The Securities and Exchange Commission ("SEC") encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and words of similar substance used in connection with any discussion of future operations or financial performance identify forward-looking statements. In particular, statements regarding expectations and opportunities, new product expectations and capabilities, and our outlook regarding our performance and growth are forward-looking statements. This Quarterly Report on Form 10-Q also contains statements regarding plans, goals and objectives. There is no assurance that we will be able to carry out our plans or achieve our goals and objectives or that we will be able to do so successfully on a profitable basis. These forward-looking statements are just predictions and involve risks and uncertainties, many of which are beyond our control, and actual results may differ materially from these statements. Important factors that could cause actual results to differ materially from those reflected in forward-looking statements made in this Quarterly Report on Form 10-Q are set forth under "Item 1A. Risk Factors, herein and as more fully disclosed in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission." Investors are urged not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date on which they were made. Except as may be required by law, we do not undertake any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained herein are qualified in their entirety by the foregoing cautionary statements.

You should read the following discussion of our results of operations and financial condition in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and the notes thereto in Autobytel's Annual Report on Form 10-K for the year ended December 31, 2008.

Our corporate website is located at www.autobytel.com. Information on our website is not incorporated by reference in this Quarterly Report. At or through the Investor Relations section of our website we make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports as soon as practicable after such material is electronically filed with or furnished to the SEC. Our Code of Conduct and Ethics for Employees, Officers and Directors is available at the Corporate Governance link of the Investor Relations section of our website.

Basis of Presentation

We sold certain assets and liabilities of its AVV Inc. ("AVV") business on January 23, 2008. Accordingly, AVV is presented in the unaudited consolidated condensed financial statements as discontinued operations. As discontinued operations, revenues and expenses are presented on a net basis and stated separately from the respective captions in continuing operations in the Consolidated Condensed Statements of Operations and Comprehensive Loss. Expenses included in discontinued operations are direct costs that will be eliminated from future operations.

Overview

We are an automotive marketing services company that assists automotive dealers and manufacturers sell automobiles. By connecting consumers to automotive dealers and manufacturers through internet lead referral programs and on-line advertising, we provide automotive dealers and manufacturers with opportunities to efficiently market their vehicles to potential customers. We purchase from third parties and generate from our own websites consumer internet requests for pricing and availability on new and used cars as well as for vehicle financing ("Leads"). We sell the Leads primarily to our automotive dealer and manufacturer customers. Leads are purchased from a network of supplier websites, such as Edmunds, AOL, Kelley Blue Book, and Yahoo, ("Network Websites"). These Network Websites provide substantially all of our Leads. Additionally, we own and operate consumer-facing automotive websites, including Autobytel.com®, Autoweb.com®, AutoSite.com®, Car.comsm, CarSmart.com ®, CarTV.com®, and MyRide.com® that provide consumers with information and tools to aid them with their automotive purchase decisions. Our owned websites provide a small percentage of our Leads but provide a significant portion of our page views for the advertising component of our business. In addition to advertising on our websites, we provide advertising opportunities for automotive manufacturers and other automotive advertisers through our marketing network, which includes our AutoReach advertising network ("Ad Network") and co-branded websites, such as ESPN.com. We conduct our business within the United States and within one business segment which is defined as providing automotive and marketing services.

For the three months ended March 31, 2009 our results of operations were affected and may continue to be affected in the future, by various factors, including, but not limited to, the following:

• General economic conditions and specifically the market conditions in the automotive industry;

• The effects of competition (e.g., the availability and pricing of competing services and products and the resulting effects on sales and pricing of our services and products);

• A decline in Leads delivered to our Dealers;

• Variations in spending by Manufacturers and others for our advertising services;

• The amount of visits (traffic) to our websites;

• The cost of acquiring traffic to our websites;

• The rates attainable from our advertisers;

• The implementation of certain cost reduction initiatives; and

• The change from a media-centric strategy to a core Leads business.

