<PAGE>   1
                       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 JUNE 30, 2001

                                       OR

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

             FOR THE TRANSITION PERIOD FROM _________ TO __________

                        COMMISSION FILE NUMBER: 000-26529

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

<TABLE>
<S>                                                  <C>
                 DELAWARE                                    22-3407945
     (State or other jurisdiction of                      (I.R.S. employer
      incorporation or organization)                   identification number)

           65 WILLOWBROOK BLVD.
            WAYNE, NEW JERSEY                                  07470
 (Address of principal executive offices)                    (Zip Code)
</TABLE>

                                 (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 July 31, 2001, 27,546,989 shares of common stock ("Common
Stock") of the Registrant were outstanding.


                                       1



<PAGE>   2


                                  AUDIBLE, INC.

                                      INDEX

                                    FORM 10-Q


<TABLE>
<CAPTION>
PART I  -    FINANCIAL INFORMATION                                                Page
                                                                                   ----
<S>                                                                              <C>
Item 1.      Financial Statements:

             Condensed Balance Sheets as of June 30, 2001 (unaudited)
             and December 31, 2000...............................................    3

             Condensed Statements of Operations for the three and six
             months ended June 30, 2001 and 2000 (unaudited).....................    4

             Condensed Statements of Cash Flows for the six months ended
             June 30, 2001 and 2000 (unaudited)..................................    5

             Notes to Condensed Financial Statements.............................    6

Item 2.      Management's Discussion and Analysis of
             Financial Condition and Results of Operations.......................   13

Item 3.      Qualitative and Quantitative Disclosure
             about Market Risk...................................................   21


PART II  -   OTHER INFORMATION

Item 1.      Legal Proceedings...................................................   22

Item 2.      Changes in Securities...............................................   22

Item 3.      Defaults Upon Senior Securities.....................................   23

Item 4.      Submission of Matters to a Vote of Securities Holders...............   23

Item 5.      Other Information...................................................   24

Item 6.      Exhibits and Reports on Form 8-K....................................   24

Signatures.......................................................................   26
</TABLE>


                                       2

<PAGE>   3


                         PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

                                  AUDIBLE, INC.
                            CONDENSED BALANCE SHEETS

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

<TABLE>
<CAPTION>
                                                                                  JUNE 30, 2001   DECEMBER 31, 2000
                                                                                  -------------  ------------------
                                    ASSETS                                         (UNAUDITED)

<S>                                                                                <C>               <C>
Current assets:
       Cash and cash equivalents .............................................     $ 15,216,535      $ 14,149,027
       Short-term investments, including interest receivable .................               --         2,053,069
       Accounts receivable, net ..............................................          147,600           193,752
       Royalty advances ......................................................          348,303           847,396
       Prepaid expenses and other current assets .............................          490,374           464,133
       Inventory .............................................................          337,921           118,170
       Note receivable due from stockholder, current .........................           10,000            50,000
                                                                                   ------------      ------------
         Total current assets ................................................       16,550,733        17,875,547

Property and equipment, net ..................................................        2,618,701         2,818,792
Note receivable due from stockholder, non current ............................           40,000                --
Other assets .................................................................           28,697            37,510
                                                                                   ------------      ------------
         Total assets ........................................................     $ 19,238,131      $ 20,731,849
                                                                                   ============      ============

                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable .......................................................     $  1,999,776      $  1,754,440
      Accrued expenses and compensation ......................................        2,751,478         2,397,879
      Royalty obligations, current ...........................................          834,700           772,700
      Current maturities of obligations under capital leases .................            2,872            47,187
      Advances, current ......................................................          182,041           453,476
      Accrued dividends on redeemable convertible preferred stock ..........            470,166                --
                                                                                   ------------      ------------
         Total current liabilities ...........................................        6,241,033         5,425,682

Deferred cash compensation ...................................................           98,485           211,065
Royalty obligations, non current .............................................          104,750           502,000

Redeemable convertible preferred stock;
    Series A, par value $.01, 4,500,000 shares authorized, 2,666,666 and no
    shares issued and outstanding at June 30, 2001 and December 31, 2000,
    respectively .............................................................       10,000,000                --

Stockholders' equity:
    Common stock, par value $.01. 50,000,000 shares authorized,
    27,546,989 shares issued at June 30, 2001 and December 31, 2000 ..........          275,470           275,470
    Additional paid-in capital ...............................................       93,282,463        92,196,176
    Deferred compensation and services .......................................       (8,766,441)      (11,867,358)
    Notes due from stockholders for common stock .............................         (310,482)         (391,703)
   Treasury stock at cost: 628,950 and 536,505 shares of common stock at  June
      30, 2001 and December 31, 2000, respectively ...........................         (167,640)         (143,061)
   Accumulated deficit .......................................................      (81,519,507)      (65,476,420)
                                                                                   ------------      ------------
   Total stockholders' equity ................................................        2,793,863        14,593,102
                                                                                   ------------      ------------

      Total liabilities and stockholders' equity .............................     $ 19,238,131      $ 20,731,849
                                                                                   ============      ============
</TABLE>

            See accompanying notes to condensed financial statements.

