##### 



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, 2001

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: 000-26529

AUDIBLE, INC.
(Exact name of Registrant as specified in its Charter)

|                                                                                |  |                                                   
|------------------------------------------------------------------------------- |  | --------------------------------------------------
|DELAWARE
(State or other jurisdiction of
incorporation or organization)         |  | 22-3407945
(I.R.S. employer
identification number)
|                                                                               
|65 WILLOWBROOK BLVD.
WAYNE, NEW JERSEY
(Address of principal executive offices) |  | 07470
(Zip Code)                                  

(973) 837-2700
(Registrants telephone number, including area code)

None
(Former name, former address and former
fiscal year  if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X    No

As of November 5, 2001, 27,546,989 shares of common stock (Common
Stock) of the Registrant were outstanding.

1



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##### 



AUDIBLE, INC.

INDEX

FORM 10-Q

|           |                                                                                                                |     
|---------- | -------------------------------------------------------------------------------------------------------------- | ----
|PART I -   | FINANCIAL INFORMATION                                                                                          | Page
|          
|Item 1.    | Financial Statements:                                                                                          |     
|          
|           | Condensed Balance Sheets as of September 30, 2001 (unaudited)
and December 31, 2000.                           | 3   
|          
|           | Condensed Statements of Operations for the three and nine
months ended September 30, 2001 and 2000 (unaudited) | 4   
|          
|           | Condensed Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000 (unaudited)           | 5   
|          
|           | Notes to Condensed Financial Statements                                                                        | 6   
|          
|Item 2.    | Managements Discussion and Analysis of
Financial Condition and Results of Operations                          | 14  
|          
|Item 3.    | Qualitative and Quantitative Disclosure
about Market Risk                                                      | 22  
|          
|PART II -  | OTHER INFORMATION                                                                                              |     
|          
|Item 1.    | Legal Proceedings                                                                                              | 23  
|          
|Item 2.    | Changes in Securities                                                                                          | 23  
|          
|Item 3.    | Defaults Upon Senior Securities                                                                                | 24  
|          
|Item 4.    | Submission of Matters to a Vote of Securities Holders                                                          | 24  
|          
|Item 5.    | Other Information                                                                                              | 24  
|          
|Item 6.    | Exhibits and Reports on Form 8-K                                                                               | 25  
|          
|Signatures |                                                                                                                | 27  

2



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##### 



PART I  FINANCIAL INFORMATION

ITEM 1. Financial Statements

AUDIBLE, INC.
CONDENSED BALANCE SHEETS



---



|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                   |   |            |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ----------- | ----------------------------------------------------------- | ----------------------------------------------------- | - | ------------------ | ---------- | ----------------- | - | ---------- | ---------- | 
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             |                                                       |   | September 30, 2001 |            | December 31, 2000
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|Assets                                                                                                                                                                                                  |                                                                                                                                  | (unaudited) |                                                             |                                                       |   |                   
|Current assets:                                                                                                                                                                                         |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             | Cash and cash equivalents                             |   | $                  | 9,649,355  |                   |   | $          | 14,149,027 | 
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             | Short-term investments, including interest receivable |   |                    |           |                   |   |            | 2,053,069  | 
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             | Accounts receivable, net                              |   |                    | 364,045    |                   |   |            | 193,752    | 
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             | Royalty advances                                      |   |                    | 185,641    |                   |   |            | 847,396    | 
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             | Prepaid expenses and other current assets             |   |                    | 363,894    |                   |   |            | 464,133    | 
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             | Inventory                                             |   |                    | 338,287    |                   |   |            | 118,170    | 
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             | Note receivable due from stockholder, current         |   |                    | 10,000     |                   |   |            | 50,000     | 
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             | Total current assets                                  |   |                    | 10,911,222 |                   |   |            | 17,875,547 | 
|                                                                                                                                                                                                       
|Property and equipment, net                                                                                                                                                                             |                                                                                                                                  |             | 2,441,398                                                   |                                                       |   |                    | 2,818,792  |                  
|Note receivable due from stockholder, non current                                                                                                                                                       |                                                                                                                                  |             | 35,000                                                      |                                                       |   |                    |           |                  
|Other assets                                                                                                                                                                                            |                                                                                                                                  |             | 300,853                                                     |                                                       |   |                    | 37,510     |                  
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             | Total assets                                          |   | $                  | 13,688,473 |                   |   | $          | 20,731,849 | 
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|Liabilities and Stockholders Equity                                                                                                                                                                    |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|Current liabilities:                                                                                                                                                                                    |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|                                                                                                                                                                                                        |                                                                                                                                  |             | Accounts payable                                            |                                                       | $ | 1,317,776          |            |                   | $ | 1,754,440  |           
|                                                                                                                                                                                                        |                                                                                                                                  |             | Accrued expenses and compensation                           |                                                       |   | 2,016,129          |            |                   |   | 2,397,879  |           
|                                                                                                                                                                                                        |                                                                                                                                  |             | Royalty obligations, current                                |                                                       |   | 886,700            |            |                   |   | 772,700    |           
|                                                                                                                                                                                                        |                                                                                                                                  |             | Current maturities of obligations under capital leases      |                                                       |   |                   |            |                   |   | 47,187     |           
|                                                                                                                                                                                                        |                                                                                                                                  |             | Advances, current                                           |                                                       |   | 282,287            |            |                   |   | 453,476    |           
|                                                                                                                                                                                                        |                                                                                                                                  |             | Accrued dividends on redeemable convertible preferred stock |                                                       |   | 772,662            |            |                   |   |           |           
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             | Total current liabilities                             |   |                    | 5,275,554  |                   |   |            | 5,425,682  | 
|                                                                                                                                                                                                       
|Deferred cash compensation                                                                                                                                                                              |                                                                                                                                  |             | 97,525                                                      |                                                       |   |                    | 211,065    |                  
|Royalty obligations, non current                                                                                                                                                                        |                                                                                                                                  |             | 67,750                                                      |                                                       |   |                    | 502,000    |                  
|Advances, non current                                                                                                                                                                                   |                                                                                                                                  |             | 92,363                                                      |                                                       |   |                    |           |                  
|                                                                                                                                                                                                       
|Redeemable convertible preferred stock;
Series A, par value $.01, 4,500,000 shares authorized,
2,666,666 and no shares issued and outstanding at September
30, 2001 and December 31, 2000, respectively |                                                                                                                                  |             | 10,000,000                                                  |                                                       |   |                    |           |                  
|                                                                                                                                                                                                       
|Stockholders equity:                                                                                                                                                                                   |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|                                                                                                                                                                                                        | Common stock, par value $.01. 50,000,000 shares authorized,
27,546,989 shares issued at September 30, 2001 and
December 31, 2000 |             |                                                             | 275,470                                               |   |                    |            | 275,470           |  
|                                                                                                                                                                                                        | Additional paid-in capital                                                                                                       |             |                                                             | 93,327,402                                            |   |                    |            | 92,196,176        |  
|                                                                                                                                                                                                        | Deferred compensation and services                                                                                               |             |                                                             | (7,207,545                                            | ) |                    |            | (11,867,358       | )
|                                                                                                                                                                                                        | Notes due from stockholders for common stock                                                                                     |             |                                                             | (297,459                                              | ) |                    |            | (391,703          | )
|                                                                                                                                                                                                        | Treasury stock at cost: 676,725 and 536,505 shares of common
stock at September 30, 2001 and December 31, 2000,
respectively     |             |                                                             | (179,990                                              | ) |                    |            | (143,061          | )
|                                                                                                                                                                                                        | Accumulated deficit                                                                                                              |             |                                                             | (87,762,597                                           | ) |                    |            | (65,476,420       | )
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|                                                                                                                                                                                                        | Total stockholders (deficit) equity                                                                                             |             |                                                             | (1,844,719                                            | ) |                    |            | 14,593,102        |  
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  
|                                                                                                                                                                                                        |                                                                                                                                  |             | Total liabilities and stockholders equity                  |                                                       | $ | 13,688,473         |            |                   | $ | 20,731,849 |           
|                                                                                                                                                                                                        |                                                                                                                                  |             |                                                             |                                                       |   |                    |            |                  

See accompanying notes to condensed financial statements.

