##### 



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

|           |  |                                                    
|---------- |  | ---------------------------------------------------
|(Mark One) |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|[x]        |  | THE SECURITIES EXCHANGE ACT OF 1934                

For the quarterly period ended March 31, 2002

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

(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 May 10, 2002, 31,627,869 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 March 31, 2002 (unaudited)
and December 31, 2001                   |      | 3 
|           |  | Condensed Statements of Operations for the three
months ended March 31, 2002 and 2001 (unaudited) |      | 4 
|           |  | Condensed Statements of Cash Flows for the three months ended
March 31, 2002 and 2001 (unaudited) |      | 5 
|           |  | Notes to Condensed Financial Statements                                                           |      | 6 
|Item 2.    |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations             |      | 15
|Item 3.    |  | Qualitative and Quantitative Disclosure
about Market Risk                                         |      | 23
|PART II -  |  | OTHER INFORMATION                                                                                 |      |   
|Item 1.    |  | Legal Proceedings                                                                                 |      | 24
|Item 2.    |  | Changes in Securities                                                                             |      | 24
|Item 3.    |  | Defaults Upon Senior Securities                                                                   |      | 25
|Item 4.    |  | Submission of Matters to a Vote of Securities Holders                                             |      | 25
|Item 5.    |  | Other Information                                                                                 |      | 25
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                  |      | 26
|Signatures |  |                                                                                                   |      | 29

2



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##### 



PART I  FINANCIAL INFORMATION

ITEM 1.    Financial Statements

AUDIBLE, INC.
CONDENSED BALANCE SHEETS
___________________

|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                   |            |   |            | 
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | --------- | ----------------------------------------------------------- | ---------- | -------------- | ---------- | ----------------- | ---------- | - | ---------- | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            | March 31, 2002 |            | December 31, 2001
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|Assets                                            |                                                                                                                                                                                    | (unaudited)                                                                                                                            |           |                                                             |            |               
|                                                 
|Current assets:                                   |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Cash and cash equivalents                                   |            | $              | 8,487,689  |                   |            | $ | 7,627,802  | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Accounts receivable, net                                    |            |                | 137,690    |                   |            |   | 153,122    | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Royalty advances                                            |            |                | 30,639     |                   |            |   | 56,682     | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Prepaid expenses and other current assets                   |            |                | 590,966    |                   |            |   | 661,192    | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Inventory                                                   |            |                | 171,419    |                   |            |   | 449,220    | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Note receivable due from stockholder, current               |            |                | 15,000     |                   |            |   | 10,000     | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Total current assets                                        |            |                | 9,433,403  |                   |            |   | 8,958,018  | 
|Property and equipment, net                       |                                                                                                                                                                                    |                                                                                                                                        | 1,565,028 |                                                             |            |                | 1,990,670  |                  
|Note receivable due from stockholder, non current |                                                                                                                                                                                    |                                                                                                                                        | 30,000    |                                                             |            |                | 35,000     |                  
|Other assets                                      |                                                                                                                                                                                    |                                                                                                                                        | 15,805    |                                                             |            |                | 15,805     |                  
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Total assets                                                |            | $              | 11,044,236 |                   |            | $ | 10,999,493 | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                   |            |   |            | 
|Liabilities and Stockholders Deficit             |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|Current liabilities:                              |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Accounts payable                                            |            | $              | 1,512,982  |                   |            | $ | 1,519,586  | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Accrued expenses and compensation                           |            |                | 2,548,402  |                   |            |   | 2,345,288  | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Royalty obligations, current                                |            |                | 776,200    |                   |            |   | 896,950    | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Advances, current                                           |            |                | 357,563    |                   |            |   | 517,813    | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Accrued dividends on redeemable convertible preferred stock |            |                | 1,057,557  |                   |            |   | 730,612    | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Total current liabilities                                   |            |                | 6,252,704  |                   |            |   | 6,010,249  | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                   |            |   |            | 
|Deferred cash compensation                        |                                                                                                                                                                                    |                                                                                                                                        | 93,550    |                                                             |            |                | 93,550     |                  
|Royalty obligations, non current                  |                                                                                                                                                                                    |                                                                                                                                        | 20,500    |                                                             |            |                | 48,500     |                  
|Advances, non current                             |                                                                                                                                                                                    |                                                                                                                                        | 63,197    |                                                             |            |                | 77,780     |                  
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                   |            |   |            | 
|Redeemable convertible preferred stock;           |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|                                                  |                                                                                                                                                                                    | Series A, par value $.01, 4,500,000 shares authorized,
2,751,707 shares issued and outstanding at March 31, 2002 and
December 31, 2001 |           |                                                             | 10,318,902 |                |            |                   | 10,318,902 |  
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                   |            |   |            | 
|Stockholders deficit:                            |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|                                                  | Common stock, par value $.01. 75,000,000 shares authorized
and 31,627,869 shares issued at March 31, 2002;
50,000,000 shares authorized and 27,546,989 issued at
December 31, 2001 |                                                                                                                                        |           | 316,279                                                     |            |                |            | 275,470           |           
|                                                  | Additional paid-in capital                                                                                                                                                         |                                                                                                                                        |           | 97,132,333                                                  |            |                |            | 93,728,564        |           
|                                                  | Deferred compensation and services                                                                                                                                                 |                                                                                                                                        |           | (4,560,989                                                  | )          |                |            | (5,884,267        | )         
|                                                  | Notes due from stockholders for common stock                                                                                                                                       |                                                                                                                                        |           | (294,456                                                    | )          |                |            | (294,456          | )         
|                                                  | Treasury stock at cost: 676,725 shares of common stock at
March 31, 2002 and December 31, 2001                                                                                     |                                                                                                                                        |           | (179,990                                                    | )          |                |            | (179,990          | )         
|                                                  | Accumulated deficit                                                                                                                                                                |                                                                                                                                        |           | (98,117,794                                                 | )          |                |            | (93,194,809       | )         
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|                                                  | Total stockholders deficit                                                                                                                                                        |                                                                                                                                        |           | (5,704,617                                                  | )          |                |            | (5,549,488        | )         
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                   |            |   |            | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           | Total liabilities and stockholders deficit                 |            | $              | 11,044,236 |                   |            | $ | 10,999,493 | 
|                                                  |                                                                                                                                                                                    |                                                                                                                                        |           |                                                             |            |                |            |                  

See accompanying notes to condensed financial statements.

