Stockholders and will expire on May 26, 2023 unless that date is advanced or extended by the Company’s Board of Directors.

Warrant

On October 1, 2015 (“AWI Merger Date”), AutoWeb entered into and consummated an Agreement and Plan of Merger by and among AutoWeb, New Horizon Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of AutoWeb (“Merger Sub”), Autobytel, Inc. (formerly AutoWeb, Inc.), a Delaware corporation (“AWI”), and Jose Vargas, in his capacity as Stockholder Representative.  On the AWI Merger Date, Merger Sub merged with and into AWI, with AWI continuing as the surviving corporation and as a wholly owned subsidiary of AutoWeb.  AWI was a privately owned company providing an automotive search engine that enables Manufacturers and Dealers to optimize advertising campaigns and reach highly targeted car buyers through an auction-based click marketplace.  Prior to the acquisition, the Company previously owned approximately 15% of the outstanding shares of AWI, on a fully converted and diluted basis, and accounted for the investment on the cost basis.

The warrant to purchase up to 148,240 shares of Series B Preferred Stock issued in connection with the acquisition of AWI (“AWI Warrant”) was valued at $1.72 per share for a total value of $2.5 million.  The Company used an option pricing model to determine the value of the AWI Warrant.  Key assumptions used in valuing the AWI Warrant are as follows: risk-free rate of 1.9%, stock price volatility of 74.0% and a term of 7.0 years.  The AWI Warrant was valued based on long-term stock price volatilities of the Company’s common stock.  On June 22, 2017, the Company received stockholder approval which resulted in the automatic conversion of the AWI Warrant into warrants to acquire up to 1,482,400 shares of the Company’s common stock at an exercise price of $18.45 per share of common stock. The AWI Warrant became exercisable on October 1, 2018, subject to the following vesting conditions: (i) with respect to the first one-third of the warrant shares, if at any time after the issuance date of the AWI Warrant and prior to the expiration date of the AWI Warrant the Weighted Average Closing Price of the Company’s common stock is at or above $30.00; (ii) with respect to the second one-third of the warrant shares, if at any time after the issuance date of the AWI Warrant and prior to the expiration date the Weighted Average Closing Price is at or above $37.50; and (iii) with respect to the last one-third of the warrant shares, if at any time after the issuance date of the AWI Warrant and prior to the expiration date the Weighted Average Closing Price is at or above $45.00.  The AWI Warrant expires on October 1, 2022.

Stock Repurchases

On June 7, 2012, September 17, 2014 and September 6, 2017, the Company announced that its Board of Directors had authorized the Company to repurchase up to $2.0 million, $1.0 million and $3.0 million of the Company’s common stock, respectively. Under these repurchase programs, the Company may repurchase common stock from time to time on the open market or in private transactions. These authorizations do not require the Company to purchase a specific number of shares, and the Board of Directors may suspend, modify or terminate the programs at any time. The Company will fund future repurchases through the use of available cash. No shares were repurchased in 2021 or 2020. As of December 31, 2021, $2.3 million remains available for stock repurchases under these programs.