                                       3

<PAGE>   4




                                  AUDIBLE, INC.
                       CONDENSED STATEMENTS OF OPERATIONS

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


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                 JUNE 30,                           JUNE 30,
                                                      ------------------------------      ------------------------------
                                                          2001              2000              2001             2000
                                                      ------------     -------------      ------------    --------------
                                                       (UNAUDITED)      (UNAUDITED)        (UNAUDITED)     (UNAUDITED)
<S>                                                  <C>               <C>               <C>               <C>
    Revenue, net:
      Content and services .....................     $  1,669,593      $    486,880      $  2,990,205      $    801,947
      Hardware .................................          235,369           164,968           836,779           384,162
      Other ....................................           73,758           189,129           281,820           378,258
                                                     ------------      ------------      ------------      ------------
         Total revenue, net ....................        1,978,720           840,977         4,108,804         1,564,367
                                                     ------------      ------------      ------------      ------------

    Operating expenses:
      Cost of content and services revenue .....        1,292,914           909,544         2,597,109         1,303,787
      Cost of hardware revenue .................          778,514           224,897         1,741,504         1,044,934
      Production expenses ......................        1,683,982         1,709,293         3,342,032         3,427,646
      Development ..............................        1,236,047         1,177,077         2,115,521         2,345,530
      Sales and marketing ......................        3,901,856         4,550,793         7,597,985         8,745,590
      General and administrative ...............        1,366,526         1,434,492         2,706,315         2,921,124
                                                     ------------      ------------      ------------      ------------
         Total operating expenses ..............       10,259,839        10,006,096        20,100,466        19,788,611
                                                     ------------      ------------      ------------      ------------

      Loss from operations .....................       (8,281,119)       (9,165,119)      (15,991,662)      (18,224,244)

      Other income, net ........................         (183,120)         (410,006)         (418,741)         (972,134)
                                                     ------------      ------------      ------------      ------------
       Net loss ................................       (8,097,999)       (8,755,113)      (15,572,921)      (17,252,110)

       Accrued dividends on redeemable
       preferred stock .........................          299,208                --           470,166                --

                                                     ------------      ------------      ------------      ============
      Net loss applicable to common stockholders     $ (8,397,207)     $ (8,755,113)     $(16,043,087)     $(17,252,110)
                                                     ============      ============      ============      ============
                                                     ============      ============      ============      ============
    Basic and diluted net loss per common share      $      (0.31)     $      (0.32)     $      (0.60)     $      (0.66)
                                                     ============      ============      ============      ============

    Weighted average shares outstanding ........       26,919,837        26,940,204        26,957,639        26,269,020
                                                     ============      ============      ============      ============
</TABLE>


            See accompanying notes to condensed financial statements.

                                       4
<PAGE>   5




                                  AUDIBLE, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS

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


<TABLE>
<CAPTION>
                                                                                            SIX MONTHS ENDED
                                                                                                JUNE 30,
                                                                                   --------------------------------
                                                                                         2001             2000
                                                                                   --------------   ---------------
                                                                                      (UNAUDITED)     (UNAUDITED)
<S>                                                                                <C>               <C>
Cash flows from operating activities:
   Net loss ..................................................................     $(15,572,921)     $(17,252,110)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization ..........................................          882,418           602,817
      Services rendered for common stock and warrants ........................        4,001,387         4,829,259
      Non-cash compensation charge ...........................................          185,819           242,634
      Deferred cash compensation .............................................         (112,580)           25,243
      Changes in assets and liabilities:
         Interest receivable on short-term investments .......................           95,335           122,323
         Accounts receivable, net ............................................           46,152           (27,799)
         Royalty advances ....................................................          499,093          (921,714)
         Prepaid expenses and other current assets ...........................          (26,241)          150,644
         Inventory ...........................................................         (219,751)               --
         Other assets ........................................................            8,813            47,653
         Accounts payable ....................................................          245,336           256,992
         Accrued expenses and compensation ...................................          353,599         1,213,030
         Royalty obligations .................................................         (335,250)          779,500
         Advances ............................................................         (271,435)         (455,366)
                                                                                   ------------      ------------
            Net cash used in operating activities ............................      (10,220,226)      (10,386,894)
                                                                                   ------------      ------------

Cash flows from investing activities:
   Purchases of property and equipment .......................................         (682,327)       (2,211,187)
   Purchases of short-term investments, net ..................................               --       (16,650,640)
   Redemptions of short-term investments, net ................................        1,957,734        26,500,612
                                                                                   ------------      ------------
            Net cash provided by investing activities ........................        1,275,407         7,638,785
                                                                                   ------------      ------------


Cash flows from financing activities:
    Proceeds from issuance of Series A redeemable convertible preferred stock        10,000,000                --
    Proceeds from sale of common stock .......................................               --         1,000,000
    Proceeds from exercise of common stock options ...........................               --             9,600
    Payments received on notes due from stockholders for common stock ........           62,409           161,394
    Payment of principal on obligations under capital leases .................          (44,315)         (147,552)
    Cash paid for purchase of treasury stock .................................           (5,767)               --
                                                                                   ------------      ------------
            Net cash provided by financing activities ........................       10,012,327         1,023,442
                                                                                   ------------      ------------

            Increase (decrease) in cash and cash equivalents .................        1,067,508        (1,724,667)
Cash and cash equivalents at beginning of period .............................       14,149,027        12,030,392
                                                                                   ------------      ------------
Cash and cash equivalents at end of period ...................................     $ 15,216,535      $ 10,305,725
                                                                                   ============      ============
</TABLE>




            See accompanying notes to condensed financial statements.