3



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##### 



AUDIBLE, INC.
CONDENSED STATEMENTS OF OPERATIONS

___________________

|                                                |                                      |                  |                          |           |                    |           |             |           |         |           | 
|----------------------------------------------- | ------------------------------------ | ---------------- | ------------------------ | --------- | ------------------ | --------- | ----------- | --------- | ------- | --------- | 
|                                                |                                      |                  |                          |           | Three Months Ended
|                                                |                                      |                  |                          |           | March 31,         
|                                                |                                      |                  |                          |           |                   
|                                                |                                      |                  |                          |           | 2002               |           | 2001       
|                                                |                                      |                  |                          |           |                    |           |            
|                                                |                                      |                  |                          |           | (unaudited)        |           | (unaudited)
|                                               
|Revenue, net:                                   |                                      |                  |                          |           |                    |           |             |          
|                                                | Content and services                 |                  |                          |           |                    |           |             |           |        
|                                                |                                      | Consumer content |                          | $         | 2,010,971          |           |             | $         | 881,912 |          
|                                                |                                      | Services         |                          |           | 174,694            |           |             |           | 288,700 |          
|                                                |                                      | Bulk content     |                          |           |                   |           |             |           | 150,000 |          
|                                                |                                      |                  |                          |           |                    |           |             |          
|                                                | Total content and services           |                  |                          | 2,185,665 |                    |           |             | 1,320,612 |        
|                                                | Hardware                             |                  |                          | 345,947   |                    |           |             | 653,903   |        
|                                                | Other                                |                  |                          | 16,126    |                    |           |             | 208,062   |        
|                                                |                                      |                  |                          |           |                    |           |             |          
|                                                |                                      |                  | Total revenue, net       |           |                    | 2,547,738 |             |           |         | 2,182,577 | 
|                                                |                                      |                  |                          |           |                    |           |             |          
|Operating expenses:                             |                                      |                  |                          |           |                    |           |             |          
|                                                | Cost of content and services revenue |                  |                          | 967,928   |                    |           |             | 1,304,195 |        
|                                                | Cost of hardware revenue             |                  |                          | 663,928   |                    |           |             | 962,990   |        
|                                                | Production                           |                  |                          | 1,028,818 |                    |           |             | 1,658,050 |        
|                                                | Development                          |                  |                          | 521,523   |                    |           |             | 879,474   |        
|                                                | Sales and marketing                  |                  |                          | 3,039,994 |                    |           |             | 3,748,622 |        
|                                                | General and administrative           |                  |                          | 951,393   |                    |           |             | 1,339,789 |        
|                                                |                                      |                  |                          |           |                    |           |             |          
|                                                |                                      |                  | Total operating expenses |           |                    | 7,173,584 |             |           |         | 9,893,120 | 
|                                                |                                      |                  |                          |           |                    |           |             |          
|                                                |                                      |                  |                          |           |                    |           |             |           |         |           | 
|Loss from operations                            |                                      |                  | (4,625,846               | )         |                    |           | (7,710,543  | )        
|                                                |                                      |                  |                          |           |                    |           |             |           |         |           | 
|Other income, net                               |                                      |                  | (29,806                  | )         |                    |           | (235,621    | )        
|                                                |                                      |                  |                          |           |                    |           |             |          
|Net loss                                        |                                      |                  | (4,596,040               | )         |                    |           | (7,474,922  | )        
|Accrued dividends on redeemable preferred stock |                                      |                  | 326,945                  |           |                    |           | 170,958     |          
|                                                |                                      |                  |                          |           |                    |           |             |          
|Net loss applicable to common stockholders      |                                      | $                | (4,922,985               | )         |                    | $         | (7,645,880  | )        
|                                                |                                      |                  |                          |           |                    |           |             |          
|                                                |                                      |                  |                          |           |                    |           |             |           |         |           | 
|Basic and diluted net loss per common share     |                                      | $                | (0.17                    | )         |                    | $         | (0.28       | )        
|                                                |                                      |                  |                          |           |                    |           |             |          
|                                                |                                      |                  |                          |           |                    |           |             |           |         |           | 
|Weighted average common shares outstanding      |                                      |                  | 29,140,383               |           |                    |           | 26,995,860  |          
|                                                |                                      |                  |                          |           |                    |           |             |          

See accompanying notes to condensed financial statements.

