<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ----------------

                                   FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934

  For the quarterly period ended September 30, 1999
                                       OR

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934

  For the transition period from _____________ to _____________

                       Commission file number: 000-25577

                               ----------------

                               AUTOWEB.COM, INC.
             (Exact name of Registrant as specified in its charter)

                Delaware                               77-0412737
      (State or other jurisdiction                  (I.R.S. Employer
   of incorporation or organization)             Identification Number)

                          3270 Jay Street, Building 6
                         Santa Clara, California 95054
          (Address of principal executive offices, including zip code)

                                 (408) 554-9552
              (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 and Exchange Act
of 1934 during the preceding 12 month (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [_]

   As of October 31, 1999, there were 25,042,990 shares of the Registrant's
common stock outstanding.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               AUTOWEB.COM, INC.

                                     INDEX

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
 <C>     <S>                                                               <C>
                          PART I. FINANCIAL INFORMATION
 ITEM 1: Condensed Financial Statements:
         Condensed Balance Sheets as of September 30, 1999 and December
         31, 1998.......................................................     1
         Condensed Statements of Operations for the three months and
         nine months ended September 30, 1999 and 1998..................     2
         Condensed Statements of Cash Flows for the nine months ended
         September 30, 1999 and 1998....................................     3
         Notes to Condensed Financial Statements........................     4
 ITEM 2: Management's Discussion and Analysis of Financial Condition and
         Results of Operations..........................................     7
 ITEM 3: Quantitative and Qualitative Disclosures About Market Risk.....    23
                            PART II. OTHER INFORMATION
 ITEM 1: Legal Proceedings..............................................    24
 ITEM 2: Changes in Securities and Use of Proceeds......................    24
 ITEM 3: Defaults upon Senior Securities................................    24
 ITEM 4: Submission of Matters to a Vote of Security Holders............    24
 ITEM 5: Other Information..............................................    24
 ITEM 6: Exhibits and Reports on Form 8-K...............................    24
 Signatures..............................................................   25
</TABLE>
<PAGE>

                         PART I: FINANCIAL INFORMATION

ITEM 1: CONDENSED FINANCIAL STATEMENTS

                               AUTOWEB.COM, INC.

                            CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      September 30, December 31,
                                                          1999          1998
                                                      ------------- ------------
                                                       (unaudited)
<S>                                                   <C>           <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents.........................    $ 31,665      $  2,714
  Short-term investments............................      28,582           --
  Accounts receivable, net..........................       5,269         2,147
  Prepaid expenses and other current assets.........       6,447         1,162
                                                        --------      --------
    Total current assets............................      71,963         6,023
Property and equipment, net.........................       1,753         1,162
Purchased technology and other intangible assets....       1,496           --
                                                        --------      --------
    Total assets....................................    $ 75,212      $  7,185
                                                        ========      ========

                LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
              PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Account payable and other accrued expenses........    $  6,818      $  2,557
  Accrued payroll and related expenses..............       1,979           624
  Deferred revenue..................................         591         1,739
  Current portion of notes and capital lease
   obligations payable..............................         334           303
                                                        --------      --------
    Total current liabilities.......................       9,722         5,223
Notes payable and capital lease obligations, net of
 current portion....................................         430           654
                                                        --------      --------
    Total liabilities...............................      10,152         5,877
                                                        --------      --------
Mandatorily redeemable convertible preferred stock..         --         12,969
                                                        --------      --------
Stockholders' equity (deficit):
  Common stock......................................          18             2
  Additional paid-in capital........................      99,222        11,371
  Unearned stock-based compensation.................      (6,808)       (5,406)
  Accumulated deficit...............................     (27,372)      (17,628)
                                                        --------      --------
    Total stockholders' equity (deficit)............      65,060       (11,661)
                                                        --------      --------
Total liabilities, mandatorily redeemable
 convertible preferred stock, and
 stockholders' equity (deficit).....................    $ 75,212      $  7,185
                                                        ========      ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       1
<PAGE>

                               AUTOWEB.COM, INC.

                       CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                             Three Months       Nine Months
                                                 Ended             Ended
                                             September 30,     September 30,
                                            ----------------  ----------------
                                             1999     1998     1999     1998
                                            -------  -------  -------  -------
                                            (in thousands, except per share
                                                       amounts)
                                                      (unaudited)
<S>                                         <C>      <C>      <C>      <C>
Net revenues..............................  $ 8,422  $ 3,287  $21,187  $ 8,254
Cost of net revenues......................      841      245    2,141      512
                                            -------  -------  -------  -------
  Gross profit............................    7,581    3,042   19,046    7,742
                                            -------  -------  -------  -------
Operating expenses:
  Sales and marketing.....................    8,691    3,546   21,071    9,886
  Product development.....................    1,664      124    2,843      390
  General and administrative..............    1,928      990    4,856    2,903
  Stock-based compensation................      452       11    1,654       26
                                            -------  -------  -------  -------
    Total operating expenses..............   12,735    4,671   30,424   13,205
                                            -------  -------  -------  -------
Loss from operations......................   (5,154)  (1,629) (11,378)  (5,463)
Interest and other income (expense), net..      804      (33)   1,634      (33)
                                            -------  -------  -------  -------
Net loss..................................   (4,350)  (1,662)  (9,744)  (5,496)
Accretion of mandatorily redeemable
 convertible preferred stock to redemption
 value....................................      --      (251)     --      (591)
                                            -------  -------  -------  -------
Net loss attributable to common
 stockholders.............................  $(4,350) $(1,913) $(9,744) $(6,087)
                                            =======  =======  =======  =======
Net loss per share:
  Basic and diluted.......................  $ (0.18) $ (0.24) $ (0.49) $ (0.78)
                                            =======  =======  =======  =======
  Weighted average shares--basic and
   diluted................................   24,842    7,853   19,872    7,841
                                            =======  =======  =======  =======
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       2
<PAGE>

                               AUTOWEB.COM, INC.

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               Nine Months
                                                                  Ended
                                                              September 30,
                                                             -----------------
                                                               1999     1998
                                                             --------  -------
                                                              (in thousands)
                                                               (unaudited)
<S>                                                          <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss.................................................. $ (9,744) $(5,496)
  Adjustments to reconcile net loss to net cash used in
   operating activities:
    Depreciation and amortization...........................      719      355
    Amortization of purchased technology and other
     intangible assets......................................      212      --
    Write-down of intangible assets.........................      --        13
    Provision for doubtful accounts.........................      265      298
    Stock-based compensation expense for employee options
     granted................................................    1,673       26
    Issuance of common stock options/warrants in exchange
     for services...........................................      181       79
    Change in assets and liabilities:
      Accounts receivable...................................   (3,387)  (1,214)
      Prepaid expenses and other current assets.............   (5,285)    (136)
      Accounts payable and other accrued expenses...........    4,261      942
      Accrued payroll and related expenses..................    1,355      259
      Deferred revenue......................................   (1,148)   1,919
                                                             --------  -------
        Net cash used in operating activities...............  (10,898)  (2,955)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of short-term investments.......................  (54,479)     --
  Sales of short-term investments...........................   25,897      --
  Redemption of Series A preferred stock....................      --    (1,000)
  Acquisition of property and equipment.....................   (1,311)  (1,058)
  Acquisition of purchased technology and other intangible
   assets...................................................   (1,707)     --
                                                             --------  -------
        Net cash used in investing activities...............  (31,600)  (2,058)
                                                             --------  -------
CASH FLOW FROM FINANCING ACTIVITIES:
  Principal payments under notes payable and capital lease
   obligations..............................................     (245)    (536)
  Proceeds from borrowing under debt facilities.............       52    1,539
  Proceeds from issuance of Series C preferred stock, net of
   costs....................................................      --     4,965
  Proceeds from issuance of common stock, net of costs......   71,642       63
                                                             --------  -------
        Net cash provided by financing activities...........   71,449    6,031
                                                             --------  -------
Net increase (decrease) in cash and cash equivalents........   28,951    1,018
Cash and cash equivalents, at the beginning of year.........    2,714    1,819
                                                             --------  -------
Cash and cash equivalents, at end of period................. $ 31,665  $ 2,837
                                                             ========  =======
Supplemental disclosure of noncash investing and financing
 activities:
  Unearned stock-based compensation related to employee
   stock option grants...................................... $  3,075  $   202
  Accretion of mandatorily redeemable convertible preferred
   stock.................................................... $    --   $   591
  Revenue and advertising expense from barter transactions.. $    740  $   434
  Acquisition of intangibles in exchange for common stock... $    --   $    13
  Issuance of common stock in exchange for note
   receivable............................................... $    786  $    54
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       3
<PAGE>

                               AUTOWEB.COM, INC.