                                       5



<PAGE>   6

                                  AUDIBLE, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30, 2001 AND 2000
                                   (UNAUDITED)



(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Basis of Presentation

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


   Reclassifications

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


   Basic and Diluted Net Loss Per Common Share

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

            Diluted net loss per common share for the three and six months ended
      June 30, 2001 does not include the effects of outstanding options to
      purchase 4,497,150 shares of common stock, warrants outstanding to
      purchase 2,328,654 shares of common stock; and 10,666,664 shares of common
      stock on conversion of outstanding Series A Redeemable Convertible
      Preferred Stock ("Series A"), as the effect of their inclusion is
      antidilutive during the period. Diluted net loss per common share for the
      three and six months ended June 30, 2000 does not include the effects of
      options to purchase 4,880,150 shares of common stock, and warrants to
      purchase 1,962,654 shares of common stock, as the effect of their
      inclusion is antidilutive during the period.



                                       6
<PAGE>   7



                                  AUDIBLE, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30, 2001 AND 2000
                                   (UNAUDITED)


(2)   STOCKHOLDERS' EQUITY

       Common Stock

            In March 1999, the Company issued 229,500 shares of common stock to
      employees at a price less than the fair value of the stock at the time of
      issuance. These shares, which are subject to vesting over four years, were
      paid for by full recourse promissory notes executed by the employees. The
      difference between the fair value and the issue price of these common
      shares of $907,214 was recorded as deferred compensation, a component of
      stockholders' equity, and is being amortized as an expense straight-line
      over the vesting term. In February 2000, the Company offered 100,000
      common shares to its new Chief Executive Officer in connection with his
      offer of employment at five dollars per share less than the fair value of
      the stock. The Company recorded $500,000 as deferred compensation in
      February 2000 and was recording the compensation expense straight-line
      over the vesting term. The offer to purchase these shares was rescinded in
      August 2000, and the CEO did not purchase any of the offered shares. In
      August 2000, the Company issued to its CEO 500,000 options at an exercise
      price equal to the fair value of the common stock at the time of issuance.
      The Company is recording the original compensation expense over the
      vesting term of the new option grant, and is 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 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 is being amortized as an expense straight-line over the
      vesting term. During the three months ended June 30, 2001 and June 30,
      2000, $93,469 and $146,534, respectively, of compensation expense was
      recognized related to these transactions. During the six months ended June
      30, 2001 and June 30, 2000, $185,819 and $242,635, respectively, of
      compensation expense was recognized related to these transactions. During
      the three and six months ended June 30, 2001, none and $23,431,
      respectively, of deferred compensation was reversed against paid-in
      capital related to unvested options forfeited due to employees leaving the
      Company.

            In April 1999, the Company established the 1999 Stock Incentive Plan
      (the "Plan"), which permits up to 9,000,000 common stock shares to be
      issued under the Plan. The Plan permits the granting of stock options,
      stock appreciation rights, restricted or unrestricted stock awards,
      phantom stock, performance awards and other stock-based awards. As of June
      30, 2001, options to purchase 4,497,150 common stock shares were
      outstanding.




                                       7

<PAGE>   8


                                  AUDIBLE, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30, 2001 AND 2000
                                   (UNAUDITED)


            In April 1999, the Company increased the number of shares of common
      stock authorized from 16,000,000 to 50,000,000. As of June 30, 2001 and
      December 31, 2000, the Company had issued 27,546,989 shares of common
      stock. As of June 30, 2001 and December 31, 2000, the Company had
      2,328,654 and 1,878,654 shares of common stock, respectively, reserved for
      issuance upon exercise of outstanding common stock warrants, and 4,497,150
      and 5,365,900 shares of common stock, respectively, reserved for issuance
      upon exercise of outstanding options. As of June 30, 2001 and December 31,
      2000, the Company had 10,666,664 and no shares of common stock,
      respectively, reserved for issuance upon conversion of outstanding Series
      A redeemable convertible preferred stock.

            In January 2000, the Company issued 1,340,033 shares of common stock
      in connection with two agreements with Amazon.com (see note 6). During the
      three and six months ended June 30, 2000, the Company also issued 54,264
      and 326,390, respectively, shares of common stock in connection with the
      cashless exercise of warrants to purchase 64,141 and 439,141,
      respectively, shares of common stock. During the three and six months
      ended June 30, 2000, the Company issued 1,200 shares of common stock in
      connection with the exercise of employee stock options. During the three
      and six months ended June 30, 2001, no shares of common stock were issued.

            During the three and six months ended June 30, 2001, the Company
      repurchased 23,175 and 92,445, respectively, shares of common stock,
      respectively, as treasury shares by reducing the indebtedness under
      certain promissory notes issued to the Company and paying cash of $5,767.
      During the three and six months ended June 30, 2000, no shares of common
      stock were repurchased.


(3)   REDEEMABLE CONVERTIBLE PREFERRED STOCK

      Microsoft Investment

            In February, 2001, Microsoft purchased 2,666,666 shares of Series A
      stock for $10,000,000 at a per share price of $3.75. Each share of Series
      A may be converted into four shares of Common Stock, (equivalent to a
      price of $.9375 per share), subject to adjustment under certain
      conditions. The stock is convertible at the option of the holder at any
      time prior to the fifth anniversary of the original issue date. Dividends
      are payable semi-annually at an annual rate of 12% in either additional
      preferred shares or in cash at the option of the Company. On the fifth
      anniversary of the original issue date, the Company is required to redeem
      all remaining outstanding shares at a per share price of $3.75 plus all
      accrued and unpaid dividends. During the three and six months ended June
      30, 2001, $299,208 and $470,166, respectively, related to the dividends
      has been accrued. Approximately $372,000 of these unpaid dividends were
      payable as of June 1, 2001. It is the Company's intention to pay these
      accrued dividends by issuing additional preferred shares.