In August 2008, we engaged RBC Capital Markets Corporation ("RBC"), an investment banking firm, to act as a financial advisor and to assist us in exploring and evaluating strategic alternatives to maximize shareholder value, including the possible sale of the Company or certain of its assets. In January 2009, we announced that we had ended our evaluation of a possible sale of the Company and would continue to evaluate other strategic alternatives with RBC. In arriving at its decision, our Board of Directors concluded that shareholder value would not be maximized by a sale of the Company in the current economic environment.

In 2008, the automotive industry entered what is generally considered to be the most challenging environment of the past several decades. North American vehicle sales decreased significantly versus 2007. Dealer consolidations, closings and bankruptcies increased significantly in 2008 and this trend continued during the first quarter of 2009. General Motors ("GM") and Chrysler were provided with emergency loan funding by the U.S. Federal Government in December 2008 and January 2009, on the condition that they would develop plans to restructure. On March 30, 2009 President Obama announced that the U.S Federal Government would provide limited additional time to determine a restructuring plan that would be acceptable to the U.S. Federal Government to justify continued emergency loan funding requests. As a result, GM and or Chrysler could face possible bankruptcy in the second calendar quarter of 2009. The financial pressure in the automotive industry is not contained to the U.S. automobile manufacturers. Toyota Motor Corporation announced that it is forecasting its first fiscal year operating loss in 70 years. Several foreign governments have also discussed plans to assist their auto manufacturers. Auto sales in the United States are expected to continue to remain at low levels throughout 2009.

One of the factors generally believed to be a contributing factor to the sharp decline in automotive sales has been the lack of available consumer credit to finance vehicle purchases. If credit availability does not improve, the recovery in sales may be further postponed. If automobile sales and the industry in general do not recover, then our business, results of operations and financial condition will be materially and adversely affected.

Results of Operations



                                           Three Months Ended
                                               March 31,                                              Change
                                                        % of                        % of
                                                      Total net                   Total net
                                           2009       revenues         2008       revenues          $          %
                                               ($ amounts in thousands)
Net revenues:
Lead Fees                                $ 12,152            88 %    $ 18,161            88 %    $ (6,009 )   (33 )%
Advertising                                 1,687            12         2,499            12          (812 )   (32 )
Other                                          31            -             37            -             (6 )   (16 )

Total net revenues                         13,870           100        20,697           100        (6,827 )   (33 )
Cost of revenues (excludes
depreciation of $37 in 2009 and $73 in
2008)                                       8,887            64        13,825            67        (4,938 )   (36 )

Gross profit                                4,983            36         6,872            33        (1,889 )    (3 )
Sales and marketing                         2,640            19         5,195            25        (2,555 )   (49 )
Technology support                          1,461            11         4,593            22        (3,132 )   (68 )
General and administrative                  4,053            29         6,349            31        (2,296 )   (36 )
Patent litigation settlement               (2,667 )         (19 )      (2,667 )         (13 )          -       -

Total operating expenses                    5,487            40        13,470            65        (7,983 )   (59 )

Operating loss                           $   (504 )          (4 )%   $ (6,598 )         (32 )%   $  6,094      92 %

Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008

Lead Fees. Lead Fees decreased $6.0 million or 33% in first quarter 2009, compared to first quarter 2008 and was primarily a result of the following:

• a 26% decline in the total volume of new and used car sales Leads delivered, which was due to an approximately 30% net reduction in the number of auto-dealer customers. The decline in our Lead fees is relatively consistent with the overall decline in U.S. light vehicle sales in first quarter 2009 compared to first quarter 2008 of approximately 38% (Source: Automotive News), and

• a 7% decline in our average sales price per Lead, which was due primarily to sales incentives provided to new and existing auto-dealer customers.

Advertising. The $0.8 million or 32% decrease in advertising revenues for first quarter 2009, compared to first quarter 2008. The decrease was due primarily to a decrease in page views as a result of the reduction in search engine marketing of approximately 90%, partially offset by the recognition of $0.2 million of deferred advertising revenue in the first quarter related to advertising campaigns that were closed out with certain advertisers.