3



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##### 



AUDIBLE, INC.
CONDENSED STATEMENTS OF OPERATIONS



---



|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |             |             |            |   | 
|------------------------------------------- | ------------------------------------------ | ----------------------------------------- | ------------------------ | ---------- | ---------- | ------------------ | ---------- | ----------------- | ---------- | ----------- | ---------- | ----------- | ----------- | ---------- | ---------- | ----------- | ----------- | ---------- | - | 
|                                            |                                            |                                           |                          |            |            | Three Months Ended |            | Nine Months Ended
|                                            |                                            |                                           |                          |            |            | September 30,      |            | September 30,    
|                                            |                                            |                                           |                          |            |            |                    |            |                  
|                                            |                                            |                                           |                          |            |            | 2001               |            | 2000              |            | 2001        |            | 2000       
|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |            
|                                            |                                            |                                           |                          |            |            | (unaudited)        |            | (unaudited)       |            | (unaudited) |            | (unaudited)
|                                           
|Revenue, net:                               |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            
|                                            | Content and services                       |                                           | $                        | 2,003,993  |            |                    | $          | 690,040           |            |             | $          | 4,994,198   |             |            | $          | 1,491,987   |            
|                                            | Hardware                                   |                                           |                          | 140,044    |            |                    |            | 234,307           |            |             |            | 1,093,387   |             |            |            | 618,469     |            
|                                            | Other                                      |                                           |                          | 16,895     |            |                    |            | 189,130           |            |             |            | 298,715     |             |            |            | 567,388     |            
|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            
|                                            |                                            |                                           | Total revenue, net       |            |            | 2,160,932          |            |                   |            | 1,113,477   |            |             |             | 6,386,300  |            |             |             | 2,677,844  |  
|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            
|Operating expenses:                         |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            
|                                            | Cost of content and services revenue       |                                           |                          | 1,162,221  |            |                    |            | 1,158,684         |            |             |            | 3,759,330   |             |            |            | 2,462,471   |            
|                                            | Cost of hardware revenue                   |                                           |                          | 451,958    |            |                    |            | 468,535           |            |             |            | 2,193,462   |             |            |            | 1,513,469   |            
|                                            | Production expenses                        |                                           |                          | 1,235,676  |            |                    |            | 1,635,045         |            |             |            | 4,577,708   |             |            |            | 5,062,691   |            
|                                            | Development                                |                                           |                          | 736,251    |            |                    |            | 1,306,371         |            |             |            | 2,851,772   |             |            |            | 3,651,901   |            
|                                            | Sales and marketing                        |                                           |                          | 3,436,519  |            |                    |            | 3,370,018         |            |             |            | 11,151,068  |             |            |            | 12,115,608  |            
|                                            | General and administrative                 |                                           |                          | 1,179,426  |            |                    |            | 1,379,826         |            |             |            | 3,885,741   |             |            |            | 4,300,949   |            
|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            
|                                            |                                            |                                           | Total operating expenses |            |            | 8,202,051          |            |                   |            | 9,318,479   |            |             |             | 28,419,081 |            |             |             | 29,107,089 |  
|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            
|                                            | Loss from operations                       |                                           |                          | (6,041,119 | )          |                    |            | (8,205,002        | )          |             |            | (22,032,781 | )           |            |            | (26,429,245 | )          
|                                            | Other income, net                          |                                           |                          | 100,525    |            |                    |            | 354,979           |            |             |            | 519,266     |             |            |            | 1,327,112   |            
|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            
|                                            |                                            | Net loss                                  |                          |            | (5,940,594 | )                  |            |                   | (7,850,023 | )           |            |             | (21,513,515 | )          |            |             | (25,102,133 | )         
|                                            |                                            | Accrued dividends on redeemable
preferred |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |             |             |           
|                                            |                                            |                                           |                          | stock      |            |                    | (302,496   | )                 |            |             |           |             |             |            | (772,662   | )           |             |            |  | 
|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            
|                                            | Net loss applicable to common
stockholders |                                           | $                        | (6,243,090 | )          |                    | $          | (7,850,023        | )          |             | $          | (22,286,177 | )           |            | $          | (25,102,133 | )          
|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            
|Basic and diluted net loss per common share |                                            | $                                         | (0.23                    | )          |            | $                  | (0.29      | )                 |            | $           | (0.83      | )           |             | $          | (0.95      | )          
|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            
|Weighted average shares outstanding         |                                            |                                           | 26,885,820               |            |            |                    | 27,014,489 |                   |            |             | 26,933,436 |             |             |            | 26,519,323 |            
|                                            |                                            |                                           |                          |            |            |                    |            |                   |            |             |            |             |             |            |            |            

See accompanying notes to condensed financial statements.

4



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##### 



AUDIBLE, INC.
CONDENSED STATEMENTS OF CASH FLOWS



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|                                                 |                                                                             |                                                 |                                               |                                           |           |                   |             |             |           |           |             |  
|------------------------------------------------ | --------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------- | ----------------------------------------- | --------- | ----------------- | ----------- | ----------- | --------- | --------- | ----------- | -
|                                                 |                                                                             |                                                 |                                               |                                           |           | Nine months Ended
|                                                 |                                                                             |                                                 |                                               |                                           |           | September 30,    
|                                                 |                                                                             |                                                 |                                               |                                           |           |                  
|                                                 |                                                                             |                                                 |                                               |                                           |           | 2001              |             | 2000       
|                                                 |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|                                                 |                                                                             |                                                 |                                               |                                           |           | (unaudited)       |             | (unaudited)
|Cash flows from operating activities:            |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|                                                 | Net loss                                                                    |                                                 | $                                             | (21,513,515                               | )         |                   | $           | (25,102,133 | )        
|                                                 | Adjustments to reconcile net loss to net cash used in operating activities: |                                                 |                                               |                                           |           |                   |             |             |          
|                                                 |                                                                             | Depreciation and amortization                   |                                               |                                           | 1,360,813 |                   |             |             | 822,652   |          
|                                                 |                                                                             | Services rendered for common stock and warrants |                                               |                                           | 5,530,944 |                   |             |             | 7,565,999 |          
|                                                 |                                                                             | Non-cash compensation charges                   |                                               |                                           | 260,097   |                   |             |             | 381,769   |          
|                                                 |                                                                             | Deferred cash compensation                      |                                               |                                           | (113,540  | )                 |             |             | 21,769    |          
|                                                 |                                                                             | Non cash barter revenue                         |                                               |                                           | (285,048  | )                 |             |             |          |          
|                                                 |                                                                             | Changes in assets and liabilities:              |                                               |                                           |           |                   |             |             |           |          
|                                                 |                                                                             |                                                 | Interest receivable on short-term investments |                                           |           | 98,078            |             |             |           | 268,195   |            
|                                                 |                                                                             |                                                 | Accounts receivable, net                      |                                           |           | (170,293          | )           |             |           | (90,900   | )          
|                                                 |                                                                             |                                                 | Royalty advances                              |                                           |           | 661,755           |             |             |           | (584,795  | )          
|                                                 |                                                                             |                                                 | Prepaid expenses and other current assets     |                                           |           | 97,496            |             |             |           | (9,960    | )          
|                                                 |                                                                             |                                                 | Inventory                                     |                                           |           | (220,117          | )           |             |           |          |            
|                                                 |                                                                             |                                                 | Other assets                                  |                                           |           | 21,705            |             |             |           | 51,490    |            
|                                                 |                                                                             |                                                 | Accounts payable                              |                                           |           | (436,664          | )           |             |           | 540,633   |            
|                                                 |                                                                             |                                                 | Accrued expenses and compensation             |                                           |           | (381,750          | )           |             |           | 1,247,159 |            
|                                                 |                                                                             |                                                 | Royalty obligations                           |                                           |           | (320,250          | )           |             |           | 738,000   |            
|                                                 |                                                                             |                                                 | Advances                                      |                                           |           | (78,826           | )           |             |           | (572,588  | )          
|                                                 |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|                                                 |                                                                             |                                                 |                                               | Net cash used in operating activities     |           |                   | (15,489,115 | )           |           |           | (14,722,710 | )
|                                                 |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|Cash flows from investing activities:            |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|                                                 | Purchases of property and equipment                                         |                                                 |                                               | (983,419                                  | )         |                   |             | (2,528,114  | )        
|                                                 | Purchases of short-term investments, net                                    |                                                 |                                               |                                          |           |                   |             | (25,462,949 | )        
|                                                 | Redemptions of short-term investments, net                                  |                                                 |                                               | 1,957,734                                 |           |                   |             | 36,161,596  |          
|                                                 | Payments received on notes receivable to shareholders                       |                                                 |                                               | 5,000                                     |           |                   |             | 100,000     |          
|                                                 |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|                                                 |                                                                             |                                                 |                                               | Net cash provided by investing activities |           |                   | 979,315     |             |           |           | 8,270,533   |  
|                                                 |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|Cash flows from financing activities:            |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|                                                 | Proceeds from issuance of Series A redeemable convertible preferred stock   |                                                 |                                               | 10,000,000                                |           |                   |             |            |          
|                                                 | Proceeds from sale of common stock                                          |                                                 |                                               |                                          |           |                   |             | 1,000,000   |          
|                                                 | Proceeds from exercise of common stock options                              |                                                 |                                               |                                          |           |                   |             | 9,600       |          
|                                                 | Payments received on notes due from stockholders for common stock           |                                                 |                                               | 63,082                                    |           |                   |             | 186,276     |          
|                                                 | Payment of principal on obligations under capital leases                    |                                                 |                                               | (47,187                                   | )         |                   |             | (215,768    | )        
|                                                 | Cash paid for purchase of treasury stock                                    |                                                 |                                               | (5,767                                    | )         |                   |             |            |          
|                                                 |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|                                                 |                                                                             |                                                 |                                               | Net cash provided by financing activities |           |                   | 10,010,128  |             |           |           | 980,108     |  
|                                                 |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|                                                 |                                                                             |                                                 |                                               | Decrease in cash and cash equivalents     |           |                   | (4,499,672  | )           |           |           | (5,472,069  | )
|Cash and cash equivalents at beginning of period |                                                                             |                                                 | 14,149,027                                    |                                           |           |                   | 12,030,392  |            
|                                                 |                                                                             |                                                 |                                               |                                           |           |                   |             |            
|Cash and cash equivalents at end of period       |                                                                             | $                                               | 9,649,355                                     |                                           |           | $                 | 6,558,323   |            
|                                                 |                                                                             |                                                 |                                               |                                           |           |                   |             |            

See accompanying notes to condensed
financial statements.

5



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2001 and 2000
(unaudited)

(1) Summary of Significant Accounting Policies

Basis of Presentation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The accompanying condensed financial statements as of September 30,
2001, and for the three and nine months ended September 30, 2001 and 2000,
are unaudited and, in the opinion of management, include all adjustments
(consisting of normal recurring adjustments and accruals) necessary to
present fairly the results for the periods presented in accordance with
accounting principles generally accepted in the United States of America.
Operating results for the three and nine months ended September 30, 2001 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. These financial statements should be read in
conjunction with the audited financial statements and notes thereto for the
year ended December 31, 2000, from the Companys Annual Report on Form 10-K.

Reclassifications



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Certain items in the 2000 condensed financial statements have been
reclassified to conform to the 2001 presentation.

Barter Arrangement



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with Accounting Principles Board (APB) No. 29,
Accounting for Nonmonetary Transactions, the Company accounts for barter
transactions based on the fair value of the assets or services surrendered
or obtained, whichever is more clearly evident. In September 2001, the
Company signed a Bulk Content Sale and Advertising Agreement whereby the
Company exchanged $285,048 in bulk content for $285,048 in prepaid
advertising to be used over the next 24 months. The Company delivered the
bulk content prior to September 30, 2001, and accordingly, recorded revenue
of $285,048 included in content and services revenue on the accompanying
condensed statements of operations for the three and nine months ended
September 30, 2001. As of September 30, 2001, none of the acquired
advertising had been used, therefore the entire amount of prepaid
advertising is included in Other Assets on the accompanying September 30,
2001 Balance Sheet.