(4)   MICROSOFT AGREEMENT

            In November 1998, the Company entered into a five-year agreement
      with Microsoft. The agreement provides for services related to integration
      of products, the granting of various rights and licenses, and a provision
      for Microsoft to be paid future royalties for content distributed as a
      result of the software developed in


                                       8

<PAGE>   9




                                  AUDIBLE, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30, 2001 AND 2000
                                   (UNAUDITED)



      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 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 six month period ended June 30, 2001. The
      remaining $1,450,000 of this advance has been recognized as revenue on a
      straight-line basis beginning in the quarter ended June 30, 1999 through
      the initial term of the agreement, which ended in the second quarter of
      2001. During the three months ended June 30, 2001 and June 30, 2000,
      $63,044 and $189,129, respectively, of this advance was recognized as
      other revenue. During the six months ended June 30, 2001 and June 30,
      2000, $252,174 and $378,258, 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 June 30, 2001, Audible
      had not recognized any royalties under this agreement.

            In April 1999, in connection with an amendment to the agreement with
      Microsoft, the Company issued to Microsoft a warrant which expires
      November 18, 2003 to purchase 100,000 shares of common stock at the IPO
      price of $9.00 per share. The fair value of this warrant was determined in
      accordance with EITF Issue No. 96-18, "Accounting for Equity Instruments
      that are Issued to Other than Employees for Acquiring or in Conjunction
      with Selling, Goods or Services" and is being amortized as an expense on a
      straight-line basis over the same period as the $1,450,000 advance
      described above. During the three months ended June 30, 2001 and June 30,
      2000, $22,396 and $67,215, respectively, was recorded as a production
      expense related to this warrant with the non-cash credit for services to
      additional paid-in capital. During the six months ended June 30, 2001 and
      June 30, 2000, $89,611 and $134,430, 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 June 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.


                                       9

<PAGE>   10




                                  AUDIBLE, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30, 2001 AND 2000
                                   (UNAUDITED)


            The fair value of these warrants was determined in accordance with
      EITF Issue No. 96-18 and is being amortized as an expense on a
      straight-line basis over the amended term of the service agreement using
      variable plan accounting for any unvested portion of shares. Under
      variable plan accounting, the compensation costs will vary each accounting
      period until the final measurement date. During the three months ended
      June 30, 2001 and June 30, 2000, $197,398 and $74,254, respectively, was
      recorded as a marketing expense related to this agreement with the
      non-cash credit for services to additional paid-in capital. During the six
      months ended June 30, 2001 and June 30, 2000, $564,599 and $308,737,
      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 AGREEMENT

            In January 2000, the Company entered into two agreements with
      Amazon.com. Under the Co-Branding, Marketing and Distribution Agreement
      the Company is the exclusive provider of digital spoken audio (as defined)
      to Amazon.com. On January 24, 2001, the Company signed Amendment No.1 to
      its Co-Branding, Marketing, and Distribution Agreement with Amazon.com.
      Under the amendment, the annual fee for Year 3 of the agreement is reduced
      from $10,000,000 to $1,500,000 and an additional fee of $1,000,000 is
      payable in Year 2 of the agreement. Also in connection with Amendment
      No.1, the Company issued 500,000 fully vested common stock warrants to
      Amazon.com at an exercise price of $1.50 per share, which are exercisable
      after January 31, 2002. The fair value of these warrants was determined in
      accordance with EITF Issue No. 96-18 and is being amortized as an expense
      on a straight-line basis over the remaining term of the agreement. During
      the three months and six months ended June 30, 2001, $43,200 and $86,400,
      respectively, was recorded as a marketing expense related to these
      warrants with the non-cash credit for services to additional paid-in
      capital.

            During the three-year term of this agreement, in consideration for
      certain services, Amazon will receive $22,500,000 (as amended) plus a
      specified percentage of revenue earned over a specified amount. Under the
      Securities Purchase Agreement, Amazon.com has 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 June 30, 2001 and 2000, $1,250,000 and $2,500,000, respectively, was
      recorded as a marketing expense, with the non-cash credit to deferred
      services. During the six months ended June 30, 2001 and 2000, $2,916,667
      and $4,166,666, respectively, was recorded as a marketing expense, with
      the non-cash credit to deferred services. During the three months and six
      months ended June 30, 2001, $312,500 and $520,833, respectively, was
      recorded as a marketing expense representing the straight-line
      amortization of the cash portion of payments due under this agreement.



                                       10

<PAGE>   11



                                  AUDIBLE, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30, 2001 AND 2000
                                   (UNAUDITED)


(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 the three months ended June 30, 2001 and 2000,
      $240,000 and $160,000, respectively, was recorded as a cost of content and
      services revenue related to this contribution. During the six months ended
      June 30, 2001 and 2000, $480,000 and $160,000, respectively, was recorded
      as a cost of content and services revenue related to this contribution.
      The agreement further provides for Random House to be granted a warrant to
      purchase 878,333 shares of Audible common stock at various exercise prices
      that vest over the term of the agreement as well as the granting of
      additional warrants to Random House to purchase Audible common shares
      based on future performance. The fair value of these warrants was
      determined in accordance with EITF Issue No. 96-18 and is being amortized
      as an expense on a straight-line basis over the 50-month term of the
      agreement. The warrants are accounted for using variable plan accounting
      whereby compensation costs will vary each accounting period until the
      final measurement date. During the three months ended June 30, 2001 and
      2000, $110,689 and $152,175, respectively, was recorded as a cost of
      content and services revenue related to these warrants with the non-cash
      credit for services to additional paid-in capital. During the six months
      ended June 30, 2001 and 2000, $312,016 and $152,175, 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 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.


