The 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 "anticipates," "estimates," "expects," "projects," "intends," "plans," "believes," "will" 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, industry trends, 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. Factors that could cause actual results to differ materially from those reflected in forward-looking statements include, but are not limited to, those discussed in this Item 2 and under the heading "Risk Factors" in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2011. 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 unaudited consolidated condensed financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the notes thereto in the 2011 Form 10-K.

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 that material is electronically filed with or furnished to the SEC.

Basis of Presentation

The unaudited consolidated condensed financial statements presented herein are presented on the same basis as the 2011 Form 10-K. We have made the disclosures in accordance with accounting principles generally accepted in the United States of America as they apply to interim reporting, but condensed or omitted certain information and disclosures normally included in notes to consolidated financial statements in accordance with the SEC's rules and regulations. The unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto in the 2011 Form 10-K.

On the Acquisition Date, the Company acquired substantially all of the assets of Auto/Cyber. The results of Auto/Cyber's operations have been included in the consolidated financial statements since that date. The acquired businesses generate and sell in-market consumer automotive Purchase Requests and, through the Autotropolis.com website, provides new car Purchase Requests and related digital products directly to automotive dealers.

Overview

We are an automotive marketing services company that assists automotive retail dealers ("Dealers") and automotive manufacturers ("Manufacturers") market and sell new and used vehicles to consumers through our programs for online purchase request referrals ("Purchase Requests"), Dealer marketing products and services, and online advertising programs and data products. Our network of Company-owned, consumer-facing automotive websites ("Company-Owned Websites"), which includes our flagship website Autobytel.comŽ, provides consumers with information and tools to aid them with their automotive purchase decisions and the ability to submit inquiries requesting Dealers to contact the consumers regarding purchasing or leasing vehicles ("Vehicle Purchase Requests"). For consumers who may not be able to secure loans through conventional lending sources, our Company-Owned Websites provide these consumers the ability to submit inquiries requesting Dealers or other lenders that may offer vehicle financing to these consumers to contact the consumers regarding vehicle financing ("Finance Purchase Requests").

Purchase Request quality is measured by the conversion of Purchase Requests to actual vehicle sales. We rely on detailed feedback from Manufacturer and wholesale customers to confirm the performance of our Purchase Requests. In addition, in 2011 we engaged R.L. Polk to evaluate the performance quality of both our Internally-Generated Purchase Requests as well as those we acquire from our third party Purchase Request suppliers. Our Manufacturer and wholesale customers and R.L. Polk match the Purchases Requests we deliver to our customers against vehicle sales data to provide us

with closing rates for the Purchase Requests we deliver to our customers and information that allows us to compare these closing rates to the closing rates of the Purchase Requests we acquire from third party suppliers. Some of the data providers also provide comparisons to closing rates of third party Purchase Requests delivered by third parties and not delivered by us to our customers. Based on our evaluation of this information, we believe that the Purchase Requests we deliver to our customers generally are out-performing the closing rates of the Purchase Requests delivered by our third party Purchase Request suppliers. With this information, we report a number of key metrics to our customers, allowing them to gain a better understanding of the revenue opportunities that they may realize from acquiring Purchase Requests from us. We can now optimize the mix of Purchase Requests we deliver to our Dealers based on multiple sources of quality measurements. By providing actionable data, we are now placing considerable intelligence in the hands of our customers, and are seeing increased budget allocations from our customers for purchasing Purchase Requests from us.

In June 2011, we launched the first phase of a multi-phase redesign of our flagship website, Autobytel.com. The new website delivers a comprehensive consumer proposition to be Your Lifetime Automotive Advisor TM by assisting consumers as they navigate all stages of the automotive researching, shopping, buying and ownership experiences. By engaging consumers throughout the entire lifecycle of their automotive needs, Autobytel enhances its opportunity to further scale its brand and market penetration.

We plan to launch the mobile version of Autobytel.com in the second quarter of 2012. This mobile-optimized website will give consumers the opportunity to view photographs and videos, read car reviews and check pricing from their mobile devices. In addition, this mobile website will have shopping tools that will allow a consumer to find a Dealer, browse inventory and request free Dealer price quotes.

For the three months ended March 31, 2012, our business, results of operations and financial condition were affected and may continue to be affected in the future, by general economic and market factors, including, conditions in the automotive industry, the market for Purchase Requests and the market for advertising services, including, but not limited to, the following:

ˇ The adverse effect of high unemployment on the number of vehicle purchasers,

ˇ General uncertainty about the economy,

ˇ Availability of, and interest rates for, financing for vehicle purchases,

ˇ Pricing and purchase incentives for vehicles,

ˇ Disruption in the available inventory of automobiles,

ˇ The adverse effect of high demand/low supply vehicles on the need for Purchase Requests for such vehicles,

ˇ Gasoline prices,

ˇ Volatility in spending by Manufacturers and others in their marketing budgets and allocations,

ˇ The effect of changes in search engine algorithms and internet space,

ˇ Decreases in the number of retail Dealers in the industry, and

ˇ The impact of market factors on our ability to continue to attract, train, retain and motivate qualified personnel.

