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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                   FORM 10-K

(Mark One)

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

                  For the fiscal year ended December 31, 1999

                                      or

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

           For the transition period from            to           .

                        Commission file number 0-25577

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

                               AUTOWEB.COM, INC.
                 (Our exact name as specified in our charter)

<TABLE>
 <S>                              <C>
            Delaware                                77-0412737
 (State or other jurisdiction of                 (I.R.S. Employer
 incorporation or organization)                Identification No.)
</TABLE>

                    3270 Jay Street, Santa Clara, CA 95054
                   (Address of principal executive offices)

      Registrant's telephone number, including area code: (408) 544-9552

          Securities registered pursuant to Section 12(b) of the Act:

                                     None

          Securities registered pursuant to Section 12(g) of the Act:

                        Common Stock, $0.001 Par Value
                               (Title of Class)

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

   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 a shorter period if required), and
(2) has been subject to filing requirements for the past 90
days. Yes [X]  No [_]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

   The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price as reported on the Nasdaq National
Market at March 22, 2000, was approximately $175 million.

   The number of shares of the Registrant's Common Stock outstanding at March
22, 2000 was approximately 26.6 million shares.

                      Documents Incorporated by Reference

   Portions of the Definitive Proxy Statement to be used in connection with
the Registrant's 2000 Annual Meeting of Stockholders are incorporated by
reference in Part III of this Form 10-K.

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                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                      Page No.
                                                                      --------
 <C>      <S>                                                         <C>
                                    PART I
 Item 1.  Business..................................................      3

 Item 2.  Properties................................................     13

 Item 3.  Legal Proceedings.........................................     13

 Item 4.  Submission of Matters to a Vote of Security Holders.......     13

                                    PART II

 Item 5.  Market for the Registrant's Common Equity and Related
          Stockholder Matters.......................................     14

 Item 6.  Selected Financial Data...................................     15

 Item 7.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations.......................     16

 Item 7A. Quantitative and Qualitative Disclosures About Market
          Risk......................................................     30

 Item 8.  Financial Statements and Supplemental Data................     30

 Item 9.  Changes in and Disagreements With Accountants on
          Accounting and Financial Disclosure.......................     30

                                   PART III

 Item 10. Directors and Executive Officers of the Registrant........     31

 Item 11. Executive Compensation....................................     31

 Item 12. Security Ownership of Certain Beneficial Owners And
          Management................................................     31

 Item 13. Certain Relationships and Related Transactions............     31

                                    PART IV

 Item 14. Exhibits, Financial Statement Schedules and Reports on
          Form 8-K..................................................     32

          Signatures................................................     52

</TABLE>

                                       2
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                                    PART I

ITEM 1. BUSINESS

   This Annual Report on Form 10-K contains forward-looking statements, within
the meaning of Section 21E of the Securities Exchange Act of 1934, and Section
27A of the Securities Act of 1933, that involve risks and uncertainties. These
forward-looking statements include statements regarding our expectations,
beliefs, intentions or strategies regarding the future. All these forward-
looking statements are based on information available to us on the date
hereof, and we assume no obligation to update any such forward-looking
statements. Factors that could cause actual results to differ from those
projected in these forward-looking statements include without limitation those
discussed below in "Factors That May Affect Future Results." Readers are urged
to carefully review and consider the various disclosures made by us in this
report, and those detailed from time to time in our reports and filings with
the Securities and Exchange Commission, that attempt to advise interested
parties of the risks and factors that may affect our business.

Overview

   Autoweb.com is a leading consumer automotive Internet service. Our Web site
centralizes an extensive collection of automotive-related commerce, content
and community offerings to assist consumers in researching, evaluating and
buying vehicles and automotive-related products and services such as insurance
and financing. In addition, we provide automotive content, Web hosting and
development services and sales automation services to vehicle manufacturers,
dealers and online partners. Also, for consumers and automotive professionals,
through our acquisition of Automotive Information Center ("AIC"), we provide
Autosite.com, a 20,000-page online vehicle buyer's guide and rich source of
related services information and original automotive editorial content. The
Autoweb.com site and purchase process are designed to provide consumers with
dedicated customer care, choice and the means to execute their buying
decisions through a process that we believe is faster, better and easier than
traditional alternatives. Our Customer Care Center acts as an independent
intermediary that provides personal attention to consumers, as they request
it, throughout the vehicle purchasing experience. We currently have a network
of over 5,000 member dealers (where each franchise and pre-owned location for
a particular vehicle manufacturer participating in one of our purchase inquiry
programs is defined as a member dealer). During 1999, we delivered
approximately 1.6 million vehicle and vehicle-related purchase inquiries to
member dealers and automotive-related vendors ("category partners"). We
believe we have a scalable business model characterized by diverse revenue
sources and synergy with online category, infrastructure and advertising
partnerships.

 Benefits to Consumers

   Convenient Purchase Process. The Autoweb.com site and purchase process
provides an environment that can significantly reduce the traditional friction
between dealers and consumers. Consumers can select new or pre-owned vehicles
conveniently in the privacy of their home or office. Our service allows
consumers to submit each purchase inquiry to up to two member dealers in a
geographic area. Member dealers have agreed to respond to consumers within 24
hours of receiving purchase inquiries. We have designed our process to
insulate consumers from unpleasant price negotiations by requiring our member
dealers to provide a competitive, firm, up-front price to consumers. We
certify and support member dealers in order to provide a better experience to
consumers.

   Expanded Channel Choice. We are testing various complementary channels such
as new and pre-owned auction sales. In addition, we are partnering to provide
new car direct sales. The market for these channels is still relatively young.
We plan to expand the availability and prominence of these channels as we see
increased consumer acceptance of large online purchases.

   Informed Purchase Decision. Consumers obtain online access to a wide range
of comprehensive, up-to-date information about vehicle models, options and
dealer costs at no charge. Information such as vehicle specifications, Kelley
Blue Book pre-owned vehicle values and reviews from New Car Test Drive and The
Car

                                       3
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Connection are collected in a centralized location, providing consumers with
an objective, convenient means to make informed purchase decisions.
Additionally, in Autosite.com, consumers have access to a 20,000-page online
vehicle buyer's guide and rich source of related services and information.

   Availability of Automotive-Related Products and Services. Traditionally,
consumers have been dependent on dealers and third-party vendors for
automotive-related products and services, such as financing, insurance and
repair services. Our Web site offers consumers convenient access to a wide
range of these services before and after the purchase of a vehicle. We believe
that providing a variety of service offerings in a single location improves a
consumer's ability to make an automotive purchase decision and enhances
consumers' satisfaction with our service.

   Dedicated Customer Care Center. The Autoweb.com Customer Care Center acts
as an independent intermediary providing personal attention to consumers, as
they request it, throughout the purchase process. We monitor the purchase
process to ensure that consumers receive timely and appropriate responses from
our member dealers and category partners. We believe that this ongoing
involvement in the process substantially increases consumer satisfaction.

   Online Automotive-Related Community. Our Web site serves as an online
community where consumers can come to inquire, participate in message-board
discussions and learn about a wide variety of topics related to the automotive
world.

 Benefits to Member Dealers

   Performance-Based Program. Autoweb.com has designed a non-exclusive "pay
for performance" model to provide member dealers with a cost-effective pricing
structure for receiving incremental consumer purchase inquiries. Unlike
subscription models, where dealers pay a flat monthly fee regardless of
performance, we charge member dealers only when we provide a qualified
purchase inquiry to them. In addition, our program permits member dealers to
customize the geographic radius from which they receive purchase inquiries
based on their evaluation of which purchase inquiries will be most likely to
result in vehicle sales. Further, in selected regions, we offer our dealers
the inquiries from consumers who have made a deposit and participated in an
auction bidding process for a vehicle on their lot.

   Efficient Marketing and Sales Process. Autoweb.com provides member dealers
with incremental revenues and, according to our surveys, a reduction in their
average advertising cost per vehicle. By joining our member dealer network,
member dealers gain access to a large number of purchase-minded consumers who
have, in many instances, already chosen the vehicle they wish to purchase. As
a result, member dealers can complete the sales process more quickly and
efficiently, potentially enabling them over time to reduce their labor and
overhead costs. Also, through the acquisition of SalesEnhancer.com,
Autoweb.com provides sales automation tools to help member dealers (and non-
member dealers) manage sales, especially those sales related to their Internet
marketing efforts.

   Improved Consumer Interaction. Autoweb.com's dealer development and support
group instructs and supports member dealers regarding the Autoweb.com purchase
process. Our certification program is designed to enhance customer
satisfaction and increase member dealer sales. In addition, the Autoweb.com
Customer Care Center serves as an extension of each member dealer's sales
process, helping to facilitate consumer satisfaction by monitoring the
progress of consumer purchase inquiries and facilitating timely and
appropriate responses. By enhancing the consumer buying experience, we believe
that we also help member dealers generate ongoing consumer loyalty.

 Benefits to Others

   Vehicle Manufacturers. Through AIC, Autoweb.com provides vehicle
manufacturers with the data, tools and services used for internal planning,
competitive analysis and development and for re-publication on their Web
sites. Autoweb.com also provides vehicle manufacturers with access to a large
number of purchase-

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minded consumers from an attractive demographic base. Using the targeted
nature of Internet advertising, manufacturers can advertise their brand image
effectively to specific subsets of Autoweb.com consumers. Vehicle
manufacturers can deliver advertisements to consumers who are researching
vehicles of direct competitors, thereby increasing the likelihood of
influencing their purchase decisions. Furthermore, vehicle manufacturers can
sponsor packaged Autoweb.com services provided to member dealers to improve
sales of given vehicle makes and models.

   Category Partners. We provide category partners with access to a large
number of purchase-minded consumers in the process of researching vehicles and
automotive-related products and services. Consumers seeking to purchase a
vehicle may wish to buy direct or may also require insurance, financing, a
roadside assistance program or related services from one of our online
category partners. Consumers seeking automotive information are also often
interested in or specifically researching competitive providers for their
current automotive-related services. Category partners can advertise to these
consumers or integrate their product with our Web site. This provides partners
with a competitive advantage and an opportunity to gain market share in the
online automotive services market.

   Portals and Publishers. Integrating content and decision tools with diverse
commerce choices and lifecycle offerings, Autoweb.com provides partners with
co- and ingredient-branded automotive Web modules and turnkey destinations.
AIC data and comparison tools are the basis for online new car buying sites,
media sites and search engine buying services, providing these partners with
high quality data and service cost efficiencies.

Strategy

   Our objective is to be the leading consumer automotive Internet service.
Our strategy is to leverage our consumer focus, traffic volume, information
expertise (automotive data, content and tools) and collaborative partnerships
with dealers, vehicle manufacturers, portals and category partners.

 Consumer Focus

   Optimize Consumer Experience. We intend to empower consumers to buy the
right car at a fair price by providing a great experience through information,
choice and control.

 Traffic Volume

   Increase Consumer Traffic. As part of our efforts to increase our consumer
traffic, we intend to continue to focus our online advertising on a variety of
high traffic and specialty Web sites. In addition, in order to expand our
reach on the Internet, we launched the Autoweb.com Affiliates Program in the
second quarter of 1998. Under this program, affiliated Web sites are paid a
fee to provide us with purchase inquiries. We currently have revenue-sharing
arrangements with companies such as America Online's Digital City, iWon.com
and Citibank relating to purchase inquiries submitted by consumers through
links between our Web site and the other company's Web sites. We intend to
expand our revenue-sharing and affiliate programs with other selected Web
sites in an effort to drive additional consumer traffic to our Web site.

   Encourage Loyalty Through Our Online Community. We believe that by creating
an online automotive community that is attractive to consumers, we can
encourage repeat consumer visits, expand traffic through word-of-mouth
referrals and provide a differentiated competitive advantage to our member
dealers and category partners. Our AutoTalk message board service provides a
forum for automobile enthusiasts to discuss topics of mutual interest. In
addition, our Poll Position service provides consumers with the opportunity to
respond to online surveys. We intend to expand our community offerings through
internal development as well as strategic relationships. We also intend to
expand and consolidate our consumer membership services.

                                       5
<PAGE>

 Information Expertise

   Enhance and Broaden Content Offerings. We provide high quality content
which facilitates consumer buying decisions related to and including the
purchase of a vehicle. We work with leading automotive content providers, such
as New Car Test Drive, The Car Connection, Automotive Service Excellence
("ASE") and Kelley Blue Book, to provide consumers with expert advice and
information on our Web site. We intend to improve the presentation and
integration of our content and deploy new versions of our Web site, thereby
further establishing ourselves as a comprehensive independent destination for
automotive information and encouraging repeat consumer visits. Also, the
acquisition of AIC in October 1999 enhances our ability to leverage our
position as the leading source for comparative automotive data and powerful
tools that support research, analysis and publishing by the media, industry
professionals and online partners. AIC has strong relationships with the
majority of vehicle manufacturers, such as General Motors, including
significant data licensing and on-going development of web-based information
products based on the AIC competitive product database. Furthermore, AIC
currently has commercial relationships to support its data licensing efforts
with Yahoo!, Infoseek (Go Network), Excite, Snap.com and Lycos. Additionally,
we intend to broaden the resources and services available to consumers by
developing relationships with other leading automotive content providers.

 Collaborative Partnerships

   Leverage Category, Infrastructure and Advertising Partnerships. We believe
we have a scalable business model characterized by diverse revenue sources and
synergy with online category, infrastructure and advertising partnerships. Our
performance-based pricing model and incremental buying channels result in
increased revenue as more consumers seek to execute buying decisions. Further,
as we expand our range of service offerings, we expect to generate greater
revenue per visitor. We believe our Internet-based model can support a
significant increase in visitor traffic without a corresponding increase in
operating expenses. We intend to pursue these operating efficiencies by
continued cost-effective advertising to increase visitor traffic to our Web
site.

   Increase Brand Awareness. We believe that building awareness of the
Autoweb.com brand is critical to our being the leading consumer automotive
Internet service. Our consumer branding efforts are primarily focused on
online advertising and infrastructure partnerships with quality high traffic
Web sites. We currently have marketing arrangements with America Online,
Yahoo!, and HotBot. Our strategy is to increase our brand awareness further
through continued online advertising, co- and ingredient-branded
infrastructure partnerships, traditional media advertising such as newspaper,
radio and television, ongoing public relations efforts and expanded affiliate
arrangements.

   Deliver Additional Service Offerings. We intend to leverage our brand name
and online infrastructure by expanding the range of services that we provide
to consumers, member dealers and category partners. We also intend to provide
vehicle manufacturers with additional services such as general consumer
preference and behavior information derived from our consumer database.

