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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR

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

For the transition from ________________ to _________________

COMMISSION FILE NUMBER 000-26365

Overture Services, Inc.

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                  |  |                                                
|----------------------------------------------------------------------- |  | -------------------------------- |  | -----------------------------------------------
|DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization) |  | 000-26365
Commission File Number |  | 95-4652060
(I.R.S. Employer
Identification No.)

74 NORTH PASADENA AVENUE 3RD FLOOR
PASADENA, CALIFORNIA 91103
(Address of principal executive offices)

626-685-5600
(Registrants telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.0001 par value
Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] YES [  ] 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. [X]

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, based on the closing price for the
registrants common stock in the Nasdaq National Market on February 24, 2003,
was approximately $721.4 million. This calculation does not reflect a
determination that certain persons are or are not affiliates of the registrant
for any other purposes and assumes that shares held by affiliates include only
shares held by executive officers, members of the board of directors (but not
any fund of which any such persons may be a partner), and holders of greater
than 5% and all shares that have been reported on Schedule 13D, consisting of
The TCW Group, Inc, on behalf of the TCW Business Unit filing such Schedule 13G
dated February 5, 2003; FMR Corp. filing such Schedule 13G dated February
14, 2003; AXA Assurances I.A.R.D. Mutuelle on behalf of various affiliated
entities, filing such Schedule 13G dated February 10, 2003; and Bill Gross
Idealab and other members of the group filing with Bill Gross Idealab filing such Schedule 13D dated November 28, 2001.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b of the Act). [X] YES [  ] NO

The aggregate market value of the voting and non-voting common equity held by
non-affiliates, based on the closing price for the registrants common stock in
the Nasdaq National Market on June 30, 2002, was approximately
$942.0 million. This calculation does not reflect a
determination that certain persons are or are not affiliates of the
registrant for any other purposes and assumes that shares held by
affiliates include only shares held by executive officers, members of
the board of directors (but not any fund of which any such persons
may be a partner), and holders of greater than 5% and all shares that
have been reported on Schedule 13D, consisting of The TCW Group,
Inc. on behalf of the TCW Business Unit filing such Schedule 13G
dated February 13, 2002; RS Investment Management Co.
filing such Schedule 13G dated February 15, 2002; FMR Corp.
filing such Schedule 13G dated April 10, 2002; and Bill
Gross Idealab and other members of the group filing with Bill
Gross Idealab filing Schedule 13D dated November 28,
2001.

The number of outstanding shares of the registrants common stock as of the
close of business on February 24, 2003 was 59,275,635

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DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12 and 13 of Part III incorporate information by reference from
the definitive proxy statement for the registrants 2003
Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2002.

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TABLE OF CONTENTS



|               |                                                                                               |  |  |  |  |  |  | 
|-------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I        
|               | Item 1. Business                                                                             
|               | Item 2. Properties                                                                           
|               | Item 3. Legal Proceedings                                                                    
|               | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II       
|               | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|               | Item 6: Selected Consolidated Financial Data                                                 
|               | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|               | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|               | Item 8. Financial Statements and Supplementary Data                                          
|               | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III      
|               | Item 10. Directors and Executive Officers of the Registrant                                  
|               | Item 11. Executive Compensation                                                              
|               | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|               | Item 13. Certain Relationships and Related Transactions                                      
|               | Item 14. Controls and Procedures                                                             
|               | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES    
|CERTIFICATIONS
|EXHIBIT 2.1   
|EXHIBIT 2.2   
|EXHIBIT 2.3   
|EXHIBIT 2.4   
|EXHIBIT 3.4   
|EXHIBIT 10.8  
|EXHIBIT 10.9  
|EXHIBIT 10.10 
|EXHIBIT 10.11 
|EXHIBIT 10.19 
|EXHIBIT 23.1  
|EXHIBIT 99.1  



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OVERTURE SERVICES, INC.

FISCAL YEAR 2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

|               |  |          |  |                                                                                       |  |     
|-------------- |  | -------- |  | ------------------------------------------------------------------------------------- |  | ----
|               |  |          |  |                                                                                       |  | Page
|               |  |          |  |                                                                                       |  |     
|PART I         |  |          |  |                                                                                       |  |     
|               |  | Item 1.  |  | Business                                                                              |  | 4   
|               |  | Item 2.  |  | Properties                                                                            |  | 9   
|               |  | Item 3.  |  | Legal Proceedings                                                                     |  | 9   
|               |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 10  
|PART II        |  |          |  |                                                                                       |  |     
|               |  | Item 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 11  
|               |  | Item 6.  |  | Selected Financial Data                                                               |  | 13  
|               |  | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15  
|               |  | Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 33  
|               |  | Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 34  
|               |  | Item 9.  |  | Changes and Disagreements with Accountants on Accounting and Financial Disclosure     |  | 34  
|PART III       |  |          |  |                                                                                       |  |     
|               |  | Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 34  
|               |  | Item 11. |  | Executive Compensation                                                                |  | 34  
|               |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 34  
|               |  | Item 13. |  | Certain Relationships and Related Transactions                                        |  | 34  
|PART IV        |  |          |  |                                                                                       |  |     
|               |  | Item 14. |  | Controls and Procedures                                                               |  | 35  
|               |  | Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 35  
|SIGNATURES     |  |         
|CERTIFICATIONS |  |         

Forward Looking Statements

In addition to historical information, this Form 10-K contains
forward-looking statements, including statements related to the expected growth
of our affiliate program, the amount of traffic that will be directed to us
from our affiliates in the future, the timing and amount of any increase in our
average price per paid introduction, continued profitability, the timing and
amount of our number of paid introductions, the amount of future advertiser
spending with Overture, the amount of future traffic acquisition costs as a
percentage of revenue, planned acquisitions and development of
services acquired in such acquisitions and, international expansion,
liquidity, growth in the number of advertisers, fluctuation in the price of our
common stock, changes in our quarter-to-quarter financial results, seasonal
effects and future competition. We use words such as
anticipates,
believes, plans, expects, future, intends and similar expressions to
identify these forward-looking statements. These forward-looking statements
are subject to certain risks and uncertainties, as well as assumptions that
could cause actual results to differ materially from those reflected in these
forward-looking statements. Factors that might cause actual results to differ
include, but are not limited to, those discussed in the sections entitled
Managements Discussion and Analysis of Financial Condition and Results of
Operations. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect managements opinions only as of the
date hereof. Overture undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements.

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PART I




Item 1. Business

OVERVIEW

Overture Services, Inc. is the global leader in Pay-For-Performance search
(also known as paid search) on the Internet. Overtures search
service is comprised of advertisers listings, which are screened for relevance
and accessed by consumers and businesses through Overtures affiliates, a
network of Web properties that have integrated Overtures search service into
their sites or that direct user traffic to Overtures own site. In some cases,
consumers and businesses access our search listings directly at our site. The
search listings are ranked by the advertisers bid; the higher the bid, the
higher the ranking. Advertisers pay Overture the bid price for clicks on the
advertisers search listing (also known as a paid introduction, click-through
or a paid click). As of December 31, 2002, Overture and its wholly owned
subsidiaries, operated the Overture service in the United States, United
Kingdom, Germany, France and Japan. Subsequent to the end of the year,
Overture announced its intention to operate its service in South Korea, Italy,
Spain, and other European markets.

Overture was incorporated on September 15, 1997 in the state of Delaware
and officially launched its service on June 1, 1998. On October 8, 2001, we
changed our corporate name from GoTo.com, Inc. to Overture Services, Inc. and
changed our Nasdaq Stock Market trading symbol to OVER. Overture has offices
in California and New York in the United States; United Kingdom; Germany;
France; Ireland; Japan; and South Korea.

On February 18, 2003, Overture announced its plan to acquire the business
of AltaVista Company (AltaVista), a pioneer in Web search technology, for
$140.0 million in cash and stock.

On February 25, 2003, Overture announced its plan to acquire the Web
search unit of Norway-based Fast Search and Transfer (Fast), a developer of
search and real-time filtering technologies, for $70.0 million
in cash, plus a
potential performance-based cash incentive payment of up to $30 million over
three years.

AltaVista and Fast both use advanced algorithmic search technology to
crawl the Web and return relevant search results in response to users queries.
We believe these technologies complement our own market-leading technology in
commercial search and will enhance our core Pay-For-Performance search business
as well as allow us to develop new products and services for our advertisers
and affiliates.

INDUSTRY OVERVIEW

Search
is a large and growing market. In the United States alone, hundreds
of millions of searches each day are conducted on the Internet. We
believe a substantial portion of these searches are commercial in
nature. Commercial search queries, we believe, are best served by paid
search, which we define, generally, as targeted advertising paid per lead. We
believe that paid search is the fastest growing segment of Internet search.
In our view, improvements in the quality, relevance, breadth
and depth of paid listings will likely drive growth of click-throughs on
commercial inquiries.

In addition, we also believe that the price per paid introduction that
advertisers pay will continue to grow. Relative to alternatives, we
believe, a lead on
Overture at an average price of $0.35 is less expensive, yet more targeted and
measurable than other direct sales methods such as targeted keyword banner ads,
direct mail or the yellow pages.

We believe that paid search is a relatively untapped market for many
advertisers. Pay-For-Performance search has only been introduced recently and
we believe that there are many large advertisers that still have not
contributed portions of their marketing budget to Internet advertising and more
specifically paid search, but will as the Internet becomes a more acceptable
medium for advertising goods and services.

We also believe that our business will continue to experience growth
outside of the United States as Internet usage and e-commerce development
continue to grow in other countries.

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According to our estimate, the US commercial search market has grown and
will continue to grow significantly from its $1 billion market size at the end
of 2001. As the market leader, Overtures paid introductions have grown from
173 million in 1999 to 2.2 billion in 2002.

OVERTURE STRATEGY

Overtures objective is to build upon its leadership position in
commercial search by expanding participation in its -services, to increase the
number of search listings available to users and to increase the number of
click-throughs that occur through Overtures affiliates. We believe that
increasing the number of key constituents in the Overture network (consumers,
advertisers and Overtures affiliates) will enable Overture to offer a more
robust search service, which may enhance our ability to generate increasing
search-based revenue. Elements of Overtures strategy follow.

Expand Consumer Base within the Overture Service. Overture delivered 563
million paid introductions through its network in the fourth quarter of 2002,
and more than 2.2 billion paid introductions in fiscal 2002. Overture believes
it can expand the base of consumers who access the Overture service by working
with affiliates to enhance the implementation of the Overture service on the
affiliates properties and to introduce new products and services to them.
Overture has tested such new implementations with affiliates, including
offering additional Overture search listings on a page, improving the placement
of our search listings, and servicing certain vertical categories within
affiliates Web properties. In addition, Overture will seek to expand its
consumer base, both domestically and abroad, by adding Web properties not
currently in the Overture network.

Improve our Service Quality.We believe that improving the quality of
Overtures service will make it more attractive to consumers, advertisers and
affiliates. In 2002, we introduced several new services, (such as
auto-bidding) and several additional advertiser account management systems that
are designed to aid advertisers in maximizing their volume of paid
introductions and subsequently their return on their investment.

Overture employs a dedicated team of editors that is focused on screening
search listings for relevance. Overture continues to utilize automated systems
that allow our editors to make relevance determinations. These systems also
allow Overture to better scale the business. In addition, in 2002, Overture
implemented a series of new editorial guidelines for advertisers designed to
improve the relevance and quality of Overtures listings and the overall search
experience for users.

Overture also implemented several strategies to acquire new advertisers
for the purpose of expanding the depth and breadth of Overtures search
listings. We believe these strategies have improved the overall relevance and
quality of Overtures search results. According to Overture estimates, there
are still a significant number of commercial keywords that are searched by
consumers for which a business has not provided a paid result. Overtures
planned acquisition of AltaVista and Fasts Web search unit should allow us to
better capture that opportunity. In addition to acquisition of new
advertisers, we intend to develop new marketing and technology initiatives to
increase advertiser participation in existing and new keyword markets (e.g.
search terms) available to advertisers, which we believe will lead to enhanced
search results within those markets.

Expand Internationally.Overture has launched its search service
internationally in the United Kingdom, Germany, France and Japan. We will
continue to analyze international opportunities and will seek to expand our
services into countries where our service can be replicated on a cost effective
basis and where consumers, advertisers and search providers desire the Overture
service. Accordingly, Overture anticipates offering its services in several new
overseas markets during 2003, including South Korea, Italy, Spain and other
European markets.

Expand the Offering.Overture intends to expand its offering through internal
development and acquisitions such as AltaVista and Fasts Web search unit, to
provide consumers, advertisers and search providers additional services.
Overtures large advertiser base and robust technical and service capacity
allows Overture to develop future opportunities to provide additional value to
advertisers. More specifically, Overture intends to expand its service to
advertisers by providing systems and information that help advertisers maximize
their advertising dollar. Overture believes that there are substantial
opportunities to provide additional products and services to its affiliates and
advertisers.

THE OVERTURE SERVICE

The Overture service enables consumers and businesses to quickly locate desired
providers of products and services. By offering our search service at the
numerous Web properties in our affiliate network, and at our home page, the
Overture service is available to millions of consumers and businesses who can
receive targeted search results generated by our base of more than
80,000 advertisers.

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Bidding on the Overture Service

The search results in the Overture service are prioritized for consumers
by the amount the advertiser has bid for placement in the keyword market.
Advertisers are listed in descending order of their bid, with the highest
bidder appearing as the first search listing in the search results. Bids may
be expressed either as the amount the advertiser pays Overture each time there
is a click on the advertisers search listing or as the maximum amount the
advertiser is willing to pay for a click on the advertisers
search listing. Advertisers pay Overture only when a click-through
occurs on the advertisers search listing. Advertisers may see the bids of other advertisers on their keywords, enabling
the advertiser to determine his or her own bid necessary to achieve a desired
ranking, which instills competition among advertisers and promotes greater
relevance for consumers.

Advertising on the Overture Service

Overture attracts advertisers who want to drive highly targeted leads to
their Web sites. Most advertisers utilize Overtures self-service tools to
open and manage accounts online through our patented DirecTraffic Center®, a
proprietary, automated Web-based account management tool that offers several
tracking, bid management and measurement features. These accounts comprise our
Online Channel, which typically consists of small and medium size enterprises
and represented approximately 60% of Overtures revenue in the fourth quarter
of 2002. By automating the sales and maintenance of many of our advertiser
accounts, Overture gives businesses greater control over the advertising
process, while leveraging the scalable nature of our business.

Overture account managers oversee and maintain large advertiser accounts,
usually bigger enterprises or advertising agencies that pay by invoice and
which are typically obtained through our direct sales force efforts. These
accounts comprise our Direct Channel and represented approximately 40% of
Overtures revenue in the fourth quarter of 2002.

Potential advertisers find Overture directly, through third-party referral
programs, through our direct sales efforts and through a variety of direct
marketing activities. These activities include targeted mailings, e-mails and
other promotional material sent directly to businesses, advertising agencies
and search engine marketers. To increase advertiser participation in the
Overture service, we will continue to utilize multiple marketing channels,
including our direct sales force, targeted online marketing, direct mailings,
participation at trade shows and appearances in advertising industry
periodicals. We will also continue to enter into referral agreements with
third parties that receive payment for each business they refer to Overture
that becomes an advertiser on our search service.

When our advertisers submit listings to the Overture search service, we
review them for relevance and for conformance with our editorial guidelines.
Advertisers can participate only in keyword markets that are relevant to their
Web site and product or service offering. In certain cases, and for a separate
fee, we help advertisers optimize their search listing campaigns by
recommending relevant keywords available to them based on their Web site and
product or service offering. As of December 31, 2002, Overtures proprietary
database included approximately 10 million search listings in the United
States.

Currently, all new U.S. Overture advertisers must commit to a minimum bid
per listing of 10 cents and a minimum $20 monthly spend. Advertisers may
pre-pay by check, wire, credit card and in some cases, Overture may grant
credit terms under which the advertiser is invoiced each month.

THE OVERTURE NETWORK

Overture distributes its search listings to numerous Web properties,
including many premiere Web sites such as MSN.com and Yahoo.com that offer
their users Overtures Premium Listings, which are the top Overture listings
for each keyword (typically this usually consists of three to five of the top
listings ). Other affiliates within the Overture network include AltaVista,
AOL Europe, Applied Semantics (formerly Oingo), CNET, Comet Systems, InfoSpace
(including MetaCrawler,WebCrawler, Dogpile and Excite), TerraLycos and Wanadoo
(which acquired Freeserve). Overture also has relationships with the two
primary Web browsers used by Internet users, which offer Overture search
results as a default search service (Microsoft) or as a rotation with other
providers of search listings (Netscape).

We believe that affiliates electing to offer the Overture search service on
their sites can take advantage of any or all of the following benefits:

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| |  |  | Obtain an economic advantage in monetizing search;
| | - |  | --------------------------------------------------



| |  |  | Deliver high quality and relevant search results to their users;                                                                                                  
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Experience superior technical and customer service;                                                                                                               
|
| |  |  | Generate revenue without the costs and challenges associated with
building and maintaining the marketing, sales and service, and
supporting functions and systems;
|
| |  |  | Build and maintain brand loyalty by delivering content with the look,
feel and navigation features specific to each affiliate in a
non-competitive way.           

Web properties can become an affiliate in one of three ways.

First, an affiliate can choose to obtain a complete set of search results,
which includes Overtures search listings as well as algorithmic search results
(search results generated by software programs that collect and organize
information from the Web) provided by a third party selected by Overture. With
this option, the end user, at the affiliates choice, will access the Overture
search listings and third party results at the affiliates Web site or at
Overtures Web site. Pending the close of the acquisitions of AltaVista and
Fasts Web search unit, we intend to offer broad Web search capabilities (which
may also include paid listings).

Second, an affiliate may choose to offer Overture search results as part
of other search results they provide their users. For example, as part of our
network, we have established contracts with Web sites that aggregate the search
offerings of several providers of search services. These contracts provide
that our search service is included in the aggregated search offerings on these
sites. Overture has also entered into contracts with portals, in which our
Premium Listings are offered as part of the affiliates search results.

Finally, in contracts with internet browser providers, like Microsofts
Internet Explorer, and AOLs Netscape, our search results are offered on the
browsers search page, or as part of the browsers search functionality.

The economic arrangements with affiliates vary and may include:



| |  |  | Fixed guarantees by Overture which often carry reciprocal, performance guarantees from the affiliate;
| | - |  | -----------------------------------------------------------------------------------------------------
|
| |  |  | Payment by Overture based on a specified percentage of revenue;                                      
|
| |  |  | Specific payment by Overture for each click on our search results;                                   
|
| |  |  | Payment by Overture for impressions of our search results;                                           
|
| |  |  | Payment by Overture for searches done on our service; and                                            
|
| |  |  | Combinations of the foregoing.                                                                       

TECHNOLOGY

Overtures technical operating environment is designed to provide the best
search experience on the Internet to consumers and businesses, and affiliates
as well as the best service level to advertisers. Overture intends to continue
investing in its technology infrastructure to maintain and enhance its
competitive advantage.

Overture makes its services available to consumers and businesses,
affiliates and advertisers through a combination of its own proprietary
technology and commercially available technology from industry leading
providers such as Sun Microsystems, Cisco and Oracle. Overture also relies
upon third parties to provide hosting services, including hardware support and
service and network coordination.

Any disruption in Internet access or other services provided by third
parties could have a material adverse effect on our business. Overture is
undertaking initiatives to develop and implement business continuity, improve
data retention, create backup and recovery processes and systems and
standardize technology platforms. Overture also protects its search computer
systems by maintaining multiple search serving sites which allow for global
load balancing, as well as designing these systems for peak loads and non-stop
operation.

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INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

As the pioneer of Pay-For-Performance search, Overture has developed
significant proprietary technologies to serve our results and service our
advertisers. Overture has filed, and has been issued, patents to protect and
enforce our inventions, systems and processes. Accordingly, Overture
intends to vigorously enforce its intellectual property and has filed lawsuits
in this regard against some of our competitors.