(9)   CONTINGENCIES

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

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



                                       11
<PAGE>   12


                                  AUDIBLE, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30, 2001 AND 2000
                                   (UNAUDITED)


   (10)     SUBSEQUENT EVENTS

            On July 23, 2001, the Company announced a streamlining initiative.
      Under this initiative 35 staff positions have been eliminated. The Company
      expects to incur a cash charge of approximately $300,000 in the third
      quarter of 2001, primarily related to severance costs.









                                       12

<PAGE>   13






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

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

OVERVIEW

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

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

      Revenue from the sale of audio content and services has increased in each
of the last four quarters. We expect this trend to continue as we expand our
customer base. As of June 30, 2001, more than 87,000 customers had purchased
content from our Web site.

      Hardware revenue represents revenue from the sale of AudibleReady
hand-held electronic devices, primarily the Rio 500, manufactured by SONICblue
Incorporated's Rio Audio Group. During the six months ended June 30, 2001,
hardware revenue accounted for 20% 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.


                                       13

<PAGE>   14

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

      We recognize revenue from sales of hand-held electronic devices upon
shipment. We recognize revenue from audio production and hosting services we
provide to corporations as the services are performed.

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

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

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

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

                                       14

<PAGE>   15

RESULTS OF OPERATIONS

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


<TABLE>
<CAPTION>
====================================================================================================
                                                         THREE MONTHS              SIX MONTHS
                                                         ENDED JUNE 30,           ENDED JUNE 30,
                                                    ----------------------    ---------------------
                                                      2001          2000         2001        2000
                                                         (UNAUDITED)                (UNAUDITED)
<S>                                                  <C>          <C>          <C>          <C>
Revenue:
      Content and services ....................         84%          58%          73%          51%
      Hardware ................................         12           20           20           25
      Other ...................................          4           22            7           24
                                                    ------       ------       ------       ------
            Total revenue .....................        100%         100%         100%         100%
Operating expenses:
      Cost of content and services revenue ....         65          108           63           83
      Cost of hardware revenue ................         39           27           42           67
      Production expenses .....................         85          203           81          219
      Development .............................         62          140           51          150
      Sales and marketing .....................        197          541          185          559
      General and administrative ..............         69          171           66          187
                                                    ------       ------       ------       ------
            Total operating expenses ..........        518        1,190          489        1,265
                                                    ------       ------       ------       ------

Loss from operations ..........................       (418)      (1,090)        (389)      (1,165)

            Other income, net .................         (9)         (49)         (10)         (62)
                                                    ------       ------       ------       ------
Net loss ......................................       (409)      (1,041)        (379)      (1,103)

Accrued dividends on redeemable preferred stock         15           --           11           --

                                                    ------       ------       ------       ------
Net loss applicable to common stockholders ....       (424)%     (1,041)%       (390)%     (1,103)%
                                                    ------       ------       ------       ------

====================================================================================================
</TABLE>



THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000.

      Total revenue, net. Total revenue, net for the three months ended June 30,
2001 was $1,979,000, as compared to $841,000 for the three months ended June 30,
2000, an increase of $1,138,000, or 135%.

      Content and services. Content and services revenue for the three months
ended June 30, 2001 was $1,670,000, as compared to $487,000 for the three months
ended June 30, 2000, an increase of $1,183,000, or 243%. Content and services
revenue increased as a result of our increased customer base, growth in
corporate clients and a bulk content sale.

      Hardware. Hardware revenue for the three months ended June 30, 2001 was
$235,000, as compared to $165,000 for the three months ended June 30, 2000, an
increase of $70,000, or 42%. Hardware revenue increased as a result of selling
more AudibleReady hand-held electronic devices, primarily the Rio 500, partially
offset by a reduction in selling price.

      Other.    Other revenue for the three months ended June 30, 2001, was
$74,000, as compared to $189,000 for the three months ended June 30, 2000.
Revenue for the three-month period ended June 30, 2001 consisted of $63,000 in


                                       15
<PAGE>   16

revenue resulting from amortization of the advance from Microsoft relating to
granting Microsoft the right to distribute software platforms to enable users to
access and use Audible content, and $11,000 from royalties earned from a license
for certain technology rights to a device manufacturer. Revenue for the
three-month period ended June 30, 2000 consisted of $189,000 in revenue
resulting from amortization of the advance from Microsoft relating to granting
Microsoft the right to distribute software platforms to enable users to access
and use Audible content.

      Operating expenses.

      Cost of content and services revenue. Cost of content and services revenue
was $1,293,000, or 78% of content and services revenue, for the three months
ended June 30, 2001, as compared to $910,000, or 186% of content and services
revenue, for the three months ended June 30, 2000. This increase was primarily
due to the acquisition of additional content licenses, including our agreement
with Random House, which resulted in additional amortization of new content
agreement minimum guarantees, non cash amortization of warrants issued, and
other content costs. For the three month period ended June 30, 2001 and June 30,
2000, we also recorded a charge of $200,000 and $154,000, respectively, to
reflect the net realizable value of royalty advances. Cost of content and
services revenue as a percentage of content and services revenue decreased due
to the higher content and services revenue in the 2001 period.