   Expand and Enhance Member Dealer Network. We believe that enhancing the
quality and franchise distribution of our member dealer network is critical to
our success. Our objective is to have at least one member dealer representing
each vehicle manufacturer make within a reasonable driving distance of every
consumer in the United States, with most consumers given a choice of several
dealers within a given area. We currently are offering our service in Canada
and intend to expand our Canadian member dealer network. Further, we intend to
expand our member dealer certification programs to continue to improve the
quality of the consumer service that they offer. For example, our Dealer
Development and Support Group evaluates member dealers, identifies "best
practices" among them and disseminates those practices across our entire
member dealer network. Also, we intend to expand the automation and other
services we offer to member dealers to assist in optimizing their sales.

                                       6
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Services

   We currently offer the following services on our Web sites.

<TABLE>
<CAPTION>
       Name of Service                           Description
       ---------------                           -----------
<S>                            <C>
Commerce Services
Autoweb.com New Vehicle        . Buy a new vehicle from our network of
 Program                         certified member dealers

Autoweb.com Pre-Owned Vehicle  . Buy a vehicle listed in our database of pre-
 Program                         owned inventory, either from one of our member
                                 dealers or from another consumer
                               . List a pre-owned vehicle for sale

Autoweb.com Vehicle Insurance  . Obtain insurance quotes and purchase online
                                 with Intuit's multi-vendor Quicken Insurance
                                 service

Autoweb.com Vehicle Financing  . Obtain finance quotes from PeopleFirst Finance

Advertising                    . Advertisers can advertise or participate in
                                 sponsorships on Autoweb.com and Autosite.com

Autosite.com Commerce          . Buy automotive and related products and
 Partners                        services from high quality commerce partners

SalesEnhancer.com              . A sales automation tool to help member dealers
                                 (and non-member dealers) manage sales from
                                 walk-ins and those related to their Internet
                                 marketing efforts

Autoweb.com Extended Warranty  . Obtain extended vehicle warranty quotes from
                                 GE Auto Warranty Service

Autoweb.com Rebates            . Apply for the Citibank Drivers Edge card
                                 online and earn rebates toward the purchase or
                                 lease of a car

Autoweb.com Parts and          . Obtain parts and accessories from CarParts.com
 Accessories                     and a parts catalog from JC Whitney

Autoweb.com Roadside Rescue    . Join our emergency assistance, towing and trip
                                 planning program

Autoweb.com Credit Reports     . Purchase a personal credit report

Autoweb.com Lemon Check        . Get a car screening and purchase a Lemon Check
                                 report through CarFax

Autoweb.com Auctions           . Buy a certified new or pre-owned vehicle from
                                 one of our California pilot dealers

Autoweb.com Service Center     . Schedule vehicle service appointments online
                                 in Atlanta, Minneapolis/St. Paul, and Seattle

Autoweb.com Bookstore          . Browse and buy monthly featured automotive
                                 books from Barnes & Noble's (www.bn.com)

Content Services
Autosite.com                   . A 20,000-page online vehicle buyer's guide and
                                 a rich source of related services, information
                                 and original automotive editorial content

AutoSite Pro                   . An extensive source of competitive and product
                                 information for auto manufacturers

AutoSite Pro Lite              . A product information source and data
                                 distribution point for print and electronic
                                 media
</TABLE>

                                       7
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<TABLE>
<CAPTION>
       Name of Service                           Description
       ---------------                           -----------
<S>                            <C>
Autoweb.com Vehicle Research   . Identify a specific vehicle and get the facts
                                 on the vehicle you want. Get prices,
                                 specifications and photos. Compare different
                                 cars and price different options
                               . Browse vehicles by various financial,
                                 geographic and class criteria. Let Autoweb.com
                                 help you decide on your next car. Get prices,
                                 specifications and photos. Compare different
                                 cars and price different options

Autoweb.com Pre-Owned Vehicle  . Obtain Kelley Blue Book pre-owned vehicle
 Prices                          values

Autoweb.com Reviews            . Obtain consumer reviews and professional
                                 reviews from New Car Test Drive and The Car
                                 Connection

Autoweb.com Automotive News    . Read about the latest automotive news from
                                 Reuters

Autoweb.com Automotive Guides  . Use our troubleshooting guide to pinpoint the
                                 symptoms your car is exhibiting and learn
                                 possible causes
                               . Use our maintenance and repair section to
                                 obtain automotive tips and hints provided by
                                 ASE
                               . Use our selling vs. trading-in guide
                               . Use our selling checklist to prepare your car
                                 for sale and help you get your full asking
                                 price

Autoweb.com Maintenance &      . Obtain automotive tips and hints provided by
 Repair                          ASE. Also reference maintenance guide and
                                 repair index

Autoweb.com Recalls & Service  . Obtain vehicle recall information and
 Bulletins                       technical service bulletins

Autoweb.com Loan/Lease         . Calculate your monthly auto expenses or
 Calculator                      compare loan vs lease payments

Autoweb.com Weekly             . Read weekly automotive editorials from
 Publication ("Fast Lane")       industry experts

Community Services
Autoweb.com AutoTalk           . Consumer automotive message board discussion
                                 forums

Autoweb.com Poll Position      . Cast your vote on automotive-related issues
</TABLE>

 Selected Commerce Services

   New Vehicle Program. Consumers wishing to purchase a new vehicle first
complete a purchase inquiry through our Web site. They specify the desired
vehicle make, model and options on the purchase inquiry and provide their
contact information, including name, telephone number and e-mail address.
Member dealers agree to respond to consumers within 24 hours of receipt of a
purchase inquiry. Member dealer representatives explain the Autoweb.com
vehicle purchase process and answer consumers' questions about the vehicle or
the purchase process. In addition, our contracts require member dealers to
designate a contact person and to give a competitive, firm quote to consumers
during their initial communication. If the quote is acceptable, the consumer
can visit the showroom to finalize the purchase or the member dealer, in some
cases, can deliver the vehicle directly to the consumer and complete the
necessary documentation upon delivery. The Autoweb.com purchase process is
provided to consumers without charge; only member dealers pay a fee.

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   To monitor the process and ensure that our member dealers provide consumers
with high quality customer service, we created the Autoweb.com Customer Care
Center. The Autoweb.com Customer Care Center serves as an extension of each
member dealer's sales process, helping to facilitate consumer satisfaction by
monitoring the progress of consumer purchase inquiries and facilitating timely
and appropriate responses. On the day that a purchase inquiry is submitted,
the Autoweb.com Customer Care Center contacts the consumer by e-mail to:

  . thank the consumer for using Autoweb.com;

  . assure the consumer that the purchase inquiry has been forwarded to the
    chosen member dealer(s);

  . summarize the Autoweb.com purchase process;

  . provide the name of the designated contact person(s) at the member
    dealer(s); and

  . provide an e-mail address at Autoweb.com for the submission of questions
    and concerns.

   We contact the consumer again within the next 72 hours to determine if the
process is being followed. Two weeks after each purchase inquiry is submitted,
the Autoweb.com Customer Care Center sends the consumer an electronic survey
concerning the process and the Autoweb.com experience. The results of this
survey are summarized, evaluated by our management and made available to
member dealers so that they can monitor their success.

   Prospective member dealers are informed of our consumers' value
expectations, as well as our sales standards and certification process. The
Autoweb.com dealer development and support group educates member dealers on
the Autoweb.com purchase program. For example, our member dealer certification
team evaluates member dealers, identifies "best practices" among them and
disseminates those practices across our entire member dealer network. We
intend to expand dealer development and support to continue to improve the
quality of services offered by our member dealers to our consumers. We believe
this program improves consumer satisfaction by making the vehicle buying
process faster, better and easier and improves member dealer satisfaction by
increasing their closing rate and consumer loyalty. We use sales standards and
sales satisfaction metrics from our electronic surveys to monitor our member
dealers and assure high quality customer service. Member dealers that
consistently fail to satisfy the agreed-upon standards are terminated if
additional training proves unsuccessful. To date, the number of such
terminations has not been significant.

   Under our "pay for performance" pricing model, member dealers pay a fee for
each qualified purchase inquiry that includes a specific desired vehicle, as
well as a valid name and phone number or e-mail address. In addition, member
dealers identify a radius, generally between 15 and 50 miles as measured
between the centers of the member dealer's and the consumer's zip codes, from
which to receive inquiries. In this way, we believe member dealers can
accurately target their potential customers and pay only for what they deem to
be qualified, high potential leads.

   Pre-Owned Vehicle Program. Consumers wishing to purchase a pre-owned
vehicle from Autoweb.com's member dealers or from private sellers initiate a
process similar to that for purchasing new vehicles. However, unlike a new
vehicle, which can be obtained from numerous dealers, pre-owned vehicles have
unique colors, options, mileage and maintenance records. Consumers can search
our pre-owned vehicle database by specifying desired mileage, distance to a
member dealer and make, model and price of vehicle. Consumers then
automatically receive the search results indicating whether the vehicle is
available through a member dealer or private seller, and a detailed
description of the pre-owned vehicle, including mileage, equipment and, if
available, a photograph. If a consumer's search is successful, the consumer
may complete a purchase inquiry that we forward by e-mail or fax to the
appropriate member dealer or private seller. Upon receiving notification, a
consumer can then complete a purchase inquiry. Our Customer Care Center also
supports consumers in the pre-owned vehicle buying process.

   Member dealers participating in the Pre-Owned Vehicle Program are bound to
the same process and customer service standards as member dealers in the
Autoweb.com New Vehicle Program. Unlike the New

                                       9
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Vehicle Program, however, we do not allow member dealers to exclude other
dealers within their selected radius. We believe that each pre-owned vehicle
is unique, and, as a result, exclusive territories unduly restrict consumer
selection without a corresponding advantage to the member dealers.

   The Pre-Owned Vehicle Program utilizes the same "pay for performance"
pricing model as the New Vehicle Program. Member dealers pay a fee for each
qualified purchase inquiry. Typically, however, member dealers specify a
greater radius from which to receive inquiries about pre-owned vehicles than
they do for new vehicles due to the unique nature of each pre-owned vehicle.
Our Pre-Owned Vehicle Program also enables private sellers, for a fee, to list
their pre-owned vehicles by putting a description and optional photograph in
our database of pre-owned vehicles. If the private seller is dissatisfied with
our service, we will refund the fee.

   Vehicle Insurance. We believe the sale of vehicle insurance is an important
extension to our vehicle purchase process. Intuit has the exclusive right to
market their multi-vendor insurance services and provide consumers with
insurance quotes on our Web site until October 2002.

   Vehicle Financing. A natural extension of our vehicle purchase service is
to aid consumers, regardless of their credit profiles, in obtaining vehicle
financing. To provide a comprehensive financing service offering to our
consumers, we have entered into an agreement under which PeopleFirst Finance
will offer prime and sub-prime vehicle financing to consumers in the United
States on an exclusive basis.

   Advertising. Advertisers can purchase targeted advertising including
banner, buttons, sponsorships and promotions offering automotive products and
services related to the consumers' activities on our Web site. In particular,
using the interactive nature of online advertising, we can reach this highly
targeted audience at the time manufacturers most want to promote, influence
and maintain brand image and awareness.

 Selected Content Services

   Our Web sites, in addition to offering photographs of listed vehicles,
provide consumers with comprehensive tools and new vehicle specifications,
including MSRP and invoice pricing, performance, interior comfort, safety,
warranties, engine, dimensions and wheel and suspension information. Our Web
sites also contain supplementary expert advice and information from leading
automotive content providers, such as Kelley Blue Book, The Car Connection,
New Car Test Drive and ASE. In addition, we provide consumers with a large
number of other content services.

 Selected Community Services

   We believe that, by creating an online automotive community that is
attractive to consumers, we can encourage repeat consumer visits, expand
traffic through word-of-mouth referrals and provide a competitive advantage to
our member dealers and category partners. We believe that we are the only
online vehicle purchasing service that provides a forum for automobile
enthusiasts to discuss topics of mutual interest. This forum, AutoTalk, is
provided to consumers at no charge. Our Web site also contains a polling
feature called Poll Position that enables visitors to respond to online
questions and view survey results and comments. We believe that AutoTalk and
Poll Position could become popular places to advertise goods and services. We
intend to add an e-mail based service to remind consumers of license renewal
dates, smog test appointments and other service requirements. We also intend
to create "membership" benefits that will motivate consumers to return to our
Web site.

Sales

   Sales to Dealers. We believe that the quality and franchise distribution of
our member dealer network is critical to our success. Our sales force seeks to
ensure that our member dealer network provides coverage such that consumers
are always within a reasonable driving distance of at least one member dealer.
Our regional specialists analyze purchase inquiries from areas not currently
covered by our member dealer network and target

                                      10
<PAGE>

dealers within these areas to join our program. Dealers are chosen based on
their ability to meet this unsatisfied demand and their agreement to adhere to
the Autoweb.com purchase process. Regional Account Managers are compensated
based on building successful, long-term dealer relationships. We offer member
dealers a source of incremental sales and also ongoing information to increase
future sales. We believe that this is critical to dealers faced with the
prospect of unprecedented industry change and that it greatly increases our
value to these dealers. The same sales force is responsible for both the New
and Pre-Owned Vehicle Programs, since our Pre-Owned Vehicle Program is also
primarily targeted to franchised dealers, as opposed to independent dealers.

   Sales to Vehicle Manufacturers and Category Partners. The Autoweb.com
business development group is responsible for expanding our commerce services
in the vehicle and automotive-related markets. Category partners are selected
based on their ability to provide quality services online that enhance our
value to consumers. Business development is focused on expanding existing
service categories and adding new consumer categories. Additionally, AIC has a
business development group focused on Autosite.com online commerce
partnerships and a sales group focused on vehicle manufacturer products and
services.

   Sales to Advertisers. Our advertising sales effort is primarily targeted to
vehicle manufacturers and automotive-related mass market consumer vendors.
Campaign specifications are typically negotiated with the advertising agency
or directly with the manufacturer or automotive-related vendor.

Marketing

   Our marketing strategy includes the following key points:

   Build Our Brand. To date, we have focused primarily on online promotions,
press releases to a broad range of consumer and trade publications along with
consumer promotion events to increase consumer traffic to our Web site. In
addition, the rollout of our television advertising and our regular
advertising in the leading automotive trade publications has helped to build
dealer brand awareness. We believe that we will need to increase the use of
traditional broad-based media such as television, radio and newspapers in
order to build our brand loyalty among consumers, dealers, advertisers and
category partners.

   Spend Efficiently on Advertising. Broad consumer interest in the automotive
category allows us to use a versatile advertising strategy. As a result, we
have been able to build our brand effectively through the efficient use of
online advertising, including high profile, high traffic Web sites such as
America Online (and related properties), Yahoo! and HotBot.

   Increase Revenue Per Visitor. To increase revenue per visitor, we must
enhance and expand the content and increase the services available on our Web
site. We intend to add products and services to address additional steps in
the car ownership cycle.

   Develop Strategic Relationships. In addition to our advertisements, we have
created revenue-sharing relationships with brand leaders such as America
Online's Digital City, iWon.com and Citibank. We intend to continue to develop
strategic relationships that will provide not only brand exposure but also
valuable content for our Web site.