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1--The Company

   Autoweb.com, Inc. (the "Company") was incorporated in California on October
3, 1995 as Downtown Web, Inc. and reincorporated in Delaware on March 16, 1999.
The Company provides a consumer automotive Internet service, whereby its Web
site enables consumers to select new or pre-owned vehicles from member dealers.
In addition, the Company offers services that enable consumers to purchase
automotive-related products and services such as insurance and financing. The
Company markets and sells its services primarily in North America and operates
in one business segment.

Note 2--Summary of Significant Accounting Policies

Basis of Preparation

   The accompanying condensed financial statements as of September 30, 1999,
and for the three and nine months ended September 30, 1999 and 1998, are
unaudited. The unaudited interim condensed financial statements have been
prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position, results of operations and cash flows as of September 30, 1999 and for
the three and nine months ended September 30, 1999 and 1998. These condensed
financial statements and notes thereto are unaudited and should be read in
conjunction with the Company's financial statements included in the Company's
Prospectus, as amended, filed with the Securities and Exchange Commission on
March 22, 1999. The results for the three and nine months ended September 30,
1999 are not necessarily indicative of the expected results for the year ending
December 31, 1999.

Concentration of Credit Risk

   Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, short-term
investments and accounts receivable. Cash, cash equivalents, and short-term
investments are deposited with six high credit quality financial institutions
in the United States. The Company maintains allowances for potential credit
losses, and such losses have been within management's expectation.

Fair Value of Financial Instruments

   Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and other accrued liabilities, approximate fair
value due to their short maturities.

Marketable Securities

   The Company considers all highly liquid investments purchased with original
maturities of ninety days or less to be cash equivalents. Cash equivalents
consist primarily of deposits in money market funds.

   At September 30, 1999, the Company's short-term investments are made up
entirely of investments in commercial paper, are classified as "available for
sale", and are reported at fair market value, which approximates cost. Realized
gains and losses are based on the book value of the specific securities sold
and were immaterial for the three and nine months ended September 30, 1999.

Stock-Based Compensation

   In 1997, the Company adopted the disclosure provisions of Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-based

                                       4
<PAGE>

                               AUTOWEB.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Compensation." The Company has elected to continue accounting for stock-based
compensation issued to employees using Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant between the fair value of the Company's stock and the exercise price.
Stock issued to non-employees has been accounted for in accordance with SFAS
No. 123 and valued using the Black-Scholes model.

Net Loss Per Share

   The Company computes net loss per share in accordance with SFAS No. 128,
"Earning per Share". Under the provisions of SFAS No. 128, basic net loss per
share is computed by dividing the net loss available to common stockholders for
the period by the weighted average number of common shares outstanding during
the period. Diluted net loss per share is computed by dividing the net loss for
the period by the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares, composed of
unvested restricted common stock and incremental common shares issuable upon
the exercise of stock options and warrants and upon conversion of Series A,
Series B and Series C mandatorily redeemable convertible preferred stock, are
included in the diluted net loss per share computation to the extent such
shares are dilutive.

<TABLE>
<CAPTION>
                                             Three Months       Nine Months
                                                Ended,             Ended
                                             September 30,     September 30,
                                            ----------------  ----------------
                                             1999     1998     1999     1998
                                            -------  -------  -------  -------
                                            (In thousands, except per share
                                                       amounts)
<S>                                         <C>      <C>      <C>      <C>
Numerator:
  Net loss................................. $(4,350) $(1,662) $(9,744) $(5,496)
  Accretion of mandatorily redeemable
   convertible preferred stock to
   redemption value                             --      (251)     --      (591)
                                            -------  -------  -------  -------
  Net loss attributable to common
   stockholders............................ $(4,350) $(1,913) $(9,744) $(6,087)
                                            =======  =======  =======  =======
Denominator:
  Weighted average shares--basic and
   diluted.................................  24,842    7,853   19,872    7,841
                                            -------  -------  -------  -------
  Net loss per share--basic and diluted.... $ (0.18) $ (0.24) $ (0.49) $ (0.78)
                                            =======  =======  =======  =======
</TABLE>

Recent Accounting Pronouncements

   In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
quarters of all years beginning after June 15, 1999. SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company does not expect that the adoption of SFAS No.
133 will have a material impact on its condensed financial statements. In June
1999, the FASB issued SFAS No. 137, which delayed the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000.

Note 3--Common Stock

Initial Public Offering, Conversion of Preferred Stock

   In March 1999, the Company completed its initial public offering and issued
5,550,000 shares of its Common Stock at a price of $14.00 per share. The
Company received approximately $71.1 million in cash, net

                                       5
<PAGE>

                               AUTOWEB.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of underwriting discounts and commissions and other offering costs.
Simultaneously with the closing of the initial public offering, the shares of
mandatorily redeemable convertible preferred stock outstanding at that time
including 395,000 shares issued in the first quarter of 1999 from the exercise
of an option by the Company's President, were automatically converted into
approximately 10.9 million shares of common stock.

Unearned Stock-Based Compensation

   In connection with certain employee stock option grants during the three and
nine months ended September 30, 1999 and 1998, the Company recognized unearned
compensation and related amortization expense as displayed in the table below.
Amortization expense is being recognized over the vesting periods of the
related options.

<TABLE>
<CAPTION>
                                            Three Months Ended Nine Months Ended
                                              September 30,      September 30,
                                            -------------------------------------
                                              1999      1998     1999     1998
                                            --------- ------------------ --------
<S>                                         <C>       <C>      <C>       <C>
Unearned compensation...................... $     --  $    118 $   3,075 $   202
Amortization expense....................... $     460 $     11 $   1,673 $    26
</TABLE>

Note 4--Related Party Transactions

   At September 30, 1999, the Company had full recourse promissory notes
receivable totaling $982,000 from stockholders who are also related parties.
The loan receivable from the President totaling $922,000 was made in connection
with the exercise of certain stock options. The loan is interest-free, is
collateralized by approximately 595,000 shares of common stock, and is due on
the earlier of the sale of sufficient shares to repay the loan or January 22,
2002.

Note 5--Commitments

   During the second quarter of 1999, the Company entered into new agreements
with global Internet media companies to maintain certain exclusive promotional
rights and linkage with the media companies and to provide for certain
advertising. As of September 30, 1999, the agreements required remaining
minimum future payments of approximately $35.1 million over the next two years.

Note 6--Acquisitions

   On July 9, 1999, the Company entered into an agreement to acquire certain
software products and other intangible and tangible assets from
SalesEnhancer.com, Inc. for approximately $1.7 million in cash. In conjunction
with this agreement, the Company also entered into an employment contract with
the principal owner of SalesEnhancer.com, LLC for $2.0 million to be paid over
a period of eighteen months. The $1.7 million relates predominantly to
purchased technology which is to be amortized on a straight line basis over
approximately two years, the estimated economic useful life.

Note 7--Subsequent Event

   On October 6, 1999, the Company finalized an agreement to acquire the net
operating assets of the Automotive Information Center division of the Gale
Group, Inc. for $16.0 million in cash and approximately $3.3 million in common
stock. The transaction will be accounted for using the purchase method of
accounting.

                                       6
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

   This document contains forward-looking statements, the accuracy of which
involves risk and uncertainties. We use words such as "anticipates,"
"believes," "plans," "expects," "future" and "intends" and similar expressions
to identify forward-looking statements. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
document. Our actual results could differ materially from those anticipated in
our forward-looking statements for many reasons, including the risks described
in "Risk Factors" included in our Registration Statement No. 333-71177, as
amended, filed with the Securities and Exchange Commission and elsewhere in
this document.

Overview

   Autoweb.com is a leading consumer automotive Internet service. Our Web site
centralizes an extensive collection of automotive-related commerce, content and
community offerings to assist consumers in researching, evaluating and buying
new and pre-owned vehicles. In addition, our Web site enables consumers to
conveniently purchase automotive-related products and services such as
insurance and financing. We began selling our services to automobile dealers
and launched the Autoweb.com Web site for consumer use in October 1995. Since
that time, we have increased our network to approximately 5,400 member dealers
(where each franchise location for a particular vehicle manufacturer is defined
as a member dealer), including approximately 1,600 pre-owned vehicle locations.