We seek to protect our copyrights, service marks, trademarks, trade dress
and trade secrets through a combination of laws and contractual restrictions.
For example, we attempt to register our trademarks and service marks in the
United States and other countries throughout the world. However, effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our services are made available online.

COMPETITION

We face competition in three principal areas: (i) distribution of our
services; (ii) demand for our services on our affiliates Web sites and (iii)
usage of our services by advertisers.

We compete with companies that provide pay-per-click advertising services
that are similar to Overtures. These companies include Espotting Media, Inc.,
FindWhat, Google, Inc., PRIMEDIA (About.com) and Terra Lycos. In addition, we
cannot assure you that another search service will not successfully offer a
competitive pay-per-click advertising service. We believe it is likely that
there will be additional entrants to the pay-per-click search market. These
competitors will compete against Overture for affiliate arrangements and could
cause Overture to enter into affiliate agreements with less favorable terms or
lose affiliates or potential affiliates, which could reduce our number of
click-throughs, increase the amount of revenue shared with affiliates, and
reduce total revenues and thereby have a material adverse effect on our
business, operating results and financial condition.

We also compete with providers of other search related services for space
on the search results page, including, among others, AltaVista, Espotting
Media, Inc., Fast Search & Transfer ASA, Google, Inc., Inktomi, Infospace and
LookSmart, Ltd.

Our affiliates face competition for user traffic within the search
marketplace, which affects the number of paid introductions on our service. If
the users of these affiliates prefer the services offered by the affiliates
competitors with whom we do not have a relationship, the businesses of our
affiliates may suffer, which may in turn have a material adverse effect on our
business, operating results and financial condition. In addition, many of our
affiliates compete with one other, and this may make it difficult for us to
develop some affiliate relationships.

We also compete with providers of pay-per-click search services and other
search services, Internet service providers, other Web sites and advertising
networks such as DoubleClick, Inc. and 24/7 Media, Inc., as well as traditional
offline media such as television, radio and print and direct marketing
companies, for a share of advertisers total advertising budgets. Accordingly,
Overture may face increased pricing pressure for the sale of advertisements and
direct marketing opportunities, as well as a decrease in demand for the
Overture service, which could have a material adverse effect on our business,
operating results and financial condition.

Some of our competitors, as well as potential entrants into our market,
have longer operating histories, larger customer or user bases, greater brand
recognition and greater financial, marketing and other resources than we do.
Many current and potential competitors can devote substantially greater
resources to promotion, Web site and systems development than we can. In
addition, as the use of the Internet and other online services increases,
larger, well-established and well-financed entities may continue to acquire,
invest in or form joint ventures with providers of Web directories, search and
information services or advertising solutions. Existing providers of Web
directories, search and information services or advertising solutions may
continue to consolidate. In addition, providers of Internet browsers and other
Internet products and services who are affiliated with providers of Web
directories and information services in competition with the Overture service
may more tightly integrate these affiliated offerings into their browsers or
other products or services. Any of these trends could increase the competition
we face, reduce the demand for our service and could have a material adverse
effect on our business, operating results and financial condition.

EMPLOYEES

Overture had 876 full-time employees as of December 31, 2002. As of
December 31, 2002, 226 of Overtures employees were engaged in technical
operations and product development, 483 in marketing, sales and service and 167
in finance, administration and operations. Marketing, sales and service
employees include customer service representatives, salespeople, sales
administration personnel, marketing and communications personnel and creative
services personnel.

8



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AVAILABLE INFORMATION

We file the required reports with the Securities and Exchange Commission
under the Securities Exchange Act of 1934. These reports include Overtures
annual report on Form 10-K, quarterly financial reports on Form 10-Q, and
current reports on Form 8-K. This information is maintained on our Internet
site as soon as practical after it is electronically filed with the SEC and is
available free of charge at our site at http://www.overture.com.




Item 2. Properties

Our headquarters are located in a leased office complex located in
Pasadena, California, which aggregates approximately 116,000 square feet. We
also lease space in San Mateo and Carlsbad, California and New York in the
United States; United Kingdom; Germany; France; Ireland; Japan and South Korea.




Item 3. Legal Proceedings

Overture is currently in separate litigations with Google and FindWhat in
which Overture is alleging that these parties infringe our U.S. Patent No.
6,269,361 (the 361 patent) entitled System And Method For Influencing A
Position On A Search Result List Generated By A Computer Network Search
Engine. The 361 patent protects various features and innovations relating to
bid-for-placement products and Overtures Pay-For-Performance search
technologies, including our DirecTraffic Center account management system and
tools. In each litigation, the respective parties, Google and FindWhat, have
alleged invalidity and unenforceability of the 361 patent. When the validity
and enforceability of the 361 patent is determined, in either litigation, that
determination may have a material effect on our competitive position.

The complaint against FindWhat was filed on January 25, 2002, in the
United States District Court for the Central District of California. The
lawsuit charges FindWhat with willful infringement of the 361 patent.
Overture also seeks a permanent injunction against FindWhat, an award of
increased damages, and an award of attorneys fees, costs and expenses. Also on
January 25, 2002, FindWhat served Overture with an amended complaint filed in
the United States District Court for the Southern District of New York for
declaratory judgment of invalidity, unenforceability and non-infringement
relating to our 361 patent. On February 13, 2003, the New
York Court ordered
FindWhats declaratory judgment action to be transferred to the Central
District of California.

The complaint against Google was filed on April 23, 2002 in the United
States District Court for the Northern District of California. The lawsuit
charges Google with willful infringement of the 361 Patent. Overture also
seeks a permanent injunction against Google, an award of increased damages, and
an award of attorneys fees, costs and expenses. On June 7, 2002, Google filed
its answer to the Overture complaint, denying that it infringes the 361 Patent
and alleging counterclaims of non-infringement, invalidity and unenforceability
relating to the 361 Patent. The parties continue to move through the discovery
process. A hearing regarding the interpretation of the claims contained in the
361 Patent (commonly referred to as a Markman hearing) currently is
scheduled for early August.

Overture is a defendant in five trademark infringement actions (JR Cigar,
Mark Nutritionals, PlasmaNet, Pets Warehouse and Shar Products). The plaintiffs
in these cases allege that they have trademark rights in certain search terms
and that Overture violates these rights by allowing competitors of the
plaintiffs to bid on these search terms. The amount of damages that are claimed
and, if awarded, in one or more of these lawsuits might have a material effect
on our results of operations, cash flow or financial position. We believe that
we have meritorious defenses to liability and damages in each of these lawsuits
and we are contesting them vigorously. If Overture were to incur one or more
unfavorable judgments that in themselves are not material, or if
there were a
development in the law in a similar case to which we are not a party that was
negative to Overtures position, we might as a result decide to change the
general manner in which we accept bids on certain search terms and this change
might have a material adverse effect upon the results of operations, cash flows
or our financial position.

The following sets forth the details
concerning the five trademark cases that have been filed against
Overture based on its acceptance of bids on certain search terms. The
plaintiffs in each seek money damages, including attorneys fees
and costs.

|                 |                                                                      |                                                                   
|---------------- | -------------------------------------------------------------------- | ------------------------------------------------------------------
|Date Instituted  | Plaintiff                                                            | Venue                                                             
|                 |                                                                      |                                                                   
|                 |                                                                      |                                                                   
|October 2, 2000  | 800-JR-Cigar, Inc.                                                   | United States District Court for the District of
New Jersey       
|                 |                                                                      |                                                                   
|January 28, 2002 | Mark Nutritionals*                                                   | United States District Court for the Western
District of Texas    
|                 |                                                                      |                                                                   
|April 23, 2002   | PlasmaNet, Inc.                                                      | United States District Court for the Southern
District of New York
|                 |                                                                      |                                                                   
|October 8, 2002  | Robert Novak, doing business as Pets Warehouse
and PetsWarehouse.com | United States District Court for the Eastern
District of New York 
|                 |                                                                      |                                                                   
|January 2, 2003  | Shar Products Company                                                | United States District Court for the Eastern
District of Michigan 

* In September 2002, Mark Nutritionals filed for protection
under Chapter 11 of the bankruptcy code, and in February 2003,
the U.S. Trustee moved to convert the filing to Chapter 7 of the
bankruptcy code.

The following sets forth details regarding other litigation, which may be
material to Overture.

On June 19, 2001, InternetFuel.com, Inc. filed a complaint against
Overture in the Superior Court of the State of California for the County of Los
Angeles. The complaint alleges that Overture wrongfully terminated an agreement
pursuant to which InternetFuel participated in Overtures affiliate program and
that Overture did not properly account for monies owed under that agreement.
The complaint also alleges libel for messages allegedly placed by Overture on
an Internet forum, and it contains claims of unfair business practices. The
complaint seeks, among other remedies, monetary damages for the value of the
terminated agreement and for alleged harm to InternetFuels reputation,
punitive and exemplary relief and an injunction against alleged unfair business
practices. In December 2001, Overture successfully moved the court to transfer
the case to arbitration. InternetFuel.com thereafter supplemented its claims,
alleging fraud under California law.

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This matter was arbitrated in late December 2002 and early January 2003.
On January 10, 2003, the arbitrator issued an interim award. Although the
arbitrator found in Overtures favor on InternetFuels claims for fraud and
unfair business practices, the arbitrator found for InternetFuel on the breach
of contract claim and awarded InternetFuel approximately $8.7 million. On
January 16, 2003, InternetFuel filed an application with the arbitrator seeking
approximately $840,000 in pre-judgment interest on the award. On January 28,
2003, Overture filed its opposition to InternetFuels request for pre-judgment
interest. InternetFuel is also seeking to recover certain costs incurred
during the litigation, none of which have been specified to date. Overture
filed its statement opposing recovery of those costs. Overture disagrees with
the arbitrators breach of contract award and is currently considering all of
its available legal options.

On July 12, 2001, the first of several purported securities class action
lawsuits was filed in the United States District Court, Southern District of
New York against certain underwriters involved in Overtures initial public
offering, Overture, and certain of Overtures current and former officers and
directors. The Court consolidated the cases against Overture into case number
01 Civ. 6339. Plaintiffs allege, among other things, violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934 involving
undisclosed compensation to the underwriters, and improper practices by the
underwriters, and seek unspecified damages. Similar complaints were filed in
the same court against numerous public companies that conducted initial public
offerings of their common stock since the mid-1990s. All of these lawsuits were
consolidated for pretrial purposes before Judge Shira Scheindlin. On April 19,
2002, plaintiffs filed an amended complaint, alleging Rule 10b-5 claims of
fraud. On July 15, 2002, the issuers filed an omnibus motion to dismiss for
failure to comply with applicable pleading standards. On October, 8, 2002, the
Court entered an Order of Dismissal as to all of the individual defendants in
the Overture IPO litigation, without prejudice. On February 19, 2003, the Court
denied the motion to dismiss the Rule 10b-5 claims against Overture. Overture
continues to deny the allegations against it, believes that it has meritorious
defenses to the amended complaint, and intends to contest the allegations
vigorously.

On January 31, 2002, a complaint was filed against Overture as a result of
its acquisition in May 2000 of AuctionRover.com, Inc., and other defendants in
North Carolina Superior Court by an individual, Paul Rony, relating to alleged
trade secrets concerning interaction with Internet auction Web sites. The
causes of action alleged against Overture include misappropriation of trade
secrets, quantum meruit, and constructive trust. The parties are in the early
phase of the discovery process. Overture believes that it has meritorious
defenses to the allegations and is contesting the allegations vigorously.

On February 20, 2002, Overture filed a complaint against Did-It.com, Inc.
for trespass, unfair competition and violations of the Computer Fraud and Abuse
Act. In response to Overtures complaint, on June 14, 2002, Did-It filed a
counterclaim against Overture alleging federal and state antitrust violations,
violations of the Unfair Trade Practices Act, fraud and deceit, negligent
misrepresentation, false and misleading advertising, unfair competition,
interference with contract and prospective economic advantage and violations of
California Civil Code Section 1812.600, et.seq. On August 7, 2002, Overture
filed a motion to dismiss various claims contained in Did-Its counterclaim,
including claims for antitrust violations. On August 30, 2002, Did-It filed its
first amended counterclaim, which omitted some of the antitrust causes of
action contained in its initial counterclaim. On October 2, 2002, Overture
filed its answer to Did-Its first amended counterclaim. The parties are
entering the early phase of discovery. Overture believes that it has
meritorious defenses to the allegations and is contesting the allegations
vigorously.

We may also be subject to litigation brought against us in the ordinary
course of business.




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

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by Item 10 of Form 10-K with respect to executive
officers of Overture is set forth below. The following table sets forth certain
information with respect to the executive officers of Overture as of January
31, 2003.

|                  |  |     |    |          |  |                                      
|----------------- |  | --- | -- | -------- |  | -------------------------------------
|NAME              |  | AGE |    | POSITION
|                  |  |     |    |         
|Ted Meisel        |  |     | 39 |          |  | Chief Executive Officer and President
|Jaynie Studenmund |  |     | 48 |          |  | Chief Operating Officer              
|Todd Tappin       |  |     | 41 |          |  | Chief Financial Officer              

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Ted Meisel has served as a Director and as Chief Executive Officer since
February 2000 and he has served as President since May 1999. From December 1998
until January 2000, he also served as Chief Operating Officer. From April 1996
to November 1998, he served in a variety of roles at Ticketmaster
Online-CitySearch, Inc. (formerly CitySearch, Inc.), an online provider of city
guides and live-event ticketing, most recently as Vice President of the
Products and Technology Group. From November 1991 to March 1996, he worked at
McKinsey & Company, a management-consulting firm, most recently as an
Engagement Manager. Mr. Meisel holds a B.A. in History from Dartmouth College
and a J.D. from Stanford Law School.

Jaynie Studenmund has served as Chief Operating Officer since January
2001. From February 2000 to December 2000, Ms. Studenmund was the President
and Chief Operating Officer for PayMyBills, a leading Internet bill management
company, where she was responsible for all line, technology, operations and
staff functions. From 1997 to 1998, she was the Executive Vice President for
Retail Banking at Home Savings of America, and from 1996 to 1997, served as an
Executive Vice President for Retail Banking at Great Western Bank. From 1991 to
1996, Ms. Studenmund served as an Executive Vice President at First Interstate
Bank of California. Ms. Studenmund has a B.A. in Economics from Wellesley
College and a M.B.A. from Harvard Business School.

Todd Tappin has served as Chief Financial Officer since October 1998. From
March 1992 to October 1998, Mr. Tappin served as Senior Vice President of
Finance for News Corp.-Twentieth Century Fox, where he oversaw all Finance,
Strategic Planning and Business Development for the Home Entertainment and
Interactive Divisions, and as the General Manager of Twentieth Century Foxs
Home Entertainment Division in Canada. Mr. Tappin began his professional career
as a certified public accountant at Deloitte, Haskins and Sells. He holds a
B.S. in Business from the University of Colorado.




PART II




Item 5. Market for Registrants Common Equity and Related Stockholder Matters

Our common stock has been quoted on the Nasdaq National Market since our
initial public offering on June 18, 1999 and currently trades under the symbol
OVER. From June 18, 1999 to October 7, 2001, our common stock was quoted
under the symbol GOTO. In conjunction with our name change from GoTo.com,
Inc. to Overture Services, Inc., our common stock began trading under the
symbol OVER on October 8, 2001. Prior to June 18, 1999, there was no public
market for our common stock. According to records of our transfer agent, there
were approximately 424 stockholders of record as of February 24, 2003 and we
believe there are a substantially greater number of beneficial holders. The
following table sets forth the high and low bid prices of our common stock as
reported on the Nasdaq National Market for the periods indicated:

|             |                |  |            |       |           |  |   |       | 
|------------ | -------------- |  | ---------- | ----- | --------- |  | - | ----- | 
|             |                |  | High Price |       | Low Price
|             |                |  |            |       |          
|Fiscal 2002: |                |  |            |       |           |  |   |      
|             | Fourth Quarter |  | $          | 31.30 |           |  | $ | 20.80 | 
|             | Third Quarter  |  | $          | 25.87 |           |  | $ | 18.30 | 
|             | Second Quarter |  | $          | 35.59 |           |  | $ | 16.26 | 
|             | First Quarter  |  | $          | 43.15 |           |  | $ | 17.61 | 
|Fiscal 2001: |                |  |            |       |           |  |   |      
|             | Fourth Quarter |  | $          | 37.07 |           |  | $ | 11.90 | 
|             | Third Quarter  |  | $          | 25.15 |           |  | $ | 10.20 | 
|             | Second Quarter |  | $          | 28.28 |           |  | $ | 7.00  | 
|             | First Quarter  |  | $          | 15.25 |           |  | $ | 5.77  | 

We have not paid dividends and do not anticipate declaring dividends on
our common stock in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

Information for our equity compensation plans in effect as of December 31,
2002 is as follows (amounts in thousands, except per share amounts):

11



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|                                                           |       |                     |                         |                     |             |      |                     |       |                    |  |                     |       | 
|---------------------------------------------------------- | ----- | ------------------- | ----------------------- | ------------------- | ----------- | ---- | ------------------- | ----- | ------------------ |  | ------------------- | ----- | 
|                                                           |       |                     | (a)                     |                     | (b)         |      | (c)                
|                                                           |       |                     |                         |                     |             |      |                     |       |                    |  | Number of          
|                                                           |       |                     |                         |                     |             |      |                     |       |                    |  | securities         
|                                                           |       |                     |                         |                     |             |      |                     |       |                    |  | remaining available
|                                                           |       |                     |                         |                     |             |      |                     |       |                    |  | for future issuance
|                                                           |       |                     |                         |                     |             |      | Weighted-average    |       | under equity      
|                                                           |       |                     |                         |                     |             |      | exercise price per  |       | compensation plans
|                                                           |       |                     | Number of securities to |                     | share of    |      | (excluding         
|                                                           |       |                     | be issued upon exercise |                     | outstanding |      | securities         
|                                                           |       |                     | of outstanding options, |                     | options,    |      | reflected in column
|Plan Category                                              |       | warrants and rights |                         | warrants and rights |             | (a))
|                                                           |       |                     |                         |                     |             |     
|Equity compensation
plans approved by
security holders     |       |                     | 8,869                   |                     |             | $    | 26.46               |       |                    |  | 6,821               |      
|Equity compensation
plans not approved
by security holders |       |                     | 18                      |                     |             |      | .85                 |       |                    |  | 0                   |      
|                                                           |       |                     |                         |                     |             |      |                     |       |                    |  |                    
|                                                           | Total |                     |                         | 8,887               |             |      | $                   | 26.41 |                    |  |                     | 6,821 | 

The equity compensation plan not approved by Overture security holders was
assumed in conjunction with the Companys acquisition of Cadabra. This plan
was approved by Cadabra shareholders prior to the Companys acquisition.