   Expand the Autoweb.com Affiliates Program. The Autoweb.com Affiliates
Program allows other Web sites to link with the Autoweb.com Web site. The
affiliates receive a commission for each new or pre-owned vehicle purchase
inquiry or classified ad delivered. This program generates brand awareness and
revenue for a lower relative cost. We intend to expand this program in the
future.

Support Services

   Our dealer development and support group certifies that our member dealers
adopt the Autoweb.com purchase process and maintains communication with each
member dealer contact in order to seek to ensure a

                                      11
<PAGE>

convenient, efficient purchasing process for our consumers and member dealers.
We make available detailed monthly activity summaries for each member dealer
that include the total number of purchase inquiries and the results of
consumer surveys. Dealer development and support develops and presents formal
training and regional workshops, and produces and disseminates training tapes
and regular updates to our training manuals.

Technology

   We believe that we have built a robust, scalable user interface and
transaction processing system that is designed around industry standard
architectures and internally-developed proprietary software. Our system
maintains operational data records regarding franchised dealers, including
billing information, pre-owned vehicle listings and new and pre-owned vehicle
purchase inquiries. Our system also handles all other aspects of the new and
pre-owned vehicle buying process, including submitting e-mail and facsimile
copies to member dealers and submitting insurance and finance inquiries, as
well as other inquiries and information, to various category partners.
Furthermore, the system sends a daily list that matches pre-owned vehicles to
those registered.

   We have an online system available for member dealers, advertisers and
category partners to access relevant information. For example, member dealers
can access an Autoweb.com web site to manage their pre-owned car inventory by
adding, modifying or updating their listings, as well as uploading pictures of
pre-owned cars. Member dealers can view their customer information and
generate reports based on their customers' survey responses. Autoweb.com
affiliates can also use our extranet to view activity summaries of their
account.

   The Autoweb.com service provides 24 hour a day, seven day a week
availability, subject to occasional short maintenance periods and power
outages. Our system hardware is hosted and located at Exodus Communications,
Inc. in Santa Clara, California. Our network is protected by a firewall from
Checkpoint. Our system consists of Dell and Micron database servers running
Microsoft SQL and several Pentium-based Microsoft Internet servers running on
Windows NT operating systems. Our Internet servers also utilize VeriSign, Inc.
digital certificates for authentication. We use a load balancing system and
our own redundant servers for our banner ad delivery. We use Allaire Cold
Fusion for most of our Web application development and delivery.

Competition

   The market for the purchase of vehicles and automotive-related products and
services is intensely competitive, and we expect competition to increase
significantly, particularly on the Internet. Barriers to entry on the Internet
are relatively low, and we may face competitive pressures from numerous
companies. Currently, we believe our most significant competitors are MSN
CarPoint and Autobytel.com. There are also a number of web sites that offer
vehicles, particularly vehicle manufacturers' own Web sites and sites for
electronic classified ads. Additionally, there are numerous Web sites that
offer vehicle information and other content, as well as community offerings,
directly to the vehicle buying consumer or targeted audiences such as car
collectors. We also face competition from large dealer groups and traditional
media companies, such as newspaper, television and radio companies, many of
which currently operate a Web site. In addition to direct competitors, we also
compete indirectly with vehicle brokerage firms, discount warehouse clubs and
automobile clubs. Several auction Web sites have also recently announced their
intention to auction vehicles on the Internet. We also compete with a variety
of automotive data, vehicle manufacturer and dealer services companies.

   We believe that the principal competitive factors in attracting consumers
to our Web site are:

  . a positive vehicle purchasing experience for the consumer;

  . brand awareness and loyalty;

  . breadth of selections;

  . ease of use;

  . having adequate geographic coverage of member dealers;

  . Web site functionality, responsiveness and information; and

  . quality of content, service offerings and customer service.

                                      12
<PAGE>

   We believe that the principal competitive factors in attracting member
dealers, category partners and advertisers include:

  . the volume of our Web site traffic;

  . our brand awareness and loyalty;

  . the demographics of our consumers;

  . the cost effectiveness of purchase inquiries we deliver; and

  . the cost effectiveness of advertising on our Web site.

   Many of our existing and potential competitors have longer operating
histories in the Internet market, greater name recognition, larger consumer
bases and significantly greater financial, technical and marketing resources
than we do. These competitors may be able to undertake more extensive
marketing campaigns for their brand, products and services, adopt more
aggressive pricing policies and make more attractive offers to potential
employees. Furthermore, our existing and potential competitors may develop
offerings that equal or exceed the quality of our offerings, or achieve
greater market acceptance, than ours. We cannot assure you that we will be
able to compete successfully against our current or future competitors or that
competition will not have a material adverse effect on our business, results
of operations and financial condition.

Privacy Policy

   We believe that issues relating to privacy and use of personal information
relating to Internet users are becoming increasingly important as the Internet
expands and its commercial use increases. We have adopted and posted to the
web site a privacy policy concerning how we use information about our consumer
visitors and the extent to which others may have access to this information.
We use information about our consumer visits for internal purposes in order to
improve marketing and promotional efforts to analyze Web site usage
statistically and to improve content, product offerings and Web site layout.
Any refinements of our privacy policy will be clearly disclosed to our Web
site visitors.

Employees

   As of December 31, 1999, we had 218 full-time employees, including 94 in
sales and marketing, 84 in product development, and 40 in general and
administration. We consider our relations with our employees to be good. We
have never had a work stoppage, and no employees are represented under
collective bargaining agreements.

ITEM 2. PROPERTIES

   Our principal administrative, marketing and product development facilities
are located in approximately 36,000 square feet of office space in Santa
Clara, California. The lease for this space expires on August 1, 2004 and does
not provide for a renewal option. We also lease office space in Westborough,
Massachusetts, Los Angeles, California and Atlanta, Georgia. We believe that
these spaces will be adequate to meet our needs in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

   The Company is not aware of any pending or threatened legal proceedings
against it that, individually or in the aggregate, would have a material
adverse effect on its business, results of operations, or financial condition.
We may in the future be party to litigation arising in the course of our
business.

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

   No matters were submitted to a vote of our security holders during the
fourth quarter of the year ended December 31, 1999.

                                      13
<PAGE>

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

(a) Market for Registrant's Common Equity. The principal market for the our
Common Stock is the Nasdaq National Stock Market, where it is traded under the
symbol "AWEB." The Company's initial public offering of its common stock was
declared effective on March 22, 1999. The following table sets forth for the
periods indicated the high and low sales prices of our Common Stock as
reported by the Nasdaq National Stock Market:

<TABLE>
<CAPTION>
                                                                  High   Low
                                                                 ------ ------
       <S>                                                       <C>    <C>
       1999:
       First Quarter (from March 23, 1999)...................... $50.00 $19.63
       Second Quarter...........................................  41.25  11.50
       Third Quarter............................................  18.31   8.06
       Fourth Quarter...........................................  14.13   8.25

       2000:
       First Quarter (through March 24, 2000, the latest
        practicable trading date)............................... $12.00 $ 5.50
</TABLE>

   On March 24, 2000, the last reported sales price of the Company's common
stock on the Nasdaq National Stock Market was $6.56 per share. As of March 24,
2000, there were approximately 350 holders of record of the Common Stock.
Brokers and other financial institutions hold many such shares on behalf of
stockholders. We estimate the total number of stockholders represented by
these record holders to be approximately 9,400.

   We have never declared or paid any cash dividends on our capital stock. We
currently anticipate that we will retain all future earnings for use in our
business and do not anticipate paying any cash dividends in the foreseeable
future.

(b) Use of Proceeds. The effective date of the Company's first registration
statement, filed on Form S-1 under the Securities Act of 1933 (No. 333-71177)
relating to the Company's initial public offering of its common stock was
March 22, 1999. From October 1, 1999 through December 31, 1999, we have spent
approximately $16.0 million of the proceeds from our initial public offering
for our acquisition of AIC and approximately $11.4 million for general
operating expenses.

(c) Sales of Unregistered Securities. On October 21, 1999, we issued 363,636
shares of our common stock to The Gale Group, Inc. as partial consideration
for our acquisition of substantially all of the assets of AIC.

                                      14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

   The following selected financial data should be read in conjunction with
Autoweb.com's financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                               Date of
                            Incorporation
                             (October 3,
                              1995) to        Years Ended December 31,
                            December 31,  -----------------------------------
                                1995       1996    1997      1998      1999
                            ------------- ------  -------  --------  --------
                               (In thousands, except per share amounts)
<S>                         <C>           <C>     <C>      <C>       <C>
Statement of operations
 data:
Net revenues...............    $   26     $  307  $ 3,492  $ 13,041  $ 32,792
Loss from operations.......       (93)      (835)  (2,971)  (11,425)  (20,214)
Net loss attributable to
 common stockholders.......       (94)      (853)  (3,196)  (12,374)  (18,153)
Net loss per share:
  Basic and diluted........    $(0.01)    $(0.11) $ (0.41) $  (1.58) $  (0.85)
  Weighted average shares--
   basic and diluted.......     7,200      7,497    7,794     7,850    21,425
</TABLE>

<TABLE>
<CAPTION>
                                                   December 31,
                                       ----------------------------------------
                                       1995   1996    1997      1998     1999
                                       -----  -----  -------  --------  -------
                                                  (In thousands)
<S>                                    <C>    <C>    <C>      <C>       <C>
Balance sheet data:
Cash, cash equivalents and short-term
 investments ........................  $  --  $  11  $ 1,819  $  2,714  $30,284
Restricted cash                           --     --       --        --    2,550
Working Capital......................   (118)  (761)     773       800   39,607
Total assets.........................     57    261    3,294     7,185   71,677
Long-term obligations, less current
 portion ............................      9     81       17       654      361
Mandatorily redeemable convertible
 preferred stock ....................     --    158    5,261    12,969       --
Total stockholders' equity
 (deficit)...........................    (93)  (884)  (4,030)  (11,661)  60,686
</TABLE>

                                       15
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

   This Annual Report on Form 10-K contains forward-looking statements, within
the meaning of Section 21E of the Securities Exchange Act of 1934, and Section
27A of the Securities Act of 1933, that involve risks and uncertainties. These
forward-looking statements include statements regarding our expectations,
beliefs, intentions or strategies regarding the future. All these forward-
looking statements are based on information available to us on the date
hereof, and we assume no obligation to update any such forward-looking
statements. Factors that could cause actual results to differ from those
projected in these forward-looking statements include without limitation those
discussed below in "Factors That May Affect Future Results." Readers are urged
to carefully review and consider the various disclosures made by us in this
report, and those detailed from time to time in our reports and filings with
the Securities and Exchange Commission, that attempt to advise interested
parties of the risks and factors that may affect our business.

Overview

   Autoweb.com is a leading consumer automotive Internet service. Our Web site
centralizes an extensive collection of automotive-related commerce, content
and community offerings to assist consumers in researching, evaluating and
buying vehicles and automotive-related products and services such as insurance
and financing. In addition, we provide automotive content, Web hosting and
development services and sales automation services to vehicle manufacturers,
dealers and online partners. Also, for consumers and automotive professionals,
through our acquisition of AIC, we provide Autosite.com, a 20,000-page online
vehicle buyer's guide and rich suite of related services and information, and
original automotive editorial content. We began selling our services to
automobile dealers and launched the Autoweb.com Web site for consumer use in
October 1995. Since that time, we have increased our network to over 5,000
member dealers (where each franchise and pre-owned location for a particular
vehicle manufacturer is defined as a member dealer).

   We originally charged our member dealers based on a subscription model,
where each member dealer paid a flat monthly fee in exchange for our directing
consumer purchase inquiries to them. Because the number of purchase inquiries
directed to member dealers varied widely, due to factors such as their
location and franchise type, the cost per purchase inquiry under this model
differed substantially from member dealer to member dealer. In February 1998,
we changed our pricing model and began selling our services to new dealers
using a "pay for performance" model. Under this arrangement, a member dealer
pays us a fee only for a qualified purchase inquiry that it actually receives.
We believe our "pay for performance" model enables our member dealers to
maximize their return from, and enhances their satisfaction with, our
services. In February 1998, we also began converting our existing member
dealer subscription contracts to contracts utilizing the pay for performance
model. As of December 31, 1999, approximately 1% of our member dealer
contracts still utilize the subscription model.

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

   We incurred net losses of $2.9 million, $11.5 million, including $5.6
million of stock-based compensation, and $18.2 million, including $2.2 million
of stock-based compensation in 1997, 1998 and 1999, respectively. We intend to
increase our focus and spending on brand development, marketing and promotion,
site content development, strategic relationships and technology and operating
infrastructure development. Our limited

                                      16
<PAGE>

operating history makes it difficult to forecast future operating results.
Although our net revenues have grown in recent quarters, we cannot be certain
that net revenues will increase at a rate sufficient to achieve and maintain
profitability. Even if we were to achieve profitability in any period, we
might fail to sustain or increase that profitability on a quarterly or annual
basis.

   On July 9, 1999, the Company acquired technology and other assets from
SalesEnhancer.com ("SE") for approximately $3.7 million in cash. On October 6,
1999, the Company acquired certain assets and liabilities of AIC, a division
of The Gale Group, Inc. for 363,636 shares of common stock valued at $3.3
million and $16.0 million in cash. We believe that these acquisitions are
critical to our core business because AIC supplies content to our Internet
site and SE enables our member automotive dealers to effectively manage the
referrals provided by Autoweb.com.

Results of Operations

 Net Revenues

   Our net revenues increased from $3.5 million in 1997 to $13.0 million in
1998 and to $32.8 million in 1999. Approximately 78% of the increase in net
revenues from 1997 to 1998 and approximately 63% of the increase from 1998 to
1999 were due to higher levels of net dealer fee revenues. Revenues derived
from advertisers accounted for the majority of the remaining increase in net
revenues for these periods. Dealer fee revenues increased as a result of
increases in the size of our member dealer network and the number of purchase
inquiries that we provided to our member dealers. As described above, we began
to change our pricing model in February 1998 from a subscription-based model
to a "pay for performance" model.

 Cost of Net Revenues

   Cost of net revenues increased from $244,000 in 1997 to $842,000 in 1998
and to $3.3 million in 1999. Approximately 37% of the increase in cost of net
revenues from 1997 to 1998 and approximately 42% of the increase from 1998 to
1999 were due to increases in the costs of Web site operations, including
personnel, equipment, depreciation and occupancy costs. Approximately 27% of
the increase in cost of net revenues from 1997 to 1998 and approximately 12%
of the increase from 1998 to 1999 were due to increases in the cost of
providing site content information, such as Kelley Blue Book data.
Approximately 27% of the increase in the cost of net revenues from 1997 to
1998 and approximately 42% of the increase from 1998 to 1999 were due to
increases in our revenue sharing expenses, related to the operation of our co-
branded sites, which began contributing an increasing number of consumer
purchase inquiries.