   We originally charged our member dealers based on a subscription model,
where each member dealer paid a flat monthly fee in exchange for our directing
consumer purchase inquiries to them. Because the number of purchase inquiries
directed to member dealers varied widely, due to factors such as their location
and franchise type, the cost per purchase inquiry under this model differed
substantially from member dealer to member dealer. In February 1998, we changed
our pricing model and began selling our services to new dealers using a "pay
for performance" model. Under this arrangement, a member dealer pays us a fee
only for a qualified purchase inquiry that it actually receives. We believe our
"pay for performance" model enables our member dealers to maximize their return
from, and enhances their satisfaction with, our services. In February 1998, we
also began converting our existing member dealer subscription contracts to
contracts utilizing the pay for performance model. As of September 30, 1999,
approximately 2% of our member dealer contracts utilized the subscription
model.

   We derive the majority of our revenues from fees charged to our member
dealers in exchange for qualified purchase inquiries and expect to continue to
do so for the foreseeable future. The revenue related to each fee is recognized
at the time the qualified purchase inquiry is provided to the member dealer. We
maintain a returns reserve against purchase inquiries that are later deemed not
to have been "qualified." In December 1996, we began providing online
advertising space on the Autoweb.com site and recognizing revenues from fees
paid by these advertisers. Revenues from advertising contracts, which typically
have terms of less than three months, are recognized as the contracts are
fulfilled. We expect that this component of our revenues will continue to
increase in absolute dollar terms. In February 1997, we began offering
automotive-related services on the Autoweb.com Web site through agreements with
third-party vendors. We derive revenues from certain of these agreements where
a third party pays us for the right to provide its consumer services, such as
automobile financing and insurance, on our Web site. Revenues from these
agreements are generally recognized ratably over the terms of the agreements.
We expect that this component of our revenues will continue to increase both in
absolute dollar terms and as a percentage of net revenues.

   Our recent growth has placed and is expected to continue to place a
significant strain on our managerial, operational and financial resources. To
manage our potential growth, we must continue to implement and improve our
operational and financial systems, and must expand, train and manage our
employee base. Our Chief Technology Officer and our Vice President, Product
Management have been with us only since February

                                       7
<PAGE>

1999. Our Senior Vice President, Sales and Member Services has been with us
only since January 1999. Our Chief Executive Officer and our Vice President,
Business Development and Advertising Sales joined us during December 1998. In
addition, our Vice President, Dealer Operations has been with us since January
1998. Our Vice President, Marketing resigned in July 1999, was replaced by our
Chief Marketing Officer in August 1999 who was replaced in November 1999 by our
current Vice President, Marketing. In November 1999, Samuel M. Hedgpeth III,
who had been the Company's Chief Financial Officer, became Chief Operating
Officer. Thomas L. Stone became Chief Financial Officer. Jeffry Schwartz joined
the Company as Vice President, Strategic Development. We cannot assure you that
we will be able to manage the expansion of our operations effectively, that our
systems, procedures or controls will be adequate to support our operations or
that our management will be able to fully exploit the market opportunity for
our services. Any inability to manage growth effectively could have a material
adverse effect on our business, results of operations and financial condition.

Results of Operations

   The following table sets forth, for the periods presented, certain data
derived from our unaudited condensed statements of operations as a percentage
of net revenues. The operating results for the three and nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for any future period.

<TABLE>
<CAPTION>
                                         Three Months         Nine Months
                                             Ended               Ended
                                         September 30,       September 30,
                                         ----------------    ----------------
                                          1999      1998      1999      1998
                                         ------    ------    ------    ------
<S>                                      <C>       <C>       <C>       <C>
Net revenues............................    100 %     100 %     100 %     100 %
Cost of net revenues....................     10         7        10         6
                                         ------    ------    ------    ------
Gross profit............................     90        93        90        94
                                         ------    ------    ------    ------
Operating expenses:
  Sales and marketing...................    103       108        99       120
  Product development...................     20         4        13         5
  General and administrative............     23        30        23        35
  Stock-based compensation..............      5       --          8       --
                                         ------    ------    ------    ------
    Total operating expenses............    151       142       143       160
                                         ------    ------    ------    ------
Loss from operations....................    (61)      (49)      (53)      (66)
Interest, and other income (expense),
 net....................................      9        (1)        7       --
                                         ------    ------    ------    ------
Net loss................................    (52)%     (50)%     (46)%     (66)%
                                         ======    ======    ======    ======
</TABLE>

Net Revenues

   Our net revenues increased to $8.4 million in the three months ended
September 30, 1999 (the third quarter of 1999) from $3.3 million in the three
months ended September 30, 1998 (the third quarter of 1998), an overall
increase of 156%. Approximately 72% of the increase in net revenues was due to
higher levels of net dealer fee revenues. Revenues derived from insurance
referrals and advertisers accounted for most of the remaining increase in net
revenues for these periods. Our net revenues increased to $21.2 million in the
nine months ended September 30, 1999 from $8.3 million in the nine months ended
September 30, 1998, an overall increase of 157%. Approximately 67% of the
increase in net revenues was due to higher levels of net dealer fee revenues.
Revenues derived from insurance referrals and advertisers accounted for most of
the remaining increase in net revenues for these periods. Dealer fee revenues
increased as a result of increases in the size of our member dealer network and
the number of purchase inquiries that we provided to our member dealers. As
described above, we began to change our pricing model in February 1998 from a
subscription-based model to a "pay for performance" model.

                                       8
<PAGE>

Cost of Net Revenues

   Cost of net revenues increased to $841,000 in the third quarter of 1999 from
$245,000 in the third quarter of 1998. Approximately 48% of the increase was
due to increased costs of web site operations, including personnel, equipment,
depreciation, and occupancy cost. Approximately 46% of the increase represented
revenue-sharing expenses, related to the operation of our co-branded and
affiliate sites. The remainder of the increase came from the cost of providing
site content. For the nine months ended September 30, 1999, cost of net
revenues increased to $2.1 million compared to $512,000 in the first nine
months of 1998. Approximately 46% of the increase represented revenue-sharing
expenses related to the operation of our co-branded and affiliate sites.
Approximately 42% of the increase was due to increased cost of web site
operations, including personnel, equipment, depreciation, and occupancy cost.
The remainder of the increase came from the cost of providing site content. We
believe that the cost of net revenues will increase in absolute terms over the
remainder of the year, due to anticipated increases in revenue-sharing expenses
and in the costs of web site operations.

Sales and Marketing

   Our sales and marketing expenses increased to $8.7 million in the third
quarter of 1999 from $3.5 million in the third quarter of 1998. Approximately
79% of the increase in sales and marketing expenses was due to increases
primarily in online advertising and, to a lesser extent, our spending on public
relations, advertising in the traditional media, trade shows and other
promotions. Approximately 13% of the increase in sales and marketing expenses
was due to increased personnel costs caused by additions to headcount,
primarily salespersons focused on enrolling member dealers. For the nine months
ended September 30, 1999, sales and marketing expenses increased to $21.1
million from $9.9 million in the nine months ended September 30, 1998.
Approximately 80% of the increase in sales and marketing expenses was due to
increases primarily in online advertising and, to a lesser extent, our spending
on public relations, advertising in the traditional media, trade shows and
other promotions such as the NADA trade show. Approximately 12% of the increase
in sales and marketing expenses was due to increased personnel costs caused by
additions to headcount, primarily salespersons focused on enrolling member
dealers. We believe that sales and marketing expenses will increase both in
absolute terms and as a percent of net revenues over the remainder of the year,
due to anticipated increases in media advertising both on the Internet and in
traditional media sources.

Product Development

   Our product development expenses increased to $1.7 million in the third
quarter of 1999 from $124,000 in the third quarter of 1998, and for the nine
months ended September 30, 1999, product development expenses increased to $2.8
million from $390,000 in the first nine months of 1998. The increase for the
third quarter of 1999 compared to the third quarter of 1998, was primarily the
result of increased personnel and development expenses related to the
SalesEnhancer product, and to a lesser extent, the hiring of other product
development personnel and increased occupancy costs. The increase for the nine
months ended September 30, 1999 compared to the nine months ended September 30,
1998, was due to increased personnel and development expenses related to the
SalesEnhancer product, the hiring of other product development personnel and
increased occupancy costs. We believe that product development expenses will
increase both in absolute terms and as a percent of net revenues over the
remainder of the year.