12



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Item 6: Selected Consolidated Financial Data

The following selected consolidated financial data should be read in
conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations and the financial statements appearing elsewhere in
this Form 10-K. The statements of operations data set forth below for the years
ended December 31, 2002, 2001, and 2000 and the balance sheet data at December
31, 2002 and 2001 are derived from our audited financial statements included
elsewhere in this Form 10-K. Certain reclassifications have been made in prior
years financial statements to conform to classifications used in the current
year. The historical results are not necessarily indicative of results to be
expected for any future period.

|                                                                                       |                                                           |   |                         |         |      |   |                                          |         |      |   |          |         |  |   |         |        |  |   |         |       | 
|-------------------------------------------------------------------------------------- | --------------------------------------------------------- | - | ----------------------- | ------- | ---- | - | ---------------------------------------- | ------- | ---- | - | -------- | ------- |  | - | ------- | ------ |  | - | ------- | ----- | 
|                                                                                       |                                                           |   | YEAR ENDED DECEMBER 31,
|                                                                                       |                                                           |   |                        
|                                                                                       |                                                           |   | 2002                    |         | 2001 |   | 2000                                     |         | 1999 |   | 1998    
|                                                                                       |                                                           |   |                         |         |      |   |                                          |         |      |   |         
|                                                                                       |                                                           |   |                         |         |      |   | (IN THOUSANDS, except per share amounts) |         |      |   |         
|STATEMENT OF OPERATIONS DATA:                                                          |                                                           |   |                         |         |      |   |                                          |         |      |   |          |         |  |   |         |        |  |   |         |      
|Revenue                                                                                |                                                           | $ | 667,730                 |         |      | $ | 288,133                                  |         |      | $ | 103,052  |         |  | $ | 26,809  |        |  | $ | 822     |      
|Operating expenses:                                                                    |                                                           |   |                         |         |      |   |                                          |         |      |   |          |         |  |   |         |        |  |   |         |      
|                                                                                       | Search serving                                            |   |                         | 32,723  |      |   |                                          | 20,962  |      |   |          | 13,109  |  |   |         | 6,213  |  |   |         | 1,429 | 
|                                                                                       | Traffic acquisition                                       |   |                         | 384,583 |      |   |                                          | 162,072 |      |   |          | 66,433  |  |   |         | 14,290 |  |   |         |      | 
|                                                                                       | Marketing, sales and service                              |   |                         | 55,245  |      |   |                                          | 28,078  |      |   |          | 28,098  |  |   |         | 20,169 |  |   |         | 9,645 | 
|                                                                                       | General and administrative                                |   |                         | 75,618  |      |   |                                          | 44,917  |      |   |          | 33,798  |  |   |         | 12,467 |  |   |         | 1,655 | 
|                                                                                       | Product development                                       |   |                         | 19,372  |      |   |                                          | 12,811  |      |   |          | 13,523  |  |   |         | 3,689  |  |   |         | 1,232 | 
|                                                                                       | Amortization of deferred
Compensation and intangibles     |   |                         | 1,753   |      |   |                                          | 2,041   |      |   |          | 116,976 |  |   |         | 3,585  |  |   |         | 1,199 | 
|                                                                                       | Write-off of acquired in-process
research and development |   |                         |        |      |   |                                          |        |      |   |          | 7,550   |  |   |         |       |  |   |         |      | 
|                                                                                       | Impairment of intangible assets                           |   |                         |        |      |   |                                          |        |      |   |          | 309,253 |  |   |         |       |  |   |         |      | 
|                                                                                       | Loss on disposition of GoTo Auctions and
GoTo Shopping    |   |                         |        |      |   |                                          | 3,010   |      |   |          |        |  |   |         |       |  |   |         |      | 
|                                                                                       | Loss on litigation ruling                                 |   |                         | 8,700   |      |   |                                          |        |      |   |          |        |  |   |         |       |  |   |         |      | 
|                                                                                       |                                                           |   |                         |         |      |   |                                          |         |      |   |          |         |  |   |         |        |  |   |         |      
|                                                                                       |                                                           |   | 577,994                 |         |      |   | 273,891                                  |         |      |   | 588,740  |         |  |   | 60,413  |        |  |   | 15,160  |      
|                                                                                       |                                                           |   |                         |         |      |   |                                          |         |      |   |          |         |  |   |         |        |  |   |         |      
|Income (loss) from operations                                                          |                                                           |   | 89,736                  |         |      |   | 14,242                                   |         |      |   | (485,688 | )       |  |   | (33,604 | )      |  |   | (14,338 | )    
|                                                                                       | Interest income, net                                      |   |                         | 3,938   |      |   |                                          | 4,260   |      |   |          | 5,809   |  |   |         | 3,777  |  |   |         | 316   | 
|                                                                                       | Other income, net                                         |   |                         | 974     |      |   |                                          | 2,561   |      |   |          | 21,259  |  |   |         | 566    |  |   |         |      | 
|                                                                                       |                                                           |   |                         |         |      |   |                                          |         |      |   |          |         |  |   |         |        |  |   |         |      
|Income (loss) before provision for income
taxes                                        |                                                           |   | 94,648                  |         |      |   | 21,063                                   |         |      |   | (458,620 | )       |  |   | (29,261 | )      |  |   | (14,022 | )    
|Provision for income taxes                                                             |                                                           |   | 21,501                  |         |      |   | 900                                      |         |      |   | 1        |         |  |   | 1       |        |  |   | 1       |      
|                                                                                       |                                                           |   |                         |         |      |   |                                          |         |      |   |          |         |  |   |         |        |  |   |         |      
|Net income (loss)                                                                      |                                                           | $ | 73,147                  |         |      | $ | 20,163                                   |         |      | $ | (458,621 | )       |  | $ | (29,262 | )      |  | $ | (14,023 | )    
|                                                                                       |                                                           |   |                         |         |      |   |                                          |         |      |   |          |         |  |   |         |        |  |   |         |      
|Historical basic net income (loss) per share                                           |                                                           | $ | 1.27                    |         |      | $ | 0.38                                     |         |      | $ | (9.54    | )       |  | $ | (1.04   | )      |  | $ | (1.36   | )    
|                                                                                       |                                                           |   |                         |         |      |   |                                          |         |      |   |          |         |  |   |         |        |  |   |         |      
|Historical diluted net income (loss) per share                                         |                                                           | $ | 1.23                    |         |      | $ | 0.36                                     |         |      | $ | (9.54    | )       |  | $ | (1.04   | )      |  | $ | (1.36   | )    
|                                                                                       |                                                           |   |                         |         |      |   |                                          |         |      |   |          |         |  |   |         |        |  |   |         |      
|Weighted average shares used to
compute historical basic net income (loss)
per share   |                                                           |   | 57,674                  |         |      |   | 53,363                                   |         |      |   | 48,065   |         |  |   | 28,207  |        |  |   | 10,296  |      
|Weighted average shares used to compute
historical diluted net income (loss) per
share |                                                           |   | 59,603                  |         |      |   | 55,533                                   |         |      |   | 48,065   |         |  |   | 28,207  |        |  |   | 10,296  |      

|                    |                                                                      |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        | 
|------------------- | -------------------------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------ | 
|                    |                                                                      |  | DECEMBER 31,  
|                    |                                                                      |  |               
|                    |                                                                      |  | 2002           |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                    |                                                                      |  |                |         |      |  |      |         |      |  |     
|                    |                                                                      |  | (IN THOUSANDS)
|BALANCE SHEET DATA: |                                                                      |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |       
|                    | Unrestricted cash, cash
equivalents, short and long-term
investments |  | $              | 250,744 |      |  | $    | 170,287 |      |  | $    | 54,973  |  |  | $ | 110,255 |  |  | $ | 16,357 | 
|                    | Working capital                                                      |  |                | 147,454 |      |  |      | 102,874 |      |  |      | 52,956  |  |  |   | 95,165  |  |  |   | 15,215 | 
|                    | Total assets                                                         |  |                | 435,716 |      |  |      | 231,927 |      |  |      | 121,413 |  |  |   | 129,512 |  |  |   | 19,969 | 
|                    | Long-term obligations                                                |  |                | 1,203   |      |  |      |        |      |  |      | 78      |  |  |   | 768     |  |  |   | 183    | 
|                    | Total stockholders equity                                           |  | $              | 303,538 |      |  | $    | 179,443 |      |  | $    | 88,095  |  |  | $ | 112,774 |  |  | $ | 16,397 | 



|(a) |  | See Note 1 of Notes to the Financial Statements for an explanation of the
determination of the number of shares used in computing per share data for
the years ended December 31, 2002, 2001 and 2000.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the eight quarters ended December 31, 2002.
These unaudited consolidated financial statements have been prepared on the
same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly Overtures financial position, results
of operations and cash flows for the periods shown.

The consolidated quarterly data should be read in conjunction with our
audited consolidated financial statements and the notes to such statements
appearing elsewhere in this report. The results of operations for any quarter
are not necessarily indicative of the results of operations for any future
period.

|                                                                            |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |           |   |         |        |   |   |        |        |  |   |        |        |  |   |        |        |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------- | - | --------------------------------------- | ------- | ------------- | - | -------- | ------- | --------- | - | ------------ | ------ | ------------- | - | -------- | ------ | --------- | - | ------- | ------ | - | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | -
|                                                                            |                                                               |   | FOR THE THREE MONTHS ENDED             
|                                                                            |                                                               |   |                                        
|                                                                            |                                                               |   | DECEMBER 31,                            |         | SEPTEMBER 30, |   | JUNE 30, |         | MARCH 31, |   | DECEMBER 31, |        | SEPTEMBER 30, |   | JUNE 30, |        | MARCH 31,
|                                                                            |                                                               |   | 2002                                    |         | 2002          |   | 2002     |         | 2002      |   | 2001         |        | 2001          |   | 2001     |        | 2001     
|                                                                            |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |          
|                                                                            |                                                               |   | (IN THOUSANDS except per share amounts)
|STATEMENT OF OPERATIONS DATA:                                               |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |           |   |         |        |   |   |        |        |  |   |        |        |  |   |        |       
|Revenue                                                                     |                                                               | $ | 199,640                                 |         |               | $ | 172,749  |         |           | $ | 152,496      |        |               | $ | 142,845  |        |           | $ | 101,188 |        |   | $ | 72,523 |        |  | $ | 62,463 |        |  | $ | 51,959 |       
|Operating expenses:                                                         |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |           |   |         |        |   |   |        |        |  |   |        |        |  |   |        |       
|                                                                            | Search serving                                                |   |                                         | 9,726   |               |   |          | 8,303   |           |   |              | 8,701  |               |   |          | 5,993  |           |   |         | 5,042  |   |   |        | 6,050  |  |   |        | 5,157  |  |   |        | 4,713  |  
|                                                                            | Traffic acquisition                                           |   |                                         | 124,752 |               |   |          | 101,391 |           |   |              | 81,437 |               |   |          | 77,003 |           |   |         | 51,911 |   |   |        | 38,551 |  |   |        | 36,929 |  |   |        | 34,681 |  
|                                                                            | Marketing, sales and service                                  |   |                                         | 16,162  |               |   |          | 15,216  |           |   |              | 12,438 |               |   |          | 11,429 |           |   |         | 8,063  |   |   |        | 6,412  |  |   |        | 6,709  |  |   |        | 6,894  |  
|                                                                            | General and administrative                                    |   |                                         | 22,560  |               |   |          | 19,427  |           |   |              | 17,324 |               |   |          | 16,307 |           |   |         | 13,030 |   |   |        | 10,769 |  |   |        | 12,053 |  |   |        | 9,065  |  
|                                                                            | Product development                                           |   |                                         | 5,495   |               |   |          | 4,505   |           |   |              | 5,005  |               |   |          | 4,367  |           |   |         | 3,104  |   |   |        | 2,768  |  |   |        | 3,240  |  |   |        | 3,699  |  
|                                                                            | Amortization of deferred
compensation and intangible assets   |   |                                         | 523     |               |   |          | 411     |           |   |              | 396    |               |   |          | 423    |           |   |         | 489    |   |   |        | 505    |  |   |        | 494    |  |   |        | 553    |  
|                                                                            | Loss/(gain) on disposition of GoTo
Auctions and GoTo Shopping |   |                                         |        |               |   |          |        |           |   |              |       |               |   |          |       |           |   |         | (601   | ) |   |        |       |  |   |        | 3,611  |  |   |        |       |  
|                                                                            | Loss on litigation ruling                                     |   |                                         | 8,700   |               |   |          |        |           |   |              |       |               |   |          |       |           |   |         |       |   |   |        |       |  |   |        |       |  |   |        |       |  
|                                                                            |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |           |   |         |        |   |   |        |        |  |   |        |        |  |   |        |       
|                                                                            |                                                               |   | 187,918                                 |         |               |   | 149,253  |         |           |   | 125,301      |        |               |   | 115,522  |        |           |   | 81,038  |        |   |   | 65,055 |        |  |   | 68,193 |        |  |   | 59,605 |       
|                                                                            |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |           |   |         |        |   |   |        |        |  |   |        |        |  |   |        |       
|Income (loss) from operations                                               |                                                               |   | 11,722                                  |         |               |   | 23,496   |         |           |   | 27,195       |        |               |   | 27,323   |        |           |   | 20,150  |        |   |   | 7,468  |        |  |   | (5,730 | )      |  |   | (7,646 | )     
|                                                                            | Interest income, net                                          |   |                                         | 1,045   |               |   |          | 1,056   |           |   |              | 588    |               |   |          | 1,249  |           |   |         | 1,295  |   |   |        | 1,177  |  |   |        | 833    |  |   |        | 955    |  
|                                                                            | Other income (expense), net                                   |   |                                         | 42      |               |   |          | 85      |           |   |              | 129    |               |   |          | 718    |           |   |         | 73     |   |   |        | 479    |  |   |        | 2,017  |  |   |        | (8     | )
|                                                                            |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |           |   |         |        |   |   |        |        |  |   |        |        |  |   |        |       
|Income (loss) before provision for
income taxes                             |                                                               |   | 12,809                                  |         |               |   | 24,637   |         |           |   | 27,912       |        |               |   | 29,290   |        |           |   | 21,518  |        |   |   | 9,124  |        |  |   | (2,880 | )      |  |   | (6,699 | )     
|Provision for income taxes                                                  |                                                               | $ | 3,296                                   |         |               |   | 7,776    |         |           |   | 10,429       |        |               |   |         |        |           | $ | 750     |        |   |   | 150    |        |  |   |       |        |  |   |       |       
|                                                                            |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |           |   |         |        |   |   |        |        |  |   |        |        |  |   |        |       
|Net income (loss)                                                           |                                                               | $ | 9,513                                   |         |               | $ | 16,861   |         |           | $ | 17,483       |        |               | $ | 29,290   |        |           | $ | 20,768  |        |   | $ | 8,974  |        |  | $ | (2,880 | )      |  | $ | (6,699 | )     
|                                                                            |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |           |   |         |        |   |   |        |        |  |   |        |        |  |   |        |       
|Basic net income (loss) per share                                           |                                                               | $ | 0.16                                    |         |               | $ | 0.29     |         |           | $ | 0.30         |        |               | $ | 0.51     |        |           | $ | 0.37    |        |   | $ | 0.16   |        |  | $ | (0.06  | )      |  | $ | (0.13  | )     
|                                                                            |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |           |   |         |        |   |   |        |        |  |   |        |        |  |   |        |       
|Diluted net income (loss) per share                                         |                                                               | $ | 0.16                                    |         |               | $ | 0.28     |         |           | $ | 0.29         |        |               | $ | 0.48     |        |           | $ | 0.35    |        |   | $ | 0.15   |        |  | $ | (0.06  | )      |  | $ | (0.13  | )     
|                                                                            |                                                               |   |                                         |         |               |   |          |         |           |   |              |        |               |   |          |        |           |   |         |        |   |   |        |        |  |   |        |        |  |   |        |       
|Weighted average shares used to
compute basic net income (loss)
per share   |                                                               |   | 58,944                                  |         |               |   | 58,199   |         |           |   | 58,078       |        |               |   | 57,422   |        |           |   | 56,652  |        |   |   | 55,552 |        |  |   | 50,906 |        |  |   | 50,217 |       
|Weighted average shares used to
compute diluted net income (loss)
per share |                                                               |   | 60,430                                  |         |               |   | 60,098   |         |           |   | 60,159       |        |               |   | 60,510   |        |           |   | 59,685  |        |   |   | 58,324 |        |  |   | 50,906 |        |  |   | 50,217 |       

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|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial Condition and
Results of Operations

IN ADDITION TO HISTORICAL INFORMATION, THIS FORM 10-K CONTAINS FORWARD-LOOKING
STATEMENTS, INCLUDING STATEMENTS RELATED TO THE EXPECTED GROWTH OF OUR
AFFILIATE PROGRAM, THE AMOUNT OF TRAFFIC THAT WILL BE DIRECTED TO US FROM OUR
AFFILIATES IN THE FUTURE, THE TIMING AND AMOUNT OF ANY INCREASE IN OUR AVERAGE
PRICE PER PAID INTRODUCTION, CONTINUED PROFITABILITY, THE TIMING AND AMOUNT OF
OUR NUMBER OF PAID INTRODUCTIONS, THE AMOUNT OF FUTURE ADVERTISER SPENDING WITH
OVERTURE, THE AMOUNT OF FUTURE TRAFFIC ACQUISITION COSTS AS A PERCENTAGE OF
REVENUE, PLANNED ACQUISTIONS AND DEVELOPMENT OF SERVICES ACQUIRED IN
SUCH ACQUISITIONS, INTERNATIONAL EXPANSION, LIQUIDITY, GROWTH IN
THE NUMBER OF ADVERTISERS, FLUCTUATION IN THE PRICE OF OUR COMMON STOCK,
CHANGES IN OUR QUARTER-TO-QUARTER FINANCIAL RESULTS, SEASONAL EFFECTS AND
FUTURE COMPETITION. WE USE WORDS SUCH AS ANTICIPATES, BELIEVES, PLANS,
EXPECTS, FUTURE, INTENDS AND SIMILAR EXPRESSIONS TO IDENTIFY THESE
FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES, AS WELL AS ASSUMPTIONS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THESE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE ACTUAL RESULTS TO DIFFER INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED IN THE SECTIONS ENTITLED MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND
RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH REFLECT MANAGEMENTS OPINIONS ONLY AS OF THE DATE HEREOF.
OVERTURE UNDERTAKES NO OBLIGATION TO REVISE OR PUBLICLY RELEASE THE RESULTS OF
ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS.

OVERVIEW

Overture Services, Inc. is the global leader in Pay-For-Performance search
(also known as paid search) on the Internet. Overtures search
service is comprised of advertiser generated listings, which are screened for
relevance and accessed by consumers and businesses through Overtures
affiliates, a network of Web properties that have integrated Overtures search
service into their sites or that direct user traffic to Overtures own site.
In some cases, consumers and businesses access our search listings directly at
our site. The search listings are ranked by the advertisers bid; the higher
the bid, the higher the ranking. Advertisers pay Overture the bid price for
clicks on the advertisers search listing (also known as a paid introduction,
click-through or a paid click). As of December 31, 2002, Overture and its
wholly owned subsidiaries, operated the Overture service in the United States,
United Kingdom, Germany, France and Japan. Subsequent to the end of the year,
Overture announced its intention to operate its service in South Korea, Italy,
Spain, and other European markets.

Overture was incorporated on September 15, 1997 in the state of Delaware
and officially launched its service on June 1, 1998. On October 8, 2001, we
changed our corporate name from GoTo.com, Inc. to Overture Services, Inc. and
changed our Nasdaq Stock Market trading symbol to OVER. Overture has offices
in California and New York in the United States; United Kingdom; Germany;
France; Ireland; Japan; and South Korea.

On February 18, 2003, Overture announced its plans to acquire the business
of AltaVista Company (AltaVista), a pioneer in Web search technology.

On February 25, 2003, Overture announced its plan to acquire the Web
search unit of Norway-based Fast Search and Transfer (Fast), a developer of
search and real-time filtering technologies.

AltaVista and Fast both use advanced algorithmic search technology to
crawl the Web and return relevant search results in response to users queries.
We believe these technologies complement our own market-leading technology in
commercial search and will enhance our core Pay-For-Performance search business
as well as allow us to develop new products and services for our advertisers
and affiliates.

International Expansion

We launched our search service in the United Kingdom in November 2000, our
German language search service in February 2002, our service for France in
September of 2002 and our service for Japan in December 2002. We anticipate
launching our service in South Korea, Italy, Spain and other European markets
in 2003. We expect our international expansion will require continued

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investment to build internal infrastructure and grow our advertiser and
affiliate bases overseas. We expect to incur losses from our international
operations of approximately $25 million to $30 million for the fiscal year
2003.

Acquisitions

On February 18, 2003, we signed an agreement subject to customary closing
conditions with AltaVista, a provider of search services and technology, to
acquire AltaVistas business for $60.0 million in cash and approximately $80.0
million in stock.

On February 25, 2003, Overture announced its plan to acquire the Web
search unit of Norway-based Fast Search and Transfer (Fast), a developer of
search and real-time filtering technologies, for $70.0 million
in cash, plus a
potential performance-based cash incentive payment of up to $30 million over
three years.