6



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2001 and 2000
(unaudited)

Basic and Diluted Net Loss Per Common Share



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Basic and diluted net loss per common share is presented in accordance
with the provisions of SFAS No. 128, ''Earnings Per Share. Basic net loss
per common share is computed by dividing net loss applicable to common
stockholders by the weighted average number of common shares outstanding for
the period. Diluted net loss per common share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock and resulted in the
issuance of common stock. Diluted net loss per common share is equal to
basic net loss per common share, since all common stock equivalents are
antidilutive for each of the periods presented.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Diluted net loss per common share for the three and nine months ended
September 30, 2001 does not include the effects of outstanding options to
purchase 6,084,400 shares of common stock, warrants outstanding to purchase
2,390,654 shares of common stock; and 10,666,664 shares of common stock on
conversion of outstanding Series A Redeemable Convertible Preferred Stock
(Series A), as the effect of their inclusion is antidilutive during the
periods. Diluted net loss per common share for the three and nine months
ended September 30, 2000 does not include the effects of options to purchase
5,733,900 shares of common stock, and warrants to purchase 1,972,654 shares
of common stock, as the effect of their inclusion is antidilutive during the
periods.

(2) Stockholders Equity

Common Stock



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In March 1999, the Company issued 229,500 shares of common stock to
employees at a price less than the fair value of the stock at the time of
issuance. These shares, which are subject to vesting over four years, were
paid for by full recourse promissory notes executed by the employees. The
difference between the fair value and the issue price of these common shares
of $907,214 was recorded as deferred compensation, a component of
stockholders equity, and is being amortized as an expense straight-line
over the vesting term.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In February 2000, the Company offered 100,000 common shares to its new
Chief Executive Officer in connection with his offer of employment at five
dollars per share less than the fair value of the stock. The Company
recorded $500,000 as deferred compensation in February 2000 and was
recording the compensation expense straight-line over the vesting term. The
offer to purchase these shares was rescinded in August 2000, and the CEO did
not purchase any of the offered shares. In August 2000, the Company issued
to its CEO 500,000 stock options at an exercise price equal to the fair
value of the common stock at the time of issuance. The Company was
recording the original compensation expense over the vesting term of the new
option grant, and was accounting for 100,000 of the 500,000 newly issued
options as replacement options using variable

7



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2001 and 2000
(unaudited)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | accounting by adjusting the compensation expense associated with these
100,000 options based on the closing price of the Companys common stock in
accordance with FASB Interpretation No. 44 (FIN 44) Accounting for Certain
Transactions involving Stock Compensation  an Interpretation of APB Opinion
No. 25. In July 2001, as a result of the CEO no longer being employed by
the Company, the Company is no longer recording any further expense related
to these options and has reversed the remaining unexpensed deferred
compensation against additional paid-in-capital.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In March 2000, the Company issued 370,000 options to purchase shares of
common stock to employees at $1.00 less than the fair value of the common
stock at the time of issuance. These options are subject to vesting over
four years. The difference between the fair value and the issue price of
these options of $370,000 was recorded as deferred compensation, and is
being amortized as an expense straight-line over the vesting term. In May
2001, the Company issued 50,000 options to purchase shares of common stock
to an employee at $0.50 less than the fair value of the common stock at the
time of issuance. These options are subject to vesting over four years.
The difference between the fair value and the issue price of these options
of $25,000 was recorded as deferred compensation, and was being amortized as
an expense straight-line over the vesting term. In July 2001,
as a result of the employee no longer being employed by the Company, the
Company is no longer recording any further expense related to these 50,000
options and has reversed the remaining unexpensed deferred compensation
against paid-in-capital.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the three months ended September 30, 2001 and 2000, $74,278 and
$139,134, respectively, of compensation expense was recognized related to
these transactions. During the nine months ended September 30, 2001 and
2000, $260,097 and $381,769, respectively, of compensation expense was
recognized related to these transactions. During the three and nine months
ended September 30, 2001, $234,618 and $258,049, respectively, of deferred
compensation was reversed against paid-in capital related to unvested
options forfeited due to employees leaving the Company.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In April 1999, the Company established the 1999 Stock Incentive Plan
(the ''Plan), which permits up to 9,000,000 common stock shares to be
issued under the Plan. The Plan permits the granting of stock options,
stock appreciation rights, restricted or unrestricted stock awards, phantom
stock, performance awards and other stock-based awards. As of September 30,
2001, options to purchase 6,084,400 common stock shares were outstanding.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In April 1999, the Company increased the number of shares of common
stock authorized from 16,000,000 to 50,000,000. As of September 30, 2001
and December 31, 2000, the Company had issued 27,546,989 shares of common
stock. As of September 30, 2001 and December 31, 2000, the Company had
2,390,654 and 1,878,654 shares of common stock, respectively, reserved for
issuance upon exercise of outstanding common stock warrants, and 6,084,400
and 5,365,900 shares of common stock, respectively, reserved for issuance
upon exercise of outstanding options. As of September 30, 2001 and December
31, 2000, the Company had 10,666,664 and no shares of common stock,
respectively, reserved for issuance upon conversion of outstanding Series A
redeemable convertible preferred stock.

8



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2001 and 2000
(unaudited)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In January 2000, the Company issued 1,340,033 shares of common stock in
connection with two agreements with Amazon.com (see note 6). During the
nine months ended September 30, 2000, the Company also issued 326,390 shares
of common stock in connection with the cashless exercise of warrants to
purchase 439,141 shares of common stock. During the nine months ended
September 30, 2000, the Company issued 1,200 shares of common stock in
connection with the exercise of employee stock options. During the three and
nine months ended September 30, 2001, no shares of common stock were issued.



| |                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the three and nine months ended September 30, 2001, the Company
repurchased 47,775 and 139,720, shares of common stock, respectively, as
treasury shares by reducing the indebtedness under certain promissory notes
issued to the Company and paying cash of $5,767. During the three and nine
months ended September 30, 2000, no shares of common stock were repurchased.

(3) Redeemable Convertible Preferred Stock

Microsoft Investment



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In February, 2001, Microsoft purchased 2,666,666 shares of Series A
stock for $10,000,000 at a per share price of $3.75. Each share of Series A
may be converted into four shares of Common Stock, (equivalent to a price of
$.9375 per share), subject to adjustment under certain conditions. The
stock is convertible at the option of the holder at any time prior to the
fifth anniversary of the original issue date. Dividends are payable
semi-annually at an annual rate of 12% in either additional preferred shares
or in cash at the option of the Company. On the fifth anniversary of the
original issue date, the Company is required to redeem all remaining
outstanding shares at a per share price of $3.75 plus all accrued and unpaid
dividends. During the three and nine months ended September 30, 2001,
$302,496 and $772,662, respectively, related to the dividends has been
accrued. Approximately $372,000 of these unpaid dividends were payable as
of June 1, 2001. It is the Companys intention to pay these accrued
dividends by issuing additional preferred shares.

(4) Microsoft Agreement



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In November 1998, the Company entered into a five-year agreement with
Microsoft. The agreement provides for services related to integration of
products, the granting of various rights and licenses, and a provision for
Microsoft to be paid future royalties for content distributed as a result of
the software developed in the agreement. Under the terms of the agreement,
Microsoft committed a minimum of $2,000,000 in payments to the Company to
integrate certain products and acquire various rights and licenses.



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Microsoft advanced Audible $1,500,000 in November 1998 in consideration
of Audible granting Microsoft the right to distribute software enabling
users of Microsoft platforms to access and use Audible content. The

9



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2001 and 2000
(unaudited)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Company allocated $50,000 of this advance to certain business
development work that was recognized as a reduction of general and
administrative expense in the nine month period ended September 30, 2001.
The remaining $1,450,000 of this advance has been recognized as revenue on a
straight-line basis beginning in the quarter ended September 30, 1999
through the initial term of the agreement, which ended in the second quarter
of 2001. During the three months ended September 30, 2001 and September 30,
2000, none and $189,130, respectively, of this advance was recognized as
other revenue. During the nine months ended September 30, 2001 and
September 30, 2000, $252,174 and $567,388, respectively, of this advance was
recognized as other revenue.



| |                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Audible will pay Microsoft a royalty on content licensed and
distributed by Audible to each end user that accesses its content using the
developed software. Royalties will be recognized during the period that the
related content revenue is earned. Through September 30, 2001, Audible had
not recognized any royalties under this agreement.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In April 1999, in connection with an amendment to the agreement with
Microsoft, the Company issued to Microsoft a warrant which expires November
18, 2003 to purchase 100,000 shares of common stock at the IPO price of
$9.00 per share. The fair value of this warrant was determined in
accordance with EITF Issue No. 96-18, Accounting for Equity Instruments
that are Issued to Other than Employees for Acquiring or in Conjunction with
Selling, Goods or Services and is being amortized as an expense on a
straight-line basis over the same period as the $1,450,000 advance described
above. During the three months ended September 30, 2001 and 2000, none and
$67,215, respectively, was recorded as a production expense related to this
warrant with the non-cash credit for services to additional paid-in capital.
During the nine months ended September 30, 2001 and 2000, $89,611 and
$201,645, respectively, was recorded as a production expense related to this
warrant with the non-cash credit for services to additional paid-in capital.

(5) Services Agreement



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In September 1999, in connection with a services agreement, the Company
issued a warrant to purchase 150,000 shares of common stock at $0.01 per
share, which is fully vested, and a warrant to purchase 500,000 shares of
common stock at $8.00 per share, which is subject to vesting over a
three-year period. The agreement allows for an additional warrant to
purchase 250,000 shares of common stock at $8.00 per share upon extension of
the agreement for an additional year, also subject to vesting. In May,
2001, this services agreement was amended. Under the terms of the amended
agreement, the previously issued warrant to purchase 500,000 shares at $8.00
was replaced with two new warrants. The first new warrant issued, which is
fully vested, is for the purchase of 200,000 shares of common stock at $0.91
per share. The second warrant for the purchase of 200,000 shares of common
stock at $0.91 per share, is subject to vesting over a 20 month period
ending December 31, 2002.