      Cost of hardware revenue. Cost of hardware revenue was $779,000, or 331%
of hardware revenue, for the three months ended June 30, 2001, as compared to
$225,000, or 136% of hardware revenue, for the three months ended June 30, 2000.
This increase was primarily due to selling more hand-held electronic devices in
the 2001 period versus the 2000 period. Cost of hardware revenue as a percentage
of hardware revenue increased as we sold these hand-held electronic devices at a
deeper discount from normal retail price in the 2001 period, when a customer
enrolled in AudibleListener for a 12-month period.

      Production expenses. Production expenses were $1,684,000 for the three
months ended June 30, 2001, as compared to $1,709,000 for the three months ended
June 30, 2000, a decrease of $25,000, or 2%. This decrease was primarily due to
decreased outside services and consultants, offset in part by increased
personnel costs.

      Development. Development costs were $1,236,000 for the three months ended
June 30, 2001, as compared to $1,177,000 for the three months ended June 30,
2000, an increase of $59,000, or 5%. This increase was primarily due to
increased personnel costs incurred in the development of new versions of Audible
Manager, AudibleReady formats, and ongoing Web site and related improvements,
offset in part by reduction in outside consultants.

      Sales and marketing. Sales and marketing expenses were $3,902,000 for the
three months ended June 30, 2001, as compared to $4,551,000 for the three months
ended June 30, 2000, a decrease of $649,000, or 142%. This decrease was
primarily due to a reduction in certain costs in connection with our
Co-Branding, Marketing and Distribution Agreement with Amazon.com, offset in
part by increased personnel costs and outside services.

      General and administrative. General and administrative expense was
$1,367,000 for the three months ended June 30, 2001, as compared to $1,434,000
for the three months ended June 30, 2000, a decrease of $67,000, or 5%. This
decrease was primarily due to decreased professional fees, offset in part by
additional depreciation expense associated with leasehold improvements in our
corporate offices.

      Other income, net. Other income, net in both periods consisted of interest
income and interest expense. Interest income was $192,000 for the three months
ended June 30, 2001, as compared to $415,000 for the three months ended June 30,
2000, a decrease of $223,000. This decrease was primarily due to less interest
income being earned from lower cash and cash equivalent and short-term
investment balances available. Interest expense was $8,000 for the three months
ended June 30, 2001, as compared to $6,000 for the three months ended June 30,
2000, an increase of $2,000. This increase was due to one time interest charges
payable in the 2001 period in connection with an expiration of one of our
capital leases, offset in part by lower overall interest due on our deceased
capital equipment line principal balance.

                                       16
<PAGE>   17

      Accrued dividends on redeemable preferred stock. Accrued dividends on
redeemable preferred stock was $299,000 for the three months ended June 30, 2001
as compared to none for the three months ended June 30, 2000. This increase was
due to the 12% dividends payable to Microsoft as a result of Microsoft's
purchase of 2,666,666 shares of Audible Series A Redeemable Convertible
Preferred Stock in February 2001.


SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000.


      Total revenue, net. Total revenue, net for the six months ended June 30,
2001 was $4,109,000, as compared to $1,564,000 for the six months ended June 30,
2000, an increase of $2,545,000, or 163%.

      Content and services. Content and services revenue for the six months
ended June 30, 2001 was $2,990,000, as compared to $802,000 for the six months
ended June 30, 2000, an increase of $2,188,000, or 273%. Content and services
revenue increased as a result of our increased customer base, growth in
corporate clients and bulk content sales.

      Hardware. Hardware revenue for the six months ended June 30, 2001 was
$837,000, as compared to $384,000 for the six months ended June 30, 2000, an
increase of $453,000, or 118%. Hardware revenue increased as a result of selling
more AudibleReady hand-held electronic devices, primarily the Rio 500.

      Other. Other revenue for the six months ended June 30, 2001, was $282,000,
as compared to $378,000 for the six months ended June 30, 2000. Revenue for the
six-month period ended June 30, 2001 consisted of $252,000 in revenue resulting
from amortization of the advance from Microsoft relating to granting Microsoft
the right to distribute software platforms to enable users to access and use
Audible content, and $30,000 from royalties earned from a license for certain
technology rights to a device manufacturer. Revenue for the six-month period
ended June 30, 2000 consisted of $378,000 in revenue resulting from amortization
of the advance from Microsoft relating to granting Microsoft the right to
distribute software platforms to enable users to access and use Audible content.

      Operating expenses.

      Cost of content and services revenue. Cost of content and services revenue
was $2,597,000, or 87% of content and services revenue, for the six months ended
June 30, 2001, as compared to $1,304,000, or 163% of content and services
revenue, for the six months ended June 30, 2000. This increase was primarily due
to the acquisition of additional content licenses, including our agreement with
Random House, which resulted in additional amortization of new content agreement
minimum guarantees, non cash amortization of warrants issued, and other content
costs. For the six month period ended June 30, 2001 and June 30, 2000, we also
recorded a charge of $406,000 and $154,000, respectively, to reflect the net
realizable value of royalty advances. Cost of content and services revenue as a
percentage of content and services revenue decreased due to the higher content
and services revenue in the 2001 period.