General and Administrative

   Our general and administrative expenses increased to $1.9 million in the
third quarter of 1999 from $990,000 in the third quarter of 1998. Approximately
59% of the increase in general and administrative expenses was due to increases
in personnel costs resulting from the recruiting and increased hiring of
administrative personnel. Approximately 17% of the increase was due to
increases in information technology support related to administrative functions
and occupancy costs. For the nine months ended September 30, 1999, general and
administrative expenses increased to $4.9 million from $2.9 million in the
first nine months of 1998. Approximately 47% of the increase in general and
administrative expenses was due to increases in

                                       9
<PAGE>

personnel costs resulting from increased hiring of administrative personnel.
Approximately 25% of the increase was due to increases in information
technology support related to administrative functions and occupancy costs. We
believe that general and administrative expense will increase in absolute terms
over the remainder of the year.

Stock-Based Compensation

   Our stock-based compensation expense increased to $452,000 in the third
quarter of 1999 from $11,000 in the third quarter of 1998, primarily due to the
increased level of stock option grants and increases in the deemed fair market
value of the underlying common stock in the third quarter of 1999 compared with
the third quarter of 1998. The increase in the nine months ended September 30,
1999 from the nine months ended September 30, 1998 was also due primarily to
the increased level of stock option grants and increases in the deemed fair
market value of the underlying common stock in those respective periods. We
believe that stock-based compensation expense will decrease slightly over the
remainder of the year.

Interest and Other Income (Expense), Net

   For both the three and nine months ended September 30, 1999, the increase in
interest and other income (expense), net, over comparable prior year periods,
represents interest income earned on greater levels of cash, cash equivalents,
and short-term investment balances, partially offset by interest expense on
borrowings under capital leases and our credit facilities.

Recent Accounting Pronouncements

   In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
quarters of all years beginning after June 15, 1999. SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company does not expect that the adoption of SFAS No.
133 will have a material impact on its condensed financial statements. In June
1999, the FASB issued SFAS No. 137, which delayed the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000.

Liquidity and Capital Resources

   Prior to March 1999, we financed our operations primarily from sales of
preferred stock and, in 1998 to a significantly lesser extent, borrowings under
a long-term debt facility. In March 1999, we raised $71.1 million (net of
underwriters' discounts and commissions and other costs) in our initial public
offering.

   Net cash used in operating activities was $10.9 million in the nine months
ended September 30, 1999 compared to $3.0 million in the nine months ended
September 30, 1998. Net cash used in operating activities in the nine months
ended September 30, 1999 was primarily due to the net loss for the period and
increases in accounts receivable and prepaid expenses and other current assets,
partially offset by the stock-based compensation expense, the increase in
accounts payable and other accrued expenses, and the increase in accrued
payroll and related expenses. Net cash used in operating activities in the nine
months ended September 30, 1998 was primarily due to the net loss for the
period and the increase in accounts receivable partially offset by increases in
deferred revenue and accounts payable and other accrued expenses. Our "days
sales outstanding" in accounts receivable (calculated using the net revenues
for the quarter and the ending accounts receivable balance for that quarter)
increased to 55 days for the third quarter of 1999, from 41 days for the second
quarter of 1999, and from 45 days for the first quarter of 1999. The increase
from the second quarter of 1999 was caused by two factors. First, we
experienced delays in the receipt of certain customer payments which we
expected to receive in the third quarter of 1999, but did not receive until the
fourth quarter of 1999. Second, during the third quarter of 1999, we began to
invoice one large customer which had been on a

                                       10
<PAGE>

prepaid basis prior to the third quarter of 1999. We believe that our days'
sales outstanding in accounts receivable could decrease and remain within a
range from 40 to 50 days sales outstanding in the remainder of the year, based
on our invoicing cycles and customer payment patterns. Our allowance for
doubtful accounts, which was 19% of accounts receivable at December 31, 1998,
decreased to 13% of accounts receivable at September 30, 1999. The increase in
prepaid expenses and other current assets for the nine months ended September
30, 1999 was primarily caused by advance payments that we were required to make
under the terms of our on line advertising agreements and our agreements with
SalesEnhancer.com, LLC. The increase in deferred revenue for the nine months
ended September 30, 1998 was primarily caused by an advance payment that we
received from one large customer.

   Net cash used in investing activities was $31.6 million in the first nine
months of 1999, compared to $2.1 million in the first nine months of 1998. This
increase was primarily due to the purchase of short-term investments as we
continued to invest the proceeds of our initial public offering, offset
somewhat by sales of short term investments as they matured. In addition, our
property and equipment purchases were $253,000 higher than the prior year
period and we acquired certain assets from SalesEnhancer.com, LLC for
approximately $1.7 million during the third quarter of 1999. We anticipate that
our purchases of short-term investments will increase over the balance of the
year.

   Net cash provided by financing activities was $71.4 million in the first
nine months of 1999 compared to $6.0 million in the first nine months of 1998
due almost entirely to the proceeds of the initial public offering completed in
March 1999.

   At September 30, 1999, the total of our cash, cash equivalents and short-
term investments were $60.2 million. During the third quarter of 1999, we
initiated no new commitments for exclusive promotional rights, linkage and
certain advertising. On October 6, 1999, we finalized an agreement to acquire
the net operating assets of the Automotive Information Center division of the
Gale Group, Inc. for $16.0 million in cash and approximately $3.3 million in
common stock. We believe that our current cash position together with
anticipated future revenues and the availability of additional funds under our
line of credit will be sufficient to meet our cash requirements for at least
the next 12 months. Depending on our rate of growth and cash requirements, we
may require additional equity or debt financing to meet future working capital
or capital expenditure needs. There can be no assurance that such additional
financing will be available or, if available, that such financing can be
obtained on terms satisfactory to us.

   RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are an early stage company.

   We were incorporated in October 1995. Therefore, we have a limited operating
history upon which to base an evaluation of our current business and prospects.
Moreover, our business model is evolving and depends on our ability to generate
revenues from multiple sources through our Web site. In particular, we face the
following challenges:

  .  maintaining and increasing our consumer base;

  .  maintaining and increasing our network of member dealers;

  .  maintaining and increasing our relationships with vehicle manufacturers;

  .  managing the quality of services delivered by member dealers and
     automotive-related vendors;

  .  generating continuing revenues through our Web site from consumers,
     member dealers and other commercial vendors;

  .  competing effectively with existing and potential competitors;

  .  developing further our unproven business model;

  .  developing further Autoweb.com and Autosite.com awareness and brand
     loyalty;

                                       11
<PAGE>

  .  anticipating and adapting to the evolving e-commerce market;

  .  continuing to develop our technology infrastructure to handle greater
     Internet traffic efficiently

  .  managing expanding operations;

  .  broadening our service offerings and attracting and retaining additional
     automotive-related vendors and content providers to enable us to expand
     our service offerings; and

  .  attracting and retaining qualified personnel.

   We may not successfully implement any of our strategies or successfully
address these risks and uncertainties.

Our quarterly financial results are subject to significant fluctuations.

   Our results of operations have varied widely in the past, and we expect that
they will continue to vary significantly from quarter to quarter due to a
number of factors described below.

   Our revenue growth rates may not be sustainable. Any shortfall in our
revenues would immediately increase our operating losses and would adversely
affect the market price of our common stock. We expect that over time our
revenues will come from a mix of fees from member dealers, automotive-related
vendors and advertisers. However, we expect to be substantially dependent on
member dealer fees. Therefore, our quarterly revenues and operating results are
likely to be particularly affected by the level of member dealer fees in each
quarter. We plan to increase our operating expenses significantly, based on our
expectations of future revenues. If revenues fall below our expectations, we
will not be able to reduce our spending rapidly in response to such a
shortfall. This will adversely affect our operating results.

   We believe that we may experience seasonality in our business. The seasonal
patterns of Internet usage and vehicle purchasing do not completely overlap.
Internet usage typically declines during the summer and certain holiday
periods, while vehicle purchasing in the United States is strongest in the late
spring and summer months. Because of our limited operating history, we do not
know which seasonal pattern, if any, will predominate.

   Due to the foregoing factors and factors described elsewhere in this
document, we believe that quarter-to-quarter comparisons of our results of
operations are not a good indication of our future performance. It is likely
that our results of operations in some future quarter may be below the
expectations of public market analysts and investors. In this event, the price
of our common stock is likely to decline.

We have a history of net losses and expect net losses for the foreseeable
future.