 Sales and Marketing

   Our sales and marketing expenses increased from $5.2 million in 1997 to
$13.6 million in 1998 and to $33.2 million in 1999. Approximately 53% of the
increase in sales and marketing expenses from 1997 to 1998 and approximately
75% of the increase from 1998 to 1999 were due to increases primarily in
online advertising and, to a lesser extent, our spending on public relations,
advertising in the traditional media, trade shows and other promotions.
Approximately 28% of the increase in sales and marketing expenses from 1997 to
1998 and approximately 18% of the increase from 1998 to 1999 were due to
increases in personnel costs caused by significant increases in headcount,
primarily salespersons focused on enrolling member dealers.

 Product Development

   Our product development expenses increased from $325,000 in 1997 to
$586,000 in 1998 and to $5.1 million in 1999. These expenses increased
primarily as a result of increased hiring of product development personnel
and, to a lesser extent, as a result of increased occupancy costs.

                                      17
<PAGE>

 General and Administrative

   Our general and administrative expenses increased from $678,000 in 1997 to
$3.8 million in 1998 and to $7.2 million in 1999. Approximately 51% of the
increase in general and administrative expenses from 1997 to 1998 and
approximately 37% of the increase from 1998 to 1999 were due to increases in
personnel costs resulting from increased hiring of administrative personnel,
including most of our current officers. Approximately 15% of the increase from
1997 to 1998 and approximately 22% of the increase from 1998 to 1999 were due
to increases in information technology support related to administrative
functions and occupancy costs. The remainder of the increase from 1997 to 1998
and from 1998 to 1999 was due to increases in professional consulting fees.

 Stock-Based Compensation

   We incurred no stock-based compensation expense in 1997. We recorded a
total of $11.0 million of unearned stock-based compensation in 1998, of which
$5.6 million was amortized in 1998, primarily in the fourth quarter. We
recorded a total of $3.8 million of unearned stock-based compensation and
amortization expense totaling $2.2 million in 1999.

 Interest and Other Income (Expense), Net

   In 1997, interest income earned on our cash and cash equivalent balances
derived primarily from the net proceeds from our sale of Series B preferred
stock in June 1997 exceeded interest expense on borrowings. Interest and other
income (expense), net, in 1998 represents interest expense on borrowings under
capital leases and our credit facilities, partially offset by interest income
earned on our cash and cash equivalent balances. In 1999, interest income
earned on our cash, cash equivalent and short-term investment balances,
primarily derived from the net proceeds from our initial public offering,
exceeded interest expense on borrowings.

 Income Taxes

   We recorded net losses of $2.9 million and $11.5 million and $18.2 million
in 1997, 1998 and 1999, respectively. Accordingly, no provision for income
taxes was recorded in any of these years. The resulting deferred tax asset,
representing primarily such net operating loss carryforwards, has been reduced
in full by a valuation allowance as it is more likely than not that the
deferred tax asset will not be realized.

Liquidity and Capital Resources

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

   Net cash used in operating activities was $2.4 million in 1997, $4.6
million in 1998 and $24.2 million in 1999, primarily as a result of our net
loss. In 1997, our $2.9 million net loss was partially offset by a $634,000
increase in accounts payable and other accrued expenses. In 1998, our $5.9
million net loss before stock-based compensation expense was partially offset
by an increase of $1.7 million in accounts payable and other accrued expenses.
In 1999, our net loss of $15.9 million before stock-based compensation expense
was partially offset by an increase of $4.3 million in accounts payable and
other accrued expenses.

   Net cash used in investing activities was $519,000 in 1997, $1.2 million in
1998 and $40.8 million in 1999. This increase from 1998 to 1999 was primarily
due to the acquisition of certain software products and other intangible and
tangible assets of SalesEnhancer.com, Inc. and AIC and the purchase of short-
term investments.

   Net cash provided by financing activities was $4.7 million in 1997, $6.7
million in 1998 and $71.7 million in 1999. In 1997, net cash provided by
financing activities was almost entirely the result of proceeds from the
issuance of preferred stock. In 1998, net cash provided by financing
activities was primarily the result of proceeds

                                      18
<PAGE>

from the issuance of preferred stock (net of repurchases) and, to a lesser
extent, the result of proceeds from borrowings under a long-term credit
facility. In 1999, net cash provided by financing activities was primarily the
result of proceeds from the issuance of common stock at our initial public
offering.

   We had no material commitments for capital expenditures at December 31,
1999. As of that date, we had total minimum lease obligations of $4.4 million
under certain non-cancelable operating leases. Depending on our rate of growth
and cash requirements, we may require additional equity or debt financing to
meet future working capital or capital expenditure needs. There can be no
assurance that such additional financing will be available or, if available,
that such financing can be obtained on terms satisfactory to us.

   In March 1999, we raised $71.1 million (net of underwriters' discounts and
commissions and other costs and expenses) in our initial public offering. At
December 31, 1999, the total of our cash, cash equivalents, restricted cash
and short-term investments were $32.8 million. We believe that our current
cash position together with anticipated future revenues will be sufficient to
meet our cash requirements for at least the next 12 months.

Factors That May Affect Future Results

 We are an early stage company

   We were incorporated in October 1995. Therefore, we have a limited
operating history upon which to base an evaluation of our current business and
prospects. Moreover, our business model is evolving and depends on our ability
to generate revenues from multiple sources through our Web site. Before
investing, you should evaluate the risks, expenses and problems frequently
encountered by companies such as ours that are in the early stages of
development and that are entering new and rapidly changing markets like the
Internet. In particular, to address these risks we face the following
challenges:

  . maintaining and increasing our consumer base;

  . maintaining and increasing our network of member dealers;

  . managing the quality of services delivered by member dealers, vehicle
    manufacturers and category partners;

  . generating continuing revenues through our Web site from consumers,
    member dealers and category partners;

  . competing effectively with existing and potential competitors;

  . developing further our unproven business model;

  . developing further Autoweb.com awareness and brand loyalty;

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

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

  . managing expanding operations;

  . broadening our service offerings and attracting and retaining additional
    category partners and content providers to enable us to expand our
    service offerings; and

  . attracting and retaining qualified personnel.

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

                                      19
<PAGE>

 Our operating results are likely to fluctuate significantly

   Our results of operations have varied widely in the past, and we expect
that they will continue to vary significantly from quarter to quarter due to a
number of factors described below and elsewhere in this Form 10-K:

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

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

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

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

   We have incurred net losses in each fiscal year since our inception,
including a net loss of $18.2 million in 1999. We had an accumulated deficit
of $35.8 million as of December 31, 1999. The size of future net losses will
depend, in part, on the rate of growth in our revenues from member dealer
fees, category partners fees, advertising sales and other e-commerce
activities. It is critical to our success that we continue to expend financial
and management resources to develop Autoweb.com brand awareness and loyalty
through marketing and promotion, expansion of our member dealer network,
development of our online content and expansion of our other services. As a
result, we expect that our operating expenses will increase significantly
during the next several years, especially in sales and marketing. With
increased expenses, we will need to generate significant additional revenues
to achieve profitability. As a result, we may never achieve or sustain
profitability, and, if we do achieve profitability in any period, we may not
be able to sustain or increase profitability on a quarterly or annual basis.

 We have a new and unproven business model

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

  . fees paid by member dealers for consumer referrals;

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

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

  . fees paid by vehicle manufacturers, dealers and online companies that
    want access to automotive content; and

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

   In order for us to be successful, we must have consumers visit our Web site
regularly to increase the likelihood that they will use our service when they
are interested in buying a vehicle or a related product or

                                      20
<PAGE>

service. Therefore, we must not only develop services that directly generate
revenue, but also provide information and community offerings that attract
consumers to our Web site frequently. We will need to develop new offerings in
each of these areas as consumer preferences change and new competitors emerge.
We cannot assure you that we will be able to provide consumers with an
acceptable blend of services, information and community offerings. We provide
information and community offerings without charge, and we may not be able to
generate sufficient service revenues to pay for these offerings. Accordingly,
we are not sure our business model will be successful or that we can sustain
revenue growth or be profitable.

   The online market for automotive services is new and rapidly developing. As
is typical for any new, rapidly evolving market, demand and market acceptance
for recently introduced products and services are subject to a high level of
uncertainty and risk. For example, in 1998 we changed our pricing model from a
fixed-rate, subscription-based pricing model to a "pay for performance"
pricing model under which each member dealer pays a fee for each qualified
purchase inquiry that we deliver to it from a pre-selected geographic radius.
In 1998, we also increased our pricing levels. These changes may not prove to
be successful. It is also difficult to predict the market's future growth
rate, if any. Because of the low barriers to entry, the market is
characterized by an increasing number of market entrants. If the market fails
to develop, develops more slowly than expected or becomes saturated with
competitors, or our services do not achieve or sustain market acceptance, our
business, results of operations and financial condition could be materially
and adversely affected.

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

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

 We rely heavily on member dealers

   We derive the majority of our revenues from member dealer fees (payments
from member dealers for each purchase inquiry that we provide to them), and we
expect to continue to do so for the foreseeable future. Member dealer fees
represented approximately 85%, 70%, and 66% of our net revenues in 1997, 1998,
and 1999, respectively. Consequently, our business is highly dependent on
consumers' use of Autoweb.com to purchase vehicles so that member dealers will
achieve a satisfactory return on their investment in the Autoweb.com program.

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

 We must reduce our high member dealer turnover

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

                                      21
<PAGE>

that we had at the beginning of the year and converted approximately 30% to
the new pricing model. During 1998, we lost approximately 22% of the
performance-based member dealers that we converted or with which we first
entered into a contract in 1998. During 1999, we lost approximately 31% of the
performance-based member dealers that we had at the beginning of the year or
first entered into a contract during the year.

   Attrition remains unacceptably high. We believe that we can reduce our
attrition rate over time as our member dealer network stabilizes due to the
efforts of our dealer development and support group and due to reduced
conversion activity. We are undertaking several initiatives to reduce our
attrition. These initiatives include the recent purchase of customer
relationship management software, the sale of proprietary internet lead
management software to our member dealers and an increase in dealer training.
Nevertheless, we cannot assure you that we will be able to reduce the level of
this attrition, and our failure to do so could materially and adversely affect
our business, results of operations and financial condition.

 We need to build strong brand loyalty

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

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

 We depend on third-party relationships

   We have entered into agreements with various category partners, some of
which require us to feature them exclusively in certain sections of our Web
site. For example, we have entered into an agreement with Intuit's Quicken
Insuremarket ("Quicken"), pursuant to which Quicken has the exclusive right to
offer insurance services on our Web site through October 15, 2002. Existing
and future exclusive arrangements may prevent us from entering into other
content agreements, advertising or sponsorship arrangements or other
commercial relationships. Many companies that we may pursue for a commercial
relationship may also offer competing services. As a result, these competitors
may be reluctant to enter into commercial relationships with us. Our business
could be adversely affected if we do not maintain our existing commercial
relationships on terms as favorable as currently in effect, if we do not
establish additional commercial relationships on commercially reasonable terms
or if our commercial relationships do not result in the expected increased use
of our Web site.

   Additionally, our sale of automotive content, Web hosting and development
services and sales automation services to vehicle manufacturers and online
partners is dependent upon a few primary relationships, including competitive
online automotive car buying services and various vehicle manufacturers.


                                      22
<PAGE>

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

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

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

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

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

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

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

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

   To remain competitive we must continue to enhance and improve the ease of
use, responsiveness, functionality and features of the Autoweb.com site and
develop new services in addition to continuing to improve the consumer
purchasing experience. These efforts may require the development or licensing
of increasingly complex technologies. We may not be successful in developing
or introducing new features, functions and services, and these features,
functions and services may not achieve market acceptance or enhance our brand
loyalty. If we fail to develop and introduce new features, functions or
services effectively, it could have a material adverse effect on our business,
results of operations and financial condition.

 We need to manage our growth

   Our recent growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources. In
August 1999, Dean DeBiase, our Chief Executive Officer and director since
joining the Company in December 1998 was promoted to Chairman of the Board of
Directors and Chief Executive Officer. In November 1999 we had several
management changes. Samuel Hedgpeth, our Chief Financial Officer since joining
the Company in September 1997 was promoted to President and Chief Operating
Officer; Thomas Stone, who joined the Company in January 1998, was promoted
from Vice President, Finance to Chief Financial Officer and James Wolfe, our
Director of Marketing since joining the Company in August

                                      23
<PAGE>

1999 was promoted to Vice President, Marketing. Since August 1999, there were
also resignations by Cary Rosenzweig, Vice President, Marketing and Garrett
Mullins, Vice President, Dealers Sales and Member Services. Any inability to
manage growth effectively could have a material adverse effect on our
business, results of operations and financial condition.

 We are dependent on certain key personnel

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

   Our future success depends on our continuing ability to retain and attract
highly qualified technical and managerial personnel. As of December 31, 1999,
we had 218 full-time employees, and we anticipate that the number of employees
will increase significantly during the next 12 months. Wages for managerial
and technical employees are increasing and are expected to continue to
increase in the foreseeable future due to the competitive nature of the
current employment market, particularly in Northern California. We may be
unable to retain key technical and managerial personnel or to attract and
retain additional highly qualified technical and managerial personnel in the
future. We have experienced difficulty from time to time attracting the
personnel necessary to support the growth of our business, and we may
experience similar difficulty in the future. Inability to attract and retain
the technical and managerial personnel necessary to support the growth of our
business could have a material adverse effect upon our business, results of
operations and financial condition.

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

   In May 1998, the Texas Department of Transportation notified us that, in
their opinion, our performance-based pricing model is illegal, because it
makes us a broker under Texas law. They have taken the position that the fee
paid to us by member dealers for each qualified purchase inquiry is equivalent
to a broker's fee and that we are arranging for two persons to meet and enter
into a transaction that involves the sale of a motor vehicle. In September
1999 the Texas Department of Transportation sent a letter to the same effect
to our Texas member dealers, and as a result one of our largest member dealer
groups severed its business relationship with us. Shortly after the
Department's letter was sent to our Texas member dealers, we modified our
pricing model. To date the Department has taken no other action against us or
our member dealers based on our pricing model. A proposal to modify the
regulations governing how the Texas brokering law is enforced passed in
February 2000. We have received written notice from the Texas Department of
Transportation that our newly revised pricing model comforms to the new
regulations.