4



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##### 



AUDIBLE, INC.
CONDENSED STATEMENTS OF CASH FLOWS

___________________

|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |             |           |          |            |  
|------------------------------------------------ | --------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------- | ------------------------------------------------ | --------- | ------------------ | ---------- | ----------- | --------- | -------- | ---------- | -
|                                                 |                                                                             |                                                 |                                               |                                                  |           | Three months Ended
|                                                 |                                                                             |                                                 |                                               |                                                  |           | March 31,         
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                   
|                                                 |                                                                             |                                                 |                                               |                                                  |           | 2002               |            | 2001       
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|                                                 |                                                                             |                                                 |                                               |                                                  |           | (unaudited)        |            | (unaudited)
|                                                
|Cash flows from operating activities:            |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|                                                 | Net loss                                                                    |                                                 | $                                             | (4,596,040                                       | )         |                    | $          | (7,474,922  | )        
|                                                 | Adjustments to reconcile net loss to net cash used in operating activities: |                                                 |                                               |                                                  |           |                    |            |             |          
|                                                 |                                                                             | Depreciation and amortization                   |                                               |                                                  | 432,837   |                    |            |             | 427,754   |         
|                                                 |                                                                             | Services rendered for common stock and warrants |                                               |                                                  | 1,529,772 |                    |            |             | 2,364,923 |         
|                                                 |                                                                             | Non-cash compensation charges                   |                                               |                                                  | 73,278    |                    |            |             | 92,350    |         
|                                                 |                                                                             | Deferred cash compensation                      |                                               |                                                  |          |                    |            |             | (54,347   | )       
|                                                 |                                                                             | Changes in assets and liabilities:              |                                               |                                                  |           |                    |            |             |           |         
|                                                 |                                                                             |                                                 | Interest receivable on short-term investments |                                                  |           | (602               | )          |             |           | 95,336   |           
|                                                 |                                                                             |                                                 | Accounts receivable, net                      |                                                  |           | 15,432             |            |             |           | (199,363 | )         
|                                                 |                                                                             |                                                 | Royalty advances                              |                                                  |           | 26,043             |            |             |           | 175,227  |           
|                                                 |                                                                             |                                                 | Prepaid expenses and other current assets     |                                                  |           | 70,828             |            |             |           | 12,297   |           
|                                                 |                                                                             |                                                 | Inventory                                     |                                                  |           | 277,801            |            |             |           | (97,613  | )         
|                                                 |                                                                             |                                                 | Other assets                                  |                                                  |           |                   |            |             |           | 8,774    |           
|                                                 |                                                                             |                                                 | Accounts payable                              |                                                  |           | (6,604             | )          |             |           | 92,782   |           
|                                                 |                                                                             |                                                 | Accrued expenses and compensation             |                                                  |           | 203,114            |            |             |           | (54,772  | )         
|                                                 |                                                                             |                                                 | Royalty obligations                           |                                                  |           | (148,750           | )          |             |           | (331,250 | )         
|                                                 |                                                                             |                                                 | Advances                                      |                                                  |           | (174,833           | )          |             |           | (229,196 | )         
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|                                                 |                                                                             |                                                 |                                               | Net cash used in operating activities            |           |                    | (2,297,724 | )           |           |          | (5,172,020 | )
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|Cash flows from investing activities:            |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|                                                 | Purchases of property and equipment                                         |                                                 |                                               | (7,195                                           | )         |                    |            | (128,763    | )        
|                                                 | Redemptions of short-term investments, net                                  |                                                 |                                               |                                                 |           |                    |            | 1,957,733   |          
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|                                                 |                                                                             |                                                 |                                               | Net cash (used) provided by investing activities |           |                    | (7,195     | )           |           |          | 1,828,970  |  
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|Cash flows from financing activities:            |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|                                                 | Proceeds from issuance of Series A redeemable convertible preferred stock   |                                                 |                                               |                                                 |           |                    |            | 10,000,000  |          
|                                                 | Proceeds from sale of common stock, net of issuance costs                   |                                                 |                                               | 3,159,250                                        |           |                    |            |            |          
|                                                 | Proceeds from exercise of common stock options                              |                                                 |                                               | 5,556                                            |           |                    |            |            |          
|                                                 | Payments received on notes due from stockholders for common stock           |                                                 |                                               |                                                 |           |                    |            | 21,502      |          
|                                                 | Payment of principal on obligations under capital leases                    |                                                 |                                               |                                                 |           |                    |            | (26,265     | )        
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|                                                 |                                                                             |                                                 |                                               | Net cash provided by financing activities        |           |                    | 3,164,806  |             |           |          | 9,995,237  |  
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |             |           |          |            |  
|                                                 |                                                                             |                                                 |                                               | Increase in cash and cash equivalents            |           |                    | 859,887    |             |           |          | 6,652,187  |  
|Cash and cash equivalents at beginning of period |                                                                             |                                                 | 7,627,802                                     |                                                  |           |                    | 14,149,027 |            
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |            
|Cash and cash equivalents at end of period       |                                                                             | $                                               | 8,487,689                                     |                                                  |           | $                  | 20,801,214 |            
|                                                 |                                                                             |                                                 |                                               |                                                  |           |                    |            |            

See accompanying notes to condensed financial statements.

5



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2002 and 2001
(unaudited)

(1)  Summary of Significant Accounting Policies

Basis of Presentation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The accompanying condensed financial statements as of March 31, 2002,
and for the three months ended March 31, 2002 and 2001, 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
months ended March 31, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002. These financial
statements should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 31, 2001, from the
Companys Annual Report on Form 10-K.

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 12 months. The Company delivered the
bulk content prior to September 30, 2001, and accordingly, recorded bulk
content revenue of $285,048 in the period ended September 30, 2001. As of
March 31, 2002, $142,524 of the acquired advertising had been expensed and
the balance of $142,524 is included in Prepaid Expenses on the accompanying
March 31, 2002 Balance Sheet.

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.

6



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2002 and 2001
(unaudited)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Diluted net loss per common share for the three months ended March 31,
2002 does not include the effects of outstanding options to purchase
8,089,150 shares of common stock; warrants outstanding to purchase
3,482,271 shares of common stock; and 11,095,708 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 months ended March
31, 2001 does not include the effects of options to purchase 3,926,650
shares of common stock, and warrants to purchase 2,378,654 shares of common
stock, and 10,666,664 shares of common stock on conversion of outstanding
Series A 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 2001, 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 2001 and was
recording the compensation expense straight-line over the vesting term. The
offer to purchase these shares was rescinded in August 2001, and the CEO did
not purchase any of the offered shares. In August 2001, 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
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 reversed the remaining unexpensed deferred compensation
against additional paid-in-capital.