   We have incurred net losses in each fiscal year since our inception,
including a net loss of $11.5 million in 1998, and we had an accumulated
deficit of $17.6 million as of December 31, 1998. During the nine months ended
September 30, 1999, we incurred a net loss of $9.7 million, and, as of
September 30, 1999, we had an accumulated deficit of $27.4 million. We expect
to have increasing net losses and negative cash flows for the next several
quarters and net losses and continued negative cash flows at least through the
end of 2000. The size of these net losses will depend, in part, on the rate of
growth in our revenues from member dealer fees, other commercial vendor fees,
advertising sales and other electronic-commerce ("e-commerce") activities. It
is critical to our success that we continue to expend financial and management
resources to develop Autoweb.com brand awareness and loyalty through marketing
and promotion, expansion of our member dealer network, development of our
online content and expansion of our other services. As a result, we expect that
our operating expenses will increase significantly during the next several
years, especially in sales and marketing. With increased expenses, we will need
to generate significant additional revenues to achieve profitability. As a
result, we may never achieve or sustain profitability, and, if we do achieve
profitability in any period, we may not be able to sustain or increase
profitability on a quarterly or annual basis.

                                       12
<PAGE>

We have a new and unproven business model.

   The manner in which we conduct our business and charge for our services is
new and unproven. The model depends upon our ability to generate revenue
streams from multiple sources through our Web site, including:

  .  fees paid by member dealers for consumer referrals;

  .  fees paid by companies in industries related to vehicles such as
     insurance and financing industries;

  .  advertising fees paid by manufacturers and other companies that want
     access to vehicle purchasers; and

  .  fees paid by individuals who want to advertise their vehicles for sale.

   In order for us to be successful, we must have consumers visit our Web site
regularly to increase the likelihood that they will use our service when they
are interested in buying a vehicle or a related product or service. Therefore,
we must not only develop services that directly generate revenue, but also
provide information and community offerings that attract consumers to our Web
site frequently. We will need to develop new offerings in each of these areas
as consumer preferences change and new competitors emerge. For example, we have
launched vehicle auctions and direct sales in select markets. These services
will need to generate significant revenue for us to be successful. We cannot
assure you that we will be able to provide consumers with an acceptable blend
of services, informational and community offerings. We provide information and
community offerings without charge, and we may not be able to generate
sufficient services revenue to pay for these offerings. Accordingly, we are not
sure our business model will be successful or that we can sustain revenue
growth or be profitable.

   The online market for automotive services is new and rapidly developing. As
is typical for any new, rapidly evolving market, demand and market acceptance
for recently introduced products and services are subject to a high level of
uncertainty and risk. It is also difficult to predict the market's future
growth rate, if any. Because of the low barriers to entry, the market is
characterized by an increasing number of market entrants. If the market fails
to develop, develops more slowly than expected or becomes saturated with
competitors, or our services do not achieve or sustain market acceptance, our
business, results of operations and financial condition could be materially and
adversely affected.

We must reduce our allowances for doubtful accounts.

   In 1998, we changed our pricing model and began selling our services to new
dealers using a "pay for performance" model instead of a subscription-based
pricing model. The increased risk of non-collection associated with a greater
scrutiny by member dealers of the validity of each purchase inquiry and
possibly the longer dealer credit cycle under the "pay for performance" model
have resulted in allowances for doubtful accounts increasing from 13% of
accounts receivable at December 31, 1997 to 19% of accounts receivable at
December 31, 1998. As of September 30, 1999, allowance for doubtful accounts
had decreased to 13% of accounts receivable. If we are unable to continue to
reduce our allowances for doubtful accounts in the future, it could have a
material adverse effect on our business, results of operations and financial
condition.

We are in an intensely competitive market.

   The market for the purchase of vehicles and automotive-related products and
services is intensely competitive, and we expect competition to increase
significantly, particularly on the Internet. Barriers to entry on the Internet
are relatively low, and we may face competitive pressures from numerous
companies. Currently, we believe our most significant competitors are
Microsoft's CarPoint, Autobytel.com and AutoConnect. There are also a number of
Web sites that offer vehicles, particularly vehicle manufacturers' own Web
sites and sites for electronic classifieds, and vehicle-related products and
services. In addition, there are numerous Web sites

                                       13
<PAGE>

that offer vehicle information and other content, as well as community
offerings, directly to the vehicle buying consumer generally or to targeted
audiences such as car collectors. We could face competition in the future from
vehicle manufacturers, large dealer groups or traditional media companies, such
as newspaper, television and radio companies, many of which currently operate a
Web site. In addition to direct competitors, we also compete indirectly with
vehicle brokerage firms, discount warehouse clubs and automobile clubs. Several
auction Web sites have also recently announced their intention to auction
vehicles on the Internet.

   Many of our existing and potential competitors have longer operating
histories in the Internet market, greater name recognition, larger consumer
bases and significantly greater financial, technical and marketing resources
than we do. Additionally, the e-commerce market is new and rapidly evolving,
and we expect competition among e-commerce companies to increase significantly.
We cannot assure you that Web sites maintained by our existing and potential
competitors will not be perceived by consumers, vehicle dealers, other
potential automotive- related vendors or advertisers as being superior to ours.
We also cannot assure you that we will be able to maintain or increase our Web
site traffic levels, purchase inquiries and click-throughs or that competitors
will not experience greater growth in these areas than we do.

Our business is dependent on the economic strength of the automotive industry.

   The economic strength of the automotive industry impacts significantly the
revenues we derive from our member dealers and other automotive-related
vendors, advertising revenues and consumer traffic to our Web site. The
automotive industry is cyclical, with sales of vehicles changing due to changes
in national and global economic forces. Since our incorporation, sales of
vehicles in the United States have been at historically high levels. We cannot
assure you that sales of vehicles will stay at their current levels, and a
decrease in the current level of vehicle sales could have a material adverse
effect on our business, results of operations and financial condition.

We rely heavily on member dealers.

   We derive the majority of our revenues from member dealer fees (payments
from member dealers for each consumer inquiry that we provide to them), and we
expect to continue to do so for the foreseeable future. Member dealer fees
represented approximately 85% of our net revenues in 1997, approximately 70% of
our net revenues in 1998, and approximately 68% of our net revenues for the
nine months ended September 30, 1999. Consequently, our business is highly
dependent on consumers' use of Autoweb.com to purchase vehicles so that member
dealers will achieve a satisfactory return on their investment in the
Autoweb.com program.

   The success of our business strategy depends on our member dealers'
adherence to the Autoweb.com purchase process, including responding to consumer
purchase inquiries within 24 hours, providing a competitive, firm quote to
consumers during the initial communication, explaining the Autoweb.com purchase
process to the consumer and answering any consumer questions. We devote
significant efforts and resources to certifying and supporting participating
member dealers in these practices that are intended to increase consumer
satisfaction. Our inability to certify and support member dealers effectively,
or member dealers' failure to adopt such practices, respond rapidly and
professionally to vehicle purchase inquiries, or sell vehicles in accordance
with our marketing strategies, could result in low consumer satisfaction and
materially adversely affect our business, results of operations and financial
condition.

We must reduce our high member dealer turnover.

   To maintain and increase our network of member dealers, we must reduce the
rate of turnover of our member dealers. Commencing in February 1998, we
introduced a new "pay for performance" pricing model and began actively to
convert our existing member dealers to this model. Prior to that time, all of
our member dealers were on a subscription model under which they paid a fixed
amount per month regardless of the number of purchase inquiries that we
provided to them. During 1998, we lost approximately 60% of the

                                       14
<PAGE>

member dealers that we had at the beginning of the year and converted
approximately 30% to the new pricing model. As of September 30, 1999, there
were approximately 103 member dealers (approximately 2% of the total) that were
on the subscription model.

   During 1998, we lost approximately 22% of the performance-based member
dealers that we converted or with which we first entered into a contract in
1998. For 1999, we have experienced a similar rate of attrition. We believe
there were three primary reasons for this attrition:

  .  a number of our member dealers were not satisfied with our service as
     subscription-based member dealers;

  .  a number of member dealers were unwilling to adequately devote the
     resources required to obtain results from the performance-based model,
     such as contacting consumers who submitted a purchase inquiry within 24
     hours and dedicating a person at the dealer to ensure compliance with
     the Autoweb.com purchase process; and

  .  a number of member dealers were inadequately trained and supported by
     us, due to our inability to focus our resources adequately.

   Attrition remains unacceptably high. We believe that we can reduce our
attrition rate over time as our member dealer network stabilizes, due to the
efforts of our Dealer Development and Support Group and due to reduced
conversion activity. We are undertaking several initiatives to reduce our
attrition. Nevertheless, we cannot assure you that we will be able to reduce
the level of this attrition, and our failure to do so could materially and
adversely affect our business, results of operations and financial condition.

We need to build strong brand loyalty.