We expect that the development of these Web search product lines will
require some investment and expect to incur losses from these Web search
product lines following the proposed acquisitions of approximately $13 million
to $15 million for the fiscal year 2003.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

|                                         |                                                        |   |                         |         |      |   |         |         | 
|---------------------------------------- | ------------------------------------------------------ | - | ----------------------- | ------- | ---- | - | ------- | ------- | 
|                                         |                                                        |   | YEAR ENDED DECEMBER 31,
|                                         |                                                        |   |                        
|                                         |                                                        |   | 2002                    |         | 2001
|                                         |                                                        |   |                         |         |     
|                                         |                                                        |   | (IN THOUSANDS)         
|Revenue                                  |                                                        | $ | 667,730                 |         |      | $ | 288,133 |        
|Operating expenses:                      |                                                        |   |                         |         |      |   |         |        
|                                         | Search serving                                         |   |                         | 32,723  |      |   |         | 20,962  | 
|                                         | Traffic acquisition                                    |   |                         | 384,583 |      |   |         | 162,072 | 
|                                         | Marketing, sales and service                           |   |                         | 55,245  |      |   |         | 28,078  | 
|                                         | General and administrative                             |   |                         | 75,618  |      |   |         | 44,917  | 
|                                         | Product development                                    |   |                         | 19,372  |      |   |         | 12,811  | 
|                                         | Amortization of deferred compensation and
intangibles  |   |                         | 1,753   |      |   |         | 2,041   | 
|                                         | Loss on disposition of GoTo Auctions
and GoTo Shopping |   |                         |        |      |   |         | 3,010   | 
|                                         | Loss on litigation ruling                              |   |                         | 8,700   |      |   |         |        | 
|                                         |                                                        |   |                         |         |      |   |         |        
|                                         |                                                        |   | 577,994                 |         |      |   | 273,891 |        
|                                         |                                                        |   |                         |         |      |   |         |        
|Income from operations                   |                                                        |   | 89,736                  |         |      |   | 14,242  |        
|                                         | Interest income, net                                   |   |                         | 3,938   |      |   |         | 4,260   | 
|                                         | Other income, net                                      |   |                         | 974     |      |   |         | 2,561   | 
|                                         |                                                        |   |                         |         |      |   |         |        
|Income before provision for income taxes |                                                        |   | 94,648                  |         |      |   | 21,063  |        
|Provision for income taxes               |                                                        |   | 21,501                  |         |      |   | 900     |        
|                                         |                                                        |   |                         |         |      |   |         |        
|Net Income                               |                                                        | $ | 73,147                  |         |      | $ | 20,163  |        
|                                         |                                                        |   |                         |         |      |   |         |        

Revenue. We generate revenue, in the amount paid by the advertiser,
primarily when a user clicks on an advertisers listing. We refer to these
clicks as paid introductions. Revenue is recognized when earned based on paid
introduction activity to the extent that the advertiser has deposited
sufficient funds with us or collection is probable. Revenue also consists of
listing service fees and banner advertising, which together constituted less
than 1% of our revenue for the years ended December 31, 2002 and 2001. Banner
advertisement revenue is recognized when earned under the terms of the
contractual arrangement with the advertiser or advertising agency, provided
that collection is probable. Listing service revenue is recognized when we
have provided all of the services under the terms of the arrangement. We have
no barter transactions. Revenue was approximately $667.7 million for the year
ended December 31, 2002 compared to approximately $288.1 million for the year
ended December 31, 2001. The increase was the result of the growth in our key
constituents, our affiliates, advertisers and consumers, which drive the number
of paid introductions and average price per paid introduction.

We believe the increase in the worldwide number of paid introductions from
1.4 billion in the year ended December 31, 2001 to 2.2 billion in the year
ended December 31, 2002 was primarily due to increased search traffic from our
affiliates. The average price per paid introduction increased from $0.20
during the year ended December 31, 2001 to $0.31 during the year ended December
31,

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2002, we believe, as a result of growth of our advertiser base creating
increased competition for placement, account management, new product
initiatives rolled out during the year and broader acceptance of paid
placement. The number of advertisers increased from approximately 53,000 in
December 2001 to approximately 80,000 in December 2002.

It is difficult to forecast the future growth of the average price per
paid introduction, as advertisers primarily determine the price paid. We cannot
assure you that the average price per click will continue to increase and if it
does increase, at what rate, or that it will not decrease from prior levels.
Our growth rate and results depend on our ability to increase the price per
paid introduction, the number of advertisers who use our service and the amount
our advertisers spend on our service. In addition, we believe we will
experience seasonality, whereby the second and third quarters of the calendar
year experience relatively lower traffic than the first and fourth quarters.
This seasonal effect is difficult to predict, but we believe what we experience
is typical of general internet usage. Traffic from affiliates varies as we
enter into new agreements and existing agreements are renewed or expire. We
anticipate these variables will fluctuate, affecting our growth rate and
results.

During the year ended December 31, 2002, we earned approximately 60% of
our total revenue from advertisers who received paid introductions through
Overture as supplied by Microsoft (primarily msn.com and MSN Panel on
Microsofts Internet Explorer) and Yahoo.

Several new and renewed affiliate relationships were signed during the
year ended December 31, 2002. These agreements include AltaVista, CNET, CNN,
Hewlett-Packard Company, Netscape Premier Provider, United Online (NetZero and
Juno), Wanadoo (which acquired Freeserve) and Yahoo Japan. Additionally, we
extended the agreements of Yahoo to April 2005, the MSN Search Pane and MSN
Search sites to December 2003 and December 2004 respectively in the United
States, United Kingdom and Canada and also expanded the agreements to include
Germany and France. Our agreement with InfoSpace was extended to March 2006.
Subsequent to year end, we signed agreements with ESPN, Daum Communication, AOL
Europe, MSN Japan and New.net (an Idealab company whose traffic was previously
received through Applied Semantics).

During the year ended December 31, 2002, some of our affiliate
relationships ended. These agreements include Ask Jeeves in the United States,
Earthlink and our U.S. search distribution relationship with America Online
(including CompuServe). Our growth rate depends, in part, on increasing the
number of searches and resulting click-throughs performed by users who use our
service, primarily through our affiliates. If we do not renew our affiliate
agreements or replace traffic lost from terminated affiliate agreements with
other sources or if our affiliates search businesses do not grow or are
adversely affected, our revenue and results of operations may be materially and
adversely affected.

Search Serving.Search serving costs consist primarily of costs associated
with serving our search results, maintaining our Web site and fees paid to
outside service providers that provide and manage our unpaid listings. Costs
associated with serving our search results and maintaining our Web site include
depreciation of Web site equipment, co-location charges for our Web site
equipment, bandwidth, software license fees and salaries of related personnel.
Search serving costs were approximately $32.7 million for the year ended
December 31, 2002 compared to approximately $21.0 million for the year ended
December 31, 2001. The increase was primarily due to an increase in the number
of personnel required to support our services and increased hardware and
software costs as a result of increased traffic and our international expansion
efforts. We anticipate search serving costs to continue to increase as our
traffic and number of advertisers increase.

Traffic Acquisition. Traffic acquisition costs relate to payments made to
our affiliates that have integrated our search service into their sites or that
direct consumer and business traffic to our Web site. There are generally three
economic structures of the affiliate agreements, 1) fixed payments, based on a
guaranteed minimum amount of traffic delivered, which often carry reciprocal
performance guarantees from the affiliates, 2) variable payments based on a
percentage of our revenue or based on a certain metric, such as number of
searches or click-throughs, or 3) a combination of the above. Traffic
acquisition costs were approximately $384.6 million (58% of revenue) for the
year ended December 31, 2002 compared to approximately $162.1 million (56% of
revenue) for the year ended December 31, 2001. The increases in total traffic
acquisition costs were primarily due to the increases in revenue as previously
discussed. The percentage increase in the year ended December 31, 2002
compared to the year ended December 31, 2001 was primarily due to a higher mix
of traffic from more prominent search destination sites, which typically
receive a higher than average share of revenue. We expect total traffic
acquisition costs and traffic acquisition costs as a percentage of revenues to
increase to 63% to 64% during the first quarter of 2003 and continue to
increase approximately 0.25% to 0.50% each quarter thereafter as a result of
increased revenue, competition, industry consolidation, shifts in market share
among our partner base, and international expansion. We may be obligated to
make guaranteed payments to affiliates, in the future, as described below in
Liquidity and Capital Resources which are subject to adjustment based on the
performance of the affiliate or Overture relative to certain metrics. If we do

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not meet our target metrics, then guaranteed payments may be required to
be paid without a corresponding increase in revenue and traffic acquisition
costs as a percentage of revenue may increase.

The following represents our top 10 continuing affiliates based on revenue
(which was approximately 86% of total revenue) that we earned for the three
months ended December 31, 2002 from our advertisers, who received paid
introductions through Overture as supplied by these affiliates. We have more
than one agreement with some affiliates. The table that follows groups such
agreements together and displays them in order of expiration date of the
largest agreement. The table excludes affiliates whose agreements have
terminated.

|                                                      |  |                            
|----------------------------------------------------- |  | ---------------------------
|Affiliate                                             |  | Expiration Date            
|                                                      |  |                            
|AltaVista                                             |  | May 2003                   
|AOL:                                                  |  |                            
|Netscape Premier Provider
   AOL Europe               |  | June 2003
March 2005       
|Comet Systems                                         |  | July 2003                  
|Terra Lycos                                           |  | November 2003              
|Microsoft:                                            |  |                            
|MSN Panel on Microsofts Internet Explorer
   msn.com |  | December 2003
December 2004
|CNET                                                  |  | May 2004                   
|Applied Semantics (formally Oingo)                    |  | August 2004                
|Wanadoo (acquired Freeserve)                          |  | January 2005               
|Yahoo                                                 |  | April 2005                 
|InfoSpace:
(Excite, Dogpile and Webcrawler)           |  | March 2006                 

In addition to the above continuing affiliate agreements, from time to
time, we engage in tests with potential affiliates for trial periods to provide
paid introductions. Revenue from advertisers who receive paid introductions
through Overture, as supplied during these trial periods, can be significant.
In the fourth quarter, we had one such arrangement.

The amount of traffic from each of our affiliates has varied, and we
expect it will continue to vary, from quarter to quarter and year to year,
sometimes significantly. Moreover, while we seek to align economic incentives,
most of our affiliate agreements contain limitations and provide varying levels
of discretion to the affiliate in the implementation of our service including
the degree to which affiliates can integrate our services with their own
services. In addition, we have been and are likely to be dependent on searches
from a limited number of affiliates. Affiliates may not like
implementations we enter into with other affiliates. If we are unable to replace traffic from
any of our large affiliates after expiration of our contract with them or if
our relationship with any of our larger affiliates deteriorates, it could
seriously harm our business, financial condition and results of operations. Our
agreements with affiliates vary in duration, and depending on the agreement,
may be terminable upon the occurrence of certain events, including for our
failure to meet certain service levels, for general breaches of agreement
terms, for changes in control or in some instances, at will. Our two largest
affiliates, Microsoft and Yahoo may terminate their agreements with us upon a
transaction in which our ownership undergoes a change of control. If any of
the foregoing termination events occur, the related agreement could terminate
earlier than the expiration date, and/or we may incur additional obligations.
We may not be successful in renewing any of these agreements, or if they are
renewed, they may not be on as favorable terms. We may not be successful in
entering into agreements with new affiliates on commercially acceptable terms.
In addition, several of these affiliates may be considered potential
competitors.

Marketing, Sales and Service. Marketing, sales and service expenses
consist primarily of payroll and related expenses for personnel engaged in
marketing, customer service and sales functions; advertising and promotional
expenditures; and cost of systems

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used to sell and serve advertisers. Marketing, sales and services expenses
were approximately $55.2 million for the year ended December 31, 2002 compared
to approximately $28.1 million for the year ended December 31, 2001. The
increase was primarily the result of increased payroll for customer service and
sales functions, increased costs associated with advertiser development,
international expansion and continued investment in product quality.

General and Administrative.General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; credit card processing fees; facilities; professional services,
including legal; and insurance and other general corporate expenses. General
and administrative expenses were approximately $75.6 million for the year ended
December 31, 2002 compared to approximately $44.9 million for the year ended
December 31, 2001. The increase was primarily the result of increased
headcount, increased credit card processing fees due to increased revenue,
increased professional fees including costs of litigation, higher insurance
costs, and international expansion. We expect general and administrative
expenses to increase in 2003 due to continuing international expansion and
credit card processing fees (as a result of an increase in revenue), as well as
an increase in legal and insurance costs.

Product Development.Product development expenses consist primarily of
payroll and related expenses for personnel responsible for development of
features and functionality for our service, as well as costs incurred in the
preliminary project and post-implementation stage of computer software
developed for internal use. Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1)
requires that costs incurred in the preliminary project and post-implementation
stages of an internal use software project be expensed as incurred and that
certain costs incurred in the application development stage of a project be
capitalized. We capitalized internally developed software costs of
approximately $3.6 million for the year ended December 31, 2002. Product
development expenses were approximately $19.4 million for the year ended
December 31, 2002 compared to approximately $12.8 million for the year ended
December 31, 2001. The increase was primarily the result of our international
expansion and investment in product quality. We expect to invest $10.0 million
to $12.0 million in the development of new product lines during 2003.

Loss on Litigation Ruling. An expense of $8.7 million relates to an
unfavorable award in a dispute with a former affiliate, InternetFuel. The
arbitration proceeding was in process during the fourth quarter of 2002. See
Note 6 to the financial statements.

Interest Income, Net.Interest income, net consists primarily of earnings
on our cash, cash equivalents and short-term and long-term investments, net of
interest expense attributable to leased equipment. Interest income, net was
approximately $3.9 million for the year ended December 31, 2002 and $4.3
million for the year ended December 31, 2001. The decrease was primarily a
result of a decline in interest rates.

Other Income, Net. Other income, net was approximately $1.0 million for
the year ended December 31, 2002 compared to $2.6 million for the year ended
December 31, 2001. The decrease from the year ended December 31, 2001 relates
to the reimbursement of legal costs associated with the settlement of
litigation with MercExchange in 2001.

Provision For Income Taxes.Provision for income taxes was approximately
$21.5 million for the year ended December 31, 2002 compared to $0.9 million for
the year ended December 31, 2001. We generated taxable income during the year
ended December 31, 2002, however a tax provision was recorded that was less
than the statutory rate due to the benefit from the release of the valuation
allowance relating to deferred tax assets. As of December 31, 2001, we had net
operating loss (NOL) carryforwards available to reduce future federal and
state taxable income. These NOLs and temporary differences (between timing of
the recognition on a Generally Accepted Accounting Principle basis versus a tax
basis) were carried on the balance sheet as deferred tax assets. Financial
Accounting Statement Standard No. 109, Accounting for Income Taxes (SFAS 109)
requires that a valuation allowance be set up to reduce a deferred tax asset to
the extent it is more likely than not that the related tax benefits will not be
realized. Due to the uncertainty regarding if and when these NOLs would be
utilized and temporary differences would reverse, a full valuation allowance
was initially set up against the related deferred tax asset, resulting in a net
zero balance for deferred tax assets, as of December 31, 2001. The valuation
allowance was released during fiscal 2002 due to the expectation of future
income from our ordinary and recurring operations and our assessment that the
utilization of available tax deductions was more likely than not.

We have deductions that resulted from the exercise of certain stock
options and sale of certain related stock by employees. Because no book charge
is recorded upon the generation of these deductions, the corresponding tax
benefits are recorded directly to stockholders equity. However, these
deductions, to the extent available, will offset taxable income upon filing
Overtures corporate income tax returns resulting in a cash benefit. In
September 2002, the state of California passed legislation suspending the use
of the operating loss carryforwards for the 2002 and 2003 tax years. The legislation added two
years to the carryforward period for these

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losses. As a result, we were not able to utilize our California net operating
loss carryforwards for the year ended December 31, 2002 against our expected
current tax liabilities.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

|                                                |                                                           |   |         |                         |  |      |          |         |  | 
|----------------------------------------------- | --------------------------------------------------------- | - | ------- | ----------------------- |  | ---- | -------- | ------- |  | 
|                                                |                                                           |   |         | YEAR ENDED DECEMBER 31,
|                                                |                                                           |   |         |                        
|                                                |                                                           |   |         | 2001                    |  | 2000
|                                                |                                                           |   |         |                         |  |     
|                                                |                                                           |   |         | (IN THOUSANDS)         
|Revenue                                         |                                                           | $ | 288,133 |                         |  | $    | 103,052  |        
|Operating expenses:                             |                                                           |   |         |                         |  |      |          |        
|                                                | Search serving                                            |   |         | 20,962                  |  |      |          | 13,109  | 
|                                                | Traffic acquisition                                       |   |         | 162,072                 |  |      |          | 66,433  | 
|                                                | Marketing, sales and service                              |   |         | 28,078                  |  |      |          | 28,098  | 
|                                                | General and administrative                                |   |         | 44,917                  |  |      |          | 33,798  | 
|                                                | Product development                                       |   |         | 12,811                  |  |      |          | 13,523  | 
|                                                | Amortization of deferred compensation and
intangibles     |   |         | 2,041                   |  |      |          | 116,976 | 
|                                                | Write-off of acquired in-process research and
development |   |         |                        |  |      |          | 7,550   | 
|                                                | Impairment of intangible assets                           |   |         |                        |  |      |          | 309,253 | 
|                                                | Loss on disposition of GoTo Auctions
and GoTo Shopping    |   |         | 3,010                   |  |      |          |        | 
|                                                |                                                           |   |         |                         |  |      |          |        
|                                                |                                                           |   | 273,891 |                         |  |      | 588,740  |        
|                                                |                                                           |   |         |                         |  |      |          |        
|Income (loss) from operations                   |                                                           |   | 14,242  |                         |  |      | (485,688 | )      
|                                                | Interest income, net                                      |   |         | 4,260                   |  |      |          | 5,809   | 
|                                                | Other income                                              |   |         | 2,561                   |  |      |          | 21,259  | 
|                                                |                                                           |   |         |                         |  |      |          |        
|Income (loss) before provision for income taxes |                                                           |   | 21,063  |                         |  |      | (458,620 | )      
|Provision for income taxes                      |                                                           |   | 900     |                         |  |      | 1        |        
|                                                |                                                           |   |         |                         |  |      |          |        
|Net Income (loss)                               |                                                           | $ | 20,163  |                         |  | $    | (458,621 | )      
|                                                |                                                           |   |         |                         |  |      |          |        

Revenue.Revenue was approximately $288.1 million for the year ended
December 31, 2001 compared to approximately $103.1 million for the year ended
December 31, 2000. The increase was the result of continued growth of our
marketplace and the corresponding participants, our affiliates and advertisers.

Search ServingSearch serving costs were approximately $21.0 million for
the year ended December 31, 2001 compared to approximately $13.1 million for
the year ended December 31, 2000. The increase was primarily due to the
increased database and hardware capacity requirements as a result of an
increase in our affiliate base and corresponding number of searches, an
increase in the number of personnel required to support our services and
increased fees paid to outside service providers.

Traffic Acquisition.Traffic acquisition costs were approximately $162.1
million for the year ended December 31, 2001 compared to approximately $66.4
million for the year ended December 31, 2000. The increase was primarily due to
increased distribution of our search service.

Traffic acquisition costs as a percentage of revenue were approximately
56% and 64% for the years ended December 31, 2001 and 2000, respectively. The
decrease was primarily due to better margins on new or renegotiated agreements,
and in cases where traffic acquisition costs were fixed and payments were
guaranteed, revenue increases, which were proportionately more than the
respective traffic acquisition costs, resulted in better margins.

Marketing, Sales and Service. Marketing, sales and service expenses were
approximately $28.1 million for the year ended December 31, 2001 compared to
approximately $28.1 million for the year ended December 31, 2000.

General and Administrative. General and administrative expenses were
approximately $44.9 million for the year ended December 31, 2001 compared to
approximately $33.8 million for the year ended December 31, 2000. The increase
was the result of increased headcount and related expenses, including
facilities, credit card processing fees and increased personnel-related
insurance costs.

Product Development. Product development expenses were approximately $12.8
million for the year ended December 31, 2001 compared to approximately $13.5
million for the year ended December 31, 2000. The decrease was a result of the
closure of GoTo Shopping and disposition of GoTo Auctions offset by increased
staffing and associated costs relating to enhancing features and functionality
to our Web site and search service.