Cost of Revenues. Cost of revenues consists of Lead and traffic acquisition costs, and other cost of revenues. Lead and traffic acquisition costs consist of payments made to our Lead providers, including internet portals and on-line automotive information providers. Other cost of revenues consists of search engine marketing and fees paid to third parties for data and content included on our properties, connectivity costs, technology license fees, development and maintenance costs related to our websites, server equipment depreciation and technology amortization and compensation related expense. Search engine marketing ("SEM"), sometimes referred to as paid search marketing, is the practice of bidding on keywords on search engines to drive traffic to a website.

The $4.9 million or 36% decrease in the cost of revenues in first quarter 2009 compared to first quarter 2008 was primarily due to a decrease of $2.2 million in SEM, a $1.3 million decrease in Lead acquisition costs, a decrease in depreciation of $0.6 million, a $0.5 million decrease in other net various expense amounts, and a decrease in hosting and data content of $0.3 million. SEM costs have decreased due to cost containment initiatives and efforts to more efficiently deploy marketing dollars. Depreciation and other website related costs have decreased due to the decision to discontinue the use of the MyRide related software platform in the fourth quarter of 2008. The average cost per purchased Lead increased by approximately 16% in 2009 primarily due to an increase in overall quality of the leads purchased during the period.

Sales and Marketing. Sales and marketing expense includes costs for developing our brand equity, internal personnel costs and other costs associated with dealer sales, website advertising, and dealer support. Sales and marketing expense in first quarter 2009 decreased by $2.6 million or 49% compared to first quarter 2008, due principally to internal cost containment initiatives.

Technology Support. Technology support expense includes personnel costs related to enhancing the features, content and functionality of our Web sites and our Internet-based communications platform, costs associated with our telecommunications and computer infrastructure, and costs related to data and technology development. Technology support expense in first quarter 2009 decreased by $3.1 million or 68% compared to first quarter 2008, due to compensation expense savings resulting from internal cost reduction initiatives.

General and Administrative. General and administrative expense consists of executive, financial and legal personnel expenses and costs related to being a public company. General and administrative expense in first quarter 2009 decreased $2.3 million or 36% compared to first quarter 2008 due to the following:

• a decrease in net personnel and temporary labor expense of $1.1 million (includes the $0.4 million decrease of stock compensation, and the increase of $0.5 million in severance expense),

• a decrease in professional fees of $1.0 million, primarily as a result of cost containment initiatives, and

• a decrease in insurance and other expenses of approximately $0.2 million.

Employees

As of April 15, 2009, we had 109 employees. We also use independent contractors as required. None of our employees are represented by labor unions. We have not experienced any work stoppages and consider our employee relations to be generally good.

Liquidity and Capital Resources

The table below sets forth a summary of our cash flows for the quarters ended
March 31, 2009 and 2008:



                                                            Three Months Ended
                                                                 March 31,
                                                             2009          2008
                                                              (in thousands)
    Net cash used in operating activities                 $   (1,583 )   $ (5,617 )
    Net cash (used in) provided by investing activities          (38 )      6,985
    Net cash provided by financing activities                     -            89

Our principal sources of liquidity are our cash and cash equivalents balances and proceeds from dispositions of non-core businesses and the Dealix patent litigation settlement payments. We continue to have no debt. Our cash and cash equivalents totaled $25.8 million as of March 31, 2009 compared to cash and cash equivalents of $27.4 million as of December 31, 2008.

We entered into a settlement agreement with Dealix, which among other things, provides for settlement payments. We received settlement payments in 2007, 2008 and 2009. We have been unable to assess with reasonable assurance the collectability of the remaining payment due in March 2010 under the settlement agreement as we do not have financial information to support the credit worthiness of the debtor or guarantor. We do not have reasonable assurance that we will receive any remaining payment on their due dates or at all, and therefore, we have not recorded any amounts receivable related to the Settlement Agreement as of March 31, 2009 and cannot rely on these payments as a source of future liquidity.