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

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


                                      24
<PAGE>

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

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

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

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

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

 We depend on increased use of the Internet

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

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

   Our ability to retain and attract consumers, member dealers, vehicle
manufacturers, category partners and advertisers, and to achieve market
acceptance of our services and our brand, depends significantly upon the
performance of our systems and network infrastructure. Any system or network
failure that causes interruption or slower response time of our services could
result in less traffic to our Web site and, if sustained or repeated, could
reduce the attractiveness of our services to consumers, member dealers,
category partners and advertisers. An increase in the volume of our Web site
traffic could strain the capacity of our technical infrastructure, which could
lead to slower response times or system failures. This would cause the number
of purchase inquiries, advertising impressions, other revenue producing e-
commerce offerings and our information and community offerings to decline, any
of which could hinder our revenue growth and our brand loyalty. In addition,
if traffic increases, we

                                      25
<PAGE>

cannot assure you that our technical infrastructure, such as a reliable
network backbone with the necessary speed and data capacity and the
development of complementary products such as high-speed modems, will be able
to increase accordingly, and we face risks related to our ability to scale up
to expected consumer levels while maintaining performance. Further, security
and authentication concerns regarding the transmission of confidential
information over the Internet, such as credit card numbers, may continue. Any
failure of our server and networking systems ability to handle current or
higher volumes of traffic would have a material adverse effect on our
business, results of operations and financial condition.

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

   In addition, our operations depend upon our ability to maintain and protect
our computer systems, some of which are located at our corporate headquarters
in Santa Clara, California. We do have a backup disaster recovery program and
fully redundant systems for our service at an off-site location hosted by
Exodus Communications, Inc. While this offsite location does provide a
significant amount of security and scalability there is no guarantee that the
system is not vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures and similar events. Although we maintain insurance
against fires, floods, earthquakes and general business interruptions, the
amount of coverage may not be adequate in any particular case. The occurrence
of such an event could have a material adverse effect on our business, results
of operations and financial condition.

 The Internet industry is characterized by rapid technological change

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

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

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

   We also enter into agreements with other companies under which any revenue
that results from the purchase of services through direct links to or from our
Web site is shared. Such arrangements may expose us to additional legal risks
and uncertainties, including local, state, federal and foreign government
regulation and potential

                                      26
<PAGE>

liabilities to consumers of these services, even if we do not provide the
services ourselves. We cannot assure you that any indemnification provided to
us in our agreements with these parties, if available, will be adequate.

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

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

 Our intellectual property protection may be inadequate

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

   We are aware that the mark "Autoweb" is a federally registered trademark of
another party and that other parties have registered the mark internationally;
the mark is already in use in several regions in the United States and
internationally. We have applied for a U.S. and a foreign trademark
registration for "Autoweb" associated with the services we provide; however,
we cannot guarantee that we will receive the applied-for registrations or be
able to continue to use the name "Autoweb" in the future. As a result, we
cannot guarantee that we will be able to continue to use the name "Autoweb" in
the future. If in the future we were required to change our name and adopt a
new trademark, we would incur significant expenses related to marketing a
replacement trademark, and such a change would likely have a material adverse
effect on our business, results of operations and financial condition.

 We face risks associated with litigation

   Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or trademarks or to determine
the validity and scope of the proprietary rights of others. Such litigation
might result in substantial costs and diversion of resources and management
attention. Furthermore, our business activities may infringe upon the
proprietary rights of others and other parties may assert infringement claims
against us, including patent claims or claims that arise from directly or
indirectly providing hyperlink text links to Web sites operated by third
parties. Moreover, from time to time, we may be subject to claims of alleged
infringement by us or our member dealers of the trademarks, service marks,
patents and other intellectual property rights of third parties. Such claims
and any resultant litigation, should it occur, might subject us to significant
liability for damages, might result in invalidation of our proprietary rights
and, even if not meritorious, could result in substantial costs and diversion
of resources and management attention and have a material adverse effect on
our business, results of operations and financial condition.

 We depend on third party technology

   We currently license from third parties certain technologies and
information incorporated into our Web site. As we continue to introduce new
services that incorporate new technologies and information, we may be required
to license additional technology and information from others. We cannot assure
you that these third-party technology and information licenses will continue
to be available to us on commercially reasonable terms, if at all.
Additionally, we cannot assure you that the third parties from which we
currently license our technology and

                                      27
<PAGE>

information will be able to defend their proprietary rights successfully
against claims of infringement. Any failure to obtain any of these technology
and information licenses could result in delays or reductions in the
introduction of new features, functions or services. It could also adversely
affect the performance of our existing services until equivalent technology or
information can be identified, obtained and integrated.

 We may particularly be affected by general economic conditions

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

 We have security risks

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

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

 We have risks associated with international operations and expansions

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

  . cultural and business practices differences;

  . fluctuations in currency exchange rates;

  . political issues;


                                      28
<PAGE>

  . legal and economic instability;

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

  . potentially adverse tax consequences.

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

 Recent Accounting Pronouncements

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

   In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosure
related to revenue recognition policies. The Company believes that they
currently comply with SAB 101.

                                      29
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   We considered the provisions of Financial Reporting Release No. 48,
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative Commodity
Instruments." We had no holdings of derivative financial or commodity
instruments at December 31, 1999. However, we are exposed to financial market
risks, including changes in foreign currency exchange rates and interest
rates. The majority of our revenue, expenses and capital expenditures are
transacted in U. S. dollars.

   The fair value of our short-term investments available for sale at December
31, 1999 was $20.9 million. The objectives of our investment policy are the
safety and preservation of invested funds, and liquidity of investments that
is sufficient to meet cash flow requirements. Our policy is to place our cash,
cash equivalents, and investments available for sale with high credit quality
financial institutions, commercial companies, and government agencies in order
to limit the amount of credit exposure. Our investment policy also provides
that our investment portfolio must not have an average portfolio maturity of
beyond one year and that we must maintain liquidity positions. Our investment
policy prohibits investments in industries and speculative activities and
requires investments be denominated in U.S. dollars.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

   See Part IV, Item 14 of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

   None

                                      30
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The information required by this item is incorporated by reference from our
definitive Proxy Statement to be filed in connection with our 2000 Annual
Meeting of Stockholders pursuant to Regulation 14A.

ITEM 11. EXECUTIVE COMPENSATION

   The information required by this item is incorporated by reference from our
definitive Proxy Statement to be filed in connection with our 2000 Annual
Meeting of Stockholders pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The information required by this item is incorporated by reference from our
definitive Proxy Statement to be filed in connection with our 2000 Annual
Meeting of Stockholders pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The information required by this item is incorporated by reference from our
definitive Proxy Statement to be filed in connection with our 2000 Annual
Meeting of Stockholders pursuant to Regulation 14A.

                                      31
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

   1. Financial Statements

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Accountants..........................................  33
Balance Sheets.............................................................  34
Statements of Operations...................................................  35
Statement of Stockholders' Equity (Deficit)................................  36
Statements of Cash Flows...................................................  37
Notes to Financial Statements..............................................  38
</TABLE>

                                       32
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of Autoweb.com, Inc.

   In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Autoweb.com, Inc.
at December 31, 1998 and 1999 and the results of its operations and its cash
flows for the years ended December 31, 1997, 1998 and 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of Autoweb.com, Inc.'s management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

San Jose, California
January 25, 2000, except for Note 13 as to which the date is March 24, 2000.

                                      33
<PAGE>

                                AUTOWEB.COM, INC
                                 BALANCE SHEETS
               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                              December 31,
                                                            ------------------
                                                              1998      1999
                                                            --------  --------
<S>                                                         <C>       <C>
ASSETS
Current assets:
  Cash and cash equivalents................................ $  2,714  $  9,387
  Restricted cash..........................................       --     2,550
  Short-term investments...................................       --    20,897
  Accounts receivable, net of allowance for doubtful
   accounts of $498 and $1,176 in 1998 and 1999,
   respectively............................................    2,147     8,415
  Prepaid expenses and other current assets................    1,162     8,988
                                                            --------  --------
    Total current assets...................................    6,023    50,237
Property and equipment, net................................    1,162     2,462
Purchased technology and other intangible assets, net......       --    18,448
Deposits and other assets..................................       --       530
                                                            --------  --------
    Total assets........................................... $  7,185  $ 71,677
                                                            ========  ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
 STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable and other accrued expenses.............. $  2,557  $  6,787
  Accrued payroll and related expenses.....................      624     2,582
  Deferred revenue.........................................    1,739       935
  Current portion of capital lease obligations.............       14        --
  Current portion of notes payable.........................      289       326
                                                            --------  --------
    Total current liabilities..............................    5,223    10,630

Notes payable, net of current portion......................      654       361
                                                            --------  --------
    Total liabilities......................................    5,877    10,991
                                                            --------  --------
Mandatorily redeemable convertible preferred stock, $0.001
 par value:
  Authorized: 13,649,976 shares in 1998 and none in 1999
  Issued and outstanding: 8,068,244 shares in 1998 and none
   in 1999.................................................   12,969        --
                                                            --------  --------
Commitments (Note 7)
Stockholders' equity (deficit):
  Preferred stock, $0.001 par value:
    Authorized: 5,000,000 shares
    Issued and outstanding: none in 1998 and 1999
  Common stock, $0.001 par value:
    Authorized: 60,000,000 shares
    Issued and outstanding: 8,063,173 shares in 1998 and
     25,584,025 shares in 1999.............................        2        22
  Additional paid-in capital...............................   11,371   104,233
  Notes receivable from stockholder........................       --      (786)
  Unearned stock-based compensation........................   (5,406)   (7,002)
  Accumulated deficit......................................  (17,628)  (35,781)
                                                            --------  --------
    Total stockholders' equity (deficit)...................  (11,661)   60,686
                                                            --------  --------
      Total liabilities, mandatorily redeemable convertible
       preferred stock and
       stockholders' equity (deficit)...................... $  7,185  $ 71,677
                                                            ========  ========
</TABLE>


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

                                       34
<PAGE>

                               AUTOWEB.COM, INC.

                            STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                                 ----------------------------
                                                  1997      1998       1999
                                                 -------  ---------  --------
<S>                                              <C>      <C>        <C>
Net revenues.................................... $ 3,492  $  13,041  $ 32,792
Cost of net revenues............................     244        842     3,290
                                                 -------  ---------  --------
    Gross profit................................   3,248     12,199    29,502
                                                 -------  ---------  --------
Operating expenses:
  Sales and marketing...........................   5,216     13,619    33,203
  Product development...........................     325        586     5,103
  General and administrative....................     678      3,818     7,224
  Amortization of intangible assets.............      --         --     1,943
  Stock-based compensation......................      --      5,601     2,243
                                                 -------  ---------  --------
    Total operating expenses....................   6,219     23,624    49,716
                                                 -------  ---------  --------
Loss from operations............................  (2,971)   (11,425)  (20,214)
Interest and other income (expense), net........      51        (59)    2,061
                                                 -------  ---------  --------
Net loss........................................  (2,920)   (11,484)  (18,153)
Accretion of mandatorily redeemable convertible
 preferred stock to redemption value............    (276)      (890)       --
                                                 -------  ---------  --------
Net loss attributable to common stockholders.... $(3,196) $ (12,374) $(18,153)
                                                 =======  =========  ========
Net loss per share:
  Basic and diluted............................. $ (0.41) $   (1.58) $  (0.85)
  Weighted average shares--basic and diluted....   7,794      7,850    21,425
</TABLE>


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

                                       35
<PAGE>

                               AUTOWEB.COM, INC.

                  STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
              for the years ended December 31, 1997, 1998 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                          Mandatorily
                           Redeemable
                          Convertible
                           Preferred                                  Notes                                  Total
                             Stock        Common Stock  Additional  Receivable    Unearned               Stockholders'
                         ---------------  -------------  Paid-in       From     Stock-Based  Accumulated    Equity
                         Shares  Amount   Shares Amount  Capital   Stockholders Compensation   Deficit     (Deficit)
                         ------  -------  ------ ------ ---------- ------------ ------------ ----------- -------------
<S>                      <C>     <C>      <C>    <C>    <C>        <C>          <C>          <C>         <C>
Balances, January 1,
 1997...................  1,271  $   158   7,794  $ 2    $     61                             $   (947)    $   (884)
 Issuance of Series A
  mandatorily redeemable
  convertible preferred
  stock.................    813       96
 Accretion of Series A
  mandatorily redeemable
  convertible preferred
  stock to redemption
  value.................              26                                                           (26)         (26)
 Issuance of Series B
  mandatorily redeemable
  convertible preferred
  stock, net of costs of
  $46...................  2,448    4,621
 Accretion of Series B
  mandatorily redeemable
  convertible preferred
  stock to redemption
  value.................             250                                                          (250)        (250)
 Conversion of loans
  into Series A
  mandatorily redeemable
  convertible preferred
  stock.................    934      110
 Exercise of stock
  options...............                      18                4                                                 4
 Issuance of warrant to
  purchase common stock
  in exchange for
  services                                                     46                                                46
 Net loss...............                                                                        (2,920)      (2,920)
                         ------  -------  ------  ---    --------                             --------     --------
Balances, December 31,
 1997...................  5,466    5,261   7,812    2         111                               (4,143)      (4,030)
 Accretion of Series A
  mandatorily redeemable
  convertible preferred
  stock to redemption
  value.................              32                                                           (32)         (32)
 Accretion of Series B
  mandatorily redeemable
  convertible preferred
  stock to redemption
  value.................             499                                                          (499)        (499)
 Issuance of Series C
  mandatorily redeemable
  convertible preferred
  stock, net of costs of
  $50...................  2,370    4,965
 Accretion of Series C
  mandatorily redeemable
  convertible preferred
  stock to redemption
  value.................             317                                                          (317)        (317)
 Issuance of Series D
  mandatorily redeemable
  convertible preferred
  stock, net of costs of
  $93...................    860    1,942
 Accretion of Series D
  mandatorily redeemable
  convertible preferred
  stock to redemption
  value.................              42                                                           (42)         (42)
 Repurchase of Series A
  mandatorily redeemable
  convertible preferred
  stock                    (628)     (89)                                                       (1,111)      (1,111)
 Exercise of stock
  options...............                     205               57                                                57
 Issuance of common
  stock in exchange for
  intangible assets.....                      15               13                                                13
 Issuance of common
  stock in exchange for
  services..............                      15               50                                                50
 Issuance of common
  stock in exchange for
  services..............                      16               54                                                54
 Issuance of warrant to
  purchase common
  stock.................                                       79                                                79
 Unearned stock-based
  compensation..........                                   11,007                 (11,007)
 Amortization of
  unearned stock-based
  compensation..........                                                            5,601                     5,601
 Net loss...............                                                                       (11,484)     (11,484)
                         ------  -------  ------  ---    --------                 -------     --------     --------
Balances, December 31,
 1998...................  8,068   12,969   8,063    2      11,371                  (5,406)     (17,628)     (11,661)
 Issuance of common
  stock for cash
  pursuant to the
  Initial Public
  Offering, net of
  offering expenses of
  $1,142................                   5,550    6      71,113                                            71,119
 Issuance of Series D
  mandatorily redeemable
  convertible preferred
  stock pursuant to
  exercise of stock
  option................    396      938                               (686)                                   (686)
 Exercise of common
  stock option for cash
  and note receivable...                     350    1         174      (100)                                     75
 Net exercise of common
  stock warrants........                     146
 Issuance of common
  stock pursuant to the
  conversion of
  mandatorily redeemable
  convertible preferred
  stock................. (8,464) (13,907) 10,891   11      13,896                                            13,907
 Issuance of common
  stock in conjunction
  with the purchase of
  the assets of The
  Automotive Information
  Center................                     363    1       3,327                                             3,328
 Exercise of stock
  options...............                     221    1         513                                               514
 Unearned stock-based
  compensation..........                                    3,839                  (3,839)
 Amortization of
  unearned stock-based
  compensation..........                                                            2,243                     2,243
 Net loss...............                                                                       (18,153)     (18,153)
                         ------  -------  ------  ---    --------     -----       -------     --------     --------
Balances, December 31,
 1999...................     --  $    --  25,584  $22    $104,233     $(786)      $(7,002)    $(35,781)    $ 60,686
                         ======  =======  ======  ===    ========     =====       =======     ========     ========
</TABLE>

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

                                       36
<PAGE>

                               AUTOWEB.COM, INC.