10



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2001 and 2000
(unaudited)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair value of these warrants was determined in accordance with EITF
Issue No. 96-18 and is being amortized as an expense on a straight-line
basis over the amended term of the service agreement using variable plan
accounting for any unvested portion of shares. Under variable plan
accounting, the compensation costs will vary each accounting period until
the final measurement date. During the three months ended September 30,
2001 and 2000, $123,813 and $44,049, respectively, was recorded as a
marketing expense related to this agreement with the non-cash credit for
services to additional paid-in capital. During the nine months ended
September 30, 2001 and 2000, $688,412 and $352,786, respectively, was
recorded as a marketing expense related to this agreement with the non-cash
credit for services to additional paid-in capital.

(6) Amazon Agreements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In January 2000, the Company entered into two agreements with
Amazon.com. Under the Co-Branding, Marketing and Distribution Agreement
the Company is the exclusive provider of digital spoken audio
(as defined) to Amazon.com. On January 24, 2001, the Company signed
Amendment No.1 to its Co-Branding, Marketing, and Distribution Agreement
with Amazon.com. Under the amendment, the annual fee for Year 3 of the
agreement is reduced from $10,000,000 to $1,500,000 and an additional fee of
$1,000,000 is payable in Year 2 of the agreement. Also in connection with
Amendment No.1, the Company issued 500,000 fully vested common stock
warrants to Amazon.com at an exercise price of $1.50 per share, which are
exercisable after
January 31, 2002. The fair value of these warrants was determined in
accordance with EITF Issue No. 96-18 and is being amortized as an expense on
a straight-line basis over the remaining term of the agreement. During the
three months and nine months ended September 30, 2001, $43,200 and $129,600,
respectively, was recorded as a marketing expense related to these warrants
with the non-cash credit for services to additional paid-in capital.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the three-year term of this agreement, in consideration for
certain services, Amazon will receive $22,500,000 (as amended) plus a
specified percentage of revenue earned over a specified amount. Under the
Securities Purchase Agreement, Amazon.com purchased 1,340,033 shares of
common stock from the Company for $20,000,000. Under the agreements, the
consideration paid by Amazon for the purchase of the
common stock, and the Companys obligation for the annual fee for the
first two years per the original
Co-Branding, Marketing, and Distribution Agreement, which are identical
amounts, were offset and no cash was exchanged. Accordingly, $20,000,000
was recorded as deferred services, a component of stockholders equity, and
was being amortized over the first two years of the agreement on a
straight-line basis. Prior to Amendment No. 1, through January 2001,
$10,000,000 had been amortized as a marketing expense related to the initial
$20,000,000 of deferred services. Subsequent to Amendment No. 1, the
unamortized payment for year 2 of $10,000,000 plus the additional $2,500,000
payment required under the amendment, or $12,500,000, is being amortized on
a straight-line basis over the remaining term of the agreement of 24 months.
During the three months ended September 30, 2001 and 2000, $1,250,000 and
$2,500,000, respectively, was recorded as a marketing expense, with the
non-cash credit to deferred services. During the nine months ended
September 30,

11



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2001 and 2000
(unaudited)



| |                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2001 and 2000, $4,166,667 and $6,666,666, respectively, was recorded as
a marketing expense, with the non-cash credit to deferred services. During
the three and nine months ended September 30, 2001, $312,500 and $833,333,
respectively, was recorded as a marketing expense representing the
straight-line amortization of the cash portion of payments due under this
agreement.

(7) Random House Agreement



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On May 5, 2000 Audible and Random House entered into a 50-month
Co-Publishing, Marketing, and Distribution Agreement to form a strategic
alliance to establish Random House Audible, a publishing imprint, as defined
in the agreement, to produce spoken word content specifically suited for
digital distribution. All titles published by the imprint are being
distributed exclusively on the Internet by Audible. As part of this
alliance, Random House, through its Random House Ventures, LLC subsidiary,
purchased 169,780 shares of Audible common stock from the Company for
$1,000,000. Audible is required to contribute $1,000,000 annually, or
$4,000,000 in total, towards funding the acquisition and creation of
digital audio titles through Random House Audible. This total contribution
is being amortized over the 50-month term as a cost of content and services
revenue. During each of the three months ended September 30, 2001 and 2000,
$240,000 was recorded as a cost of content and services revenue related to
this contribution. During the nine months ended September 30, 2001 and
2000, $720,000 and $400,000, respectively, was recorded as a cost of content
and services revenue related to this contribution. The agreement further
provides for Random House to be granted a warrant to purchase 878,333 shares
of Audible common stock at various exercise prices that vest over the term
of the agreement as well as the granting of additional warrants to Random
House to purchase Audible common shares based on future performance. The
fair value of these warrants was determined in accordance with EITF
Issue No. 96-18 and is being amortized as an expense on a straight-line
basis over the 50-month term of the agreement. The warrants are accounted
for using variable plan accounting whereby compensation costs will vary each
accounting period until the final measurement date. During the three months
ended September 30, 2001 and 2000, $90,581 and $100,206, respectively, was
recorded as a cost of content and services revenue related to these warrants
with the non-cash credit for services to additional paid-in capital. During
the nine months ended September 30, 2001 and 2000, $402,597 and $252,380,
respectively, was recorded as a cost of content and services revenue related
to these warrants with the non-cash credit for services to additional
paid-in capital. Additionally, the agreement contains provisions for profit
participation and bounties, among other items. Random House Audible is an
imprint of Random House, Inc.s Random House Audio Publishing Group
division.

(8) Related Party Transactions



| |                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 11, 2001, the Company amended the payment terms of the $50,000
note receivable due from stockholder due on March 27, 2001. The amendment
requires semi-annual principal payments of at least $5,000 beginning July 15,
2001 until the note and all accrued interest is repaid. The note continues to
bear interest at 5.42% annually. The principal balance of this note
receivable as of September 30, 2001 was $45,000.

12



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2001 and 2000
(unaudited)

(9) Contingencies



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In September 2001, the Company and certain of its officers, directors
and former directors, including Donald R. Katz, Andrew P. Kaplan, Richard
Brass, R. Bradford Burnham, W. Bingham Gordon, Thomas P. Hirschfeld,
Winthrop Knowlton and Timothy Mott, were named as defendants in several
complaints filed in the United States District Court for the Southern
District of New York. The complaints allege that the defendants violated
federal securities laws by issuing a Registration Statement and Prospectus
that contained materially false and
misleading information and/or omissions relating to, among other things, the
commissions received by underwriters of its common stock. Certain of the
complaints purport to set forth claims on behalf of persons who acquired the
Companys common stock from July 16, 1999 to September 11, 2001. One other
complaint purports to represent a class of persons who acquired the
Companys common stock between July 16, 1999 and December 6, 2000. The
complaints seek unspecified damages and other relief.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At this time, the Company and its counsel are still reviewing the
aforementioned complaints and expect that the cases will be consolidated
into one action. Given the early stage of the litigations, the Company is
not in a position to state any opinion as to their likely outcome. The
Company believes, however, that the claims against it have no merit and
intends to vigorously defend itself and its officers and directors.

(10) Streamlining Initiative



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On July 23, 2001, the Company announced a streamlining initiative.
Under this initiative 33 staff positions were eliminated including the
resignation of the Companys CEO. The Company incurred a charge of
$181,939 in the third quarter of 2001, primarily related to severance costs,
included in general and administrative expense on the accompanying condensed
statements of operations for the three and nine months ended September 30,
2001. All but approximately $11,000 was paid during the third quarter of
2001. The remaining balance is expected to be paid during the fourth quarter
of 2001.

(11) Subsequent Events



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On October 26, 2001, the Company received a Nasdaq Staff Determination
letter indicating that the Company has failed to comply with the minimum Net
Tangible Assets requirement for continued listing. Accordingly, the
Companys securities are subject to de-listing from the Nasdaq National
Market. The Company has requested a hearing before the National Listing
Qualifications Panel to review the Staff Determination. The request for a
hearing will defer the de-listing of Audibles common stock pending a
decision by the panel. There can be no assurance that the panel will grant
the Companys requests for continued listing. If the Companys common stock
is de-listed from the Nasdaq National Market, the Company expects that its
common stock will continue to be listed under the symbol of ADBL and would
trade on The National Association of Securities Dealers, Inc. (NASDs) OTC
Bulletin Board.

13



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##### 



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our audited financial
statements and notes thereto appearing in our 2000 Annual Report on Form 10-K.
This discussion and analysis contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors.

Overview

We are the leading provider of premium spoken audio content, such as audio
versions of books and newspapers and radio programs, that is delivered over the
Internet and can be streamed and played back on personal computers and
hand-held electronic devices that have digital audio capabilities. The Audible
service allows consumers to purchase and download our content from our Web site
(www.audible.com), store it in digital files and play it back on personal
computers and hand-held electronic devices. We offer customers the opportunity
to subscribe to AudibleListener, a monthly audio service. For a fixed monthly
fee, AudibleListener customers may download their choice of programs from
www.audible.com. More than 30,000 hours of audio content, much of which is
only available in digital audio format at www.audible.com, is currently
available on our Web site. Customers can also access products sold by Audible
through www.amazon.com. Several manufacturers including Handspring, Sony
Electronics, Hewlett-Packard, Compaq Computer Corporation, Casio Inc., Franklin
Electronic Publishers, Digisette, LLC., and SONICblue Incorporateds Rio Audio
Group have agreed to support and promote the playback of our content on their
hand-held electronic devices.

The market for the Audible service results from the increasing usage of
the Internet and the introduction of hand-held electronic devices that have
digital audio capabilities. In contrast to traditional radio broadcasts, the
Audible service offers customers access to content of their choice and the
ability to listen to what they want, when and where they wantwhether
commuting, exercising, relaxing or sitting at their personal computers. Unlike
traditional and online bookstores, which are subject to physical inventory
constraints and shipping delays, we provide a selection that is readily
available in digital format that can be quickly delivered over the Internet
directly to our customers.