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Amortization of Deferred Compensation and Intangibles. Certain stock
options granted from inception through our initial public offering have been
considered to be compensatory for financial accounting purposes. We also
granted options below fair market value in 2001, which are considered
compensatory. Total compensation expense resulting from stock options amounted
to approximately $7.8 million. This amount represents the difference between
the exercise price of the stock options and the deemed fair value of our common
stock at the time of the grants or issuances, adjusted for the return of
unvested options or the repurchase of restricted stock resulting from employee
terminations. Compensation associated with these stock options is amortized and
expensed over the applicable vesting periods using a graded methodology.
Approximately $849,000 and $1.4 million were amortized and charged to
operations for the years ended December 31, 2001 and 2000, respectively.

Amortization of intangible assets were approximately $1.2 million for the
year ended December 31, 2001 compared to approximately $115.6 million for the
year ended December 31, 2000. The decrease was primarily due to an impairment
loss in 2000 on the net assets from the acquisitions of Cadabra and
AuctionRover.

Loss on Disposition of GoTo Auctions and GoTo Shopping. On June 29, 2001,
we completed a management buyout of GoTo Auctions, whereby the operating
management of GoTo Auctions purchased GoTo Auctions assets from us. The newly
formed company is called ChannelAdvisor Corporation. We received a minority
stake in this new corporation and as of December 31, 2002, we retained
approximately 8% of ChannelAdvisor. In connection with the management buyout,
we incurred net charges for the disposition of certain assets and exit costs.
The net charges were approximately $2.0 million, which included approximately
$280,000 of cash termination benefits associated with the involuntary
termination of 31 GoTo Auction employees. The terminations of these positions,
primarily in sales and service and product development functions, were
completed by June 30, 2001. The charge also included approximately $1.6 million
for fixed asset write-downs and approximately $109,000 for other exit costs.
These costs were included in Loss on Disposition of GoTo Auctions in the
statement of operations. Cash payments were funded from operations and did not
have a significantly impact on our liquidity.

On April 30, 2001, we closed our GoTo Shopping operations and recorded a
charge for restructuring and exit costs. The net charges were approximately
$1.0 million, which included approximately $201,000 of cash termination
benefits associated with the involuntary termination of 21 GoTo Shopping
employees. The terminations of these positions, primarily in sales and service
and product development functions were completed by June 30, 2001. The charge
also included approximately $59,000 for non-cash termination benefits related
to the acceleration of options; approximately $256,000 for fixed asset
write-downs; approximately $485,000 for the remaining lease payments on a
facility lease which Overture was not able to sub-lease; and other exit costs
of approximately $1,000. These costs were included in the Loss on Closure of
GoTo Shopping in the statement of operations. Cash payments were funded from
operations and did not have a significant impact on our liquidity.

Interest Income, net.Interest income, net was approximately $4.3 million
for the year ended December 31, 2001 compared to approximately $5.8 million for
the year ended December 31, 2000. The decrease was primarily due to lower
interest rates and lower returns from our investments partially offset from
earnings from additional cash proceeds from our follow-on offering of
approximately $58.2 million received in July 2001.

Other Income. Other income of approximately $2.6 million for the year
ended December 31, 2001 consists primarily of the reimbursement for legal costs
associated with the settlement of the MercExchange litigation compared to
approximately $21.3 million for the year ended December 31, 2000, which
consisted primarily of the settlement of litigation with The Walt Disney
Company.

Provision For Income Taxes.Although we had sufficient net operating loss
carryforwards to offset its taxable income for the year ended December 31,
2001, we recorded a current tax provision equal to the alternative minimum tax
for both Federal and California purposes of approximately $900,000.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities totaled approximately $103.7
million and $64.8 million for the year ended December 31, 2002 and 2001,
respectively. The change was due primarily to operating income, tax benefit
from stock options and increased accounts payable and accrued expenses
partially offset by an increase in accounts receivable, prepaid expenses and
other, and prepaid traffic acquisition expense during the year ended December
31, 2002. Net cash used in investing activities totaled approximately $110.4
million and $84.8 million for the year ended December 31, 2002 and 2001,
respectively. The change resulted primarily from the investment of cash
generated by operating activities in short-term and long-term investments and
increased capital spending in the year ended December 31, 2002. Our capital
expenditures for the year ended December 31, 2002 were approximately $52.0
million.

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Net cash provided by financing activities totaled approximately $21.2
million and $69.1 million for the year ended December 31, 2002 and 2001,
respectively. The decrease was due primarily to our common stock offering on
July 5, 2001, which resulted in net proceeds of $58.2 million.

Our principal sources of liquidity consisted of cash, cash equivalents,
short-term investments and long-term investments of approximately $250.7
million as of December 31, 2002 compared to $170.3 million as of December 31,
2001. We believe that our cash and liquid investment reserves are sufficient to
sustain operations at least through the next 12 months. As of December 31,
2002, we were obligated to make guaranteed payments totaling approximately
$190.5 million, $199.3 million, $25.0 million and $0.4 million for 2003, 2004,
2005 and 2006, respectively, under contracts to provide search services to our
affiliates. We lease 116,000 square feet of office space for our corporate
office in Pasadena, California under operating lease agreements expiring in
October 2004 with an option to extend the lease for 5 years. We also lease
office space in San Mateo and Carlsbad, California and New York in the United
States; United Kingdom; Germany; France; Ireland; Japan; and South Korea. As
of December 31, 2002, we are obligated to make total remaining office lease
payments of approximately $11.7 million. Additional uses of cash in 2003 are
expected to include payments for the proposed acquisitions of AltaVista of
$60.0 million and Fasts Web search unit of $70 million plus expenses and
investments of $30.0 million to $40.0 million in capital expenditures.

ACCOUNTING POLICIES SUBJECT TO ESTIMATION AND JUDGMENT

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to income tax and marketing related agreements with our
affiliates. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

Note 1 to the Notes of the Consolidated Financial Statements of our 2002
Form 10-K describes our significant accounting policies. We believe the
following accounting policies are subject to more significant judgments and
estimates used in the preparation of our consolidated financial statements.

Income Tax

As of December 31, 2001, we had domestic net operating loss (NOL)
carryforwards of approximately $76.1 million and $54.7 million available to
reduce future federal and state taxable income, respectively. A portion of
these NOLs was attributable to employee stock option deductions (stock option
NOLs), the benefit from which was allocated to additional paid in capital.
All but $2.7 million of the domestic federal NOL carryforwards were utilized in 2002. Our
ability to utilize state NOLs in the year ended December 31, 2002 was
restricted by California legislation that restricted NOL usage for 2 years.

In addition, Overture has additional foreign NOL carryforwards available
to reduce future foreign income taxes. These NOLs constitute a deferred tax
asset. Financial Accounting Statement Standard No. 109, Accounting for Income
Taxes (SFAS 109) requires that a valuation allowance be set up to reduce a
deferred tax asset to the extent it is more likely than not that the related
tax benefits will not be realized. At December 31, 2001, due to the uncertainty
regarding if and when these NOLs would be utilized, a full valuation allowance
was set up against the related deferred tax asset.

SFAS 109 indicates that all available evidence, both positive and
negative, should be identified and considered in making a determination as to
whether it is more likely than not that all or some portion of the deferred tax
asset will be realized. Examples of positive evidence include:



| |  |  | Strong earnings history and/or evidence that indicating that the losses generating the NOL carryforward is not a continuing
condition                                    
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Existing contracts or sales backlog that will produce sufficient taxable income to realize the deferred tax asset based on
existing sales prices and cost structures; and

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| |  |  | An excess of appreciated asset value over the tax basis of net assets in an amount sufficient to realize the deferred tax asset.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

Examples of negative evidence include but are not limited to the
following:



| |  |  | A history of operating loss, cumulative loss in recent years, or tax credit carryforwards expiring unused            
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | Losses expected in early future years (by a currently profitable entity)                                             
|
| |  |  | Unsettled circumstances that, if unfavorable resolved, could adversely affect future operations on a continuing basis

Currently, we believe that it is more likely than not that our foreign NOLs
will be realized. Therefore, we have determined that the related valuation
allowance to reduce the deferred tax asset associated with the foreign NOLs
should not be maintained. The impact of this decision resulted in a current
year tax benefit of $3.0 million. If our international operations do not
continue to perform as expected, this would be negative evidence that could
require us to re-evaluate this position.

Marketing-Related Agreements with our Affiliates

Overture has arrangements with two affiliates to obtain additional
marketing-related services from these affiliates. Overture believes that the
pricing of the marketing-related services were determined at arms-length and
represent the fair value of the services received by Overture and therefore the
costs are appropriately recorded as marketing costs in the line item,
Marketing, Sales and Service in the Statements of Operations. If it were
determined that the fair value of these marketing-related services was less
than the amounts paid by Overture and these costs were more closely related to
traffic provided by affiliates, these costs would be considered an expense paid
to affiliates and therefore recorded on the line item, Traffic Acquisition in
the Statements of Operations. If 100% of these marketing expenses were deemed
traffic acquisition costs, this would have increased traffic acquisition costs
as a percentage of revenue by less than 1% for the year ended December 31,
2002.

Loss Contingencies

We are a defendant in several litigation matters. Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies requires an
estimated loss to be accrued when a loss is both probable and can be reasonably
estimated. We analyze our litigation for probability and estimation of loss
based on an analysis of potential results, considering a combination of
litigation and settlement strategies in consultation with outside counsel.

RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

IN ORDER FOR OUR BUSINESS TO BE SUCCESSSFUL, WE MUST CONTINUE TO MAINTAIN AND
GROW OUR ADVERTISER, CONSUMER AND BUSINESS, AND AFFILIATE CONSTITUENCIES

Our growth depends, in part, on the maintenance of a critical mass of
advertisers, consumers and affiliates, which encourages increased participation
by each of the constituents. To the extent that we experience a decline in the
growth or number of any one or all constituents, the value of our service to
one or more of our other constituencies could be harmed, and our revenues or
business could be adversely affected. A continued decline would seriously harm
our revenues and business.

Our ability to increase the volume of transactions on our service and the
amounts bid by our advertisers is dependent upon building and maintaining a
substantial base of advertisers and consumers. Many potential advertisers have
only limited experience advertising on the Internet and have not devoted a
significant portion of their advertising expenditures to Internet advertising.
Advertising through priority placement on our services in particular has been
introduced only recently, and we cannot predict the level of its acceptance as
an advertising medium. Periodically, we introduce new initiatives, service
programs or rules that change the bidding process, search term selection rules
and search methodology or other components of our services. Advertisers may
dislike the effect of these new initiatives and programs which may cause
advertisers to cease advertising with us or reduce their spend. Advertiser
attrition or reduction in advertiser spend could have a material adverse effect
on our business. Our affiliates may have specific rules that prohibit some
advertisers from participating in our services, which may affect our ability to
maintain and grow our advertiser base. In addition, our services may not
achieve significant acceptance by consumers. Among other things, because our
services prioritize search results based on advertising bids associated with
keywords rather than other search and retrieval approaches, consumers may

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not use our service because they perceive our results to be less objective or
not as relevant than those provided by other search methods. Failure to
achieve and maintain a large and active base of advertisers and consumers could
have a material adverse effect on our business, operating results and financial
condition.

We believe that our success in penetrating our target markets depends in
part on our ability to further develop and maintain relationships with
affiliates, which provide their users with our services on their sites or
direct their traffic to our Web site. We believe these relationships are
important to facilitate broad market acceptance of our services and enhance our
sales. Our ability to attract users to our services is dependent upon the
growth of our affiliate network, which is new and unproven. Our success depends
in part on the success of, and our relationships with our affiliates. As part
of our ongoing relationship with our affiliates, we may introduce new services,
new implementation and/or new variations of our service our affiliates may not
want. In addition, our affiliates may not regard us as significant for their
own businesses. Therefore, they could reduce their commitment to us or
terminate their respective relationships with us, pursue other partnerships or
relationships, or attempt to develop or acquire products or services that
compete with our services. Our success also depends in part on the success of
our affiliates and in particular their ability to generate search traffic. New
third party software developments and competition from companies with whom we
do not have a relationship may lead to deterioration of searches supplied to us
by our affiliates. If we are unable to successfully develop and maintain
relationships with affiliates and/or our affiliates search business
deteriorates, our business, operating results and financial condition will be
materially and adversely affected.

Since we rely on a limited number of affiliates for our paid
introductions, consolidation among affiliates or potential affiliates, or an
acquisition of an affiliate by a competitor could harm our operating results,
cause us to lose our relationship with an affiliate, and reduce our competitive
position. For example, if a third party that has a pre-existing relationship
with one of our search competitors acquires one of our affiliates, we may lose
our relationship with our affiliate in favor of the competitor. In some cases,
these third parties have exclusive relationships with our competitors that
would prohibit our affiliate from continuing a relationship with us after they
are acquired. If one of our existing affiliates were to combine with another
one of our affiliates, it would likely increase the negotiating power of these
affiliates relative to us, and as a result, our financial results may suffer.
We believe that consolidation among Internet sites will continue in the future,
particularly as smaller firms have difficulty raising capital in a poor
economic environment. This consolidation particularly among search sites,
coupled with the recent increase in competition, may pressure our margins,
which would harm our business.

WE DEPEND ON A LIMITED NUMBER OF SOURCES TO DIRECT CONSUMERS AND BUSINESSES TO
OUR SERVICE TO CONDUCT SEARCHES

The consumers and businesses who conduct searches on our service come
primarily from a limited number of sources. Our sources for users conducting
searches are members of our affiliate network, including portals, browsers, and
other affiliates and our Web site. In any given month, we typically depend upon
one or a few of these sources for a significant amount of searches conducted on
our service. Revenue is generated from paid introductions on advertisers
listings and, generally, the more traffic from any given source, the greater
number of paid introductions we will generate.

During the year ended December 31, 2002, we earned approximately 60% of
our total revenue from advertisers who received our paid introductions as
supplied by Microsoft (primarily msn.com and MSN Panel on Microsofts Internet
Explorer) and Yahoo. Unfavorable changes in our relationship with these
affiliates (including, but not limited to a change in implementation or
placement permitted under our agreements with this affiliates) or loss of
either relationship would materially and adversely affect our revenue and
results of operations.

The amount of traffic from each of our affiliates has varied, and we
expect it will continue to vary, from quarter to quarter, sometimes
significantly. Moreover, while we seek to align economic incentives, most of
our affiliate agreements contain limitations and provide varying levels of
discretion to the affiliate in the implementation and placement of our service.
In addition, we have been, and are likely to be, dependent on searches from a
limited number of affiliates. Affiliates may not like implementations we enter
into with other affiliates. If we are unable to replace traffic from any of
our large affiliates after expiration of our contract with them or if our
relationship with any of our larger affiliates deteriorates, it could seriously
harm our business, financial condition and results of operations. Our
agreements with our affiliates vary in duration, and depending on the
agreement, may be terminable upon the occurrence of certain events, including
for our failure to meet certain service levels, for general breaches of
agreement terms, for changes in control in certain circumstances, or in some
instances, at will. If any of the foregoing termination events occur, the
related agreement could terminate earlier than the expiration date, and/or we
may incur additional obligations. Microsoft, Wanadoo and Yahoo may terminate
their agreements upon a change of control in the ownership. We may not be
successful in renewing any of our affiliate agreements, or if they are renewed,
any new agreement may not be on as favorable terms. We depend on our affiliates
for

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searches and the loss of any of these affiliates could harm our business,
ability to generate revenue and operating results. In addition, we may not be
successful in entering into agreements with new affiliates on commercially
acceptable terms.

OUR INDUSTRY IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY

We face competition in three principal areas: (i) distribution of our
services; (ii) demand for our services on our affiliates websites; and (iii)
usage of our services by advertisers.

We compete with companies that provide pay-per-click advertising services
that are similar to ours. These companies include Espotting Media, Inc.,
FindWhat, Google, PRIMEDIA (About.com) and Terra Lycos. In addition, we cannot
assure you that another search service will not successfully offer a
competitive pay-per-click advertising service. We believe it is likely that
there will be additional entrants to the pay-per-click search market including
affiliates who are members of the Overture networks. These new competitors will
likely compete against us for affiliate arrangements and could cause us to
enter into affiliate agreements with less favorable terms or lose affiliates or
potential affiliates, which could reduce our number of click-throughs, increase
the amount of revenue shared with affiliates, and/or total revenues and thereby
have a material adverse effect on our business, operating results and financial
condition.

We also compete with providers of other search related services for space
on the search results page, including, among others, AltaVista, Espotting
Media, Inc., Fast Search &Transfer ASA, Google, Inc., Inktomi, Infospace and
LookSmart, Ltd.

Our affiliates face competition for consumer traffic within the search
marketplace, which affects the number of paid click-throughs on our service.
If the consumers of these affiliates prefer the services offered by the
affiliates competitors, with whom we do not have a relationship, the
businesses of our affiliates may suffer, which may in turn have a material
adverse effect on our business, operating results and financial condition. In
addition, many of our affiliates compete with one other, and this may make it
difficult for us to develop some affiliate relationships.

We also compete with providers of pay-per-click search services, other
search service, internet search providers, other Web sites and advertising
networks such as DoubleClick, Inc. and 24/7 Media, Inc., as well as traditional
offline media such as television, radio and print and direct marketing
companies, for a share of advertisers total advertising budgets. Accordingly,
we may face increased pricing pressure for the sale of advertisements and
direct marketing opportunities, as well as decrease in demand for the Overture
service which could have a material adverse effect on our business, operating
results and financial condition.

Some of our competitors, as well as potential entrants into our market,
have longer operating histories, larger consumer bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many current and potential competitors can devote substantially
greater resources to promotion and Web site and systems development than we
can. In addition, as the use of the Internet and other online services
increases, larger, well-established and well-financed entities may continue to
acquire, invest in or form joint ventures with providers of Web directories,
search and information services or advertising solutions, and existing
providers of Web directories, search and information services or advertising
solutions may continue to consolidate. In addition, providers of Internet
browsers and other Internet products and services who are affiliated with
providers of Web directories and information services in competition with our
service may more tightly integrate these affiliated offerings into their
browsers or other products or services. Any of these trends would increase the
competition we face, reduce the demand for our services and could have a
material adverse effect on our business, operating results and financial
condition.

WE DEPEND ON THE GROWTH OF THE INTERNET AND INTERNET INSTRASTRUCTURE FOR OUR
FUTURE GROWTH

We are completely dependent on online advertising and consumer search
services. The failure of the Internet to continue to develop as a commercial
and business medium would have a material adverse effect on our business,
operating results and financial condition. The widespread acceptance and
adoption of the Internet by traditional businesses for conducting business and
advertising is likely only if the Internet provides these businesses with
greater efficiencies and improvements.

The growth in Internet traffic has caused frequent periods of decreased
performance, and if Internet usage continues to grow rapidly, the Internets
infrastructure may not be able to support these demands, and its performance
and reliability may decline. Consequently, the emergence and growth of the
market for our services depend upon improvements being made to the entire
Internet, as well as to the individual networking infrastructures of our
advertisers, consumers, and affiliates to alleviate overloading and delayed
response times.

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OUR PENDING ACQUISITIONS OF ALTAVISTA, FASTS WEB SEARCH UNIT AND OTHER
POTENTIAL ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS,
DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS

We recently announced the acquisition of Keylime Software and our intent
to acquire AltaVista and Fasts Web search unit. In addition, we may make
investments in or acquire other complementary products, services, technologies
and businesses. These acquisitions and investments could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Acquisitions may expose us to additional contingent liabilities. If we acquire
a company, we could face difficulties in assimilating that companys personnel
and operations. In addition, the key personnel of the acquired company may
decide not to work for us. Acquisitions of additional services or technologies
also involve risks of incompatibility and the need for integration into our
existing services and marketing, sales and support efforts. Previous
acquisitions have not been successful. Our acquisition of AltaVista and Fasts
businesses will expand our business to algorithmic search, which although
complementary to our existing business, requires different technological and
marketing capabilities and may contain different risks from those of our core
business. In addition, the acquisitions will add approximately 300 employees
in several countries. Even assuming successful integration, we expect that the
acquisitions will not be accretive to our earnings until mid-2004. We cannot
assure you that we will be able to effectively integrate and operate the
AltaVista and Fast business.