   We believe that establishing and maintaining our brand loyalty is critical
to attract consumers, member dealers, automotive-related vendors and
advertisers. Furthermore, we believe that the importance of brand loyalty will
increase as low barriers to entry encourage the proliferation of Web sites. In
order to attract and retain consumers, member dealers, advertisers and
partners, and in response to competitive pressures, we intend to increase
spending substantially to create and maintain brand loyalty among these groups.
We plan to accomplish this by expanding our current online advertising
campaigns and by conducting advertising campaigns in traditional forms of
media, such as newspaper, radio and television. We believe that advertising
rates, and the cost of our online advertising campaigns in particular, could
increase substantially in the future. If our branding efforts are not
successful, our business, results of operations and financial condition will be
materially and adversely affected.

   Promotion and enhancement of the Autoweb.com brand will also depend, in
part, on our success in consistently providing a high-quality consumer
experience for purchasing vehicles and related products, relevant and useful
information and a quality "community experience." If consumers, other Internet
users, member dealers, automotive-related vendors and advertisers do not
perceive the Autoweb.com service offerings to be of high quality, or if we
introduce new services or enter into new business ventures that are not
favorably received by such groups, the value of our brand could be impaired or
diluted. Such brand impairment or dilution could decrease the attractiveness of
Autoweb.com to one or more of these groups, which could materially and
adversely affect our business, results of operations and financial condition.

We need to continue to develop Autoweb.com content and service offerings.

   To remain competitive we must continue to enhance and improve the ease of
use, responsiveness, functionality and features of the Autoweb.com site and
develop new services in addition to continuing to improve the consumer
purchasing experience. For example, during the third quarter of 1999, we
developed a new version of our website which we began using on October 1, 1999.
While we spent considerable time and effort to develop and test this new
website, we cannot assure you that we will not experience technical and other
problems with it. These efforts usually require the development or licensing of
increasingly complex

                                       15
<PAGE>

technologies. We may not be successful in developing or introducing new
features, functions and services, and these features, functions and services
may not achieve market acceptance or enhance our brand loyalty. If we fail to
develop and introduce new features, functions or services effectively, it could
have a material adverse effect on our business, results of operations and
financial condition.

We depend on third-party relationships.

   We have entered into agreements with various commercial vendors, some of
which require us to feature them exclusively in certain sections of our Web
site. Existing and future exclusive arrangements may prevent us from entering
into other content agreements, advertising or sponsorship arrangements or other
commercial relationships. Many companies that we may pursue for a commercial
relationship may also offer competing services. As a result, these competitors
may be reluctant to enter into commercial relationships with us. Our business
could be adversely affected if we do not maintain our existing commercial
relationships on terms as favorable as currently in effect, if we do not
establish additional commercial relationships on commercially reasonable terms
or if our commercial relationships do not result in the expected increased use
of our Web site.

   We also depend on establishing and maintaining a number of commercial
relationships with high-traffic Web sites to increase traffic on Autoweb.com.
We currently have agreements with America Online, Yahoo!, Netscape
Communications and Hotbot. There is intense competition for placements on these
sites, and in the future we may not be able to enter into distribution
relationships on commercially reasonable terms or at all. Even if we enter into
distribution relationships with these Web sites, they themselves may not
attract significant numbers of consumers. Therefore, our Web site may receive
less than the number of additional consumers we expect from these
relationships. Moreover, we may have to pay significant fees to establish or
renew these relationships.

   We also depend on establishing and maintaining a number of commercial
relationships with other companies. Our current relationships include:

  .  New Car Test Drive and Automotive Service Excellence, under which we
     purchase content for use by our consumers;

  .  America Online's Digital City, Car and Driver and USA Today, under which
     we share the revenue generated from automotive and related purchase
     inquiries submitted by consumers and directed to our Web site through
     links between our Web site and the other company's Web site; and

  .  members of the Autoweb.com Affiliates Program, each of which receives a
     commission from us for each new or pre-owned vehicle purchase inquiry or
     classified ad delivered to us through a link to the affiliate's Web
     site.

   We cannot assure you that we will be able to establish new agreements or
maintain existing agreements or that the above agreements can be renewed on
commercially acceptable terms.

   We also may not be able to maintain relationships with third parties that
supply us with the software or products that are crucial to our success, and
the vendors of these software or products may not be able to sustain any third-
party claims or rights against their use. Furthermore, we cannot assure you
that the software, services or products of those companies that provide access
or links to our services or products will achieve market acceptance or
commercial success. In addition, we cannot assure you that our existing
relationships will result in sustained business arrangements, successful
service or product offerings or the generation of significant revenues for us.
Failure of one or more of our relationships to achieve or maintain market
acceptance or commercial success or the termination of one or more relationship
could have a material adverse effect on our business, results of operations and
financial condition.

                                       16
<PAGE>

We need to manage our growth.

   Our recent growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources.
Several executive officers joined us recently. Any inability to manage growth
effectively could have a material adverse effect on our business, results of
operations and financial condition.

We are dependent on certain key personnel.

   Our future success is substantially dependent on our senior management and
key technical personnel. If one or more of our key employees decided to leave
us, join a competitor or otherwise compete directly or indirectly with us, this
could have a material adverse effect on our business, results of operations and
financial condition.

   Our future success depends on our continuing ability to retain and attract
highly qualified technical and managerial personnel. As of September 30, 1999,
we had 160 full-time employees, and we anticipate that the number of employees
will increase significantly during the next 12 months. Wages for managerial and
technical employees are increasing and are expected to continue to increase in
the foreseeable future due to the competitive nature of the current employment
market, particularly in Northern California. We may be unable to retain key
technical and managerial personnel or to attract and retain additional highly
qualified technical and managerial personnel in the future. We have experienced
difficulty from time to time attracting the personnel necessary to support the
growth of our business, and we may experience similar difficulty in the future.
Inability to attract and retain the technical and managerial personnel
necessary to support the growth of our business could have material adverse
effect upon our business, results of operations and financial condition.

We face risks associated with possible regulation under state or federal
franchise laws.

   If our relationships or written agreements with our member dealers are found
to constitute "franchises" under federal or state franchise laws, we would be
subject to regulations, such as franchise disclosure, registration requirements
and limitations on our ability to effect changes in our relationships with our
member dealers. We believe that neither our relationship with our member
dealers nor our member dealer subscription agreements constitute "franchises"
under state or federal franchise laws. However, we have not received legal
advice on this matter.

The state of Texas has challenged our pricing model under their Motor Vehicle
Code.

   In May 1998, the Texas Department of Transportation notified us that, in
their opinion, our performance-based pricing model is illegal, because it makes
us a broker under Texas law. They have taken the position that the fee paid to
us by member dealers for each qualified purchase inquiry is equivalent to a
finder's or broker's fee and that we are arranging for two persons to meet and
enter into a transaction that involves the sale of a motor vehicle. In
September 1999, the Texas Department of Transportation notified our member
dealers in Texas that they could be subjected to fines if they continued to do
business under their existing contracts with us. We currently intend to
challenge this decision and have engaged counsel to advise us in this matter.
We presently are seeking the Texas Attorney General's opinion that the
operation of a Web site in the manner that we operate does not constitute us as
a "broker" under the Texas Motor Vehicle Code. However, if we are not
successful in challenging this decision of the Department of Transportation, we
not only may have to pay significant fines, but also will have either to cease
doing business in Texas or to change our pricing model for member dealers in
Texas from performance-based to subscription-based.

We generally face risks associated with possible regulation under vehicle
brokerage, insurance, financing or other laws.

   Other states, substantially all of which have laws that broadly define
brokerage activities, could also determine that we are acting as a broker. If
this occurs, we may be required to comply with burdensome licensing
requirements or terminate our operations in those states. In either case, our
business, results of

                                       17
<PAGE>

operations and financial condition could be materially and adversely affected.
We believe that our service does not qualify as a vehicle brokerage activity
and therefore that state broker licensing requirements do not apply to us.
However, we have not sought a legal opinion regarding whether our service, in
general, or our performance-based pricing, in particular, would qualify us as a
vehicle brokerage activity in any state. State regulatory requirements may also
include us within an industry-specific regulatory scheme, such as those for the
vehicle insurance or vehicle financing industries. In the event that individual
states' regulatory requirements change or additional requirements are imposed
on us, we may be required to modify aspects of our business in those states in
a manner that might undermine the attractiveness of the Autoweb.com purchase
process to consumers, member dealers, automotive-related vendors or advertisers
or require us to terminate operations in that state, either of which could have
a material adverse effect on our business, results of operations and financial
condition.

We face risks associated with government regulation and legal uncertainties
associated with the Internet.