Revenue from the sale of audio content and services has increased in each
of the last four quarters. We expect this trend to continue as we expand our
customer base. As of September 30, 2001, more than 102,000 customers had
purchased content from our Web site.

Hardware revenue represents revenue from the sale of AudibleReady
hand-held electronic devices, primarily the Rio 500, manufactured by SONICblue
Incorporateds Rio Audio Group. During the nine months ended September 30,
2001, hardware revenue accounted for 17% of our total revenue. Hand-held
electronic devices are sold from www.audible.com at a deep discount from normal
retail price, when a customer enrolls in AudibleListener for a 12-month period.

Although we have experienced revenue growth in our content sales in recent
periods, there can be no assurance that such growth rates are sustainable, and
therefore such growth rates should not be considered indicative of future
operating results. There can also be no assurance that we will be able to
continue to increase our revenue or attain profitability or, if increases in
revenue and profitability are achieved, that they can be sustained. We believe
that period-to-period comparisons of our historical operating results are not
meaningful and should not be relied upon as an indication of future
performance.

14



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##### 



We recognize revenue from the sale of individual content titles in the
period the content is downloaded and the customers credit card is processed.
We recognize revenue from content membership programs and subscription sales
pro rata over the membership or subscription term. Typically, we pay our
content providers a royalty based upon net sales of the content downloaded by
our customers. The majority of our content agreements require us to make
advance royalty payments for minimum guarantees which are amortized on a
straight-line basis over the term of the agreement or are expensed as royalties
are earned, whichever is sooner. In addition, the Company periodically adjusts
the balance of royalty advances to reflect their estimated net realizable
value.

We recognize revenue, including shipping and handling fees, from sales of
hand-held electronic devices upon shipment. The cost of shipping and handling
is recorded as sales and marketing expense. We recognize revenue from audio
production and hosting services we provide to corporations as the services are
performed.

We are party to several joint marketing agreements with device
manufacturers such as Casio, Compaq Computer Corporation (Compaq), SONICblue
Incorporateds Rio Audio Group, Digisette LLC, Hewlett-Packard, Sony
Electronics and Handspring. Under these agreements, device manufacturers may
receive a portion of the content revenue generated over a specified period of
time from each new Audible customer referred by them through the purchase of a
hand-held electronic device. For example, a purchaser of Compaqs hand-held
electronic device will be able to use the device and our AudibleManager
software to access audible.com and download content. Compaq will receive a
percentage of the revenue related to content downloaded by this purchaser.
These revenue sharing arrangements typically last one or two years from the
date the device user becomes an Audible customer.

In January 2000, the Company entered into two agreements with Amazon.com.
As defined in the Co-Branding, Marketing and Distribution agreement, the
Company is the exclusive provider of digital spoken audio to Amazon.com. In
January, 2001, the Company signed Amendment No.1 to its Co-Branding, Marketing,
and Distribution Agreement with Amazon.com. During the three-year term of
this agreement, in consideration for certain services, Amazon will receive
$22,500,000 plus a specified percentage of revenue earned over a threshold
amount in addition to common stock warrants. Under the Securities Purchase
Agreement dated January 30, 2000, Amazon.com purchased 1,340,033 shares of
common stock from the Company for $20,000,000.

In May 2000, Audible and Random House entered into a 50-month
Co-Publishing, Marketing, and Distribution Agreement to form a strategic
alliance to establish Random House Audible, a publishing imprint, as defined in
the agreement, to produce spoken word content specifically suited for digital
distribution. All titles published by the imprint are being distributed
digitally exclusively on the Internet by Audible. As part of this alliance,
Random House, through its Random House Ventures, LLC subsidiary, purchased
169,780 shares of Audible common stock from the Company. Audible is required
to contribute $1,000,000 annually towards funding the acquisition and creation
of digital audio titles through Random House Audible. The agreement further
provides for the granting of a warrant to purchase 878,333 shares of Audible
common stock to Random House at various exercise prices that vest over the term
of the agreement as well as the granting of additional Audible common stock
warrants to Random House based on future performance. Additionally, the
agreement contains provisions for profit participation and bounties, among
other items. Random House Audible is an imprint of Random House, Inc.s Random
House Audio Publishing Group division.

In February 2001, Microsoft purchased 2,666,666 shares of Audible Series A
Redeemable Convertible Preferred stock for $10,000,000 at a per share price of
$3.75. Each share of preferred stock may be converted into four shares of
Common Stock, (equivalent to a price of $.9375 per share), subject to
adjustment under certain conditions. The Series A Redeemable Convertible
Preferred stock is convertible at the option of the holder at any
time prior to the fifth anniversary of the original issue date. Dividends are
payable semi-annually at an annual rate of 12% in either additional preferred
shares or in cash at the option of the Company. On the fifth anniversary of
the original issue date, Audible is required to redeem all remaining
outstanding shares at a per share price of $3.75 plus all accrued and unpaid
dividends.

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Results of Operations

The following table sets forth certain financial data for the periods
indicated as a percentage of total revenue for the three and nine months ended
September 30, 2001 and 2000.

|                                                |                                      |                          |      |                     |     |                     |      |      |     |      |      |     |     |   |      |     |       |  
|----------------------------------------------- | ------------------------------------ | ------------------------ | ---- | ------------------- | --- | ------------------- | ---- | ---- | --- | ---- | ---- | --- | --- | - | ---- | --- | ----- | -
|                                                |                                      |                          |      | Three Months        |     | Nine Months        
|                                                |                                      |                          |      | Ended September 30, |     | Ended September 30,
|                                                |                                      |                          |      |                     |     |                    
|                                                |                                      |                          |      | 2001                |     | 2000                |      | 2001 |     | 2000
|                                                |                                      |                          |      | (unaudited)         |     | (unaudited)        
|Revenue:                                        |                                      |                          |      |                     |     |                     |      |      |     |      |      |     |     |   |      |    
|                                                | Content and services                 |                          |      | 93                  | %   |                     |      | 62   | %   |      |      | 78  | %   |   |      | 56  | %    
|                                                | Hardware                             |                          |      | 6                   |     |                     |      | 21   |     |      |      | 17  |     |   |      | 23  |      
|                                                | Other                                |                          |      | 1                   |     |                     |      | 17   |     |      |      | 5   |     |   |      | 21  |      
|                                                |                                      |                          |      |                     |     |                     |      |      |     |      |      |     |     |   |      |    
|                                                |                                      | Total revenue            |      |                     | 100 | %                   |      |      | 100 | %    |      |     | 100 | % |      |     | 100   | %
|Operating expenses:                             |                                      |                          |      |                     |     |                     |      |      |     |      |      |     |     |   |      |    
|                                                | Cost of content and services revenue |                          |      | 54                  |     |                     |      | 104  |     |      |      | 59  |     |   |      | 92  |      
|                                                | Cost of hardware revenue             |                          |      | 21                  |     |                     |      | 42   |     |      |      | 34  |     |   |      | 57  |      
|                                                | Production expenses                  |                          |      | 57                  |     |                     |      | 147  |     |      |      | 72  |     |   |      | 189 |      
|                                                | Development                          |                          |      | 34                  |     |                     |      | 117  |     |      |      | 45  |     |   |      | 136 |      
|                                                | Sales and marketing                  |                          |      | 159                 |     |                     |      | 303  |     |      |      | 174 |     |   |      | 452 |      
|                                                | General and administrative           |                          |      | 55                  |     |                     |      | 124  |     |      |      | 61  |     |   |      | 161 |      
|                                                |                                      |                          |      |                     |     |                     |      |      |     |      |      |     |     |   |      |    
|                                                |                                      | Total operating expenses |      |                     | 380 |                     |      |      | 837 |      |      |     | 445 |   |      |     | 1,087 |  
|                                                |                                      |                          |      |                     |     |                     |      |      |     |      |      |     |     |   |      |    
|Loss from operations                            |                                      |                          | (280 | )                   |     |                     | (737 | )    |     |      | (345 | )   |     |   | (987 | )  
|                                                |                                      | Other income, net        |      |                     | 5   |                     |      |      | 32  |      |      |     | 8   |   |      |     | 50    |  
|                                                |                                      |                          |      |                     |     |                     |      |      |     |      |      |     |     |   |      |    
|Net loss                                        |                                      |                          | (275 | )                   |     |                     | (705 | )    |     |      | (337 | )   |     |   | (937 | )  
|Accrued dividends on redeemable preferred stock |                                      |                          | (14  | )                   |     |                     |     |      |     |      | (12  | )   |     |   |     |    
|                                                |                                      |                          |      |                     |     |                     |      |      |     |      |      |     |     |   |      |    
|Net loss applicable to common stockholders      |                                      |                          | (289 | )%                  |     |                     | (705 | )%   |     |      | (349 | )%  |     |   | (937 | )% 
|                                                |                                      |                          |      |                     |     |                     |      |      |     |      |      |     |     |   |      |    

Three months ended September 30, 2001 compared to three months ended September 30, 2000.

Total revenue, net. Total revenue, net for the three months ended
September 30, 2001 was $2,161,000, as compared to $1,113,000 for the three
months ended September 30, 2000, an increase of $1,048,000, or 94%.

Content and services. Content and services revenue for the three months
ended September 30, 2001 was $2,004,000, as compared to $690,000 for the three
months ended September 30, 2000, an increase of $1,314,000, or 190%. Content
and services revenue increased as a result of our increased customer base,
growth in corporate clients and bulk content sales. Bulk content sales in the
period ended September 30, 2001 included a barter arrangement whereby $285,000
in bulk content was exchanged for prepaid advertising.

Hardware. Hardware revenue for the three months ended September 30,
2001 was $140,000, as compared to $234,000 for the three months ended September
30, 2000, a decrease of $94,000, or 40%. Hardware revenue decreased as a
result of selling more AudibleReady hand-held electronic devices, primarily the
Rio 500, at a deeper discount than in the prior period when the customer signs
up for a one year commitment to AudibleListener Membership.