If we finance the acquisitions by issuing equity securities, this would
dilute our existing stockholders. Any amortization of intangible assets, or
other charges resulting from the costs of these acquisitions could have a
material adverse effect on our business, operating results and financial
condition. In addition, we may pay more for an acquisition than an acquired
products, services, technology or business is ultimately worth.

OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS BECAUSE
OF MANY FACTORS

We believe that quarter-to-quarter comparisons of our operating results
are not a good indication of our future performance. Our operating results have
varied widely in the past, and we expect that they will continue to vary widely
from quarter to quarter due to variability in a number of factors, including:



| |  |  | demand for our services by advertisers, consumers and businesses,
including the number of searches performed by consumers and the rate at
which they click-through to paid search results;                                                                                     
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | prices paid by advertisers using our services, which in large part
are not determined by Overture;                                                                                                                                                                             
|
| |  |  | decrease in traffic from our affiliates for any reason, including
loss of our agreements with affiliates or reduction in demand for the
services of affiliates or implementation and placement of our services
by our affiliates, over which we may have limited or no control;
|
| |  |  | our costs of attracting consumers and businesses to use our services, including traffic acquisition costs;                                                                                                                                                                     
|
| |  |  | costs related to agreements with affiliates;                                                                                                                                                                                                                                   
|
| |  |  | ability to protect our business model from competitors;                                                                                                                                                                                                                        
|
| |  |  | the percentage of our search listings that are bidded listings;                                                                                                                                                                                                                
|
| |  |  | our ability to maintain and grow our affiliate program including amendments, extensions or new affiliate agreements;                                                                                                                                                           
|
| |  |  | seasonal fluctuations in the use of our service, typical of our
industry, in which online traffic has typically been lower in the second
and third quarters of the calendar year;                                                                                              
|
| |  |  | the amount and timing of operating costs and capital expenditures relating to expansion of our operations;                                                                                                                                                                     
|
| |  |  | costs and delays in introducing any new services and improvements to existing services;                                                                                                                                                                                        

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| |  |  | our ability to successfully introduce new products or services;                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in the growth rate of Internet usage and acceptance by users of e-commerce;                                                                               
|
| |  |  | technical difficulties, system failures, system security breaches, or
Internet downtime, some of which may allow affiliates to terminate their
agreements with us;
|
| |  |  | government regulations related to the Internet;                                                                                                                   
|
| |  |  | our ability to upgrade and develop our information technology systems and infrastructure;                                                                         
|
| |  |  | costs related to any acquisitions or dispositions of technologies or businesses;                                                                                  
|
| |  |  | general economic conditions, as well as those specific to the Internet and related industries; and                                                                
|
| |  |  | ability to expand and compete internationally.                                                                                                                    

OUR STOCK HAS BEEN VOLATILE AND MAY CONTINUE TO BE VOLATILE IN THE FUTURE,
WHICH MAY LIMIT OUR OPERATING FLEXIBILITY

Historically, our stock price has been extremely volatile and we cannot
make assurances that the price of our common stock will not decline or be
extremely volatile in the future. It is likely that, in some future quarter,
our operating results may be below historical levels, and/or the expectations
of public market analysts and investors and, as a result of these or other
factors, the price of our common stock may fall and/or significantly fluctuate.

Since our initial public offering in June 1999, the per share trading
price of our common stock has ranged from an intra-day high of $114.50 on
November 15, 1999 to an intra-day low of $4.81 on December 21, 2000. Our stock
price may change due to a variety of factors, including those described above
in the risk factor entitled Our Quarterly Financial Results Are Subject To
Significant Fluctuations Because Of Many Factors. In addition, short-term
changes in our stock price may have little relationship to our financial
results. We have in the past experienced significant declines in our stock
price following announcements of changes in affiliate relationships, even when
the particular affiliate relationship did not provide significant paid
introductions or result in a significant amount of revenue from advertisers who
received paid introductions through Overture as supplied by such affiliates. If
our stock price is low, it may limit our ability to raise capital or pursue
strategic opportunities, such as acquisitions. In addition, it may reduce the
incentive value of our stock options and harm employee morale.

OUR LIMITED OPERATING HISTORY MAKES PLANNING FOR OUR FUTURE OPERATIONS MORE
DIFFICULT

As a result of our limited operating history, it is difficult to
accurately forecast our revenue, and we have limited historical financial data
upon which to base planned operating expenses. We plan to increase our
operating expenses to expand internationally, expand our marketing and sales
operations and broaden our service offerings and customer support capabilities.
We base our current and future expense levels on our operating plans and
estimates of future revenue. Other than a portion of our affiliate costs, our
expenses are relatively fixed. Revenue and operating results are difficult to
forecast because they generally depend upon the volume of the searches
conducted on our service, the amounts bid by advertisers for search listings on
the service and the number of advertisers that bid on the service, each of
which we cannot control directly. As a result, we may be unable to adjust our
spending in a timely manner to compensate for any unexpected revenue shortfall.
In addition, we have only recently begun to expand internationally, which makes
forecasting of revenue, expenses and operating results even more difficult. We
also may be unable to increase our spending and expand our operations in a
timely manner to adequately meet user demand, to the extent such demand exceeds
our expectations.

WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS, AND ANY FAILURE TO
MANAGE THIS GROWTH COULD DAMAGE OUR BUSINESS

Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations and services. These expansion efforts could be
expensive and put a strain on management, and, if we do not manage growth
properly, it could adversely affect our business. We will need to expand our
infrastructure, which will include hiring certain key employees and continuing
to increase our headcount. Hiring key employees, in particular, has
historically been difficult, and we cannot assure you

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that we will be able to successfully attract and retain a sufficient
number of qualified personnel. Our planned acquisitions of AltaVista and
Fasts Web search unit will require us to effectively expand our
infrastructure.

In periods of significant growth, the hardware and software used to
operate our services may become obsolete faster than originally anticipated,
and we may be required to replace this hardware or software. As a result, we
may incur additional expenses to acquire new systems and may incur unplanned
charges for impairment or write-offs of obsolete assets. In addition, as our
service grows and new features and services are added to our existing software
platforms, at some point it may require us to conduct a more significant
redesign of our software architecture. Such a redesign could be costly and any
significant software redesign presents additional risks of errors or systems
failures.

WE FACE NEW AND ADDITIONAL RISKS IN INTERNATIONAL MARKETS AND WE MAY BE UNABLE
TO SUCCESSFULLY EXECUTE OUR BUSINESS MODEL IN INTERNATIONAL MARKETS

One component of our strategy is to expand our operations into selected
international markets. For example, we launched our search service for the
United Kingdom in November 2000, our German search service in February 2002,
our search service for France in September 2002 and our search service for
Japan in December 2002. To date, we have only operated internationally in a
few countries, and we may be unable to execute our business model in these
markets or new markets. Further, foreign providers of competing online services
may have a substantial advantage over us in attracting consumers and businesses
in their country due to earlier established businesses in that country, greater
knowledge with respect to the cultural differences of consumers and businesses
residing in that country and/or their focus on a single market. We expect to
continue to experience higher costs as a percentage of revenues in connection
with the development and maintenance of international online services.
International markets we have selected may not develop at a rate that supports
our level of investment; therefore we expect to continue to incur losses in the
near term. In particular, international markets typically have been slower than
domestic markets in adopting the Internet as an advertising and commerce
medium.

In pursuing our international expansion strategy, we face several
additional risks, including:



| |  |  | lower per capita Internet usage in many countries abroad, due to a
variety of causes such as lower disposable incomes, lack of
telecommunications and computer infrastructure and questions regarding
adequate online security for e-commerce transactions;                    
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | relatively small Internet markets in some countries, which may
prevent us from aggregating sufficient traffic and advertising revenues
and scaling our business model in those countries;                                                                                      
|
| |  |  | lower usage of the Internet for e-commerce transactions, thus
limiting the number of advertisers that use our service;                                                                                                                                                         
|
| |  |  | entering into affiliate agreements with guaranteed minimum payments
that may exceed our revenues during the initial stage of the markets
development;                                                                                                                         
|
| |  |  | our potential inability to aggregate a large amount of Internet
traffic and find and develop relationships with international
advertisers, consumers and businesses, and affiliates;                                                                                           
|
| |  |  | competition in international markets from a broad range of
competitors, including but not limited to, Espotting, Google, LookSmart
and other United States and foreign search engines, content aggregators
and portals, some of which have greater local experience than we do;
|
| |  |  | click-through rates and price per paid introduction in international
markets may not be sufficient to recoup our costs;                                                                                                                                                        
|
| |  |  | difficulties in recruiting qualified and knowledgeable staff and in
building locally relevant products and services, which could prevent us
from aggregating a large advertiser base;                                                                                          
|
| |  |  | foreign laws, which may vary country by country, which may impact how
we conduct our business and provide search results                                                                                                                                                       
|
| |  |  | higher costs of
doing business in foreign countries, including different employment
laws;                                                                                                                                                                                      
|
| |  |  | trade barriers and unexpected changes and differences in regulatory,
tax and legal requirements applicable to Internet services;                                                                                                                                               

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| |  |  | the application of transfer pricing regulations by taxing authorities
in various jurisdictions worldwide, who may disagree with our
determinations as to the income and expenses attributable to specific
jurisdictions, which could result in Overtures paying additional taxes,
interest and penalties;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | technological differences that vary by marketplace, which we may not be able to support;                                                                                                                                                                                                                  
|
| |  |  | longer payment cycles and foreign currency fluctuations; and                                                                                                                                                                                                                                              
|
| |  |  | government regulation.                                                                                                                                                                                                                                                                                    

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

WE CANNOT ASSURE YOU WE WILL NOT INCUR NET LOSSES IN ANY PARTICULAR FUTURE
PERIOD

Prior to the three months ended September 30, 2001, we had a history of
losses and we cannot assure you we will not incur net losses again in any
particular future period. Although we had net income of approximately $73.1
million and $20.2 for the year ended December 31, 2002 and December 31, 2001,
respectively, we had net losses of approximately $458.6 million for the year
ended December 31, 2000. Because our expense levels are relatively fixed in the
short term and include guaranteed payments to some of our affiliates, if our
revenues do not keep pace with our expense levels, we may not sustain or
increase profitability in any particular quarter or we may incur losses again.
We expect to continue to increase our marketing, sales and service, general and
administrative and research, development and technology related expenses and we
cannot be certain that revenue growth will continue to grow. If our revenue
growth does not continue, we may experience a loss in one or more future
periods and it may as a result cause our stock price to decline. This may in
turn impact our ability to implement our business strategy.

A SIGNIFICANT PORTION OF OUR REVENUE IS CONCENTRATED AMONG A SMALL PORTION OF
ADVERTISERS

If our major advertisers were to substantially cut back their advertising
or stop using our services, our business would be adversely affected. Although
no one advertiser accounts for a material portion of our revenue during any
given period, a majority of our total revenue is derived from a small
proportion of our advertisers. We believe that a substantial amount of revenue
from advertising sales in any given future period may come from a relatively
small number of advertisers. The agreements we have with our advertisers are
terminable at any time by the advertiser. As a result, our advertisers are not
obligated to purchase advertising from us in the future.

WE FACE RISKS OF CLAIMS FOR OUR SERVICES, INCLUDING TRADEMARK INFRINGEMENT AND
SIMILAR CLAIMS FROM THIRD-PARTY TRADEMARK OWNERS WHO COMPLAIN ABOUT OUR
ACCEPTANCE OF BIDS ON SEARCH TERMS THAT ARE ALLEGED TO BE TRADEMARKS

Our services operate in part by making Internet services and content
available to our users. This creates the potential for claims to be made
against us, either directly or through contractual indemnification provisions
with third parties. These claims might, for example, be made for defamation,
negligence, copyright, trademark or patent infringement, personal injury,
invasion of privacy or other legal theories. Allegations are made against us
from time to time concerning these types of claims.

For example, we are in litigation with companies JR Cigar, Mark
Nutritionals, PlasmaNet, Pets Warehouse and Shar Products that have alleged
that allowing advertisers to bid on certain search terms constitutes trademark
infringement.

The plaintiffs in these cases allege that they have trademark rights in
certain search terms and that we violate these rights by allowing competitors
of the plaintiffs to bid on these search terms. While the amount of damages
that are claimed and that in the worst case could be awarded in one or more of
these lawsuits might have a material effect on our results of operations, cash
flow or financial position, we believe that we have meritorious defenses to
liability and damages in each of these lawsuits and we are contesting them
vigorously. If we were to incur one or more unfavorable judgments that in
themselves are not material, or if there was a development in the law in a
similar case to which we are not a party that was negative to our position, we
might as a result decide to change the general manner in which it accepts bids
on certain search terms, and this change might have a material adverse effect
upon our results of operations, cash flows or financial position. Moreover,
there can be no assurance that courts will agree with our position in these
cases.

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If a court were to determine that the sale of advertising related to
certain search terms or that our processes to create search results via our
business model constitutes trademark infringement or some other form of
liability, it could negatively impact our revenues and business and we might,
as a result, decide to change the general manner in which we accept bids on
certain search terms or change other practices, and this change might have a
material adverse effect upon our results of operations, cash flows or financial
position.

There can be no assurance that our services do not infringe the
intellectual property rights of third parties. A successful claim of
infringement against us and our failure or inability to license the infringed
or similar technology could have a material adverse effect on our business,
operating results and financial condition.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY DAMAGE OUR BUSINESS

The laws and regulations applicable to the Internet, our services and the
territorial markets in which we operate are evolving and unclear and could
damage our business. There are currently few laws or regulations directly
applicable to Internet access, commerce or Internet search. Due to the
increasing popularity and use of the Internet, state and federal agencies and
foreign governments are currently proposing, and may in the future propose or
adopt laws and regulations regarding the Internet or the conduct of business on
the Internet. The laws and regulations may cover issues such as user privacy,
defamation, database protection, user protection, pricing, taxation, content
regulation (including, for example, obscenity and gambling), quality of
products and services, and intellectual property ownership and infringement.
In addition, we might be required to comply with existing laws regulating or
requiring licenses for certain businesses of our advertisers, including, for
example, distribution of pharmaceuticals, alcohol, tobacco or firearms, as well
as insurance and securities brokerage and legal services. These laws and
regulations could expose us to substantial compliance costs and liability as
well as dampen the growth in use of the Internet, decrease the acceptance of
the Internet as a communications and commercial medium, or require us to incur
significant expenses in complying with any new regulations. In response to
these laws and regulations, whether proposed or enacted, as well as public
opinion, We may also elect to limit the types of advertisers or advertisements
included in its search service, which could in turn decrease the desirability
of our service and reduce its revenues.

The Federal Trade Commission (FTC), in response to a petition from a
private organization, has been reviewing the way in which the search engine
industry discloses paid placement or paid inclusion practices to the user.
Recently, the FTC staff issued guidance on the matter in the form of letters to
the petitioner and to members of the industry, including Overture. The letters
stated the staffs position on what disclosures are necessary to avoid
misleading users about the effect payments to the search engine may have on the
inclusion or ranking of listings in the search results. This guidance may
differ from the existing practices of some in the industry, including our
practices and those of some of our affiliates. The FTC has not yet taken any
enforcement action to date against us or any of our affiliates. If the FTC were
to take such enforcement action that resulted in changes in the labeling or
other disclosure of our Pay-For-Performance listings, it may reduce the
desirability of our services, and our business and the business of some of our
affiliates could be harmed. In addition, we and some of our affiliates have
recently adjusted the nature of the disclosures on a voluntary basis, or are
likely to do so in the future, and such disclosures may reduce the desirability
of our service, which could adversely affect our business.

INCREASED SECURITY RISKS OF ONLINE COMMERCE MAY DETER FUTURE USE OF OUR
SERVICES

Concerns over the security of transactions conducted on the Internet and
the privacy of users may also inhibit the growth of the Internet and other
online services generally, and online commerce in particular. Our failure to
prevent security breaches could significantly harm our business and results of
operations. Anyone who is able to circumvent our security measures could
misappropriate proprietary information, including advertiser credit card data,
cause interruptions in our operations or damage our brand and reputation. We do
not believe that our data repositories, financial systems and other technology
resources are completely secure from security breaches or sabotage, and we
occasionally experience attempts at hacking or security breaches. We may be
required to incur significant costs to protect against security breaches or to
alleviate problems caused by breaches. Any well-publicized compromise of our
security or the security of any other Internet provider could deter people from
using our services or the Internet to conduct transactions that involve
transmitting confidential information or downloading sensitive materials, which
would adversely affect the business of our advertisers and, accordingly, our
business.

In offering our current products and services, we collect information from
our advertisers, our users, and our advertisers users. Although users are not
required to provide personally identifiable information to initiate a search or
view search results, we do collect personally identifiable information from
our advertisers as part of servicing their account and from users when they
initiate contact with us. We may also have access to personally identifiable
information of our advertisers users, although we do not at this time retain
or store this personally identifiable information. Additionally, we may change
the way we collect, store or use information we

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collect from and about third parties as we introduce new products and
services. If regulations or laws are passes that impact our ability to collect
personally identifiable information from our advertisers or consumers, it could
have a material adverse effect on our business. If it is determined that we have infringed third-party privacy rights, we
could incur substantial monetary liabilities and/or be prevented from using
these rights which may require us to modify our business practices.

WE ARE EXPOSED TO RISKS ASSOCIATED WITH CREDIT CARD FRAUD, CREDIT PAYMENT AND
SUDDEN LOSS OF ADVERTISERS

We have suffered losses and may continue to suffer losses as a result of
orders placed with fraudulent credit card data, even though the associated
financial institution approved payment of the orders. Under current credit card
practices, a merchant is liable for fraudulent credit card transactions when,
as is the case with the transactions we process, that merchant does not obtain
a cardholders signature. A failure to adequately control fraudulent credit
card transactions would result in significantly higher credit card-related
costs and may ultimately result in advertisers inability to use credit cards
as a means of payment, which would have a material adverse effect on our
business, operating results and financial condition.

Some of our advertisers have limited operating histories, are operating at
a loss, have limited cash reserves or have limited access to capital. If an
advertiser experiences financial difficulties, the advertiser may stop
advertising suddenly or may lack the ability to pay amounts owed. In addition,
in some instances we extend credit to advertisers who may default on their
accounts receivable. If any significant part of our advertiser base experiences
financial difficulties, is not commercially successful or is unable to pay our
advertising fees for any other reason, our business, operating results and
financial condition will be materially and adversely affected.

WE MAY INCUR LIABILITIES FOR THE ACTIVITIES OF USERS OF OUR SERVICE

The law relating to the liability of providers of online services for
activities of their users and for the content of their advertisers listings is
currently unsettled and could damage our business. Our insurance policies may
not provide coverage for liability for activities of our users or advertisers
for the content of our listings. We may not successfully avoid civil or
criminal liability for unlawful activities carried out by consumers of our
service or for the content of our listings. Our potential liability for
unlawful activities of users of our service or for the content of our listings
could require us to implement measures to reduce our exposure to such
liability, which may require us, among other things, to spend substantial
resources or to discontinue certain service offerings. Any costs incurred as a
result of such liability or asserted liability could have a material adverse
effect on our business, operating results and financial condition.

OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE AND OUR FUTURE SUCCESS WILL
DEPEND ON OUR ABILITY TO MEET THE CHANGING NEEDS OF OUR INDUSTRY

If new industry standards and practices emerge in the Internet and online
advertising industry, our existing services, technology and systems may become
obsolete. Our future success will depend on our ability to:



| |  |  | license and internally develop leading technologies useful in our business;                                                                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | enhance our existing services;                                                                                                                                                                                 
|
| |  |  | develop new services and technologies that address the increasingly
sophisticated and varied needs of prospective advertisers, consumers and
businesses; and                                                   
|
| |  |  | respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis. We cannot assure you
will be able to timely address technological change in our industry.