                            STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                    Years Ended December 31,
                                                    ---------------------------
                                                     1997      1998      1999
                                                    -------  --------  --------
<S>                                                 <C>      <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss.........................................  $(2,920) $(11,484) $(18,153)
 Adjustments to reconcile net loss to net cash
  used in operating activities:
  Issuance of common stock in exchange for
   services.......................................       --       133        --
  Depreciation and amortization of tangible
   assets.........................................      158       551     1,139
  Amortization of intangible assets...............       --        --     1,943
  Write down of intangible assets.................      103        13        --
  Provision for doubtful accounts.................       45       433       678
  Amortization of stock-based compensation........       --     5,601     2,243
  Change in assets and liabilities:
  Increase in restricted cash.....................       --        --    (2,550)
  Accounts receivable.............................     (471)   (2,130)   (5,617)
  Prepaid expenses and other current assets.......     (542)     (612)   (7,797)
  Deposits and other assets.......................       --        --      (530)
  Accounts payable and other accrued expenses.....      634     1,741     4,294
  Accrued payroll and related expenses............      160       460     1,570
  Deferred revenue................................      441       740    (1,428)
                                                    -------  --------  --------
   Net cash used in operating activities..........   (2,392)   (4,554)  (24,208)
                                                    -------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of short-term investments...............       --        --   (20,897)
 Acquisition of property and equipment............     (519)   (1,238)   (2,205)
 Acquisition of purchased technology..............       --        --    (1,707)
 Cash paid for The Automotive Information Center..       --        --   (16,000)
                                                    -------  --------  --------
   Net cash used in investing activities..........     (519)   (1,238)  (40,809)
                                                    -------  --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Principal payments under capital lease
  obligations and notes payable...................      (48)      (61)     (270)
 Proceeds from borrowings under long-term debt
  facility........................................       --       934        --
 Proceeds from issuance of mandatorily redeemable
  convertible preferred stock.....................    4,763     6,957       252
 Proceeds from issuance of common stock, net of
  issuance costs..................................        4        57    71,708
 Repurchase of mandatorily redeemable convertible
  preferred stock.................................       --    (1,200)       --
                                                    -------  --------  --------
   Net cash provided by financing activities......    4,719     6,687    71,690
                                                    -------  --------  --------
Net increase in cash and cash equivalents.........    1,808       895     6,673
Cash and cash equivalents, at beginning of year...       11     1,819     2,714
                                                    -------  --------  --------
Cash and cash equivalents, at end of year.........  $ 1,819  $  2,714  $  9,387
                                                    =======  ========  ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
 FINANCING ACTIVITIES:
 Conversion of loans into Series A mandatorily
  redeemable convertible preferred stock..........  $   110  $     --  $     --
 Conversion of preferred stock to common stock....       --        --    13,907
 Unearned stock-based compensation related to
  stock option grants.............................       --    11,007     3,839
 Accretion of mandatorily redeemable convertible
  preferred stock.................................      276       890        --
 Revenue and advertising expense from barter
  transactions....................................      331       733       773
 Acquisition of intangibles in exchange for common
  stock...........................................       --        13
 Issuance of common stock warrant/common stock in
  exchange for services...........................       46        50        --
 Net issuance of common stock warrants............       --        --       221
 Issuance of Series D mandatorily redeemable
  convertible preferred stock pursuant to exercise
  of option for note receivable...................       --        --       686
 Issuance of common stock pursuant to exercise of
  option for note receivable......................       --        --       100
 Liabilities assumed in connection with
  acquisition of The Automotive Information
  Center:
  Fair value of assets acquired...................                     $ 20,270
  Cash paid.......................................                      (16,000)
  Common stock issued.............................                       (3,328)
                                                                       --------
  Liabilities assumed.............................                     $    942
                                                                       ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the year for interest...........  $    34  $    101  $    155
 Taxes paid during the year.......................        1         1         1
</TABLE>

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

                                       37
<PAGE>

                                  AUTOWEB.COM

                         NOTES TO FINANCIAL STATEMENTS

1--The Company

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

   The Company sold 5,550,000 shares of common stock at $14.00 per share upon
completing its initial public offering on March 26, 1999 and raised $71.1
million, net of underwriting discounts and commissions and offering expenses.

2--Summary of Significant Accounting Policies

 Use of Estimates

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

 Concentrations of Credit Risk

   Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, restricted
cash, short-term investments and accounts receivable. Cash, cash equivalents,
restricted cash, and short-term investments are deposited with six high
quality financial institutions in the United States. The Company maintains
allowances for potential credit losses and such losses have been within
management's expectations. The Company's accounts receivable are derived from
revenues earned primarily from customers located in the United States and the
Company performs ongoing credit evaluations of its customers' financial
condition. The Company generally requires no collateral from its customers and
maintains an allowance for doubtful accounts receivable based on the expected
collectability. There was one customer which represented 13.8% of the net
revenues for the year ended December 31, 1998 and no customer represented 10%
or more of the net revenues for the year ended December 31, 1999.

 Fair Value of Financial Instruments

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

 Cash and Cash Equivalents

   The Company considers all highly liquid investments purchased with original
maturities or remaining maturities at the time of purchase of three months or
less to be cash equivalents. Cash equivalents consist primarily of deposits in
money market funds.

 Short-Term Investments

   The Company considers all investments purchased with an original maturity
or remaining maturities at the date of purchase of greater than three months
and less than twelve months to be short-term investments. At December 31,
1999, the Company had short-term investments of $20.9 million. The Company
classifies, at the time of acquisition, its short-term investments into
categories in accordance with the provisions of Statement of

                                      38
<PAGE>

                                  AUTOWEB.COM

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Currently, the Company classifies
its short-term investments as available-for-sale, which are reported at fair
market value. Unrealized gains and losses at December 31, 1999 were not
material. Realized gains and losses, declines in value of securities judged to
be other than temporary, and interest and dividends on all securities are
included in interest and other income.

 Property and Equipment

   Property and equipment are stated at cost and are depreciated on a straight
line basis over the estimated useful lives of the assets, generally two years.
Maintenance and repairs are charged to expense when incurred. When assets are
sold or retired, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in operations.

 Intangible Assets

   Intangible assets include acquired technology, trade names, assembled
workforce and customer base. Goodwill resulting from acquisitions is recorded
based upon the excess of the purchase price and the net tangible and
intangible assets acquired and is amortized on a straight-line basis over the
estimated period of benefit, primarily three years.

 Revenue Recognition

   Revenues are derived primarily from fees charged to member dealers for each
qualified purchase inquiry provided to them by the Company. The revenue
related to the fee is recognized at the time the purchase inquiry is forwarded
to the member dealer provided that no significant obligations for the Company
remain and collection of the resulting receivable is probable. The Company
establishes a returns reserve for unqualified purchase inquiries at the time
of revenue recognition based upon the Company's historical experience. The
Company initially charged member dealers on a "subscription" model basis,
whereby each member dealer paid an initial set-up fee and/or a flat monthly
fee in exchange for receiving qualified purchase inquiries from the Company.
Under the former subscription model, revenue from both the initial and/or
monthly fee was initially deferred and then recognized ratably over the term
of the agreement, generally one year. Revenue from the former subscription
model largely ceased in 1999.

   The Company also derives revenues from the sale of banner advertisements,
which is recognized ratably in the period in which the advertisement is
displayed, provided that no significant obligations for the Company remain and
collection of the resulting receivable is probable. To the extent that minimum
guarantee page deliveries are not met, the Company defers recognition of the
corresponding revenues until the guaranteed page deliveries are achieved.
Barter advertisement transactions are recorded at their estimated fair value
based on the Company's historical experience of selling similar advertising
for cash. Barter revenue represented 5.6% and 2.4% of net revenues for the
year ended December 31, 1998 and 1999, respectively.

 Product Development Costs

   Product development costs are expensed as incurred. Costs incurred in the
design, creation and maintenance of content, graphics and user interface of
the Company's Web site are expensed as incurred in accordance with SOP 98-1
"Accounting for the Costs of Computer Software Development or Obtained for
Internal Use." Costs incurred in the development of application and
infrastructure of the Web sites are capitalized and amortized over the useful
life of the web sites. In 1999, the costs that could be capitalized were
insignificant.

 Advertising

   Advertising costs are expensed as incurred and totaled $1.8 million, $5.8
million and $20.6 million during the years ended December 31, 1997, 1998 and
1999, respectively and have been included in sales and marketing expense in
the statements of operations.

                                      39
<PAGE>

                                  AUTOWEB.COM

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


 Stock-Based Compensation

   In 1997, the company adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-based Compensation." The Company has elected to continue
accounting for stock-based compensation issued to employees using Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" Under APB No. 25, compensation expense is based on the difference,
if any, on the date of the grant between the fair value of the Company's stock
and the exercise price. Stock issued to non-employees has been accounted for
in accordance with SFAS No. 123 and valued using the Black-Scholes model.

 Income Taxes

   The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement prescribes the use of the
liability method whereby deferred tax assets and liability account balances
are calculated at the balance sheet date using current tax laws and rates in
effect. Valuation allowances are established when necessary to reduce deferred
tax assets where it is more likely than not that the deferred tax asset will
not be realized.

 Net Loss Per Share

   The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") 98. Under the
provision of SFAS No. 128, basic net loss per share is computed by dividing
the net loss attributable to common stockholders for the period by weighted
average number of common shares outstanding during the period. Diluted net
loss per share is computed by dividing the net loss for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares, composed of common shares
issuable upon the exercise of stock options and warrants and upon conversion
of Series A, Series B, Series C and Series D mandatorily redeemable
convertible preferred stock, are included in the diluted net loss per share
computation to the extent such shares are dilutive.

<TABLE>
<CAPTION>
                                                   Years ended December 31,
                                                   ---------------------------
                                                    1997      1998      1999
                                                   -------  --------  --------
                                                   (In thousands, except per
                                                        share amounts)
   <S>                                             <C>      <C>       <C>
   Numerator:
     Net loss..................................... $(2,920) $(11,484) $(18,153)
     Accretion of mandatorily redeemable
      convertible preferred stock to redemption
      value:
       Series A...................................     (26)      (32)       --
       Series B...................................    (250)     (499)       --
       Series C...................................      --      (317)       --
       Series D...................................      --       (42)       --
                                                   -------  --------  --------
     Net loss attributable to common stockholders
      ............................................ $(3,196) $(12,374) $(18,153)
                                                   =======  ========  ========
   Denominator:
     Weighted average shares--basic and diluted...   7,794     7,850    21,425
                                                   =======  ========  ========
     Net loss per share--basic and diluted ....... $ (0.41) $  (1.58) $  (0.85)
                                                   =======  ========  ========
   Antidilutive securities, including options,
    warrants and mandatorily redeemable preferred
    stock ........................................      83     1,400     5,610
                                                   =======  ========  ========
</TABLE>

                                      40
<PAGE>

                                  AUTOWEB.COM

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


 Business Segments

   In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 131 requires publicly held
companies to report financial and other information about key revenue segments
of the entity for which such information is available and is utilized by the
chief operation decision maker. SFAS No. 131 is effective for the fiscal years
commencing December 15, 1997. The Company conducts its business within one
business segment within North America. Revenues from customers outside of the
United States were less than 10% of net revenues for all periods represented
in the accompanying statements of operations.

 Comprehensive Income

   Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires companies to
classify items of other comprehensive income and its components in financial
statements and display the accumulated balance of other comprehensive income
separately from retained earnings in the equity section of a statement of
financial position. The Company's total comprehensive loss was the same as its
net loss for the year ended December 31, 1998 and 1999.

 Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133,
as amended, is effective for all fiscal quarters of all years beginning after
June 15, 2000. SFAS No. 133 requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair market value. Under
SFAS No. 133, gains or losses resulting from changes in the values of
derivatives are to be reported in the statement of operations or as a deferred
item, depending on the use of the derivatives and whether they qualify for
hedge accounting. The Company is required to adopt SFAS No. 133 in the first
quarter of 2001. To date, the Company has not engaged in any hedging activity
and does not expect adoption of this new standard to have a significant impact
on the Company.

   In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosure
related to revenue recognition policies. The Company believes that they
currently comply with SAB 101.

3--Acquisitions

   On July 9, 1999, the Company entered into an agreement with
SalesEnhancer.com, LLC to acquire certain technology and other assets and
certain liabilities for approximately $3.7 million in cash. The acquisition
has been accounted for using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired on the basis of their respective fair value on the
acquisition date. The allocation of the purchase price is summarized below (in
thousands):

<TABLE>
   <S>                                                                    <C>
   Net current assets.................................................... $2,000
   Purchased technology .................................................  1,707
                                                                          ------
       Total Purchase Price.............................................. $3,707
                                                                          ======
</TABLE>

   On October 6, 1999, the Company entered into an agreement with The Gale
Group, Inc., a subsidiary of the Thompson Company, Inc., to acquire certain
assets and liabilities of The Automotive Information Center (AIC),

                                      41
<PAGE>

                                  AUTOWEB.COM

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

a division of The Gale Group, Inc. for 363,636 shares of Autoweb.com's common
stock valued at approximately $3.3 million and $16.0 million in cash. The
acquisition has been accounted for using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair value on the acquisition date. The fair value of the net
assets acquired was determined by an independent appraiser. The allocation of
the purchase price is summarized below (in thousands):

<TABLE>
   <S>                                                                   <C>
   Intangibles ......................................................... $ 9,037
   Goodwill ............................................................   9,641
   Property and equipment ..............................................     234
   Net current assets ..................................................     416
                                                                         -------
      Total Purchase Price.............................................. $19,328
                                                                         =======
</TABLE>

   Intangibles include acquired technology and database, brand name, assembled
workforce and customer base. The excess of the purchase price over the fair
value of the net tangible and intangible assets acquired has been recorded as
goodwill.