Other. Other revenue for the three months ended September 30, 2001, was
$17,000, as compared to $189,000 for the three months ended September 30, 2000.
Other revenue decreased as a result of the end of the amortization in April
2001 of the advance from Microsoft relating to granting Microsoft the right to
distribute software platforms to

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enable users to access and use Audible content. Other revenue for the
three months ended September 30, 2001 consisted of royalties earned from a
license granted for certain technology rights to a device manufacturer.

Operating expenses.

Cost of content and services revenue. Cost of content and services
revenue was $1,162,000, or 58% of content and services revenue, for the three
months ended September 30, 2001, as compared to $1,159,000, or 168% of content
and services revenue, for the three months ended September 30, 2000. Included
in cost of content and services revenue for the three month period ended
September 30, 2001 and 2000, was a charge of $118,000 and $345,000,
respectively, to reflect the net realizable value of royalty advances. Cost of
content and services revenue as a percentage of content and services revenue
decreased in the 2001 period due to a higher revenue base with relatively fixed
content and services revenue costs such as amortization of royalty advances.

Cost of hardware revenue. Cost of hardware revenue was $452,000, or
323% of hardware revenue, for the three months ended September 30, 2001, as
compared to $469,000, or 200% of hardware revenue, for the three months ended
September 30, 2000. This decrease was primarily due to reduced costs in
acquiring hand-held electronic devices in the 2001 versus the 2000 period.
Cost of hardware revenue as a percentage of hardware revenue increased as we
sold these hand-held electronic devices at a deeper discount from normal retail
price in the 2001 period than in the 2000 period, when a customer enrolled in
AudibleListener for a 12-month period.

Production expenses. Production expenses were $1,236,000 for the three
months ended September 30, 2001, as compared to $1,635,000 for the three months
ended September 30, 2000, a decrease of $399,000, or 24%. This decrease was
primarily due to a reduction in personnel costs, decreased outside services and
consultants, and the elimination of charges associated with the warrants issued
in connection with the Microsoft agreement due to the end of the term of the
agreement in early 2001.

Development. Development costs were $736,000 for the three months ended
September 30, 2001, as compared to $1,306,000 for the three months ended
September 30, 2000, a decrease of $570,000, or 44%. This decrease was
primarily due to reduction in outside consultants as well as reduced personnel
cost.

Sales and marketing. Sales and marketing expenses were $3,437,000 for
the three months ended September 30, 2001, as compared to $3,370,000 for the
three months ended September 30, 2000, an increase of $67,000, or 2%. This
slight increase was primarily due to increased advertising expenses, offset in
part by a reduction in certain costs in connection with our Co-Branding,
Marketing and Distribution Agreement with Amazon.com.

General and administrative. General and administrative expenses were
$1,179,000 for the three months ended September 30, 2001, as compared to
$1,380,000 for the three months ended September 30, 2000, a decrease of
$201,000, or 15%. This decrease was primarily due to a reduction in personnel
costs and decreased professional
fees, offset in part by additional depreciation expense associated with
leasehold improvements in our corporate offices and severance expenses
recognized in the 2001 period.

Other income, net. Other income, net in both periods consisted of
interest income and interest expense. Interest income was $101,000 for the
three months ended September 30, 2001, as compared to $361,000 for the three
months ended September 30, 2000, a decrease of $260,000. This decrease was
primarily due to less interest income being earned from lower cash and cash
equivalent and short-term investment balances available. No interest expense
was recognized for the three months ended September 30, 2001, as compared to
$6,000 for the three months ended September 30, 2000, a decrease of $6,000.
This decrease was due to the completion of the capital leases entered into for
capital equipment.

Accrued dividends on redeemable preferred stock. Accrued dividends on
redeemable preferred stock was $302,000 for the three months ended September
30, 2001 as compared to none for the three months ended September 30, 2000.
This increase was due to the 12% dividends payable to Microsoft as a result of
Microsofts purchase of 2,666,666 shares of Audible Series A Redeemable
Convertible Preferred Stock in February 2001.

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Nine months ended September 30, 2001 compared to nine months ended September 30, 2000.

Total revenue, net. Total revenue, net for the nine months ended
September 30, 2001 was $6,386,000, as compared to $2,678,000 for the nine
months ended September 30, 2000, an increase of $3,708,000, or 138%.

Content and services. Content and services revenue for the nine months
ended September 30, 2001 was $4,994,000, as compared to $1,492,000 for the nine
months ended September 30, 2000, an increase of $3,502,000, or 235%. Content
and services revenue increased as a result of our increased customer base,
growth in corporate clients and bulk content sales. For the nine months ended
September 30, 2001 bulk content sales included a barter arrangement whereby
$285,000 in bulk content was exchanged for prepaid advertising.

Hardware. Hardware revenue for the nine months ended September 30,
2001, was $1,093,000, as compared to $618,000 for the nine months ended
September 30, 2000, an increase of $475,000, or 77%. Hardware revenue
increased as a result of selling more AudibleReady hand-held electronic
devices, primarily the Rio 500, in the 2001 period versus the 2000 period.

Other. Other revenue for the nine months ended September 30, 2001, was
$298,000, as compared to $567,000 for the nine months ended September 30, 2000.
Revenue for the nine-month period ended September 30, 2001 consisted of
$252,000 in revenue resulting from amortization of the advance from Microsoft
relating to granting Microsoft the right to distribute software platforms to
enable users to access and use Audible content, and $46,000 from royalties
earned from a license for certain technology rights to a device manufacturer.
The $567,000 in revenue for the nine-month period ended September 30, 2000
consisted solely of revenue resulting from amortization of the advance from
Microsoft relating to granting Microsoft the right to distribute software
platforms to enable users to access and use Audible content, which ended in
April 2001.

Operating expenses.

Cost of content and services revenue. Cost of content and services
revenue was $3,759,000, or 75% of content and services revenue, for the nine
months ended September 30, 2001, as compared to $2,462,000, or 165% of content
and services revenue, for the nine months ended September 30, 2000. This
increase was primarily due to the acquisition of additional content licenses,
including our agreement with Random House, which resulted in additional
amortization of content agreement minimum guarantees, non cash amortization of
warrants issued, and other
content costs. For the nine month period ended September 30, 2001 and 2000, we
also recorded a charge of $524,000 and $499,000, respectively, to reflect the
net realizable value of royalty advances. Cost of content and services revenue
as a percentage of content and services revenue decreased in the 2001 period as
the result of increased content and services revenue in the 2001 period.

Cost of hardware revenue. Cost of hardware revenue was $2,193,000, or
200% of hardware revenue, for the nine months ended September 30, 2001, as
compared to $1,513,000, or 245% of hardware revenue, for the nine months ended
September 30, 2000. This increase was primarily due to selling more hand-held
electronic devices in the 2001 period versus the 2000 period. Cost of hardware
revenue as a percentage of hardware revenue decreased as we eliminated many of
the early hardware related problems that occurred in the hand-held electronic
units which were shipped during the early part of the 2000 period, offset in
part by selling these hand-held electronic devices at a deeper discount from
normal retail price in the 2001 period, when a customer enrolled in
AudibleListener for a 12-month period.

Production expenses. Production expenses were $4,578,000 for the nine
months ended September 30, 2001, as compared to $5,063,000 for the nine months
ended September 30, 2000, a decrease of $485,000, or 10%. This decrease was
primarily due to decreased outside services and consultants, offset in part by
increased personnel costs in the first half of 2001.

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Development. Development costs were $2,852,000 for the nine months ended
September 30, 2001, as compared to $3,652,000 for the nine months ended
September 30, 2000, a decrease of $800,000, or 22%. This decrease was
primarily due to reduced outsourced costs as a result of the completion of the
Web site upgrade project in 2000, offset in part by increased personnel costs
incurred in the development of new versions of Audible Manager, AudibleReady
formats, and ongoing Web site and related improvements in the first half of
2001.

Sales and marketing. Sales and marketing expenses were $11,151,000 for
the nine months ended September 30, 2001, as compared to $12,116,000 for the
nine months ended September 30, 2000, a decrease of $965,000, or 8%. This
decrease was due to a reduction in certain advertising costs such as tradeshow
expenses and outdoor media as well as expenses recognized in connection with
our Co-Branding, Marketing and Distribution Agreement with Amazon.com, offset
in part by increased personnel costs and outside services in the first half of
2001.

General and administrative. General and administrative expense was
$3,886,000 for the nine months ended September 30, 2001, as compared to
$4,301,000 for the nine months ended September 30, 2000, a decrease of
$415,000, or 10%. This decrease was primarily due to reduced professional fees
during the 2001 period as well as a reduction in business development expenses,
offset in part by additional depreciation expense associated with leasehold
improvements in our corporate offices as well as severance expenses recognized
in the 2001 period.

Other income, net. Other income, net in both periods consisted of
interest income and interest expense. Interest income was $529,000 for the
nine months ended September 30, 2001, as compared to $1,345,000 for the nine
months ended September 30, 2000, a decrease of $816,000. This decrease was
primarily due to less interest income
being earned from lower cash and cash equivalent and short-term investment
balances available. Interest expense was $10,000 for the nine months ended
September 30, 2001, as compared to $18,000 for the nine months ended September
30, 2000, a decrease of $8,000. This decrease was due to the lower principal
balance on our capital equipment lease line, offset in part by one time
interest charges payable in the 2001 period in connection with an expiration of
one of our capital leases.

Accrued dividends on redeemable preferred stock. Accrued dividends on
redeemable preferred stock was $773,000 for the nine months ended September 30,
2001 as compared to none for the nine months ended September 30, 2000. This
increase was due to the 12% dividends payable to Microsoft as a result of
Microsofts purchase of 2,666,666 shares of Audible Series A Redeemable
Convertible Preferred Stock in February 2001.

Factors Affecting Operating Results

We have only a limited operating history with which to evaluate our
business and prospects. Our limited operating history and emerging nature of
the market for Internet-delivered audio content makes predicting our future
operating results difficult. In addition, our prospects must be considered in
light of the risks and uncertainties
encountered by companies in the early stages of development in new and rapidly
evolving markets, specifically the rapidly evolving market for delivery of
audio content over the Internet.