WE ARE DEPENDENT UPON OUR COMPUTER AND COMMUNICATION SYSTEMS

Our business depends on our ability to provide high capacity data
transmission without system downtime and upon our transaction processing
systems and network infrastructure. Furthermore, we rely on many different
software applications, some of which have been developed internally. If these
hardware and software systems fail, it would adversely affect our business and
results of operations. If we receive a significant unexpected increase in usage
and are not able to rapidly expand our transaction-processing

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systems and network infrastructure without any systems interruptions, it
could seriously harm our business. We have experienced occasional systems
interruptions in the past and we cannot assure you we will not incur any such
interruption in the future.

OUR BUSINESS COULD BE SIGNIFICANTLY IMPACTED BY THE OCCURRENCE OF NATURAL
DISASTERS AND OTHER CATASTROPHIC EVENTS

Our business is susceptible to natural disasters and other catastrophic
events. We have redundant hardware and software systems supporting our services
at an alternate site, which is part of our business continuity plan. A
business continuity plan is intended to mitigate interruptions of an
indeterminate length of time due to natural disasters and other catastrophic
events such as fire, flood, earthquake, power loss, telecommunications failure,
or a similar event. Despite these redundant systems, we cannot prevent outages
and downtime caused by natural disasters and other events out of our control,
which could severely damage our business and adversely affect results of
operations. Our operations depend upon our ability to maintain and protect our
computer systems, which are located in Pasadena, California and several other
domestic and international offsite locations managed by third parties.

Any system failure, including network or hardware failure, that causes an
interruption in our service or our affiliates service or the security of any
other Internet provider or a decrease in responsiveness could result in reduced
traffic and reduced revenue. Although we believe that the redundant systems
implemented are adequate, the back-up servers could fail or cause interruptions
in our service and possibly even the termination of one or more affiliate
contracts.

A catastrophe in any of our business centers or serving sites, in
particular, those in California could cause interruption to our service,
including but not limited to, the services requiring customer service,
editorial, data processing and other managerial functions as a result of
incapacitation to people, processes or systems. We do not have back-up sites
for our main US customer operations center and editorial department which are
both located at our Pasadena, California office. An interruption in our ability
to provide customer support and editorial services would adversely affect our
business. The occurrence of a natural disaster or unanticipated problems at our
principal headquarters or at a third-party facility could cause interruptions
or delays in our business, loss of data or could render us unable to provide
some services. In addition, failure by the third-party facility to provide the
data communications capacity required by us, as a result of human error,
natural disaster or other operational disruptions, could cause interruptions in
our service. Our California and Washington State sites exist on or near known
earthquake fault zones and a significant earthquake could cause an interruption
in our services. The occurrence of any or all of these events could adversely
affect our reputation, brand and business, which could have a material adverse
effect on our business, operating results and financial condition.

OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS,
AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE

Our future success depends upon the continued service of our executive
officers and other key technology, marketing, sales and support personnel. None
of our officers or key employees are bound by an employment agreement for any
specific term. If we lost the services of one or more of our key employees, or
if one or more of our executive officers or employees decided to join a
competitor or otherwise compete directly or indirectly with us, this could have
a material adverse effect on our business, operating results and financial
condition.

WE MAY NOT BE ABLE TO PROTECT OUR INTERNET DOMAIN NAME OR INTELLECTUAL PROPERTY
RIGHTS UPON WHICH OUR BUSINESS RELIES

Our success and ability to compete also are substantially dependent upon
our internally developed technology and data resources, which we protect
through a combination of copyright, trade secret, patent and trademark law. We
also depend on our trade name and domain name. We may not be able to adequately
protect our technology and data resources. In addition, intellectual property
laws vary from country to country, and it may be more difficult to protect our
intellectual property in some foreign jurisdictions.

Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our services,
technology and other intellectual property, and we cannot be certain that the
steps we have taken will prevent any misappropriation or confusion among
consumers and advertisers.

OUR CHARTER DOCUMENTS, CHANGE OF CONTROL SEVERANCE AGREEMENTS WITH OUR
MANAGEMENT AND TERMS OF OUR AFFILIATE AGREEMENTS MAY MAKE IT MORE DIFFICULT TO
ACQUIRE US

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We have adopted a stockholder rights plan and declared a dividend
distribution of one right for each outstanding share of common stock to
stockholders of record as of March 29, 2002. Each right entitles the holder to
purchase one unit consisting of one one-thousandth of a share of our Series A
Junior Participating Preferred Stock for $200 per unit. Under certain
circumstances, if a person or group acquires 15% or more of our outstanding
common stock, holders of the rights (other than the person or group triggering
their exercise) will be able to purchase, in exchange for the $200 exercise
price, shares of our common stock or of any company into which we are merged
having a value of $400. The rights expire on March 29, 2012 unless extended by
our Board of Directors. Because the rights may substantially dilute the stock
ownership of a person or group attempting to take us over without the approval
of our Board of Directors, our rights plan could make it more difficult for a
third party to acquire us (or a significant percentage of our outstanding
capital stock) without first negotiating with our Board of Directors regarding
such acquisition.

In addition, provisions of our certificate of incorporation and bylaws
could also make it more difficult for a third party to acquire us, even if
doing so would be beneficial to our stockholders. For example, our board of
directors is divided into three classes, with one class being elected each year
by our stockholders, which generally makes it more difficult for stockholders
to replace a majority of directors and obtain control of our board. In
addition, stockholder meetings may be called only by our board of directors,
the chairman of the board and the president, advanced notice is required prior
to stockholder proposals, and stockholders may not act by written consent.
Further, we have authorized preferred stock that is undesignated, making it
possible for the board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of Overture. Delaware law also could make it more difficult for
a third party to acquire us. Specifically, Section 203 of the Delaware General
Corporation Law may have an anti-takeover effect with respect to transactions
not approved in advance by the board of directors, including discouraging
attempts that might result in a premium over the market price for the shares of
common stock held by our stockholders.

We have entered into change of control severance agreements with members
of our senior management and certain other key employees. These agreements
provide for certain benefits, including acceleration of option vesting, to
these persons if they are terminated other than for cause following an
acquisition of Overture. These agreements could make us less attractive to a
third party who may want to acquire us, because they will make any replacement
of management and other personnel more expensive.

Agreements with some of our affiliates permit termination at the election
of the affiliate in the event of a change of control and, in some cases, may
require us to incur additional obligations. The existence of these termination
rights could make us less attractive and/or more costly to a third party who
may want to acquire us.

WE MAY NEED ADDITIONAL CAPITAL, WHICH COULD DILUTE THE OWNERSHIP INTEREST OF
INVESTORS

We require substantial working capital to fund our business. If we raise
additional funds through the issuance of equity, equity-related or convertible
debt securities, these securities may have rights, preferences or privileges
senior to those of the rights of our common stock, and our stockholders may
experience additional dilution. We cannot be certain that additional financing
will be available to us on favorable terms when required, or at all. We
experienced negative cash flow from operations from our inception through the
first quarter of 2001, and we could experience negative cash flow from
operations in the future. We currently anticipate that our available funds will
be sufficient to meet our anticipated needs for working capital and capital
expenditure at least through the next 12 months. However, we may choose to
raise additional funds in the future.




Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the impact of interest rate changes and foreign currency
fluctuations:

Our exposure to market rate risk for changes in interest rates relate
primarily to our investment portfolio. We have not used derivative financial
instruments in our investment portfolio. We invest our excess cash, according
to an investment policy, in high quality credit instruments, which are spread
over many issuers. Our investments are principally confined to cash equivalents
and available-for-sale debt securities.

Investments in both fixed rate and floating rate interest earning
instruments carry varying degrees of interest rate risk. Fixed rate securities
may have their fair market value adversely impacted due to a rise in interest
rates. In general, securities with longer maturities are subject to greater
interest rate risk than those with shorter maturities. While floating rate
securities generally are subject to less interest rate risk than fixed rate
securities, floating rate securities may produce less income than expected if
interest rates decrease. Due in part to these factors, our investment income
may fall short of expectations or we may suffer losses in principal if

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securities are sold that have declined in market value due to changes in
interest rates. As of December 31, 2002, our fixed income investments had an
unrealized gain of $0.4 million. Assuming an average investment balance of $215
million, if rates were to increase (decrease) by 100 basis points, this would
translate to an increase (decrease) in interest income of approximately $2.2
million annually.

Our international business is subject to risks typical of an international
business, including, but not limited to differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange rate volatility. Accordingly, the impact of
changes in these or other factors could have a material adverse effect on our
business, operating results and financial condition.

Our exposure to foreign exchange rate fluctuations arises from
intercompany accounts in which costs incurred in the United States are
charged to our foreign subsidiaries or from funds transferred to foreign
subsidiaries to support expansion. We are also exposed to foreign exchange rate
fluctuations as the financial results of foreign subsidiaries are translated
into U.S. dollars in consolidation. As exchange rates vary, these results, when
translated, may vary from expectations and adversely impact overall expected
profitability. The effect of foreign exchange rate fluctuations on Overtures
results for the year ended December 31, 2002 was not material.




Item 8. Financial Statements and Supplementary Data

See item 15 (A).




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

None.




PART III




Item 10. Directors and Executive Officers of the Registrant

Information regarding the our directors is incorporated by reference to
the sections entitled Directors and Section 16(a) Beneficial Ownership
Reporting Compliance appearing in the Overtures Definitive Proxy Statement
for the Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission (the Commission) within 120 days after the end of
Overtures fiscal year ended December 31, 2002. Certain information with
respect to persons who are or may be deemed to be executive officers of the
Registrant is set forth under the caption Executive Officers of the
Registrant in Item 4 of this Form 10-K.




Item 11. Executive Compensation

Information regarding executive compensation is incorporated by reference
to the information set forth under the caption Compensation of Executive
Officers and Other Matters in our Definitive Proxy Statement for the Annual
Meeting of Stockholders to be filed with Commission within 120 days after the
end of Overtures fiscal year ended December 31, 2002.




Item 12. Security Ownership of Certain Beneficial Owners and Management

Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the information set forth under the
caption Principal Ownership of Overture Common Stock in Overtures Definitive
Proxy Statement for the Annual Meeting of Stockholders to be filed with the
Commission within 120 days after the end of Overtures fiscal year ended
December 31, 2002.




Item 13. Certain Relationships and Related Transactions

Information regarding certain relationships and related transactions are
incorporated by reference to the information set forth under the caption
Certain Transactions in our Definitive Proxy Statement for the Annual Meeting
of Stockholders to be filed with the Commission within 120 days after the end
of Overtures fiscal year ended December 31, 2002.

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Item 14. Controls and Procedures

Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Annual Report
on Form 10-K, our principal executive officer and principal financial officer
have concluded that our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
Exchange Act) are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.

Changes in internal controls. There were no significant changes in our
internal controls (relating to financial reporting) or in other factors that
could significantly affect these internal controls subsequent to the date such
internal controls were evaluated. There were no significant deficiencies or
material weaknesses in such internal controls for which corrective actions
should have been taken.




Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(A)(1) INDEX TO FINANCIAL STATEMENTS

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INDEX TO FINANCIAL STATEMENTS

|                                                |  |  |     | 
|----------------------------------------------- |  |  | --- | 
|Report of Independent Auditors                  |  |  | F-2 | 
|FINANCIAL STATEMENTS:                           |  |  |     | 
|Consolidated Balance Sheets                     |  |  | F-3 | 
|Consolidated Statements of Operations           |  |  | F-4 | 
|Consolidated Statements of Stockholders Equity |  |  | F-5 | 
|Consolidated Statements of Cash Flows           |  |  | F-6 | 
|Notes to Consolidated Financial Statements      |  |  | F-7 | 





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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Overture Services, Inc.

We have audited the accompanying consolidated balance sheets of Overture
Services, Inc. (formerly GoTo.com, Inc.) as of December 31, 2002 and 2001, and
the related consolidated statements of operations, stockholders equity, and
cash flows for each of the three years in the period ended December 31, 2002.
These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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. An audit also includes 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 our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Overture
Services, Inc. at December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States.



| |  | /s/ ERNST & YOUNG LLP
| |  | ---------------------

Los Angeles, California
January 30, 2003

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OVERTURE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)

|                                                          |                                                                                                                                                                                                                       |   |              |          |              |   |         |          |  
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | -------- | ------------ | - | ------- | -------- | -
|                                                          |                                                                                                                                                                                                                       |   | December 31, |          | December 31,
|                                                          |                                                                                                                                                                                                                       |   | 2002         |          | 2001        
|                                                          |                                                                                                                                                                                                                       |   |              |          |             
|ASSETS                                                    |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|CURRENT ASSETS:                                           |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|                                                          | Cash and cash equivalents                                                                                                                                                                                             |   | $            | 78,987   |              |   | $       | 61,974   |  
|                                                          | Short-term investments                                                                                                                                                                                                |   |              | 118,905  |              |   |         | 71,837   |  
|                                                          | Accounts receivable, net                                                                                                                                                                                              |   |              | 31,682   |              |   |         | 10,973   |  
|                                                          | Prepaid expenses, deferred tax assets and other                                                                                                                                                                       |   |              | 23,483   |              |   |         | 1,920    |  
|                                                          | Prepaid traffic acquisition expense                                                                                                                                                                                   |   |              | 25,372   |              |   |         | 8,590    |  
|                                                          |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|Total current assets                                      |                                                                                                                                                                                                                       |   | 278,429      |          |              |   | 155,294 |         
|                                                         
|Property and equipment:                                   |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|Computer hardware                                         |                                                                                                                                                                                                                       |   | 58,427       |          |              |   | 30,452  |         
|Computer software                                         |                                                                                                                                                                                                                       |   | 30,789       |          |              |   | 15,497  |         
|Furniture and fixtures                                    |                                                                                                                                                                                                                       |   | 6,319        |          |              |   | 3,974   |         
|                                                          |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|                                                          |                                                                                                                                                                                                                       |   | 95,535       |          |              |   | 49,923  |         
|Accumulated depreciation and amortization                 |                                                                                                                                                                                                                       |   | (39,879      | )        |              |   | (21,957 | )       
|                                                          |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|                                                          |                                                                                                                                                                                                                       |   | 55,656       |          |              |   | 27,966  |         
|Intangible assets, net                                    |                                                                                                                                                                                                                       |   | 1,393        |          |              |   | 2,042   |         
|Restricted investments                                    |                                                                                                                                                                                                                       |   |             |          |              |   | 5,744   |         
|Long-term investments                                     |                                                                                                                                                                                                                       |   | 52,852       |          |              |   | 36,476  |         
|Long-term prepaid traffic acquisition expense             |                                                                                                                                                                                                                       |   | 36,738       |          |              |   | 3,373   |         
|Other assets                                              |                                                                                                                                                                                                                       |   | 10,648       |          |              |   | 1,032   |         
|                                                          |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|Total assets                                              |                                                                                                                                                                                                                       | $ | 435,716      |          |              | $ | 231,927 |         
|                                                          |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES: |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|                                                          | Accounts payable                                                                                                                                                                                                      |   | $            | 93,293   |              |   | $       | 38,111   |  
|                                                          | Accrued payroll expenses                                                                                                                                                                                              |   |              | 10,868   |              |   |         | 3,774    |  
|                                                          | Accrued expenses                                                                                                                                                                                                      |   |              | 10,142   |              |   |         | 1,497    |  
|                                                          | Deferred revenue                                                                                                                                                                                                      |   |              | 16,672   |              |   |         | 8,949    |  
|                                                          | Current portion of capital lease obligations                                                                                                                                                                          |   |              |         |              |   |         | 89       |  
|                                                          |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|Total current liabilities                                 |                                                                                                                                                                                                                       |   | 130,975      |          |              |   | 52,420  |         
|Long-term liabilities                                     |                                                                                                                                                                                                                       |   | 1,203        |          |              |   | 64      |         
|                                                         
|STOCKHOLDERS EQUITY:                                     |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|                                                          | Preferred Stock; $0.0001 par value, 10,000 shares authorized as of
December 31, 2002 and 2001, respectively                                                                                                           |   |              |         |              |   |         |         |  
|                                                          | Common stock, $0.0001 par value, 200,000 shares authorized as of
December 31, 2002 and December 31, 2001; 59,249 and 57,616
shares issued and outstanding as of December 31, 2002 and
December 31, 2001, respectively |   |              | 6        |              |   |         | 6        |  
|                                                          | Additional paid-in capital                                                                                                                                                                                            |   |              | 709,568  |              |   |         | 662,039  |  
|                                                          | Deferred compensation, net                                                                                                                                                                                            |   |              | (210     | )            |   |         | (763     | )
|                                                          | Accumulated other comprehensive income                                                                                                                                                                                |   |              | 2,890    |              |   |         | 24       |  
|                                                          | Accumulated deficit                                                                                                                                                                                                   |   |              | (408,716 | )            |   |         | (481,863 | )
|                                                          |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|Total stockholders equity                                |                                                                                                                                                                                                                       |   | 303,538      |          |              |   | 179,443 |         
|                                                          |                                                                                                                                                                                                                       |   |              |          |              |   |         |         
|Total liabilities and stockholders equity                |                                                                                                                                                                                                                       | $ | 435,716      |          |              | $ | 231,927 |         
|                                                          |                                                                                                                                                                                                                       |   |              |          |              |   |         |         

The accompanying notes are an integral part of the consolidated financial statements.

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OVERTURE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

|                                                                                       |                                                             |       |         |                                 |  |       |         |         |  |         |          |         |  | 
|-------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ----- | ------- | ------------------------------- |  | ----- | ------- | ------- |  | ------- | -------- | ------- |  | 
|                                                                                       |                                                             |       |         | FOR THE YEAR ENDED DECEMBER 31,
|                                                                                       |                                                             |       |         |                                
|                                                                                       |                                                             |       |         | 2002                            |  | 2001  |         | 2000   
|                                                                                       |                                                             |       |         |                                 |  |       |         |        
|Revenue                                                                                |                                                             | $     | 667,730 |                                 |  | $     | 288,133 |         |  | $       | 103,052  |        
|Operating expenses:                                                                    |                                                             |       |         |                                 |  |       |         |         |  |         |          |        
|                                                                                       | Search serving                                              |       |         | 32,723                          |  |       |         | 20,962  |  |         |          | 13,109  | 
|                                                                                       | Traffic acquisition                                         |       |         | 384,583                         |  |       |         | 162,072 |  |         |          | 66,433  | 
|                                                                                       | Marketing, sales and service                                |       |         | 55,245                          |  |       |         | 28,078  |  |         |          | 28,098  | 
|                                                                                       | General and administrative                                  |       |         | 75,618                          |  |       |         | 44,917  |  |         |          | 33,798  | 
|                                                                                       | Product development                                         |       |         | 19,372                          |  |       |         | 12,811  |  |         |          | 13,523  | 
|                                                                                       | Amortization of deferred compensation and
intangible assets | 1,753 |         |                                 |  | 2,041 |         |         |  | 116,976 |         
|                                                                                       | Write-off of acquired in-process research and
development   |       |         |                                |  |       |         |        |  |         |          | 7,550   | 
|                                                                                       | Impairment of intangible assets                             |       |         |                                |  |       |         |        |  |         |          | 309,253 | 
|                                                                                       | Loss on disposition of GoTo Auctions
and GoTo Shopping      |       |         |                                |  |       |         | 3,010   |  |         |          |        | 
|                                                                                       | Loss on litigation ruling                                   |       |         | 8,700                           |  |       |         |        |  |         |          |        | 
|                                                                                       |                                                             |       |         |                                 |  |       |         |         |  |         |          |        
|                                                                                       |                                                             |       | 577,994 |                                 |  |       | 273,891 |         |  |         | 588,740  |        
|                                                                                       |                                                             |       |         |                                 |  |       |         |         |  |         |          |        
|Income (loss) from operations                                                          |                                                             |       | 89,736  |                                 |  |       | 14,242  |         |  |         | (485,688 | )      
|Other income:                                                                          |                                                             |       |         |                                 |  |       |         |         |  |         |          |        
|                                                                                       | Interest income, net                                        |       |         | 3,938                           |  |       |         | 4,260   |  |         |          | 5,809   | 
|                                                                                       | Other income, net                                           |       |         | 974                             |  |       |         | 2,561   |  |         |          | 21,259  | 
|                                                                                       |                                                             |       |         |                                 |  |       |         |         |  |         |          |        
|Income (loss) before provision for income taxes                                        |                                                             |       | 94,648  |                                 |  |       | 21,063  |         |  |         | (458,620 | )      
|Provision for income taxes                                                             |                                                             |       | 21,501  |                                 |  |       | 900     |         |  |         | 1        |        
|                                                                                       |                                                             |       |         |                                 |  |       |         |         |  |         |          |        
|Net income (loss)                                                                      |                                                             | $     | 73,147  |                                 |  | $     | 20,163  |         |  | $       | (458,621 | )      
|                                                                                       |                                                             |       |         |                                 |  |       |         |         |  |         |          |        
|Basic net income (loss) per share                                                      |                                                             | $     | 1.27    |                                 |  | $     | 0.38    |         |  | $       | (9.54    | )      
|                                                                                       |                                                             |       |         |                                 |  |       |         |         |  |         |          |        
|Diluted net income (loss) per share                                                    |                                                             | $     | 1.23    |                                 |  | $     | 0.36    |         |  | $       | (9.54    | )      
|                                                                                       |                                                             |       |         |                                 |  |       |         |         |  |         |          |        
|Weighted average shares used to compute
historical basic net income (loss) per share   |                                                             |       | 57,674  |                                 |  |       | 53,363  |         |  |         | 48,065   |        
|Weighted average shares used to compute
historical diluted net income (loss) per share |                                                             |       | 59,603  |                                 |  |       | 55,533  |         |  |         | 48,065   |        

The accompanying notes are an integral part of the consolidated financial statements.