7



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2002 and 2001
(unaudited)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 reversed the remaining unexpensed deferred compensation against
paid-in-capital.
|
| | During the three months ended March 31, 2002 and 2001, $73,278 and
$92,350, respectively, of compensation expense was recognized related to
these transactions. During the three months ended March 31, 2001, $23,431 of
deferred compensation was reversed against paid-in capital related to
unvested options forfeited due to employees leaving the Company. No such
forfeitures occurred during the three months ended March 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | 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 March 31,
2002, options to purchase 8,089,150 common stock shares were outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | In February 2002, the Company issued 4,069,768 shares of common stock
in connection with an investment in the Company made by Special Situations
Funds (see note 10). During the three months ended March 31, 2002, the
Company issued 11,112 shares of common stock in connection with the exercise
of employee stock options. During the three months ended March 31, 2001, no shares
of common stock were issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | In March 2002, at a special meeting of stockholders of Audible Inc.,
the Company increased the number of shares of common stock authorized from
50,000,000 to 75,000,000. As of March 31, 2002 and December 31, 2001, the
Company had issued 31,627,869 and 27,546,989 shares of common stock,
respectively. As of March 31, 2002 and December 31, 2001, the Company had
3,482,271 and 2,455,654 shares of common stock, respectively, reserved for
issuance upon exercise of outstanding common stock warrants, and 8,089,150
and 6,010,150 shares of common stock, respectively, reserved for issuance
upon exercise of outstanding options. As of March 31, 2002 and December 31,
2001, the Company had 11,095,708 and 11,006,828 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
March 31, 2002 and 2001
(unaudited)



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the three months ended March 31, 2002 and 2001, the Company
repurchased no shares and 69,270 shares of common stock, respectively, as
treasury shares by reducing the indebtedness under certain promissory notes
issued to the Company.

(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
was originally convertible into four shares of Common Stock, (equivalent to
a price of $.9375 per share), subject to adjustment under certain
conditions. As a result of the recent investment in the Company made by
Special Situations Funds, the conversion rate has been adjusted as per the
Stock Purchase Agreement to 4.0323 shares of Common Stock. 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. As of March 31, 2002, the Company had issued
85,041 shares of additional Series A shares covering the dividends payable
as of June 1, 2001. 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
months ended March 31, 2002 and 2001, $326,945 and $170,958, respectively,
related to the dividends has been accrued. Approximately $619,134 of unpaid
dividends were payable as of December 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
March 31, 2002 and 2001
(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 March 31, 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 March 31, 2002 and 2001, none and
$189,130, 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 March 31, 2002, 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 was 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 March 31, 2002 and 2001, 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.

(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
March 31, 2002 and 2001
(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 March 31, 2002
and 2001, $125,725 and $367,201, 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 each
of the three month periods ended March 31, 2002 and 2001, $43,200 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 March 31, 2001 and 2002, $1,250,000 and
$1,666,667, respectively, was recorded as a marketing expense, with the
non-cash credit to deferred services.

11



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2002 and 2001
(unaudited)



| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the three months ended March 31, 2002 and 2001, $312,500 and
$208,333, 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 March 31, 2002 and 2001,
$240,000 was recorded as a cost of content and services revenue related to
this contribution. On March 26, 2002, of the agreement was amended to waive the
cash payment due to Random House in 2002 of $1,250,000 in exchange for the
issuance of 1,250,000 shares of Series B Convertible Preferred Stock (see note
11). The original 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 March 31, 2002 and 2001,
$90,373 and $201,327, 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 March 31, 2002 was $45,000. The $5,000 payment due on
January 15, 2002 is still outstanding.

12



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2002 and 2001
(unaudited)

(9)  Contingencies



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In September 2001, the Company and certain of its officers, directors
and former directors, 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.
|
| | The cases have been consolidated and have been assigned to the same
judge who is handling virtually identical cases filed against hundreds
of other companies that completed initial public offerings between 1998
and 2000. The Company and the individual defendants have been given an
indefinite extension of time to respond to the complaints while the
plaintiffs focus on pursuing their claims against the underwriters. The
Company believes 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 and the
individual defendants have notified the underwriters who were involved
in the Companys IPO that they expect those underwriters to indemnify
them pursuant to the terms of the underwriting agreement between the
Company and the underwriters. The Company intends to vigorously defend
itself and the individual defendants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

(10) Special Situation Funds Investment



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On February 15, 2002, Special Situations Funds purchased 4,069,768
shares of common stock for $3,500,000 at a per share price of $0.86. Net
proceeds received by the Company was $3,159,000 after deducting direct costs
of $331,000 in finders fees and $10,000 in legal fees. In connection with
this transaction, the Company
issued warrants to purchase an additional 1,220,930 shares of common stock.
The warrants are exercisable at a price of $1.15 per share anytime prior to
the fifth anniversary of the issue date. The Company may demand the
warrantholder exercise its rights in the event that closing bid price of a
share of the Companys common
stock exceeds $2.30 for twenty consecutive trading sessions.

13



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##### 



AUDIBLE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2002 and 2001
(unaudited)

(11)  Subsequent Events



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 11, 2002, the Company issued 1,250,000 shares of Series B
Convertible Preferred Stock in connection with the March 26, 2002 amendment
to the Random House, Inc. Agreement dated May 5, 2000.
The agreement was amended to waive the cash payment due to Random House in
2002 of $1,250,000, thereby reducing the total cash payments due under the
agreement from $4,000,000 to $2,750,000. At any time on or after March 26,
2004, subject to certain conditions, all outstanding shares of Series B
Convertible Preferred Stock shall automatically convert to shares of common
stock at the then effective conversion price. Through March 31, 2002,
$1,250,000 of the $2,750,000 obligation had been paid, with the remaining
amount of $1,500,000 due in 2003 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | On April 29, 2002, the Company received a Nasdaq Listing Qualifications
letter advising the Company that its stock had closed below the $1.00 per
share requirement for the last 30 consecutive trading days. Accordingly, the
Companys securities are subject to de-listing from the Nasdaq National
Market for failure to comply with Marketplace Rule 4450(a)(5). In order to
regain compliance, the Companys common stock must close at $1.00 per share
or more for a minimum of 10 consecutive trading days within the next 90
calendar days, or by July 29, 2002. If compliance cannot be demonstrated by
July 29, 2002, Nasdaq will provide the Company with written notice that the
Companys securities will be delisted. At that time the Company may appeal
the determination to the Listing Qualifications 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.