We have incurred significant losses since inception, and as of September
30, 2001, we had an accumulated deficit of approximately $87,763,000. We
believe that our success will depend largely on our ability to extend our
leadership position as a provider of premium digital spoken audio content over
the Internet. Accordingly, we plan to continue to invest in sales and
marketing, content acquisition and production over the next several quarters to
the extent available cash allows.

Our operating results have varied on a quarterly basis during our short
operating history and may fluctuate significantly in the future as a result of
a variety of factors, many of which are outside of our control. Factors that
may affect our quarterly operating results include but are not limited to: (1)
the demand for the Audible service; (2) the availability of premium audio
content; (3) sales and consumer usage of AudibleReady devices; (4) the
introduction of new products or services by a competitor; (5) the cost and
availability of acquiring sufficient web site

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capacity to meet our customers needs; (6) technical difficulties with our
computer system or the Internet or system downtime; (7) the cost of acquiring
audio content; (8) the amount and timing of capital expenditures and other
costs relating to the expansion of our operations; and (9) general economic
conditions and economic conditions specific to electronic commerce and online
media. In the past, we have experienced fluctuations in demand for the Audible
service based on the level of marketing expenditures, the occurrence of
external publicity and the quality of our software and Web site. Any one of
these factors could cause revenue and operating results to vary significantly
in the future. In addition, as a strategic response to changes in the
competitive environment, we may from time to time make pricing, service or
marketing decisions or acquisitions that could cause significant declines in
our quarterly operating revenue.

Our limited operating history and the emerging nature of our market make
prediction of future revenue difficult. We have no assurance that we will be
able to predict our future revenue accurately. Because we have a number of
fixed expenses, we may be unable to adjust our spending in a timely manner to
compensate for unexpected revenue shortfalls. Accordingly, any significant
shortfall in relation to our expectations could cause significant declines in
our operating results. We believe that our quarterly revenue, expenses and
operating results could vary significantly in the future, and that
period-to-period comparisons should not be relied upon as indications of future
performance. Due to the foregoing factors, it is likely that in some future
quarters our operating results will fall below the expectations of securities
analysts and investors, which could have a material adverse effect on the
trading price of our common stock.

Liquidity and Capital Resources

From inception through the date prior to our initial public offering, we
financed our operations through private sales of our redeemable convertible
preferred stock and warrants. Net proceeds from the sales of redeemable
convertible stock and warrants were $28,719,000 since inception through our
initial public offering.

On July 15, 1999, we completed an initial public offering of 4,600,000
shares of common stock at $9.00 per share. Total proceeds were $36,856,000,
net of underwriting discounts and commissions of $2,898,000 and offering costs
of $1,641,000. Concurrent with the offering, all outstanding shares of our
redeemable convertible preferred stock were converted into 13,400,985 shares of
common stock.

On February 8, 2001 Microsoft purchased 2,666,666 shares of Audible Series
A Redeemable Convertible Preferred stock for $10,000,000 at a per share price
of $3.75.

At September 30, 2001, our principal source of liquidity was approximately
$9,649,000 in cash and equivalents.

At September 30, 2001, our principal commitments consisted of obligations
for operating lease commitments, contractual commitments with content
providers, revenue sharing commitments pursuant to agreements with device
manufacturers, and commitments under our agreements with Amazon.com and Random
House.

Net cash used in operating activities for the nine months ended September
30, 2001 was $15,489,000. Net cash used during the period was primarily
attributable to our net loss, increase in inventory, and a decrease in royalty
obligations, accounts payable and accrued expenses and compensation, offset in
part by services rendered for common stock and warrants, depreciation and
amortization. Net cash used in operating activities for the nine months ended
September 30, 2000 was $14,723,000. Net cash used during the 2000 period was
primarily attributable to our net loss offset in part by services rendered for
common stock and warrants and an increase in accrued expenses and compensation.

Net cash provided by investing activities for the nine months ended
September 30, 2001 was $979,000. Net cash provided during the period was
primarily related to redemptions of short-term investments offset in part by
cash used to purchase property and equipment. Net cash provided by investing
activities for the nine months ended September

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30, 2000 was $8,271,000. Net cash provided during the period was
primarily related to redemptions of short-term investments offset in part by
purchases of short-term investments and cash used to purchase property and
equipment.

Net cash provided by financing activities for the nine months ended
September 30, 2001 was $10,010,000 resulting primarily from the sale of Series
A Redeemable Convertible Preferred Stock to Microsoft, offset in part by
capital lease payments. Net cash provided by financing activities for the nine
months ended September 30, 2000 was $980,000, resulting primarily from the sale
of common stock as part of our agreement with Random House and the payments
received on notes due from stockholders, offset in part by capital lease
payments.

Based on the Companys currently proposed plans and assumptions related to
the implementation of its business plan, including a reduction of staff costs
as a result of the July 2001 streamlining initiative, we believe that our
current cash and cash equivalents will be sufficient to meet our anticipated
cash requirements through 2002. However, any projection of future revenues and
costs is subject to a level of uncertainty. If current cash and cash
equivalents are insufficient to satisfy our liquidity requirements through
2002, we will need to raise additional funds through public or private
financing or other arrangements. No assurance can be given that such
additional financing, when needed, will be available on terms favorable to us
or to our stockholders, if at all, and that such financing would not be
antidilutive to our stockholders.

New Accounting Standards

In the second quarter of 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities. In September
2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities-an Amendment of FASB Statement No.
133. SFAS No. 133 and SFAS No. 138 require an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Gains or losses
resulting from changes in the values of those derivatives are accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company currently does not use derivative instruments and as
such the adoption of SFAS No. 133 and SFAS No. 138 on January 1, 2001, had no
effect on the Companys financial position, results of operations or cash
flows.

In July 2001, the Financial Accounting Standards Board issued FASB
Statements Nos. 141 and 142 (SFAS 141 and SFAS 142) Business Combinations and
Goodwill and Other Intangible Assets. SFAS 141 replaces Accounting
Principles Board Opinion No. 16 (APB 16) Business Combinations, and
eliminates pooling-of-interests accounting prospectively. It also provides
guidance on purchase accounting related to the recognition of intangible assets
and accounting for negative goodwill. SFAS 141 changes the accounting for
goodwill from an amortization method to an impairment-only approach. Under SFAS
142, goodwill will be tested annually and whenever events or circumstances
occur indicating that goodwill might be impaired. SFAS 141 and SFAS 142 are
effective for all business combinations initiated and announced after June 30,
2001. Upon adoption of SFAS 142, amortization of goodwill recorded for business
combinations consummated prior to July 1, 2001 will cease, and intangible
assets acquired prior to July 1, 2001 that do not meet the criteria for
recognition under SFAS 141 will be reclassified to goodwill. Companies are
required to adopt SFAS 142 for fiscal years beginning after December 15, 2001.
In connection with the adoption of SFAS 142, companies will be required to
perform a transitional goodwill impairment assessment. The Company believes
that the adoption of SFAS No. 142 beginning on January 1, 2002, will have no
effect on the Companys financial position, and results of operations.

In October 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144 (SFAS 144) Accounting for the Impairment or Disposal of
Long-Lived Assets. This statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. This statement supercedes
Statement No. 121 Accounting for the Impairment of Long-Lived Assets and for
Long-Lives Assets to be Disposed Of. SFAS 144 is required to be adopted
beginning January 1, 2002. We have not determined the impact, if any, the
adoption of SFAS No. 144 will have on our financial position or results of
operation.

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ITEM 3. Qualitative and Quantitative Disclosure about Market Risk

We do not have operations subject to risk of foreign currency fluctuations, nor
do we use derivative financial instruments in our operations or investment
portfolio.

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PART II  OTHER INFORMATION

ITEM 1. Legal Proceedings.

On May 21, 2001, a complaint was filed in the District Court of Larimer
County, Colorado on behalf
of a plaintiff who is under indictment for attempted fraud and extortion
against Audible, Inc. in early 2000. The Complaint alleges breach of contract,
promissory estoppel, fraud, unjust enrichment, breach of duty of good faith and
fair dealing, and outrageous conduct based on negotiations conducted over
the Internet with the assistance of the FBI in order to locate and arrest the
plaintiff. The damages sought include the items negotiated for (approximately
$107,000 in value), attorneys fees and costs, exemplary damages in an
unspecified amount, and punitive damages.
Audible has noticed the removal of the case to the Federal District Court for
Colorado based on diversity jurisdiction. If approved by the Federal Court,
the U.S. Attorneys Office seeking the plaintiffs conviction will assist
Audible in its efforts to stay the case until plaintiffs trial is concluded.
Audible then plans to seek dismissal of the case, either based upon the
plaintiffs conviction or the insufficiency of his claims.

In September 2001, the Company and certain of its officers, directors and
former directors, including Donald R. Katz, Andrew P. Kaplan, Richard Brass, R.
Bradford Burnham, W. Bingham Gordon, Thomas P. Hirschfeld, Winthrop Knowlton
and Timothy Mott, were named as defendants in several putative class actions
filed in the United
States District Court for the Southern District of New York. The investment
banking firms that were involved in the Companys 1999 initial public offering
(the IPO) have also been named as defendants. The gist of the plaintiffs
claims is that the underwriter defendants allegedly allocated the opportunity
to participate in the IPO by requiring their customers to pay kickbacks in
excess of the normal commissions and to make subsequent purchases in the after
market at prices in excess of the IPO price. Allegedly, the amounts of the
kickbacks were sometimes calculated as a percentage of the customers paper
profits over some specified period of time after the IPO. It is alleged that
these practices were not disclosed in the registration statement and prospectus
for the IPO and that, as a result, the defendants violated various provisions
of the federal securities laws. Certain of the complaints purport to set forth
claims on behalf of persons who acquired the Companys common stock from July
16, 1999 to September 11, 2001. One other complaint purports to represent a
class of persons who acquired the Companys common stock between July 16, 1999
and December 6, 2000. The complaints do not specify the amount of the
compensatory damages the plaintiffs are seeking, but the market loss at issue
was in excess of $50 million.