General Motor ("GM") and Chrysler were provided with emergency loan funding by the U.S. Federal Government in December 2008 and January 2009, on the condition that they would develop plans to restructure. On March 30, 2009 President Obama announced that the U.S Federal Government would provide limited additional time to determine a restructuring plan that would be acceptable to the U.S. Federal Government to justify continued emergency loan funding requests. As a result, GM and or Chrysler could face possible bankruptcy in the second calendar quarter of 2009. During the first three months of 2009 approximately 7% of the Company's total revenues were derived from GM and Chrysler, and approximately 5% or $0.5 million of the gross accounts receivable relate to GM and Chrysler at March 31, 2009. If GM or Chrysler file for bankruptcy, then our liquidity could be negatively impacted.

As discussed in Note 8 to the unaudited Consolidated Condensed Financial Statements, Dominion has asserted an indemnity claim under the AVV business purchase agreement related to the $1.9 million amount held in escrow. As a result of the litigation settlements, the Company expects to receive the $1.9 million of escrow that is not recorded on the balance sheet.

Net Cash Used in Operating Activities

Net cash used in operating activities in first quarter 2009 of $1.6 million resulted primarily from a net operating loss of $0.3 million and an increase in cash used to reduce accounts payable and other accrued expenses of $2.8 million primarily related to severance costs that were accrued as of December 31, 2008 and paid in first quarter 2009, partially offset by cash received related to the reduction of our accounts receivable of $0.8 million.

Net cash used in operating activities in first quarter 2008 was $5.6 million consisting of net loss of $2.0 million, adjusted for a gain on sale of our AVV business of $4.2 million, increase in accounts receivable of $1.7 million and a net decrease in accounts payable and accrued liabilities of $1.6 million, offset by depreciation and amortization of $1.2 million and share-based compensation of $0.9 million and decrease in other liabilities of $1.2 million.

Net Cash Provided by Investing Activities

There were no significant investing activities during first quarter 2009. Net cash provided by investing activities in first quarter 2008 of $7.0 million was due to $21.4 million in cash received from the sale of AVV, offset by the purchases of $13.9 million in short-tem investment.

Net Cash Provided by Financing Activities

Our primary source of cash from financing activities is from the exercise of stock options and the issuance of common stock pursuant to the employee stock purchase plan. There were no financing activities in first quarter 2009 and a small amount of activity in first quarter 2008.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as defined in Item303(a)(4)(ii) of Regulation S-K.

Recent Accounting Pronouncements

SFAS 157: In September 2006, the FASB issued SFAS 157, "Fair Value Measurements". SFAS 157 establishes a framework for measuring fair value and expands disclosures of fair value measurements. SFAS 157 is effective for financial statements issued for periods beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position ("FSP") FAS 157-2 which defers the effective date of SFAS 157 for non-financial assets and liabilities that are not recorded at fair value on a recurring basis until periods beginning after November 15, 2008. The adoption of the non-deferred portion of SFAS 157 on January 1, 2008 and the adoption of the deferred portion of SFAS 157 on January 1, 2009 did not have an impact on our consolidated financial position, results of operations or cash flows.

SFAS 161: In March 2008, the FASB issued SFAS 161, "Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement 133." SFAS 161 provides new disclosure requirements for derivative and hedging activities, and is effective for periods beginning after November 15, 2008. We adopted SFAS 161 on January 1, 2009 and it did not have a material effect on our consolidated financial statements.

SFAS 160: In December 2007, the FASB issued SFAS 160, "Non-controlling Interests in Consolidated Financial Statements - an amendment of ARB 51." This standard provides new accounting guidance and disclosure requirements for non-controlling interests in a subsidiary. Since we do not have non-controlling interests in our subsidiaries, the adoption of SFAS 161 on January 1, 2009 did not have any effect on our consolidated financial statements.

SFAS 141(R): In December 2007, the FASB issued SFAS No. 141R, "Business Combinations." SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for business combinations occurring after December 31, 2008. The nature and magnitude of the specific effect the adoption of SFAS 141R will have on our consolidated financial statements will depend on the nature, terms, size of acquisitions, if any, we may consummate subsequent to the effective date of January 1, 2009.