14



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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 2001 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
audioversions 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 our
Web site. More than 32,000 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. We also sell at our web site our own digital audio player under
the brand name of Otis, which is manufactured to our specifications in Korea.
Customers can also access content products sold by Audible through
www.amazon.com. Several manufacturers, including Hewlett-Packard, Compaq
Computer Corporation, Sony Electronics, Handspring, 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 by including our Audible software on their
devices. We have announced our plans to add a CD burning feature to the Audible
service, enabling our customers to listen on their CD players.

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 consumer content has increased in each of the
last four quarters. We expect this trend to continue as we expand our customer
base. As of March 31, 2002, more than 143,000 customers in over 100 countries
had purchased content from our Web site.

Hardware revenue represents revenue from the sale of AudibleReady
hand-held electronic devices, primarily the Audible Otis. During the three
months ended March 31, 2002, hardware revenue accounted for 13% 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.

Our revenue is derived from three main categories: (1) content and
services revenue, which includes consumer content, corporate services, and bulk
content sales; (2) hardware revenue; and (3) other revenue.

15



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##### 



Consumer content revenue consists of content sales made from our website.
Revenue from the sale of individual content titles is recognized in the period
when the content is downloaded and the customers credit card is processed.
Revenue from the sale of content subscriptions is recognized pro rata over the
term of the subscription period. Revenue from the sale of AudibleListener
memberships is recognized straight-line each month the customer
participates in the program. Revenue from the sale of prepaid discounted
content packages and gift programs are recognized the earlier of when the
content is downloaded or expiration. Rebates are recorded as a reduction of
revenue over the period in which the related revenue is recognized.

Corporate service revenue consists of audio production services. Corporate
service revenue is recognized as services are performed after the agreement has
been finalized, the price is fixed, and collectibility is assured.
Collectibility is based on past transaction history and credit worthiness of
the customer. Under multiple element arrangements, the fair value of different
elements cannot usually be determined since we do not sell the items
separately, therefore revenue is recognized on a straight-line basis over the
term of the agreement.

Bulk content revenue consists of sales of negotiated numbers of
downloadable rights of selected content material to entities for their
distribution. Bulk content sales potentially allow for additional exposure of
our products through distribution channels not normally available to us. Bulk
content revenue is recognized after the agreement has been finalized, the price
is fixed, collectibility is assured and the content is delivered via either
CD-ROM or electronic transfer and accepted without further obligation on our
part. Collectibility is based on past transaction history and credit worthiness
of the customer.

Hardware revenue consists of sales of AudibleReady digital audio players
sold primarily at a discount when a customer signs up for a one year commitment
to our AudibleListener Membership. The discounted selling price of the hardware
device reflects the subsidy that we incur to acquire a customer with a one year
commitment to AudibleListener. Hardware revenue is recognized upon shipment of
the device, pursuant to a customer order and credit card authorization and
includes amounts received for shipping and handling.

Other revenue has consisted primarily of revenue recognized in connection
with our agreement with Microsoft, granting Microsoft the right to distribute
software platforms enabling users to access and use Audible content which ended
in April 2001. We recognized this revenue on a straight-line basis beginning in
the quarter ended September 30, 1999 through the term of the agreement which
ended in April 2001. Other revenue from a license granted for certain
technology rights to a device manufacturer is recognized on a straight-line
basis over the term of the agreement.

We are party to several joint marketing agreements with device
manufacturers such as Casio, Compaq, SONICblue Incorporateds Rio Audio Group
and Hewlett-Packard. 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.
The Company is the exclusive provider of digital spoken audio to Amazon.com, as
defined in the Co-Branding, Marketing and Distribution Agreement, as amended.
During the three-year term of this agreement, in consideration for certain
services, Amazon is entitled to $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.
The first $20,000,000 in payments due to Amazon.com under the amended
Co-Branding, Marketing and Distribution Agreement, were offset against the
$20,000,000 in consideration due to Audible for the purchase of common stock
and no cash was exchanged. Of the remaining $2,500,000 due in cash to
Amazon.com under the agreement, $1,000,000 has been paid through March 31,
2002
with the remaining $1,500,000 due in 2002, which includes a $375,000 unpaid
payment which was due on January 30, 2002.

16



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In May 2000, the Company entered into a 50-month Co-Publishing, Marketing,
and Distribution Agreement with Random House 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 will be 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. Over the term
of the agreement Audible will be contributing towards funding the acquisition
and creation of digital audio titles through Random House Audible. On March 26,
2002, the agreement was amended to waive the cash payment due to Random House
in 2002 of $1,250,000, thereby reducing the total payments due under the
agreement from $4,000,000 to $2,750,000. In exchange for this waiver, under the
amendment the Company on April 11, 2002, issued 1,250,000 shares of Series B
Convertible Preferred Stock. Through March 31, 2002, $1,250,000 of the
$2,750,000 obligation had been paid, with the remaining amount of
$1,500,000 due in 2003 and 2004.

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 was originally convertible into four
shares of Common Stock (equivalent to a price of $.9375 per share, which was
greater than the common stock price at the date of grant, therefore, there is
no beneficial conversion feature associated with these preferred shares),
subject to adjustment under certain conditions. As a result of the investment
in the Company made by Special Situations in February 2002, the conversions
rate has been adjusted as per the Stock Purchase Agreement to 4.0323 shares of
Common Stock. 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
a 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.

In February 2002, Special Situations Funds purchased 4,069,768 shares of
common stock for $3,500,000 at a per share price of $0.86. Net proceeds
received by the Company net of direct costs was $3,159,000. In connection with
this transaction, the Company issued warrants to purchase an additional
1,220,930 shares of common stock. The warrants are exercisable at a price of
$1.15 anytime prior to the fifty anniversary of the issue date. The Company may
demand the warrantholder exercise its rights in the event that closing bid
price of a share of the Companys common stock exceeds $2.30 for twenty
consecutive trading sessions.