At this time, the Company and its counsel are still reviewing the
aforementioned complaints and expect that the cases will be consolidated into
one action. Given the early stage of the litigations, the Company is not in a
position to state any opinion as to their likely outcome. The Company
believes, however, that the claims against it have no merit and, more
specifically, contends that it and the individual defendants were not aware of
the alleged practices, if they occurred. The Company intends to vigorously
defend itself and its officers and directors.

ITEM 2. Changes in Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None

Report of Offering of Securities and Use of Proceeds Therefrom

In July 1999, we commenced and completed a firm commitment underwritten
initial public offering of 4,600,000 shares of our common stock at a price of
$9.00 per share. The shares were registered with the Securities and Exchange
Commission pursuant to a registration statement on Form S-1 (No. 333-76985),
which was declared effective on July 15, 1999. The public offering was
underwritten by a syndicate of underwriters led by Credit Suisse First Boston
Corporation, J. P. Morgan Securities Inc., Volpe Brown Whelan & Company, LLC
and Wit Capital Corporation as their representatives. After deducting
underwriting discounts and commissions of $2,898,000 and expenses of
$1,641,000, we received net proceeds of $36,856,000.

23



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##### 



During the three months ended September 30, 2001, we invested $5,567,000
of our funds in accordance with the use of proceeds in our Registration
Statement Form S-1. As of September 30, 2001, we have $9,649,000 in remaining
funds, which includes in part the $10,000,000 received from Microsoft in
February 2001 related to the sale of Series A Redeemable Convertible Preferred
Stock, which are currently in cash or cash equivalents. None of the net
proceeds of the offering were paid directly or indirectly to any of our
directors or officers, or their associates, or persons owning 10 percent or
more of any class of our equity securities.

ITEM 3. Defaults Upon Senior Securities

Inapplicable

ITEM 4. Submission of Matters to Vote of Security Holders

None

ITEM 5. Other Information

On October 26, 2001, the Company received a Nasdaq Staff Determination
letter indicating that the Company has failed to comply with the minimum Net
Tangible Assets requirement for continued listing, as set forth in Marketplace
Rule 4450(a)(3). Accordingly, the Companys securities are subject to
de-listing from the Nasdaq National Market. The Company has requested a hearing
before the National Listing Qualifications Panel to review the Staff
Determination. The request for a hearing will defer the de-listing of Audibles
common stock pending a decision by the panel. There can be no assurance the
panel will grant the Companys requests for continued listing. If the Companys
common stock is de-listed from the Nasdaq National Market, the Company expects
that its common stock will continue to be listed under the symbol of ADBL
and would trade on NASDs OTC Bulletin Board.

24



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ITEM 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

|             |  |                                                                                                                                                                                                                                                                                                                   
|------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1*         |  | Amended and Restated Certificate of Incorporation of Audible.                                                                                                                                                                                                                                                     
|3.1.1***     |  | Certificate of Designation of Designations, Limitations,
Restrictions And Relative Rights of the Series A Convertible
Preferred Stock of Audible, Inc.                                                                                                                                                            
|3.2*         |  | Amended and Restated Bylaws of Audible.                                                                                                                                                                                                                                                                           
|10.1+*       |  | License Agreement dated November 4, 1998, by and between Microsoft
Corporation and Audible.                                                                                                                                                                                                                       
|10.2+*       |  | Digital Rights Management Agreement dated November 4, 1998, between
Microsoft Corporation and Audible.                                                                                                                                                                                                            
|10.3+*       |  | Development Agreement dated November 12, 1998, by and between RealNetworks, Inc. and
Audible.                                                                                                                                                                                                                     
|10.4*        |  | RealMedia Architecture Partner Program Internet Agreement
dated November 12, 1998, between RealNetworks, Inc. and Audible.                                                                                                                                                                                        
|10.5*        |  | Master Lease Agreement dated November 19, 1996, by and between
Comdisco, Inc. as lessor, and Audible as lessee.                                                                                                                                                                                                   
|10.5.1*      |  | Addendum to Master Lease Agreement dated November 20, 1996, by and
between Comdisco, Inc., as lessor, and Audible, as lessee (relating
to Exhibit 10.5)                                                                                                                                                           
|10.8*
10.10* |  | Loan and Security Agreement dated April 6, 1998, by and
between Silicon Valley Bank, as lender,
and Audible, as borrower, for a revolving line of credit of up to $1,000,000.
Security and Loan Agreement dated November 20, 1996, between Audible, as borrower, and
Imperial Bank, as lender, for up to $500,000.
|10.14*       |  | Amended and Restated Registration Rights Agreement dated February 26, 1998, by and among
Audible and certain stockholders named therein.                                                                                                                                                                          
|10.14.1*     |  | Amendment No. 1 to Amended and Restated Registration Rights
Agreement dated December 18, 1998 (relating to Exhibit 10.14)                                                                                                                                                                                         
|10.14.2*     |  | Amendment No. 2 to Amended and Restated Registration Rights
Agreement dated June 17, 1999 (relating to Exhibit 10.14)                                                                                                                                                                                             
|10.15*       |  | 1999 Stock Incentive Plan.                                                                                                                                                                                                                                                                                        
|10.16*       |  | Form of Common Stock Warrants issued March 31, 1997 by Audible to various investors in
connection with the Series C preferred stock financing.                                                                                                                                                                    
|10.17*       |  | Form of Stock Restriction Agreement by and between Audible and the
Named Executive Officers
made in connection with various purchases and sales of shares
of restricted common stock.                                                                                                                             
|10.18*       |  | Form of Promissory Note made by the Named Executive Officers in
favor of Audible in connection with various purchases and sales of
shares of restricted common stock.                                                                                                                                             
|10.19*       |  | Office Lease dated September 20, 1997, by and between Audible, as
tenant, and Passaic Investment LLC, Sixty-Five Willowbrook
Investment LLC and Wayne Investment LLC, as tenants-in-common, as
landlord.                                                                                                          
|10.20*       |  | Sublease Agreement dated July 19, 1996, by and between Audible, as
sublessee, and Painewebber
Incorporated, as sublessor.                                                                                                                                                                                         
|10.21+*      |  | Agreement dated April 3, 1999 by and between Audible and Diamond Multimedia Systems, Inc.                                                                                                                                                                                                                         
|10.22*       |  | Common Stock Purchase Warrant, issued April 22, 1999, to Microsoft Corporation.                                                                                                                                                                                                                                   
|10.23*       |  | Employment Offer Letter from Audible to Guy Story dated September 10, 1996                                                                                                                                                                                                                                        
|10.24*       |  | Employment Offer Letter from Audible to Brian Fielding dated April 25, 1997.                                                                                                                                                                                                                                      
|10.25        |  | Omitted.                                                                                                                                                                                                                                                                                                          
|10.26*       |  | Employment Offer Letter from Audible to Andrew Kaplan dated May 25, 1999.                                                                                                                                                                                                                                         
|10.27        |  | Omitted.                                                                                                                                                                                                                                                                                                          
|10.28**      |  | Warrant Agreement to purchase 10,000 shares of Common Stock at a
price of $7.65 per share, dated October 8, 1999, issued by Audible to
National Public Radio, Inc.                                                                                                                                                
|10.29*       |  | Common Stock Purchase Warrant, W-1, issued June 17, 1999, to Robin Williams.                                                                                                                                                                                                                                      
|10.30*       |  | Common Stock Purchase Warrant, W-2, issued June 17, 1999, to Robin Williams.                                                                                                                                                                                                                                      

25



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|          |  |                                                                                                                                                                                            
|--------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.30.1## |  | Amendment No. 1 to Common Stock Purchase Warrant, W-2, issued
January 25, 2001, to Robin Williams (relating to Exhibit 10.30)                                                              
|10.31++#  |  | Securities Purchase Agreement dated January 30, 2000, by and
between Audible and Amazon.com Commerce Services, Inc.                                                                        
|10.32++#  |  | Co-Branding, Marketing and Distribution Agreement dated January
30, 2000, by and between Audible and Amazon.com Commerce Services,
Inc.                                                    
|10.33***  |  | Series A Convertible Preferred Stock Purchase Agreement by and
between Audible Inc. and Microsoft Corporation dated as of February
8, 2001.                                                
|10.34++## |  | Amendment No. 1 to Co-Branding, Marketing and Distribution
Agreement dated as of January 24, 2001 by and between Amazon.com
Commerce Services, Inc. and Audible (relating to Exhibit 10.32)



|*   |  | Incorporated by reference from the Companys Registration
Statement on Form S-1 (No. 333-76985).                                                                                                                                            
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Incorporated by reference from the Companys Form 10K/A for the
fiscal year ended December 31, 1999.                                                                                                                                        
|   
|*** |  | Incorporated by reference from the Companys Form 10-K for the
fiscal year ended December 31, 2000.                                                                                                                                         
|   
|#   |  | Incorporated by reference from the Companys Form 10-Q for the
quarterly period ended September 30, 2000.                                                                                                                                   
|   
|##  |  | Incorporated by reference from the Companys Form 10-Q for the
quarterly period ended June 30, 2001.                                                                                                                                        
|   
|+   |  | Portions of these Exhibits were omitted and have been filed
separately with the Secretary of the Commission pursuant to the
Companys Application requesting Confidential Treatment under Rule
406 of the Securities Act of 1933.           
|   
|++  |  | Portions of these Exhibits were omitted and have been filed
separately with the Secretary of the Commission pursuant to the
Companys Application requesting Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934.

(b)  Reports on Form 8-K



| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company filed a Current Report on Form 8-K on July 24, 2001,
reporting under Item 5 that Donald R. Katz was appointed Chief Executive
Officer and Robert Kramer was appointed President. Thomas Baxter, the former
Chief Executive Officer and President, will continue to serve on the
Companys Board of Directors.

26



---



##### 



SIGNATURES

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

| |                |                                                                                                                     
| | -------------- | --------------------------------------------------------------------------------------------------------------------
| | AUDIBLE, INC. 
|
| | By:Name:Title: | /s/ Andrew P KaplanAndrew P.  Kaplan
Chief Financial Officer and
Executive Vice President, Finance andAdministration

Dated: November 14, 2001

27