   There are numerous state laws regarding the sale of vehicles. In addition,
government authorities may take the position that state or federal insurance
licensing laws, motor vehicle dealer laws or related consumer protection or
product liability laws apply to aspects of our business. As we introduce new
services and expand our operations to other countries, we will need to comply
with additional licensing and regulatory requirements.

   A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain as
to how existing laws will be applied to the Internet. The adoption of new laws
or the application of existing laws may decrease the growth in the use of the
Internet, which could in turn decrease the demand for our services, increase
our cost of doing business or otherwise have a material adverse effect on our
business, results of operations and financial condition.

   The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services and certain other Internet activities. Recently, the Internet Tax
Information Act was signed into law placing a three-year moratorium on new
state and local taxes on Internet commerce. However, we cannot assure you that
future laws imposing taxes or other regulations on commerce over the Internet
would not substantially impair the growth of e-commerce and as a result have a
material adverse effect on our business, results of operations and financial
condition.

   Certain local telephone carriers have asserted that the increasing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun to
experience interruptions in telephone service. These carriers have petitioned
the Federal Communications Commission to impose access fees on Internet service
providers and online service providers. If such access fees are imposed, the
costs of communicating on the Internet could increase substantially,
potentially slowing the increasing use of the Internet, which could in turn
decrease demand for our services or increase our cost of doing business, and
thus have a material adverse effect on our business, results of operations and
financial condition.

We depend on increased use of the Internet.

   Consumers and businesses will likely widely accept and adopt the Internet
for conducting business and exchanging information only if the Internet
provides these consumers and businesses with greater efficiencies and
improvements in commerce and communication. Our future success and revenue
growth depends substantially upon continued growth in the use of the Internet.
In addition, e-commerce generally, and the purchase of automotive and
automotive related products and services on the Internet in particular, must
become widespread. The Internet may prove not to be a viable commercial
marketplace generally, or, in particular, for vehicles and related products and
services. If use of the Internet does not continue to increase, our business,
results of operations and financial condition would be materially and adversely
affected.

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<PAGE>

We depend on continued improvements in our systems and the Internet
infrastructure.

   Our ability to retain and attract consumers, member dealers, automotive-
related vendors and advertisers, and to achieve market acceptance of our
services and our brand, depends significantly upon the performance of our
systems and network infrastructure. Any system or network failure that causes
interruption or slower response time of our services could result in less
traffic to our Web site and, if sustained or repeated, could reduce the
attractiveness of our services to consumers, member dealers, automotive-related
vendors and advertisers. An increase in the volume of our Web site traffic
could strain the capacity of our technical infrastructure, which could lead to
slower response times or system failures. This would cause the number of
purchase inquiries, advertising impressions, other revenue producing e-commerce
offerings and our information and community offerings to decline, any of which
could hurt our revenue growth and our brand loyalty. In addition, if traffic
increases, we cannot assure you that our technical infrastructure, such as a
reliable network backbone with the necessary speed and data capacity and the
development of complementary products such as high-speed modems, will be able
to increase accordingly, and we face risks related to our ability to scale up
to expected consumer levels while maintaining performance. Further, security
and authentication concerns regarding the transmission of confidential
information over the Internet, such as credit card numbers, may continue. Any
failure of our server and networking systems to handle current or higher
volumes of traffic would have a material adverse effect on our business,
results of operations and financial condition.

   The recent growth in Internet traffic has caused frequent periods of
decreased performance, requiring Internet service providers and users of the
Internet to upgrade their infrastructures. If Internet usage continues to
increase rapidly, the Internet infrastructure may not be able to support the
demands placed on it by this growth and its performance and reliability may
decline. If outages or delays on the Internet occur frequently, overall
Internet usage or usage of our Web site could increase more slowly or decline.
Our ability to increase the speed with which we provide services to consumers
and to increase the scope of such services is limited by and dependent upon the
speed and reliability of the Internet. Consequently, the emergence and growth
of the market for our services is dependent on future improvements to the
entire Internet.

The Internet industry is characterized by rapid technological change.

   Rapid technological developments, evolving industry standards and consumer
demands, and frequent new product introductions and enhancements characterize
the market for Internet products and services. These market characteristics are
exacerbated by the emerging nature of the market and the fact that many
companies are expected to introduce new Internet products and services in the
near future. Our future success will significantly depend on our ability to
continually improve the vehicle purchasing experience, the addition of new and
useful services and content to our Web site, and the performance, features and
reliability of our Web site. In addition, the widespread adoption of developing
multimedia-enabling technologies could require fundamental and costly changes
in our technology and could fundamentally affect the nature, viability and
measurability of Internet-based advertising, which could adversely affect our
business, results of operations and financial condition.

                                       19
<PAGE>

We could face liability for information retrieved from or transmitted over the
Internet and liability for products sold over the Internet.

   We could be exposed to liability with respect to third-party information
that may be accessible through our Web site, or content and materials that may
be posted by consumers through our AutoTalk service. Such claims might assert,
among other things, that, by directly or indirectly providing links to Web
sites operated by third parties, we should be liable for copyright or trademark
infringement or other wrongful actions by such third parties through such Web
sites. It is also possible that, if any third-party content information
provided on our Web site contains errors, consumers could make claims against
us for losses incurred in reliance on such information.

   We also enter into agreements with other companies under which any revenue
that results from the purchase of services through direct links to or from our
Web site is shared. Such arrangements may expose us to additional legal risks
and uncertainties, including local, state, federal and foreign government
regulation and potential liabilities to consumers of these services, even if we
do not provide the services ourselves. We cannot assure you that any
indemnification provided to us in our agreements with these parties, if
available, will be adequate.

   Even to the extent such claims do not result in liability to us, we could
incur significant costs in investigating and defending against such claims. The
imposition on us of potential liability for information carried on or
disseminated through our system could require us to implement measures to
reduce our exposure to such liability, which might require the expenditure of
substantial resources or limit the attractiveness of our services to consumers,
member dealers, automotive-related vendors and others.

   Our general liability insurance and our communications liability insurance
may not cover all potential claims to which we are exposed and may not be
adequate to indemnify us for all liability that may be imposed. Any imposition
of liability that is not covered by insurance or is in excess of insurance
coverage could have a material adverse effect on our business, results of
operations and financial condition.

Our intellectual property protection may be inadequate.

   Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and we can give no assurance regarding the future
viability or value of any of our proprietary rights. Despite the precautions we
have taken, it may be possible for a third party to copy or otherwise obtain
and use our proprietary information without authorization or to develop similar
technology independently.

   Although we have not conducted any comprehensive searches, we are aware that
the name "Autoweb" is already in use in several regions in the United States
and in Australia. Due to our resource constraints and the perceived priority of
this issue, we have not yet researched the effect of the use of the name
"Autoweb" by other companies on our trademark or the impact of this use on our
ability to obtain the mark in other countries. As a result, we cannot guarantee
that we will be able to continue to use the name "Autoweb" in the future. If in
the future we were required to change our name and adopt a new trademark, we
would incur significant expenses related to marketing a replacement trademark,
and such a change would likely have a materially adverse effect on our
business.

We face risks associated with litigation.

   Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or trademarks or to determine the
validity and scope of the proprietary rights of others. Such litigation might
result in substantial costs and diversion of resources and management
attention. Furthermore, our business activities may infringe upon the
proprietary rights of others and other parties may assert infringement claims
against us, including claims that arise from directly or indirectly providing
hyperlink text links to

                                       20
<PAGE>

Web sites operated by third parties. Moreover, from time to time, we may be
subject to claims of alleged infringement by us or our member dealers of the
trademarks, service marks and other intellectual property rights of third
parties. Such claims and any resultant litigation, should it occur, might
subject us to significant liability for damages, might result in invalidation
of our proprietary rights and, even if not meritorious, could result in
substantial costs and diversion of resources and management attention and have
a material adverse effect on our business, results of operations and financial
condition.

   On or about July 21, 1999 the Company filed suit against a former linking
partner and its principals for nonpayment of fees under an advertising and
promotion agreement. On or about September 10, 1999, a cross-complaint was
filed against the Company. Based on information known at this time, we do not
believe the cross-complaint has merit.

We depend on third party technology.

   We currently license from third parties certain technologies and information
incorporated into our Web site. As we continue to introduce new services that
incorporate new technologies and information, we may be required to license
additional technology and information from others. We cannot assure you that
these third-party technology and information licenses will continue to be
available to us on commercially reasonable terms, if at all. Additionally, we
cannot assure you that the third parties from which we currently license our
technology and information will be able to defend their proprietary rights
successfully against claims of infringement. Any failure to obtain any of these
technology and information licenses could result in delays or reductions in the
introduction of new features, functions or services. It could also adversely
affect the performance of our existing services until equivalent technology or
information can be identified, obtained and integrated.