      Cost of hardware revenue. Cost of hardware revenue was $1,742,000, or 208%
of hardware revenue, for the six months ended June 30, 2001, as compared to
$1,045,000, or 272% of hardware revenue, for the six months ended June 30, 2000.
This increase was primarily due to selling more hand-held electronic devices in
the 2001 period versus the 2000 period. Cost of hardware revenue as a percentage
of hardware revenue decreased as we eliminated many of the early hardware
related problems that occurred in the hand-held electronic units which were
shipped during the early part of the 2000 period.

      Production expenses. Production expenses were $3,342,000 for the six
months ended June 30, 2001, as compared to $3,428,000 for the six months ended
June 30, 2000, a decrease of $86,000, or 3%. This decrease was primarily due to
decreased outside services and consultants, offset in part by increased
personnel costs.

                                       17

<PAGE>   18

      Development. Development costs were $2,116,000 for the six months ended
June 30, 2001, as compared to $2,346,000 for the six months ended June 30, 2000,
a decrease of $230,000, or 10%. This decrease was primarily due to reduced
outsourced costs as a result of the completion of the Web site upgrade project
in 2000, offset in part by increased personnel costs incurred in the development
of new versions of Audible Manager, AudibleReady formats, and ongoing Web site
and related improvements.

      Sales and marketing. Sales and marketing expenses were $7,598,000 for the
six months ended June 30, 2001, as compared to $8,746,000 for the six months
ended June 30, 2000, a decrease of $1,148,000, or 13%. This decrease was due to
a reduction in certain advertising costs such as tradeshow expenses and outdoor
media as well as expenses recognized in connection with our Co-Branding,
Marketing and Distribution Agreement with Amazon.com, offset in part by
increased personnel costs and outside services.

      General and administrative. General and administrative expense was
$2,706,000 for the six months ended June 30, 2001, as compared to $2,921,000 for
the six months ended June 30, 2000, a decrease of $215,000, or 7%. This decrease
was primarily due to decreased professional fees during the 2001 period as well
as a reduction in business development expense related to our Microsoft
agreement, offset in part by additional depreciation expense associated with
leasehold improvements in our corporate offices.

      Other income, net. Other income, net in both periods consisted of interest
income and interest expense. Interest income was $428,000 for the six months
ended June 30, 2001, as compared to $984,000 for the six months ended June 30,
2000, a decrease of $556,000. This decrease was primarily due to less interest
income being earned from lower cash and cash equivalent and short-term
investment balances available. Interest expense was $10,000 for the six months
ended June 30, 2001, as compared to $12,000 for the six months ended June 30,
2000, a decrease of $2,000. This decrease was due to the lower principal balance
on our capital equipment lease line, offset in part by one time interest charges
payable in the 2001 period in connection with an expiration of one of our
capital leases.

      Accrued dividends on redeemable preferred stock. Accrued dividends on
redeemable preferred stock was $470,000 for the six months ended June 30, 2001
as compared to none for the six months ended June 30, 2000. This increase was
due to the 12% dividends payable to Microsoft as a result of Microsoft's
purchase of 2,666,666 shares of Audible Series A Redeemable Convertible
Preferred Stock in February 2001.


FACTORS AFFECTING OPERATING RESULTS

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

      We have incurred significant losses since inception, and as of June 30,
2001, we had an accumulated deficit of $81,520,000. 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.

                                       18

<PAGE>   19


      Our operating results have varied on a quarterly basis during our short
operating history and may fluctuate significantly in the future as a result of a
variety of factors, many of which are outside of our control. Factors that may
affect our quarterly operating results include but are not limited to: (1) the
demand for the Audible service; (2) the availability of premium audio content;
(3) sales and consumer usage of AudibleReady devices; (4) the introduction of
new products or services by a competitor; (5) the cost and availability of
acquiring sufficient web site capacity to meet our customers' needs; (6)
technical difficulties with our computer system or the Internet or system
downtime; (7) the cost of acquiring audio content; (8) the amount and timing of
capital expenditures and other costs relating to the expansion of our
operations; and (9) general economic conditions and economic conditions specific
to electronic commerce and online media. In the past, we have experienced
fluctuations in demand for the Audible service based on the level of marketing
expenditures, the occurrence of external publicity and the quality of our
software and Web site. Any one of these factors could cause revenue and
operating results to vary significantly in the future. In addition, as a
strategic response to changes in the competitive environment, we may from time
to time make pricing, service or marketing decisions or acquisitions that could
cause significant declines in our quarterly operating revenue.

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



      LIQUIDITY AND CAPITAL RESOURCES

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

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

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

      At June 30, 2001, our principal source of liquidity was $15,217,000 in
cash and equivalents.

      At June 30, 2001, our principal commitments consisted of obligations under
our capital lease line, which allowed us to purchase up to $1,750,000 of
equipment, operating lease commitments, contractual commitments with content
providers, revenue sharing commitments pursuant to agreements with device
manufacturers, and commitments under our agreements with Amazon.com and Random
House. Through June 30, 2001, we had leased approximately $1,241,000 in
equipment on our lease line and had an outstanding lease obligation of $3,000.

      Net cash used in operating activities for the six months ended June 30,
2001 was $10,220,000. Net cash used during the period was primarily attributable
to our net loss, increase in inventory, and a decrease in royalty obligations
and advances, offset in part by services rendered for common stock and warrants,
depreciation and amortization. Net cash used in operating activities for the six
months ended June 30, 2000 was $10,387,000. Net

                                       19

<PAGE>   20

cash used during the period was primarily attributable to our net loss offset in
part by services rendered for common stock and warrants and increased royalty
obligations, increased accounts payable and accrued expenses and compensation.