Results of Operations

 Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31,
2011


                                        % of total net                   % of total net
                            2012           revenues          2011           revenues          $ Change      % Change
                                                  (Dollar amounts in thousands)
Revenues:
Purchase requests         $  15,794                 95 %   $  14,964                 94 %    $      830              6 %
Advertising                     859                  5         1,001                  6            (142 )          (14 )
Other revenues                   52                  -            67                  -             (15 )          (22 )
Total revenues               16,705                100        16,032                100             673              4
Cost of revenues
(excludes depreciation
of $32 and $55 for the
three months ended
March 31, 2012 and
2011, respectively)           9,869                 59         9,872                 62              (3 )            -
Gross profit                  6,836                 41         6,160                 38             676             11
Operating expenses:
Sales and marketing           2,345                 14         2,419                 14             (74 )           (3 )
Technology support            1,828                 11         1,725                 11             103              6
General and
administrative                2,015                 12         2,084                 13             (69 )           (3 )
Depreciation and
amortization                    402                  2           446                  3             (44 )          (10 )
Litigation settlements          (70 )                -           (67 )                -              (3 )            4
Total operating
expenses                      6,520                 39         6,607                 41             (87 )           (1 )
Operating income (loss)         316                  2          (447 )               (3 )           763           (171 )
    Interest and other
income (expense), net            (1 )                -             9                  -             (10 )         (111 )
Income (loss) before
income tax provision            315                  2          (438 )               (3 )           753           (172 )
    Income tax
provision                        62                  -           133                  1             (71 )          (53 )
Net income (loss)         $     253                  2 %   $    (571 )               (4 )%   $      824           (144 %)

Purchase Requests. Purchase Request revenue increased $0.8 million or 6% in the first quarter of 2012 compared to the first quarter of 2011 primarily due to an increase of 9% in the volume of automotive Purchase Requests delivered to Manufacturers and other wholesale purchasers.

Advertising. Advertising revenues decreased $0.1 million or 14% in the first quarter of 2012 compared to the first quarter of 2011 due primarily to timing delays of certain Manufacturer direct marketing campaigns.

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

Cost of revenues remained at $9.9 million in both the first quarter of 2012 and the first quarter of 2011.

Sales and Marketing. Sales and marketing expense includes costs for developing our brand equity, personnel costs and other costs associated with Dealer sales, website advertising, Dealer support and bad debt expense. Sales and marketing expense in the first quarter of 2012 decreased by $74,000 or 3% compared to the first quarter of 2011 due principally to lower professional fees and headcount-related compensation costs.

Technology Support. Technology support expense includes compensation, benefits, software licenses and other direct costs incurred by the Company to enhance, manage, maintain, support, monitor and operate the Company's websites and related technologies, and to operate the Company's internal technology infrastructure. Technology support expenses in the first quarter of 2012 increased by $0.1 million or 6% compared to the first quarter of 2011 due to increased personnel costs and consulting fees.

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 the first quarter of 2012 decreased by $69,000 or 3% compared to the first quarter of 2011 due to a decrease in other controllable costs offset by an increase in headcount-related compensation costs.

Depreciation and amortization. Depreciation and amortization expense was $0.4 million for both the first quarter of 2012 and 2011.

Litigation settlements. Patent and other litigation settlements for the first quarter of 2012 was $70,000 compared to $67,000 in the first quarter of 2011.

Income taxes. Income tax expense was $62,000 in the first quarter of 2012 compared to income tax expense of $133,000 in the first quarter of 2011. The current quarter tax expense related to state taxes in Texas, California and Florida and offset by an increase in the deferred tax liability related to tax deductible goodwill amortization.

As of April 30, 2012 we had 121 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 three months
ended March 31, 2012 and 2011:


                                                                 Three Months Ended March 31,
                                                                  2012                2011
                                                                        (in thousands)
Net cash provided by (used in) operating activities            $       894       $        (1,236 )
Net cash provided by (used in) investing activities                    311                  (258 )
Net cash (used in) provided by financing activities                   (302 )                 206

Our principal sources of liquidity are our cash and cash equivalents balances. Our cash and cash equivalents totaled $12.1 million as of March 31, 2012 compared to cash and cash equivalents of $11.2 million as of December 31, 2011.

Net Cash Provided by (Used in) Operating Activities. Net cash provided by operating activities in the three months ended March 31, 2012 of $0.9 million resulted primarily from net income of $0.3 million, as adjusted for non-cash charges to earnings, in addition to cash used to reduce accrued liabilities of $0.8 million primarily related to the payment of annual incentive compensation amounts and severance accrued in 2011 and paid in the first three months of 2012 offset by a $1.0 million increase in our accounts payable balance. Net cash used in operating activities in the three months ended March 31, 2011 of $1.2 million resulted primarily from net losses of $0.6 million, as adjusted for non-cash charges to earnings, in addition to cash used to reduce accrued liabilities of $1.2 million primarily related to the payment of annual incentive compensation amounts accrued in 2010 and paid in the first three months of 2011 and a $1.1 million decrease in our accounts receivable balance.

Net Cash Provided by (Used in) Investing Activities. Net cash provided by investing activities was $0.3 million in the three months ended March 31, 2012 primarily related to net changes in a certificate of deposit used to secure the processing of certain SEM activity offset by purchase of property and equipment. Net cash used in investing activities was $0.3 million in the three months ended March 31, 2011 and is related primarily to the investment in upgrading our internal information technology infrastructure.

Net Cash (Used in) Provided by Financing Activities. Our primary source of cash from financing activities is from the exercise of stock options. Stock options for 8,039 shares of stock were exercised in the three months ended March 31, 2012 resulting in $5,000 cash inflow. Net cash used in financing activities in the three months ended March 31, 2012 consisted of a contingent payment of $83,000 related to the Auto/Cyber acquisition and $0.2 million used to repurchase our common stock. Stock options for 351,583 shares of stock were exercised in the three months ended March 31, 2011, resulting in $0.3 million of cash inflow. In addition, a $83,000 contingent payment was made related to the Auto/Cyber acquisition in the three months ended March 31, 2011. Our future cash flows from employee stock options, if any, will depend on the future timing, exercise price, and amount of stock option exercises.

Off-Balance Sheet Arrangements

At March 31, 2012, we had no off-balance sheet arrangements as defined in Regulation SK, Item 303(a)(4)(D)(ii).