17



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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 months ended March 31,
2002 and 2001.

|                                                |                                      |                  |      |                          |    |                 |      |             |    |   |     |  
|----------------------------------------------- | ------------------------------------ | ---------------- | ---- | ------------------------ | -- | --------------- | ---- | ----------- | -- | - | --- | -
|                                                |                                      |                  |      |                          |    | Three Months   
|                                                |                                      |                  |      |                          |    | Ended March 31,
|                                                |                                      |                  |      |                          |    |                
|                                                |                                      |                  |      |                          |    | 2002            |      | 2001       
|                                                |                                      |                  |      |                          |    | (unaudited)     |      | (unaudited)
|Revenue:                                        |                                      |                  |      |                          |    |                 |      |            
|                                                | Content and services:                |                  |      |                          |    |                 |      |             |   
|                                                |                                      | Consumer content |      |                          | 79 | %               |      |             | 40 | %
|                                                |                                      | Services         |      |                          | 7  |                 |      |             | 13 |  
|                                                |                                      | Bulk content     |      |                          |   |                 |      |             | 7  |  
|                                                |                                      |                  |      |                          |    |                 |      |            
|                                                | Total Content and services           |                  |      | 86                       |    |                 |      | 60          |   
|                                                | Hardware                             |                  |      | 13                       |    |                 |      | 30          |   
|                                                | Other                                |                  |      | 1                        |    |                 |      | 10          |   
|                                                |                                      |                  |      |                          |    |                 |      |            
|                                                |                                      |                  |      | Total revenue            |    |                 | 100  | %           |    |   | 100 | %
|                                                |                                      |                  |      |                          |    |                 |      |             |    |   |     |  
|Operating expenses:                             |                                      |                  |      |                          |    |                 |      |            
|                                                | Cost of content and services revenue |                  |      | 38                       |    |                 |      | 60          |   
|                                                | Cost of hardware revenue             |                  |      | 26                       |    |                 |      | 44          |   
|                                                | Production                           |                  |      | 40                       |    |                 |      | 76          |   
|                                                | Development                          |                  |      | 21                       |    |                 |      | 40          |   
|                                                | Sales and marketing                  |                  |      | 119                      |    |                 |      | 172         |   
|                                                | General and administrative           |                  |      | 37                       |    |                 |      | 61          |   
|                                                |                                      |                  |      |                          |    |                 |      |            
|                                                |                                      |                  |      | Total operating expenses |    |                 | 281  |             |    |   | 453 |  
|                                                |                                      |                  |      |                          |    |                 |      |            
|Loss from operations                            |                                      |                  | (181 | )                        |    |                 | (353 | )          
|                                                |                                      |                  |      |                          |    |                 |      |             |    |   |     |  
|                                                |                                      |                  |      |                          |    |                 |      |             |    |   |     |  
|                                                |                                      |                  |      | Other income, net        |    |                 | 1    |             |    |   | 11  |  
|                                                |                                      |                  |      |                          |    |                 |      |            
|Net loss                                        |                                      |                  | (180 | )                        |    |                 | (342 | )          
|Accrued dividends on redeemable preferred stock |                                      |                  | (13  | )                        |    |                 | 8    |            
|                                                |                                      |                  |      |                          |    |                 |      |            
|Net loss applicable to common stockholders      |                                      |                  | (193 | )%                       |    |                 | (350 | )%         
|                                                |                                      |                  |      |                          |    |                 |      |            

Three months ended March 31, 2002 compared to three months ended March 31, 2001.

Total revenue, net. Total revenue, net for the three months ended March
31, 2002 was $2,548,000, as compared to $2,183,000 for the three months ended
March 31, 2001, an increase of $365,000, or 17%.

Total Content and services revenue. Total content and services revenue
for the three months ended March 31, 2002 was $2,186,000, as compared to
$1,321,000 for the three months ended March 31, 2001, an increase of $865,000,
or 66%.

Consumer content. Consumer content revenue for the three months ended
March 31, 2002 was $2,011,000, as compared to $882,000 for the three months
ended March 31, 2001, an increase of $1,129,000, or 128%. This increase was
primarily the result of our customer base growing from 69,000 to over 143,000
customers.

18



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Services. Services revenue for the three months ended March 31, 2002
was $175,000, as compared to $289,000 for the three months ended March 31,
2001, a decrease of $114,000, or 39%. This decrease was primarily the result of
fewer corporate customers subscribing to the Audible service.

Bulk content. Bulk content revenue for the three months ended March 31,
2001 consisted of a bulk content cash sale of $150,000. There were no bulk
content sales during the three months ended March 31, 2002.

Hardware. Hardware revenue for the three months ended March 31, 2002
was $346,000, as compared to $654,000 for the three months ended March 31,
2001, a decrease of $308,000, or 47%. Hardware revenue decreased as a result
of selling AudibleReady hand-held electronic devices, primarily the Audible
Otis, 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 March 31, 2002, was
$16,000, as compared to $208,000 for the three months ended March 31, 2001.
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 enable users to access and use Audible
content. Other revenue for the three months ended March 31, 2002 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 $968,000, or 44% of content and services revenue, for the three
months ended March 31, 2002, as compared to $1,304,000, or 99% of content and
services revenue, for the three months ended March 31, 2001. Included in cost
of content and services revenue for the three month period ended March 31,
2001, was a charge of $206,000 to reflect the net realizable value of royalty
advances. There was no such adjustment necessary in the three month period
ended March 31, 2002. Cost of content and services revenue as a percentage of
content and services revenue decreased in the 2002 period due to the reduction
in the fixed content and services revenue costs such as amortization of royalty
advances as the advances become fully expensed.