We may particularly be affected by general economic conditions.

   Purchases of new vehicles are typically discretionary for consumers and may
be particularly affected by negative trends in the general economy. The success
of our operations depends to a significant extent upon a number of factors
relating to discretionary consumer spending, including economic conditions (and
perceptions of such conditions by consumers) affecting disposable consumer
income (such as employment, wages and salaries, business conditions, interest
rates, availability of credit and taxation) for the economy as a whole and in
regional and local markets where we operate. In addition, because the purchase
of a vehicle is a significant investment and is relatively discretionary, any
reduction in disposable income in general may affect us more significantly than
companies in other industries. In addition, our business strategy relies on
advertising by and agreements with other Internet companies. Any significant
deterioration in general economic conditions that adversely affects these
companies could also have a material adverse effect on our business, results of
operations and financial condition.

We have security risks.

   On occasion, some experienced programmers have attempted to penetrate our
network security ("hackers"). We expect that these attempts, some of which have
succeeded, will continue to occur from time to time. Because a hacker who
penetrates our network security could misappropriate proprietary information or
cause interruptions in our services, we might be required to expend significant
capital and resources to protect against, or to alleviate, problems caused by
hackers. Additionally, we may not have a timely remedy against a hacker who is
able to penetrate our network security. In addition to purposeful security
breaches, the inadvertent transmission of computer viruses could expose us to
litigation or to a material risk of loss. Such security breaches and
inadvertent transmissions could have a material adverse effect on our business,
results of operations and financial condition.

                                       21
<PAGE>

   In offering certain online payment services, we may increasingly rely on
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of confidential
information, such as consumer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the algorithms that we use
to protect our consumers' transaction data or our software vendors' products.
Any well-publicized compromise of security could deter use of the Internet in
general or use of the Internet to conduct transactions that involve
transmitting confidential information or downloading sensitive materials.

We have risks associated with international operations and expansions.

   A part of our long-term strategy is to establish Autoweb.com in
international markets. However, the Internet, or our commerce, content and
community services model, may not become widely accepted in any market. In
addition, we expect that the success of any additional foreign operations we
initiate will be substantially dependent upon our member dealers, automotive-
related vendors and content services. We may experience difficulty in managing
international operations as a result of failure to locate an effective foreign
partner, competition, technical problems, local laws and regulations, distance
and language and cultural differences. Our international partners may not be
able to successfully market and operate our community model in foreign markets.
There are also certain risks inherent in doing business internationally,
including:

  .  cultural and business practices differences;

  .  fluctuations in currency exchange rates;

  .  political;

  .  legal and economic instability;

  .  seasonal reductions in business activity in certain other parts of the
     world; and

  .  potentially adverse tax consequences.

   One or more of such factors might have a material adverse effect on our
future international operations and, consequently, on our business, results of
operations and financial condition.

Certain existing stockholders own a large percentage of our voting stock.

   Our officers, directors and 5% or greater stockholders beneficially own or
control, directly or indirectly, more than 70% of the outstanding shares of
common stock. As a result, if such persons act together, they will have the
ability to control all matters submitted to our stockholders for approval,
including (1) the election and removal of directors and (2) any merger,
consolidation or sale of all or substantially all of our assets.

We face Year 2000 risks.

   The Year 2000 issue involves the potential for system and processing
failures of date-related data and is the result of the computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. We may be
affected by Year 2000 issues related to non-compliant information technology
("IT") systems or non-IT systems operated by us or by third parties. We have
completed our assessment of our internal and external (third-party) IT systems
and non-IT systems. Based upon our assessment, we believe we will require
upgrades, or patches, from certain vendors, including Microsoft Corporation,
which have provided certain software that we have included in our Web site.
Although none of these vendors has informed us of any specific delivery
schedule for receipt of their upgrades, we expect to receive their upgrades
later in 1999. At this point in our assessment, we believe we will become Year
2000 compliant shortly after receiving the necessary upgrades, or patches, from
certain vendors. We do not have a

                                       22
<PAGE>

contingency plan. The costs associated with remediating our noncompliant IT
systems and non-IT systems have not been material to date and we do not
anticipate that such costs will be material in the future, although we cannot
assure you that such costs will not be material. To the extent that our
assessment is finalized without identifying any material noncompliant IT
systems operated by us or by third parties, the most reasonably likely worst
case Year 2000 scenario is a systematic failure beyond our control, such as a
prolonged telecommunications or electrical failure. Such a failure could
prevent us from operating our business, prevent users from accessing our Web
site, or change the behavior of advertising consumers or persons accessing our
Web site. We believe that the primary business risks, in the event of such
failure, would include lost advertising revenues, increased operating costs,
loss of consumers or persons accessing our Web site, and claims of
mismanagement, misinterpretation or breach of contract. Any of these
eventualities could have a material adverse effect on our business, results of
operations and financial condition.

Future sales of our common stock may depress our stock price.

   Of the 25,042,990 shares of our common stock outstanding on September 30,
1999, most is freely tradable, as of the expiration of the lockup agreements
prohibiting their disposition until September 20, 1999. Sales of a substantial
number of these shares in the public market after the lockup period ends could
cause the market price of our common stock to decline.

Our Certificate of Incorporation and Bylaws and Delaware law contain provisions
that could discourage a takeover.

   Certain provisions of Delaware law and our Certificate of Incorporation and
Bylaws could have the effect of delaying or preventing a change in control.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   We considered the provisions of Financial Reporting Release No. 48,
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative Commodity Instruments."
We had no holdings of derivative financial or commodity instruments at
September 30, 1999. However, we are exposed to financial market risks,
including changes in foreign currency exchange rates and interest rates. Much
of our revenue, expenses and capital expenditures are transacted in U. S.
dollars.

                                       23
<PAGE>

                           PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

   Not applicable.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Sales of Registered Securities and Use of Proceeds

   On March 23, 1999, the Company sold 5,550,000 shares of Common Stock in its
initial public offering at a price of $14.00 per share pursuant to a Form S-1
Registration Statement, No. 333-71177, which became effective March 22, 1999.
The principal underwriters for the offering were Credit Suisse First Boston
Corporation, Hambrecht and Quist, LLC, BancBoston, Robertson Stephens Inc., and
U.S. Bancorp Piper Jaffray, Inc. The Company received gross proceeds from the
offering of $77.7 million from which the Company paid $5.4 million for
underwriting discounts and commissions and the Company paid $1.2 million for
other offering expenses, none of which was paid directly or indirectly to any
directors, officers, persons owning ten percent or more of any class of equity
securities of the Company or any affiliates of the Company. From the effective
date of the Registration Statement through September 30, 1999, the Company made
net investments of $28.6 million in commercial paper, spent approximately $3.7
million with regard to the asset purchase agreement with SalesEnhancer.com, LLC
and the employment agreement with the principal owner of SalesEnhancer.com,
LLC, and applied the balance of the proceeds to working capital.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

   Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   Not applicable.

ITEM 5. OTHER INFORMATION

   Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) The following exhibits are filed as part of this report:

<TABLE>
     <C>   <S>
      2.02 Asset Purchase Agreement dated as of July 9, 1999, among
           Autoweb.com, Inc., SalesEnhancer.com, LLC, a Georgia limited
           liability company ("SE"), Solutions Management, Inc., a Georgia
           corporation and the sole member of SE, Interactive Monitoring
           Systems, Inc., a Georgia corporation and Jeffrey Bennett, the sole
           shareholder of SMI and IMS (incorporated herein by reference to
           Exhibit 2.01 to Registrant's Periodic Report on Form 8-K filed July
           23, 1999, File No. 000-25577).

     27.01 Financial Data Schedule (EDGAR version only)
</TABLE>

     (b) Form 8-K was filed on July 23, 1999 regarding the agreement to
  acquire certain software products and certain other intangible and tangible
  assets from SalesEnhancer.com, Inc.


                                       24
<PAGE>

                                   SIGNATURES

   In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          AUTOWEB.COM, INC.

   Date: November 15, 1999                By:  /s/ Samuel M. Hedgpeth III
                                            -----------------------------------
                                              Samuel M. Hedgpeth III
                                           President and Chief Operating
                                                      Officer

   Date: November 15, 1999                By:      /s/ Thomas L. Stone
                                            -----------------------------------
                                                  Thomas L. Stone
                                              Chief Financial Officer

                                       25