   The following pro forma financial information reflects the results of
operations for the years ended December 31, 1998 and 1999 as if the
acquisition of AIC had occurred on January 1, 1998 and 1999, respectively, and
after giving effect to purchase accounting adjustments. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what operating results would have been had the acquisition
taken place on January 1, 1998 or 1999, and may not be indicative of future
operating results (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                              Year Ended        Year Ended
                                           December 31, 1998 December 31, 1999
                                           ----------------- -----------------
   <S>                                     <C>               <C>
   Net revenues...........................     $ 16,965          $ 36,640
   Loss from operations...................      (11,067)          (20,149)
   Net loss attributable to common
    stockholders..........................      (18,853)          (25,321)
   Pro forma basic and diluted net loss
    per share.............................     $  (2.40)         $  (1.18)
</TABLE>

4--Restricted Cash

   At December 31, 1999, the Company had cash in the amount of $2.6 million on
deposit with a bank that is held as collateral for a letter of credit with a
vendor.

                                      42
<PAGE>

                                  AUTOWEB.COM

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


5--Balance Sheet Components:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                                ---------------
                                                                 1998    1999
                                                                ------  -------
                                                                (In thousands)
   <S>                                                          <C>     <C>
   Short-Term Investments:
     Government obligations....................................     --  $ 1,989
     Commercial Paper .........................................     --   18,908
                                                                ------  -------
                                                                $   --  $20,897
                                                                ======  =======

   Prepaid Expenses and Other Current Assets:
     Prepaid on-line advertising............................... $   --  $ 5,683
     Prepaid expenses and other current assets.................  1,162    3,305
                                                                ------  -------
                                                                $1,162  $ 8,988
                                                                ======  =======

   Property and Equipment:
     Computer equipment and software .......................... $1,236  $ 2,584
     Office equipment .........................................    108      452
     Furniture and fixtures ...................................    568    1,315
                                                                ------  -------
                                                                 1,912    4,351
   Less accumulated depreciation and amortization .............   (750)  (1,889)
                                                                ------  -------
                                                                $1,162  $ 2,462
                                                                ======  =======
</TABLE>

   The cost and accumulated amortization of assets acquired under capital
leases were $76,000 and $67,000, respectively at December 31, 1998 and $76,000
and $76,000, respectively at December 31, 1999.

<TABLE>
   <S>                                                             <C>  <C>
   Purchased Technology and Other Intangible Assets:
     Acquired technology/database................................. $ -- $ 2,809
     Trade name ..................................................   --     480
     Assembled workforce .........................................   --   1,728
     Customer base................................................   --   5,727
     Goodwill ....................................................   --   9,647
                                                                   ---- -------
                                                                     --  20,391
     Less accumulated amortization ...............................   --  (1,943)
                                                                   ---- -------
                                                                   $ -- $18,448
                                                                   ==== =======
</TABLE>

                                       43
<PAGE>

                                  AUTOWEB.COM

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


6--Notes Payable

   The Company had $943,000 and $687,000 outstanding under notes payable at
December 31, 1998 and 1999, respectively. The notes bear interest at an annual
rate of 18.4%, mature between 2000 and 2003, and are collateralized by
specific equipment. The notes payable agreement require the Company to comply
with certain financial covenants, including restriction of dividend payments.

   Future minimum principal payments are as follows (in thousands):

<TABLE>
   <S>                                                                    <C>
   Year Ending December 31,:
   2000.................................................................. $ 326
   2001..................................................................   344
   2002..................................................................     9
   2003..................................................................     8
                                                                          -----
                                                                            687
   Less current portion .................................................  (326)
                                                                          -----
                                                                          $ 361
                                                                          =====
</TABLE>

7--Commitments

 Operating Leases

   The Company leases its offices under non-cancelable operating leases which
expire through October 2004.

   The future minimum lease payments under non-cancelable operating leases are
(in thousands).

<TABLE>
   <S>                                                                   <C>
   Year Ending December 31,:
   2000................................................................. $  996
   2001.................................................................    977
   2002.................................................................    897
   2003.................................................................    922
   2004.................................................................    627
                                                                         ------
                                                                         $4,419
                                                                         ======
</TABLE>

   Facility rent expenses for the years ended December 31, 1997, 1998, and
1999, was $258,000, $597,000 and $843,000, respectively.

 Marketing Agreements

   In 1999, the Company entered into agreements with two global Internet media
companies to maintain certain exclusive promotional rights and linkage with
the media companies and to provide for certain advertising. Commitments under
these two agreements total $40.5 million and expire in January 2001 and August
2001. During the year ended December 31, 1999, the Company paid $11.1 million
under the terms of these agreements. As of December 31, 1999, the agreements
require remaining minimum future payments of $29.4 million. The Company
expenses all amounts ratably over the term of the agreement.

   The Company also has multi-year agreements with other Internet advertisers
and automotive information providers that make available to consumers vehicle
research data over the Internet. Such agreements require that the Company pay
fees to these companies based on the volume of referrals received by the
Company from these services. The Company expenses these amounts as the
services are provided.

                                      44
<PAGE>

                                  AUTOWEB.COM

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


 Litigation

   From time to time, the Company may be involved in litigation arising out of
claims in the normal course of business. Based upon the information presently
available, including discussion with outside legal counsel, management
believes that there are no claims or actions pending or threatened against the
Company, the ultimate resolution of which will have a material adverse effect
on the Company's financial position, liquidity or results of operations.

8--Mandatorily Redeemable Convertible Preferred Stock

   All mandatorily redeemable convertible preferred stock was converted into
common stock in March 1999 immediately prior to the Company's initial public
offering.

   In December 1998, the company granted an option to the Chief Executive
Officer to purchase up to 395,661 shares of the Company's Series D mandatorily
redeemable convertible preferred stock at $2.37 per share. Payment for this
stock may be in cash or, to the extent the Company's common stock is publicly
traded, with same day sale proceeds or pursuant to a net exercise of the
option. If the payment is in cash, it shall be in the amount of no less than
$250,000, with the balance, if any, to be financed by an interest free full
recourse promissory note collateralized by the stock. This note will be due
and payable on the third anniversary of the date of issuance of the stock. The
fair value of the option grant was estimated to be $1.7 million using the
intrinsic value method, and was included in the stock-based compensation
charge in the year ended December 31, 1998. The option was exercised for
395,661 shares of Series D mandatorily redeemable convertible preferred stock
in exchange for $252,000 in cash together with an interest-free full recourse
promissory note in the amount of $686,000 from the Chief Executive Officer
collateralized by the stock. These options subsequently converted into 395,661
shares of common stock immediately prior to the Company's initial public
offering in March 1999.

9--Common Stock

   The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 60,000,000 shares of common stock. Each share of common stock
has the right to one vote. The holders of common stock are also entitled to
receive dividends whenever funds are legally available and when declared by
the Board of Directors, subject to the prior rights of all classes of stock at
the time outstanding having priority rights as to dividends.

 Warrants for Common Stock

   On June 25, 1997 the Company issued warrants for common stock to a
preferred stockholder for services rendered. The warrants were subject to
adjustment based on the number of shares of common stock issuable to Series B
mandatorily redeemable convertible preferred stock on conversion. Total shares
underlying the warrant were 135,901 and were exercisable at a price equal to
115% of the Series B mandatorily redeemable convertible preferred stock
conversion price. The fair value of the grant was estimated at $46,000 using
the Black-Sholes model and was charged to operating expenses in 1997. These
warrants were net exercised for 126,527 shares of common stock in March 1999.

   On June 1, 1998 the Company issued warrants for common stock to a third
party. The total shares underlying the warrant are 24,037 and are exercisable
at a price of $2.08 per share. The fair value of the grant was estimated at
$79,000 using the Black-Sholes model and was charged to operating expenses in
1998. These warrants were net exercised for 20,465 shares of common stock in
March 1999.

                                      45
<PAGE>

                                  AUTOWEB.COM

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


10--Employee Benefit Plans

 401(k) Savings Plan

   The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401 (k) of the Internal Revenue
Code. Under the Savings Plan, participating employees may defer a percentage
(not to exceed 25%) of their eligible pretax earnings up to the Internal
Revenue Service's annual contribution limit. All employees of the Company are
eligible to participate in the Savings Plan. The Company is not required to
contribute to the Savings Plan and has make no contribution since the
inception of the Savings Plan.

 Employee Stock Purchase Plan

   In 1999, the Company's Board of Directors adopted and the stockholders
approved the 1999 Employee Stock Purchase Plan (the "Purchase Plan") and
reserved a total of 400,000 shares of common stock for issuance thereunder.
Under the Purchase Plan, eligible employees will be permitted to acquire
shares of the Company's common stock through payroll deductions (not to exceed
15%). The purchase price for the Company's common stock purchased under the
Purchase Plan is 85% of the lesser of the fair market value of the Company's
common stock on the first day or the last day of the purchase period. All
employees of the Company are eligible to participate in the Purchase Plan.

 1997 Stock Option Plan

   In April of 1997, the Company's Board of Directors adopted the 1997 Stock
Option Plan ("1997 Plan"). The 1997 Plan provides for the granting of stock
options to employees and consultants of the Company (including officers and
directors who are also employees.)

   Options under the 1997 Plan may be granted for periods of up to ten years
and at prices no less than 85% of the estimated fair value of the shares on
the date of the grant as determined by the Board of Directors, provided,
however, that ( i ) the exercise price of an Incentive Stock Option ("ISO")
may not be less than 100% of the estimated fair value of the shares on the
date of the grant, and ( ii ) the exercise prices of an ISO granted to a 10%
stockholder may not be less than 110% of the estimated fair value of the
shares on the date of grant. Options are exercisable immediately, subject to
repurchase rights held by the Company that lapse over a maximum period of ten
years, at such times and under such conditions as determined by the Board of
Directors, generally four years.

 1999 Equity Incentive Plan

   In 1999, the Company's Board of Directors adopted and the stockholders
approved the 1999 Equity Incentive Plan (the "Equity Plan") and reserved a
total of 2,800,000 shares of common stock for issuance thereunder. These
shares are in addition to shares under the 1997 Plan not issued. The Equity
Plan provides for the grant of both Incentive Stock Options ("ISOs") and
nonqualified stock options ("NQSOs"). ISOs may be granted only to employees of
the Company and NQSOs may be granted to employees and consultants of the
Company (including officers and directors).

   Options under the Equity Plan may be granted for periods of up to ten years
and at prices no less than 85% of the estimated fair value of the shares on
the date of the grant as determined by the Board of Directors, provided,
however, that (i) the exercise price of an Incentive Stock Option ("ISO") may
not be less than 100% of the estimated fair value of the shares on the date of
the grant, and (ii) the exercise price of an ISO granted to a 10% stockholder
may not be less than 110% of the estimated fair value of the shares on the
date of grant. The

                                      46
<PAGE>

                                  AUTOWEB.COM

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

exercise price of NQSOs must be at least equal to 85% of the fair market value
of the Company's common stock on the date of grant. Options may be exercisable
only as they vest and the vesting period is generally four years.

   The following summarizes activity under the 1997 Stock Option Plan and the
1999 Equity Incentive Plan (together "the Plans") for the years ended December
31, 1997, 1998, and 1999 (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                       Options Outstanding
                                                   ----------------------------
                                                             Weighted
                                          Shares             Average  Aggregate
                                         Available  Number   Exercise Exercise
                                         For Grant of Shares  Price     Price
                                         --------- --------- -------- ---------
   <S>                                   <C>       <C>       <C>      <C>
   Outstanding, January 1, 1997 ........      --        --        --        --
    Additional shares reserved..........     671
    Granted ............................    (395)      395   $0.1748   $    69
    Exercised...........................               (18)  $0.2000        (4)
    Cancelled...........................      14       (14)  $0.1009        (1)
                                          ------     -----             -------
   Outstanding, December 31, 1997 ......     290       363   $0.1770        64
    Additional shares reserved..........   2,300
    Granted ............................  (1,934)    1,934   $0.5000       967
    Exercised ..........................              (205)  $0.2767       (57)
    Cancelled ..........................     261      (261)  $0.3202       (83)
                                          ------     -----             -------
   Outstanding, December 31, 1998 ......     917     1,831   $0.4866       891
    Additional shares reserved..........   2,950
    Granted ............................  (3,121)    3,121   $8.4143    26,261
    Exercised ..........................              (571)  $1.2067      (689)
    Cancelled...........................     612      (612)  $6.6225    (4,053)
                                          ------     -----             -------
   Outstanding, December 31, 1999 ......   1,358     3,769   $5.9459   $22,410
                                          ======     =====   =======   =======
</TABLE>

   The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999, (in thousands except per share
amounts):

<TABLE>
<CAPTION>
                 Options Outstanding                Options Exercisable
   ---------------------------------------------------------------------
                                Weighted
                                Average    Weighted             Weighted
                   Number of   Remaining   Average   Number of  Average
     Exercise       Shares    Contractual  Exercise   Shares    Exercise
       Price      Outstanding Life (Years)  Price   Exercisable  Price
   -------------  ----------- ------------ -------- ----------- --------
   <S>            <C>         <C>          <C>      <C>         <C>
     $0.20-$0.50     1,254        8.90      $ 0.50     1,254     $ 0.50
     $3.33-$9.00     2,253        9.52      $ 7.98       476     $ 7.98
   $10.19-$16.25       258        9.62      $14.28         3     $14.28
          $29.44         4        9.30      $29.44         4     $29.44
                     -----                             -----
                     3,769                             1,737
                     =====                             =====
</TABLE>

                                      47
<PAGE>

                                  AUTOWEB.COM

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


 Fair Value Disclosures

   The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Sholes option pricing model with the following
assumptions:

<TABLE>
<CAPTION>
                                                               Year Ended
                                                              December 31,
                                                           --------------------
                                                           1997  1998    1999
                                                           ----  ----  --------
   <S>                                                     <C>   <C>   <C>
   Risk-free interest rates............................... 6.0%  5.5%  4.6%-6.2%
   Expected lives.........................................   5     5          5
   Dividend yield.........................................   0     0          0
   Volatility.............................................  --    --        100%
</TABLE>

   For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the option's vesting period. The Company's pro forma
information follows:

<TABLE>
<CAPTION>
                                                  Years ended December 31,
                                                  ---------------------------
                                                   1997      1998      1999
                                                  -------  --------  --------
   <S>                                            <C>      <C>       <C>
   Net loss as reported.......................... $(2,920) $(11,484) $(18,153)
   Accretion of mandatory redeemable convertible
    preferred stock.............................. $  (276) $   (890) $     --
                                                  -------  --------  --------
   Net loss attributable to common stockholders
    ............................................. $(3,196) $(12,374) $(18,153)
                                                  =======  ========  ========
   Net loss--FAS 123 adjusted ................... $(3,197) $(12,521) $(19,180)
                                                  =======  ========  ========
   Net loss per share -- as reported (Note 2)
     Basic and diluted .......................... $ (0.41) $  (1.58) $  (0.85)
                                                  =======  ========  ========
   Net loss per share -- FAS 123 adjusted
     Basic and diluted .......................... $ (0.41) $  (1.60) $  (0.90)
                                                  =======  ========  ========
</TABLE>