Cost of hardware revenue. Cost of hardware revenue was $664,000, or
192% of hardware revenue, for the three months ended March 31, 2002, as
compared to $963,000, or 147% of hardware revenue, for the three months ended
March 31, 2001. This decrease was primarily due to reduced costs in acquiring
hand-held electronic devices in the 2002 versus the 2001 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 2002 period than in the 2001 period, when a customer enrolled in
AudibleListener for a 12-month period.

Production. Production expenses were $1,029,000 for the three months
ended March 31, 2002, as compared to $1,658,000 for the three months ended
March 31, 2001, a decrease of $629,000, or 38%. This decrease was primarily
due to a reduction in personnel costs as a result of our streamlining
initiative of July 23, 2001, reduced outside services, 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 expenses were $522,000 for the three months
ended March 31, 2002, as compared to $879,000 for the three months ended March
31, 2001, a decrease of $357,000, or 41%. This decrease was primarily due to
reduction in outside consultants as well as reduced personnel cost as a result
of our streamlining initiative of July 23, 2001.

Sales and marketing. Sales and marketing expenses were $3,040,000 for
the three months ended March 31, 2002, as compared to $3,749,000 for the three
months ended March 31, 2001, a decrease of $709,000, or 19%. This decrease was
primarily due to a reduction in certain costs in connection with our
Co-Branding, Marketing and Distribution Agreement with Amazon.com, as well as
lower expenses recognized in connection with warrants issued as part of a
services agreement.

19



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General and administrative. General and administrative expenses were
$951,000 for the three months ended March 31, 2002, as compared to $1,340,000
for the three months ended March 31, 2001, a decrease of $389,000, or 29%.
This decrease was primarily due to a reduction in personnel costs and decreased
professional fees.

Other income, net. Other income, net in both periods consisted of
interest income offset by interest expense. Interest income was $30,000 for
the three months ended March 31, 2002, as compared to $236,000 for the three
months ended March 31, 2001, a decrease of $206,000. 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 March 31, 2002, as compared to $1,000
for the three months ended March 31, 2001. This decrease was the result of the
expiration of the capital leases entered into for capital equipment.

Accrued dividends on redeemable preferred stock.Accrued dividends on
redeemable preferred stock was $327,000 for the three months ended March 31,
2002 as compared to $171,000 for the three months ended March 31, 2001. This
increase was due to a full three months expense in the 2002 period of 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 issued 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. These risks include our ability to:



| |  |  | acquire and retain customers;                                                                   
| | - |  | ------------------------------------------------------------------------------------------------
|
| |  |  | build awareness and acceptance of audible.com, the AudibleReady format and AudibleReady devices;
|
| |  |  | extend existing and acquire new content provider relationships;                                 
|
| |  |  | manage growth to stay competitive and fulfill customer demand; and                              
|
| |  |  | generate cash from operations and/or raise capital.                                             

If we fail to manage these risks successfully, it would materially adversely
affect our financial performance.

We have incurred significant losses since inception, and as of March 31,
2002, we had an accumulated deficit of approximately $98,118,000. 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 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) our ability to acquire
new customers; (5) our ability to retain existing customers; (6) the
introduction of new products or services by a competitor; (7) the cost and
availability of acquiring sufficient Web site capacity to meet our customers
needs; (8) technical difficulties with our computer system or the Internet or
system downtime; (9) the cost of acquiring audio content; (10) the amount and
timing of capital expenditures and other costs relating to the expansion of our
operations; and (11) general economic conditions and economic conditions
specific to electronic commerce and online media. In the past, we 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 our 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 that could cause
significant declines in our quarterly operating revenue.

20



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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.

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.

On February 15, 2002 Special Situations fund purchased 4,069,768 shares of
Common stock for $3,500,000 at a per share price of $0.86. Proceeds received by
the Company net of direct costs were approximately $3,159,000.

At March 31, 2002, our principal source of liquidity was approximately
$8,488,000 in cash and cash equivalents.

At March 31, 2002, our principal commitments consisted of obligations for
operating lease commitments, dividends payable to Microsoft in connection with
the sale of Series A Redeemable Convertible Preferred Stock, 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 three months ended March 31,
2002 was $2,298,000. Net cash used during the period was primarily
attributable to our net loss and a decrease in royalty obligations and
advances, offset in part by services rendered for common stock and warrants,
depreciation and amortization and a decrease in inventory. Net cash used in
operating activities for the three months ended March 31, 2001 was $5,172,000.
Net cash used during the 2001 period was primarily attributable to our net
loss, increases in accounts receivable, and a decrease in royalty obligations,
offset in part by services rendered for common stock, depreciation and
amortization.

Net cash used by investing activities for the three months ended March 31,
2001 was $7,000. Net cash used during the period was related to purchases of
property and equipment. Net cash provided by investing activities for the
three months ended March 31, 2001 was $1,829,000. 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 financing activities for the three months ended March
31, 2002 was $3,165,000 resulting from the investment in the Company by Special
Situations Funds of $3,159,000, net of direct costs, and the exercise of common
stock options by an employee. Net cash provided by financing activities for the
three months ended
March 31, 2001 was $9,995,000 resulting primarily from the sale of Series
A Redeemable Convertible Preferred

21



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Stock to Microsoft and payments received on
notes due from shareholders for common stock, offset in part by capital lease
payments.

Based on our currently proposed business plans and related assumptions, we
believe that our cash and cash equivalents balance, as well as the waiver of
cash payments of $1,250,000 due to Random House in exchanged for preferred
stock, will enable us to meet our anticipated cash requirements for operations
and capital expenditures through 2002. In the first quarter of 2003, we expect that additional cash will be required to finance continued growth of the business. However, any projection of future
revenues is subject to a level of uncertainty. If planned revenues are
insufficient to satisfy our liquidity requirements in 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 July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations (SFAS
141), and Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142).
SFAS 141 requires that the purchase method of accounting be used for all
business combinations. SFAS 141 also specifies criteria that intangible assets
acquired in a purchase method business combination must meet to be recognized
and reported separately from goodwill. SFAS 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 will also require that intangible assets with
definite useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and reviewed for impairment in accordance
with SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets.