      Net cash provided by investing activities for the six months ended June
30, 2001 was $1,275,000. Net cash provided during the period was primarily
related to redemptions of short-term investments offset in part by cash used to
purchase property and equipment. Net cash provided by investing activities for
the six months ended June 30, 2000 was $7,639,000. Net cash provided during the
period was primarily related to redemptions of short-term investments offset in
part by purchases of short-term investments and cash used to purchase property
and equipment.

      Net cash provided by financing activities for the six months ended June
30, 2001 was $10,012,000. Net cash provided by financing activities during the
period resulted primarily from the sale of Series A Redeemable Convertible
Preferred Stock to Microsoft, offset in part by capital lease payments. Net cash
provided by financing activities for the six months ended June 30, 2000 was
$1,023,000. Net cash provided by investing activities during the period resulted
primarily from the sale of common stock as part of our agreement with Random
House and the payments received on notes due from stockholders, offset in part
by capital lease payments.

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


NEW ACCOUNTING STANDARDS

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

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

                                       20

<PAGE>   21

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.


                                       21
<PAGE>   22




                           PART II - OTHER INFORMATION






ITEM 1.   LEGAL PROCEEDINGS.

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

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

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



ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

      RECENT SALES OF UNREGISTERED SECURITIES

      None


                                       22
<PAGE>   23


      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.

      During the three months ended June 30, 2001, we invested $5,585,000 of our
funds in accordance with the use of proceeds in our Registration Statement Form
S-1. As of June 30, 2001, we have $15,217,000 in remaining funds, including the
$10,000,000 received from Microsoft in February 2001 related to the sale of
Series A Redeemable Convertible Preferred Stock, which are currently in cash or
cash equivalents. We plan to use the remaining funds available to increase our
sales and marketing efforts, acquire and produce new audio content, and other
uses at the discretion of our management. 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 its Annual Meeting of Stockholders on May 24,
2001 (the "Annual Meeting").

      (b)  n/a

      (c)  The following matters were voted upon at the Annual Meeting:

                     (i) To elect two directors to serve until the 2004 annual
meeting of stockholders, and until their successors are elected and duly
qualified, with 99.9% of the Common Stock present and voting at the meeting
voting for Messers Brass and Knowlton as follows:

<TABLE>
<CAPTION>
                     Nominee                    For          Against or Withheld
                     -------                    ---          -------------------
<S>                                            <C>          <C>
                     Richard Brass              20,973,015   29,355
                     Winthrop Knowlton          20,973,015   29,355
</TABLE>


                     (ii) To ratify the appointment of KPMG LLP as our
independent auditors for the year ending December 31, 2001 was ratified by 99.8%
of the shares of Common Stock present and voting at the meeting. (Votes for:
20,960,259; votes against or withheld: 19,803; abstain 22,308.).



                                       23
<PAGE>   24



ITEM 5.     OTHER INFORMATION

      None


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      (a)  Exhibits

          3.1*      Amended and Restated Certificate of Incorporation of Audible
          3.1.1***  Certificate of Designation of Designations, Limitations,
                    Restrictions And Relative Rights of the Series A Convertible
                    Preferred Stock of Audible, Inc.
          3.2*      Amended and Restated Bylaws of Audible
          10.1+*    License Agreement dated November 4, 1998, by and between
                    Microsoft Corporation and Audible
          10.2+*    Digital Rights Management Agreement dated November 4, 1998,
                    between Microsoft Corporation and Audible
          10.3+*    Development Agreement dated November 12, 1998, by and
                    between RealNetworks, Inc. and Audible
          10.4*     RealMedia Architecture Partner Program Internet Agreement
                    dated November 12, 1998, between RealNetworks, Inc. and
                    Audible
          10.5*     Master Lease Agreement dated November 19, 1996, by and
                    between Comdisco, Inc. as lessor, and Audible as lessee
          10.5.1*   Addendum to Master Lease Agreement dated November 20, 1996,
                    by and between Comdisco, Inc., as lessor, and Audible, as
                    lessee (relating to Exhibit 10.5)
          10.8*     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.

                                       24
<PAGE>   25

          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, 2000, by and
                    between Audible and Amazon.com Commerce Services, Inc.
          10.32++#  Co-Branding, Marketing and Distribution Agreement dated
                    January 30, 2000, by and between Audible and Amazon.com
                    Commerce Services, Inc.
          10.33***  Series A Convertible Preferred Stock Purchase Agreement by
                    and between Audible Inc. and Microsoft Corporation dated as
                    of February 8, 2001.
          10.34++   Amendment No. 1 to Co-Branding, Marketing and Distribution
                    Agreement dated as of January 24, 2001 by and between
                    Amazon.com Commerce Services, Inc. and Audible (relating to
                    Exhibit 10.32)

          *         Incorporated by reference from the Company's Registration
                    Statement on Form S-1 (No. 333-76985)

          **        Incorporated by reference from the Company's Form 10K/A for
                    the period ended December 31, 1999

          #         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-K for
                    the fiscal year ended December 31, 2000

          +         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.

          ##        To be filed by Amendment.


      (b)  Reports on Form 8-K

           None






                                       25
<PAGE>   26



                                   SIGNATURES


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

                         AUDIBLE, INC.



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


Dated: August  14, 2001


                                       26