 Unearned Stock-Based Compensation

   In connection with certain stock option grants during the years ended
December 31, 1998 and 1999, the Company recorded unearned stock-based
compensation totalling $11.0 million and $3.8 million, respectively, which is
being amortized over the vesting periods of the related options which is
generally four years. Amortization of this stock-based compensation recognized
during the years ended December 31, 1998 and 1999 totalled approximately $5.6
million and $2.2 million, respectively. The 1998 amortization reflects
accelerated vesting associated with approximately 1.4 million options of
common stock granted to the Chief Executive Officer and the immediate vesting
of the option for 395,661 shares of Series D mandatorily redeemable
convertible preferred stock granted to the Chief Executive Officer (Note 8).
If the stock-based compensation for the year ended December 31, 1999 were
allocated across the relevant functional expense categories within operating
expenses it would be allocated as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 Year Ended
                                                                December 31,
                                                             ------------------
                                                             1997  1998   1999
                                                             ---- ------ ------
   <S>                                                       <C>  <C>    <C>
   Sales and marketing...................................... $ -- $2,973 $1,465
   Product development......................................   --  1,176    571
   General and administrative...............................   --  1,452    207
                                                             ---- ------ ------
                                                             $ -- $5,601 $2,243
                                                             ==== ====== ======
</TABLE>

                                      48
<PAGE>

                                  AUTOWEB.COM

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


11--Income Taxes

   The principal items accounting for the difference between income taxes
computed at the U.S. statutory rate and the provision for income taxes are as
follows:

<TABLE>
<CAPTION>
                                                              December 31,
                                                            -------------------
                                                            1997   1998   1999
                                                            -----  -----  -----
   <S>                                                      <C>    <C>    <C>
   U.S. statutory rate ....................................  34.0%  34.0%  34.0%
   Operating losses not benefited ......................... (34.0) (34.0) (34.0)
                                                            -----  -----  -----
                                                               --     --     --
                                                            =====  =====  =====
</TABLE>

   The Company's net deferred tax asset is comprised as follows (in
thousands):

<TABLE>
<CAPTION>
                                                            December 31,
                                                        -----------------------
                                                         1997    1998    1999
                                                        ------  ------  -------
   <S>                                                  <C>     <C>     <C>
   Net operating loss carryforwards.................... $1,077  $2,608    7,404
   Other...............................................    108     956    2,999
                                                        ------  ------  -------
                                                         1,185   3,564   10,403
   Valuation allowance................................. (1,185) (3,564) (10,403)
                                                        ------  ------  -------
   Net deferred tax asset .............................     --      --       --
                                                        ======  ======  =======
</TABLE>

   As of December 31, 1999, the Company had net operating loss carryforwards
available to reduce its future taxable income of approximately $19.9 million
for federal and $10.7 million for state income tax purposes, respectively. The
net operating loss carryforwards expire between 2010 and 2019 for federal and
between 2003 and 2004 for state income tax purposes.

   Utilization of net operating losses may be subject to an annual limitation
due to the ownership change limitations provided by the Internal Revenue Code
and similar state provisions. The annual limitation may result in the
expiration of net operating loss carryforwards before utilization.

12--Related Party Transactions

   At December 31, 1998, the Company had full recourse promissory notes
receivable totaling $175,000 from stockholders who are also related parties.
This amount is included in "prepaid expenses and other current assets." The
notes earn interest at rates of 5.59% to 6.5% per annum and were
collateralized by a total of 84,000 shares of Series A mandatorily redeemable
convertible preferred stock and 177,012 shares of common stock. Of the total
promissory notes outstanding, approximately $137,000 was paid in 1999.

   At December 31, 1999, the Company had full recourse promissory notes
receivable in the amount of $960,000 from two stockholders who are also
related parties. Of this amount, $134,000 is included in "prepaid expenses and
other current assets" and $786,000 is included in stockholders' equity as
"notes receivable from stockholders." Notes receivable totaling $922,000 are
interest free and collateralized by 395,661 shares of common stock and the
remaining note receivable for $38,000 bears interest at a rate of 5.59% per
annum and is collateralized by 177,012 shares of common stock.

13--Subsequent Events

   In March 2000, the Company entered into a contract with CarsDirect.com,
Inc. ("CarsDirect") providing for a wide-ranging alliance whereby the Company
derives revenues primarily from variable fees received on consumer inquiries
delivered and vehicles sold. The Company is to receive $10.0 million from
CarsDirect in exchange for a four year limited exclusivity arrangement payable
in CarsDirect common stock and preferred stock. Additionally, CarsDirect is to
purchase 750,000 shares of the Company's common stock in exchange for
approximately $8.0 million in cash.

                                      49
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

   2. Financial Statement Schedules

       REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of Autoweb.com, Inc.

   Our audits of the financial statements referred to in our report dated
January 25, 2000, except for note 13 as to which the date is March 24, 2000,
appearing in the 1999 Annual Report to Shareholders of Autoweb.com, Inc. as of
December 31, 1998 and 1999, and for each of the three years in the period
ended December 31, 1999, also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements.

PricewaterhouseCoopers LLP

San Jose, California
March 24, 2000


                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                    Balance at                         Balance
                                    Beginning   Additions              at End
                                     of Year   (Reductions) Write-offs if Year
                                    ---------- ------------ ---------- -------
                                                  (In thousands)
<S>                                 <C>        <C>          <C>        <C>
Allowance for doubtful accounts:
  Year ended December 31, 1997.....   $   20      $   45      $   0    $    65
  Year ended December 31, 1998.....       65         429          4        498
  Year ended December 31, 1999.....      498       1,028       (350)     1,176
Valuation allowance for deferred
 tax assets:
  Year ended December 31, 1997.....      405         780          0      1,185
  Year ended December 31, 1998.....    1,185       2,379          0      3,564
  Year ended December 31, 1999.....    3,564       6,839          0     10,403
</TABLE>

                                      50
<PAGE>

   3. Exhibits

   The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as part of this Form 10-K and the Exhibit Index is
incorporated in this filing by reference. Exhibits 10.01, 10.07 through 10.12,
10.26, 10.27 and 10.30 listed on the accompanying Exhibit Index identify
management contracts or compensatory plans or arrangements required to be
filed as exhibits to this report, and this listing is incorporated in this
filing by reference.

(b) Reports on the Form 8-K:

   We filed a Current Report on Form 8-K dated July 23, 1999 regarding the
agreement to acquire from SalesEnhancer.com, LLC and certain related entities
and persons certain software products and other tangible and intangible assets
for approximately $3.7 million in cash and the assumption of the seller's
obligations under a certain lease.

   We filed a Current Report on Form 8-K dated October 21, 1999 the ("AIC Form
8-K") regarding the agreement to acquire substantially all of the assets of
The Automotive Information Center ("AIC"), a division of the Gale Group for
approximately $19.3 million, including $16.0 million in cash and 363,636
shares of Autoweb.com common stock. We filed an amendment to the AIC Form 8-K
on December 22, 1999 in order to file pro forma financial statements for the
AIC transaction.

                                      51
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, we have duly caused this Report to be signed on our
behalf by the undersigned, thereunto duly authorized.

                                          AUTOWEB.COM, INC.

                                                    /s/ Thomas L. Stone
                                          By: _________________________________
                                                      Thomas L. Stone
                                                  Chief Financial Officer

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on our behalf and in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
         /s/ Dean A. DeBiase           Chairman of the Board and    March 28, 2000
______________________________________  Chief Executive Officer
            Dean A. DeBiase             (Principal Executive
                                        Officer)

     /s/ Samuel M. Hedgpeth III*       President and Chief          March 28, 2000
______________________________________  Operating Officer
        Samuel M. Hedgpeth III          (Principal Executive
                                        Officer)

         /s/ Thomas L. Stone           Chief Financial Officer      March 28, 2000
______________________________________  (Principal Financial
            Thomas L. Stone             Officer)

          /s/ John E. Peters           Vice President Finance       March 28, 2000
______________________________________  (Principal Accounting
            John E. Peters              Officer)

          /s/ Mark N. Diker            Director                     March 28, 2000
______________________________________
             Mark N. Diker

                                       Director                     March   , 2000
______________________________________
              Jay C. Hoag

           /s/ Mark R. Ross            Director                     March 28, 2000
______________________________________
             Mark R. Ross

         /s/ Peter S. Sealey           Director                     March 28, 2000
______________________________________
            Peter S. Sealey
</TABLE>

                                      52
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Number                              Exhibit Title
 ------ -----------------------------------------------------------------------
 <C>    <S>
  2.01  Agreement and Plan of Merger between Autoweb.com, Inc., a California
        corporation and Registrant.*
  2.02  Asset Purchase Agreement dated as of July 9, 1999, among Autoweb.com,
        Inc., Sales Enhancer.com, LLC, a Georgia limited liability company
        ("SE"), Solutions Management, Inc., a Georgia corporation and the sole
        member of SE ("SMI"), Interactive Monitoring Systems, Inc., a Georgia
        corporation ("IMS") and Jeffrey Bennett, the sole shareholder of SMI
        and IMS (incorporated herein by reference to Exhibit 2.01 to
        Registrant's Periodic Report on Form 8-K filed July 23, 1999).
  2.03  Asset Purchase Agreement dated as of September 8, 1999, among
        Autoweb.com, Inc., The Gale Group, Inc., a Delaware corporation
        ("Seller"), Thomson Information Licensing Corporation, a Delaware
        corporation ("TILC") and THI (U.S.) Inc., a Delaware corporation
        ("THI") (incorporated herein by reference to Exhibit 2.01 to
        Registrant's Periodic Report on Form 8-K filed October 21, 1999, as
        amended December 22, 1999).
  3.01  Registrant's Certificate of Incorporation.*
  3.02  Registrant's Bylaws.*
  3.03  Registrant's Certificate of Retirement of preferred stock.*
  3.04  Registrant's Certificate of Designation of preferred stock.*
  4.01  Form of Specimen Certificate for Registrant's common stock.*
  4.02  Amended and Restated Rights Agreement dated October 16, 1998 between
        Registrant and certain stockholders named therein.*
  4.03  Registration Rights Agreement dated as of September 8, 1999 by and
        between Autoweb.com, Inc. and The Gale Group, Inc. (incorporated herein
        by reference to Exhibit 4.01 to Registrant's Periodic Report on Form 8-
        K filed October 21, 1999, as amended December 22, 1999).
 10.01  Form of Indemnity Agreement between Registrant and each of its
        directors and executive officers.*
 10.02  Form of Series A Preferred Stock Purchase Agreement by and among
        Registrant, Farhang and Payam Zamani, and corresponding Form of
        Amendment to Investors Rights Agreement by and among Registrant, On
        Word Information, Inc. and Farhang and Payam Zamani.*
 10.03  Stock Repurchase Agreement dated May 7, 1998 between Registrant and
        Farhang Zamani.*
 10.04  Stock Repurchase Agreement dated May 7, 1998 between Registrant and
        Payam Zamani.*
 10.05  Stock Repurchase Agreement dated October 7, 1998 between Registrant and
        Farhang Zamani.*
 10.06  Stock Repurchase Agreement dated October 7, 1998 between Registrant and
        Payam Zamani.*
 10.07  Offer Letter dated December 16, 1998 by Registrant to Dean A. DeBiase.*
 10.08  Offer Letter dated August 19, 1997 by Registrant to Samuel M. Hedgpeth
        III.*
        Employment Agreement dated May 4, 1998 between Registrant and Samuel M.
 10.09  Hedgpeth III.*
        Offer Letter dated November 9, 1998 by Registrant to Robert M.
 10.10  Shapiro.*
 10.11  Offer Letter dated July 28, 1997 by Registrant to Michelle Hickford.*
 10.12  Offer Letter dated December 18, 1997 by Registrant to David L. Greene,
        as amended December 11, 1998.*
 10.13  Lease Agreement dated August 27, 1997 by and among Boyd C. Smith,
        Trustee, Louis B. Sullivan, Trustee and Registrant (related to
        Registrant's facilities at 3270 Jay Street).*
 10.14  Loan Agreement and Commercial Security Agreement, each dated December
        15, 1997, between Registrant and CivicBank of Commerce.*
 10.15  Form of Senior Loan and Security Agreement dated March 20, 1998 between
        Registrant and Phoenix Leasing Incorporated.*
 10.16  New & Pre-Owned Car Agreement dated June 17, 1998 between Registrant
        and Republic Industries, Inc.*/**
 10.17  Services Agreement dated January 21, 1998, as amended January 5, 1999,
        between Registrant and State Farm Mutual Automobile Insurance
        Company.*/**
 10.18  Services Agreement dated July 15, 1998 between Registrant and State
        Farm Mutual Automobile Insurance Company.*/**
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
 Number                              Exhibit Title
 ------ -----------------------------------------------------------------------
 <C>    <S>
 10.19  Advertising and Promotion Agreement dated December 17, 1998 between
        Registrant and Yahoo! Inc.*/**
 10.20  Registrant's 1997 Stock Option Plan and related documents.*
 10.21  Registrant's 1999 Equity Incentive Plan and related documents.*
 10.22  Registrant's 1999 Directors Stock Option Plan and related documents.*
 10.23  Registrant's 1999 Employee Stock Purchase Plan.*
 10.24  Promissory notes from Dean DeBiase to Registrant.*
 10.25  Offer Letter dated January 19, 1999 by Registrant to Garret R.
        Mullins.*
 10.26  Offer Letter dated February 9, 1999 by Registrant to Gordon Kass.*
 10.27  Offer Letter dated February 19, 1999 by Registrant to Catherine Y.
        Gordon.*
 10.28  Advertising and Promotion Agreement dated June 14, 1999 between
        Registrant and Yahoo! Inc. (incorporated herein by reference to Exhibit
        10.28 to Registrant's Quarterly Report on Form 10-Q for the quarter
        ended June 30, 1999).**
 10.29  Advertising and Promotion Agreement dated June 30, 1999 between
        Registrant and America Online, Inc. (incorporated herein by reference
        to Exhibit 10.29 to Registrant's Quarterly Report on Form 10-Q for the
        quarter ended June 30, 1999).**
 10.30  Offer Letter dated October 8, 1999 by Registrant to Jeffrey A.
        Schwartz.
 10.31  Amendment No.1 To Lease dated August 6, 1999 by and between A&P Family
        Investments and Registrant (related to Registrant's facilities at 3270
        Jay Street).
 10.32  Employment Agreement dated November 5, 1999 between Registrant and Sam
        Hedgpeth.
 23.01  Consent of PricewaterhouseCoopers LLP.
 27.01  Financial Data Schedule.
</TABLE>
--------
*  Incorporated herein by reference to the exhibit of like number filed with
   Registrant's Form S-1 Registration Statement, File No. 333-71177, on January
   26, 1999 or with an amendment thereto.
** Confidential treatment was granted with regard to certain portions of this
   document. These portions were filed separately with the Securities and
   Exchange Commission.