The Company adopted the provisions of SFAS 141 effective July 1, 2001. The
adoption of SFAS 141 had no effect on the Companys financial position or
results of operations. SFAS 142 was effective for the Company beginning January
1, 2002, and had no impact on the Companys financial position or results of
operations.

In August 2001, the Financial Accounting Standards Board issued SFAS No.
144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144), which supercedes both SFAS No. 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(Opinion 30), for the disposal of a segment of a business (as previously
defined in that Opinion). SFAS 144 retains the fundamental provisions in SFAS
121 for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with SFAS 121. SFAS 144 retains
the basic provisions of Opinion 30 on how to present discontinued operations in
the income statement but broadens that presentation to include a component of
entity (rather than a segment of a business). Unlike SFAS 121, an impairment
assessment under SFAS 144 will never result in a write-down of goodwill.
Rather, goodwill is evaluated for impairment under SFAS 142.

The Company adopted SFAS 144 on January 1, 2002 and the adoption of SFAS
144 had no impact on the financial statements or results of operations.

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.

22



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PART II  OTHER INFORMATION

ITEM 1.    Legal Proceedings.

In September 2001, the Company and certain of its officers, directors and
former directors, 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.

The cases have been consolidated and have been assigned to the same
judge who is handling virtually identical cases filed against hundreds of
other companies that completed initial public offerings between 1998 and
2000. The Company and the individual defendants have been given an
indefinite extension of time to respond to the complaints while the
plaintiffs focus on pursuing their claims against the underwriters. The
Company believes 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 and the individual
defendants have notified the underwriters who were involved in the
Companys IPO that they expect those underwriters to indemnify them
pursuant to the terms of the underwriting agreement between the Company and
the underwriters. The Company intends to vigorously defend itself and the
individual defendants.

ITEM 2.    Changes in Securities and Use of Proceeds

Recent Sales of Unregistered Securities

On February 15, 2002, the Company sold 4,069,768 shares of common stock to
Special Situations Funds for $3,500,0000, at a per share price of $0.86. The
securities were offered and sold by the Company in reliance upon an exemption
from registration pursuant to Section 4(2) of the Securities Act as
transactions not involving any public offering.

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 March 31, 2002, we invested $2,299,000 of
our funds in accordance with the use of proceeds in our Registration Statement
Form S-1. As of March 31, 2002, we have $8,488,000 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, and the
$3,159,000 net of direct costs received from the Special Situations Funs
investment in our Company. These remaining fund 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

|    |  |                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The Company held a Special Meeting of Stockholders on March 12, 2002.                                                                                                                                                                                                                                                                                                           
|(b) |  | n/a                                                                                                                                                                                                                                                                                                                                                                             
|(c) |  | The following matter was voted upon at the Special Meeting:                                                                                                                                                                                                                                                                                                                     
|    |  | (i) to approve an amendment to the Companys Amended and Restated
Certificate of Incorporation to increase the number of authorized shares
of common stock, par value $0.01 per share, from 50,000,000 shares to
75,000,000 shares, with 66% of the common stock present and voting at the
meeting. (Votes for: 20,543,024; votes against or withheld: 286,250;
abstain; 38,475)

ITEM 5.    Other Information

On April 29, 2002, the Company received a Nasdaq Listing Qualifications
letter advising the Company that its stock had closed below the $1.00 per
share requirement for the last 30 consecutive trading days. Accordingly, the
Companys securities are subject to de-listing from the Nasdaq National Market
for failure to comply with Marketplace Rule 4450(a)(5). In order to regain
compliance, the Companys common stock must close at $1.00 per share or more
for a minimum of 10 consecutive trading days within the next 90 calendar days,
or by July 29, 2002. If compliance cannot be demonstrated by July 29, 2002,
Nasdaq will provide the Company with written notice that the Companys
securities will be delisted. At that time the Company may appeal the
determination to the Listing Qualifications 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.

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.
|3.1.2 !  |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation.                                                                    
|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                                                          

24



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|          |  |                                                                                                                                                                                                                                                         
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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*     |  | 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                                                                            
|10.10*    |  | 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                                                                                                                                                                             
|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, 2001, by and
between Audible and Amazon.com Commerce Services, Inc.                                                                                                                                     
|10.32++#  |  | Co-Branding, Marketing and Distribution Agreement dated January
30, 2001, 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)                                                             
|10.35!    |  | Securities Purchase Agreement dated January 25, 2002 by and
between Audible Inc., and Special Situations Fund III, L.P., Special
Situations Cayman Fund, L.P., Special Situations Private Equity Fund,
L.P. and Special Situations Technology Fund, L.P.

25



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|       |  |                                                                                                                                                                                                                                                         
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.36! |  | Registration Rights Agreement dated January 25, 2002 by and
between Audible Inc., and Special Situations Fund III, L.P., Special
Situations Cayman Fund, L.P., Special Situations Private Equity Fund,
L.P. and Special Situations Technology Fund, L.P.
|10.37! |  | Form of Common Stock Warrant issued in connection with the
sale of common stock to Special Situation Funds.                                                                                                                                             
|*      |  | 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                                                                                                                                                     
|###    |  | Incorporated by reference from the Companys Form 10-Q for the
quarterly period ended September 30, 2001                                                                                                                                                
|!      |  | Incorporated by reference from the Companys Form 10-K for the
fiscal year ended December 31, 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

None.

26



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##### 



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:    |  | /s/Andrew P. Kaplan        
| |  | Name:  |  | Andrew P. Kaplan           
| |  | Title: |  | Chief Financial Officer and
| |  |        |  | Executive Vice President,  
| |  |        |  | Finance and Administration 

Dated: May 14, 2002

27