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OVERTURE SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(IN THOUSANDS)

|                                                                                                                   |  |              |        |            |  |          |   |               |  |               |         |         |  |       |        |   |  |             |       |   |  |   |          |   |  |   |          |   |  |  |  | 
|------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------ | ---------- |  | -------- | - | ------------- |  | ------------- | ------- | ------- |  | ----- | ------ | - |  | ----------- | ----- | - |  | - | -------- | - |  | - | -------- | - |  |  |  | 
|                                                                                                                   |  |              |        |            |  |          |   |               |  |               |         |         |  |       |        |   |  | Accumulated |       |   |  |   |          |   |  |   |          |   |  | 
|                                                                                                                   |  | Common Stock |        | Additional |  | Deferred |   | Other         |  |               |         |         |  |       |        |   |  |             |       |  
|                                                                                                                   |  |              |        | Paid-in    |  | Compen-  |   | Comprehensive |  | Accumulated   |         |         |  |       |        |   |  |            
|                                                                                                                   |  | Shares       |        | Amount     |  | Capital  |   | sation, net   |  | Income (Loss) |         | Deficit |  | Total |        |   |  |            
|                                                                                                                   |  |              |        |            |  |          |   |               |  |               |         |         |  |       |        |   |  |            
|BALANCE AT DECEMBER 31, 1999                                                                                       |  |              | 45,519 |            |  | $        | 5 |               |  | $             | 158,799 |         |  | $     | (2,584 | ) |  | $           | (41   | ) |  | $ | (43,405  | ) |  | $ | 112,774  |   |  |  |  | 
|Exercise of common stock, net of
repurchases and issuance of common stock
pursuant to Employee Stock Purchase Plan |  |              | 768    |            |  |          |  |               |  |               | 2,863   |         |  |       |       |   |  |             |      |   |  |   |         |   |  |   | 2,863    |   |  |  |  | 
|Issuance of common stock for acquisitions                                                                          |  |              | 6,279  |            |  |          |  |               |  |               | 429,657 |         |  |       |       |   |  |             |      |   |  |   |         |   |  |   | 429,657  |   |  |  |  | 
|Amortization of deferred compensation                                                                              |  |              |       |            |  |          |  |               |  |               | (80     | )       |  |       | 1,456  |   |  |             |      |   |  |   |         |   |  |   | 1,376    |   |  |  |  | 
|Unrealized gains on short-term and
long-term investments                                                           |  |              |       |            |  |          |  |               |  |               |        |         |  |       |       |   |  |             | 87    |   |  |   |         |   |  |   | 87       |   |  |  |  | 
|Cumulative translation adjustment                                                                                  |  |              |       |            |  |          |  |               |  |               |        |         |  |       |       |   |  |             | (41   | ) |  |   |         |   |  |   | (41      | ) |  |  |  | 
|Net loss                                                                                                           |  |              |       |            |  |          |  |               |  |               |        |         |  |       |       |   |  |             |      |   |  |   | (458,621 | ) |  |   | (458,621 | ) |  |  |  | 
|                                                                                                                   |  |              |        |            |  |          |   |               |  |               |         |         |  |       |        |   |  |             |       |   |  |   |          |   |  |   |          |   |  |  |  | 
|BALANCE AT DECEMBER 31, 2000                                                                                       |  |              | 52,566 |            |  |          | 5 |               |  |               | 591,239 |         |  |       | (1,128 | ) |  |             | 5     |   |  |   | (502,026 | ) |  |   | 88,095   |   |  |  |  | 
|Exercise of common stock, net of
repurchases and issuance of common stock
pursuant to Employee Stock Purchase Plan |  |              | 1,300  |            |  |          |  |               |  |               | 11,627  |         |  |       |       |   |  |             |      |   |  |   |         |   |  |   | 11,627   |   |  |  |  | 
|Issuance of common stock, net of
issuance costs of $3,684                                                          |  |              | 3,750  |            |  |          | 1 |               |  |               | 58,191  |         |  |       |       |   |  |             |      |   |  |   |         |   |  |   | 58,192   |   |  |  |  | 
|Amortization of deferred compensation                                                                              |  |              |       |            |  |          |  |               |  |               | (18     | )       |  |       | 867    |   |  |             |      |   |  |   |         |   |  |   | 849      |   |  |  |  | 
|Stock option compensation                                                                                          |  |              |       |            |  |          |  |               |  |               | 1,000   |         |  |       | (502   | ) |  |             |      |   |  |   |         |   |  |   | 498      |   |  |  |  | 
|Unrealized losses on short-term and
long-term investments                                                          |  |              |       |            |  |          |  |               |  |               |        |         |  |       |       |   |  |             | (16   | ) |  |   |         |   |  |   | (16      | ) |  |  |  | 
|Cumulative translation adjustment                                                                                  |  |              |       |            |  |          |  |               |  |               |        |         |  |       |       |   |  |             | 35    |   |  |   |         |   |  |   | 35       |   |  |  |  | 
|Net income                                                                                                         |  |              |       |            |  |          |  |               |  |               |        |         |  |       |       |   |  |             |      |   |  |   | 20,163   |   |  |   | 20,163   |   |  |  |  | 
|                                                                                                                   |  |              |        |            |  |          |   |               |  |               |         |         |  |       |        |   |  |             |       |   |  |   |          |   |  |   |          |   |  |  |  | 
|BALANCE AT DECEMBER 31, 2001                                                                                       |  |              | 57,616 |            |  |          | 6 |               |  |               | 662,039 |         |  |       | (763   | ) |  |             | 24    |   |  |   | (481,863 | ) |  |   | 179,443  |   |  |  |  | 
|Exercise of common stock, net of
repurchases and issuance of common stock
pursuant to Employee Stock Purchase Plan |  |              | 1,633  |            |  |          |  |               |  |               | 21,251  |         |  |       |       |   |  |             |      |   |  |   |         |   |  |   | 21,251   |   |  |  |  | 
|Amortization of deferred compensation                                                                              |  |              |        |            |  |          |  |               |  |               |        |         |  |       | 553    |   |  |             |      |   |  |   |         |   |  |   | 553      |   |  |  |  | 
|Stock option tax benefit                                                                                           |  |              |        |            |  |          |  |               |  |               | 26,278  |         |  |       |       |   |  |             |      |   |  |   |         |   |  |   | 26,278   |   |  |  |  | 
|Unrealized losses on short-term and
long-term investments                                                          |  |              |       |            |  |          |  |               |  |               |        |         |  |       |       |   |  |             | 325   |   |  |   |         |   |  |   | 325      |   |  |  |  | 
|Cumulative translation adjustment                                                                                  |  |              |       |            |  |          |  |               |  |               |        |         |  |       |       |   |  |             | 2,541 |   |  |   |         |   |  |   | 2,541    |   |  |  |  | 
|Net income                                                                                                         |  |              |       |            |  |          |  |               |  |               |        |         |  |       |       |   |  |             |      |   |  |   | 73,147   |   |  |   | 73,147   |   |  |  |  | 
|                                                                                                                   |  |              |        |            |  |          |   |               |  |               |         |         |  |       |        |   |  |             |       |   |  |   |          |   |  |   |          |   |  |  |  | 
|BALANCE AT DECEMBER 31, 2002                                                                                       |  |              | 59,249 |            |  | $        | 6 |               |  | $             | 709,568 |         |  | $     | (210   | ) |  | $           | 2,890 |   |  | $ | (408,716 | ) |  | $ | 303,538  |   |  |  |  | 
|                                                                                                                   |  |              |        |            |  |          |   |               |  |               |         |         |  |       |        |   |  |             |       |   |  |   |          |   |  |   |          |   |  |  |  | 

The accompanying notes are an integral part of the consolidated financial statements.

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##### Table of Contents



OVERTURE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

|                                                             |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |          |         |  
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------ | ------------------------------- | ------- | ---- | ------ | ------- | ------ | - | ------ | -------- | ------- | -
|                                                             |                                                                                                            |                                       |        | FOR THE YEAR ENDED DECEMBER 31,
|                                                             |                                                                                                            |                                       |        |                                
|                                                             |                                                                                                            |                                       |        | 2002                            |         | 2001 |        | 2000   
|                                                             |                                                                                                            |                                       |        |                                 |         |      |        |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |         
|                                                             | Net income (loss)                                                                                          |                                       | $      | 73,147                          |         |      | $      | 20,163  |        |   | $      | (458,621 | )      
|                                                             | Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:         |                                       |        |                                 |         |      |        |         |        |   |        |          |        
|                                                             | Tax benefit from stock options                                                                             |                                       |        | 21,501                          |         |      |        |        |        |   |        |         |        
|                                                             | Accretion (amortization) of
premiums/(discounts) from the purchase of
short-term and long-term investments |                                       |        | 940                             |         |      |        | 335     |        |   |        | (1,357   | )      
|                                                             | Non-cash portion of closure & disposition
charges                                                          |                                       |        |                                |         |      |        | 2,398   |        |   |        |         |        
|                                                             | Losses from disposition of property and
equipment                                                          |                                       |        | 1,059                           |         |      |        | 199     |        |   |        | 351      |        
|                                                             | Depreciation and amortization                                                                              |                                       |        | 23,122                          |         |      |        | 15,589  |        |   |        | 125,398  |        
|                                                             | Write-off of acquired in-process research and
development                                                  |                                       |        |                                |         |      |        |        |        |   |        | 7,550    |        
|                                                             | Impairment of intangible assets                                                                            |                                       |        |                                |         |      |        |        |        |   |        | 309,359  |        
|                                                             | Changes in operating assets and liabilities:                                                               |                                       |        |                                 |         |      |        |         |        |   |        |          |        
|                                                             |                                                                                                            | Accounts receivable                   |        |                                 | (20,709 | )    |        |         | (5,608 | ) |        |          | (2,415  | )
|                                                             |                                                                                                            | Prepaid expenses and other            |        |                                 | (25,023 | )    |        |         | (51    | ) |        |          | (1,026  | )
|                                                             |                                                                                                            | Prepaid traffic acquisition expense   |        |                                 | (50,147 | )    |        |         | 11,643 |   |        |          | (21,571 | )
|                                                             |                                                                                                            | Accounts payable and accrued expenses |        |                                 | 72,060  |      |        |         | 15,429 |   |        |          | 9,541   |  
|                                                             |                                                                                                            | Deferred revenues                     |        |                                 | 7,723   |      |        |         | 4,682  |   |        |          | 2,383   |  
|                                                             |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |         
|                                                             | Net cash provided by (used in) operating
activities                                                        |                                       |        | 103,673                         |         |      |        | 64,779  |        |   |        | (30,408  | )      
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |         
|                                                             | Sales/(purchases) of short-term and long-term
investments net                                              |                                       |        | (58,315                         | )       |      |        | (66,767 | )      |   |        | 52,194   |        
|                                                             | Capital expenditures for property and
equipment and other assets                                           |                                       |        | (52,048                         | )       |      |        | (17,601 | )      |   |        | (20,575  | )      
|                                                             | Net cash used in acquisition                                                                               |                                       |        |                                |         |      |        |        |        |   |        | (863     | )      
|                                                             | Other assets                                                                                               |                                       |        |                                |         |      |        | (436    | )      |   |        | (596     | )      
|                                                             |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |         
|                                                             | Net cash provided by (used in) investing
activities                                                        |                                       |        | (110,363                        | )       |      |        | (84,804 | )      |   |        | 30,160   |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |         
|Proceeds from the issuance of common stock, net              |                                                                                                            |                                       | 21,251 |                                 |         |      | 69,819 |         |        |   | 2,863  |         
|Repayments under lease line                                  |                                                                                                            |                                       | (89    | )                               |         |      | (751   | )       |        |   | (708   | )       
|Repayment of debt                                            |                                                                                                            |                                       |       |                                 |         |      |       |         |        |   | (835   | )       
|                                                             |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |         
|Net cash provided by financing activities                    |                                                                                                            |                                       | 21,162 |                                 |         |      | 69,068 |         |        |   | 1,320  |         
|Effect of exchange rate changes on cash and
cash equivalents |                                                                                                            |                                       | 2,541  |                                 |         |      | (55    | )       |        |   |       |         
|Net increase in cash and cash equivalents                    |                                                                                                            |                                       | 17,013 |                                 |         |      | 48,988 |         |        |   | 1,072  |         
|Cash and cash equivalents at beginning of
period             |                                                                                                            |                                       | 61,974 |                                 |         |      | 12,986 |         |        |   | 11,914 |         
|                                                             |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |         
|Cash and cash equivalents at end of period                   |                                                                                                            | $                                     | 78,987 |                                 |         | $    | 61,974 |         |        | $ | 12,986 |         
|                                                             |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |         
|Cash paid during the period for:                             |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |         
|                                                             | Income taxes                                                                                               |                                       | $      | 9,386                           |         |      | $      | 4       |        |   | $      | 1        |        
|                                                             | Interest                                                                                                   |                                       | $      | 4                               |         |      | $      | 64      |        |   | $      | 178      |        
|Non-cash investing and financing activities:                 |                                                                                                            |                                       |        |                                 |         |      |        |         |        |   |        |         
|                                                             | Issuance of common stock for acquisition of
businesses                                                     |                                       | $      |                                |         |      | $      |        |        |   | $      | 422,106  |        

The accompanying notes are an integral part of the consolidated financial statements.

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##### Table of Contents



OVERTURE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | SIGNIFICANT ACCOUNTING POLICIES
|-- |  | -------------------------------

GENERAL

Overture Services, Inc. (Overture or the Company) is the global leader in
Pay-For-Performance search (also known as paid search) on the
Internet. Overtures search service is comprised of advertisers listings,
which are screened for relevance and accessed by consumers and businesses
through Overtures affiliates, a network of Web properties that have integrated
Overtures search service into their sites or that direct user traffic to
Overtures own site. In some cases, consumers and businesses access our search
listings directly at our site. The search listings are ranked by the
advertisers bid; the higher the bid, the higher the ranking. Advertisers pay
Overture the bid price for clicks on the advertisers search listing (also
known as a paid introduction, click-through or a paid click). As of December
31, 2002, Overture and its wholly owned subsidiaries, operated the Overture
service in the United States, United Kingdom, Germany, France and Japan.
Subsequent to the end of the year, Overture announced its intention to operate
its service in South Korea, Italy, Spain, and other European markets. The
Company reports in one reportable business segment.

Overture was incorporated on September 15, 1997 in the state of Delaware
and officially launched its service on June 1, 1998. On October 8, 2001, we
changed our corporate name from GoTo.com, Inc. to Overture Services, Inc. and
changed our Nasdaq Stock Market trading symbol to OVER. Overture has offices
in California and New York in the United States; United Kingdom; Germany;
France; Ireland; Japan; and South Korea.

On February 18, 2003, Overture announced its plans to acquire the business
of AltaVista Company (AltaVista), a pioneer in Web search technology, for
$140 million in cash and stock.

On February 25, 2003, Overture announced its plan to acquire the Web
search unit of Norway-based Fast Search and Transfer (Fast), a developer of
search and real-time filtering technologies, for $70.0 million
in cash, plus a
potential performance-based cash incentive payment of up to $30 million over
three years.

AltaVista and Fast both use advanced algorithmic search technology to
crawl the Web and return relevant search results in response to users queries.
The Company believes these technologies complement its own market-leading
technology in commercial search and will enhance its core Pay-For-Performance
search business as well as allow Overture to develop new products and services
for its advertisers and affiliates.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Overture and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

FOREIGN CURRENCY

Generally, the functional currency of the Companys international
subsidiaries is the local currency. The financial statements of these
subsidiaries are translated to United States dollars using year-end rates of
exchange for assets and liabilities, and average rates of exchange for the year
for revenues, costs and expenses. Translation gains (losses) are deferred and
accumulated in accumulated other comprehensive income as a component of
stockholders equity. Net gains and losses resulting from foreign exchange
transactions would be included in the consolidated statements of operations.
The Company did not incur significant net gains or losses resulting from
foreign exchange transactions during the periods presented.

ESTIMATES AND ASSUMPTIONS

The preparation of consolidated 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
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.

RECLASSIFICATION

Certain reclassifications have been made in prior years financial
statements to conform to classifications used in the current year.

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REVENUE RECOGNITION

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101). SAB 101 became effective for the fourth quarter of the year ending
December 31, 2000. The adoption of SAB 101 did not have a material impact on
the Companys consolidated financial statements.

Revenue is generated primarily through paid introductions, that is,
Overture generates revenue when a user clicks on an advertisers listings after
an advertiser has bid for priority placement in search results by making or
committing to make a payment based on the amount bid for each click-through.
Revenue is recognized when earned based on click-through activity to the extent
that the advertiser has deposited sufficient funds with us or collection is
probable. Revenue also consists of listing fees and banner advertising, which
together constituted less than 1%, 1% and 5% of our revenue for the years
ended December 31, 2002, 2001 and 2000, respectively. Banner advertising
revenue is recognized when earned under the terms of the contractual
arrangement with the advertiser or advertising agency, provided that collection
is probable. Listing services revenue is recognized when Overture has provided
all of the services under the terms of the arrangement. Overture has no barter
transactions.

The Company has entered into agreements with various affiliates to provide
advertisers listings. The Company pays affiliates based on click-throughs on
these listings. In accordance with Emerging Issue Task Force No. 99-19,
Reporting Revenue Gross as a Principal Versus Net as an Agent, the revenues
derived from advertisers who receive paid introductions through Overture as
supplied by affiliates are reported gross of the payment to affiliates.

COMPREHENSIVE INCOME (LOSS)

The Company accounts for comprehensive income (loss) using Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income. SFAS 130 establishes standards for reporting comprehensive income
(loss) and its components in financial statements. Comprehensive income (loss),
as defined therein, refers to revenues, expenses, gains and losses that are not
included in net income (loss) but rather are recorded directly in shareholders
equity. The differences between total comprehensive income (loss) and net
income (loss) for 2002, 2001 and 2000 were approximately $2.9 million, $19,000
and $46,000, respectively. As of December 31, 2002, accumulated other
comprehensive income comprised of $2.5 million of unrealized gains on
short-term investments and $0.4 million of cumulative translation adjustments.

SEARCH SERVING

Search serving costs consist primarily of costs associated with serving
our search results, maintaining our Web site and fees paid to outside service
providers that provide and manage unpaid listings. Costs associated with
serving our search results and maintaining our Web site include depreciation of
Web site equipment, co-location charges for equipment, software licensing fees
and salaries of related personnel.

TRAFFIC ACQUISITION

The Company enters into agreements of varying durations with affiliates
that integrate Overtures search service into their sites or that direct
consumer and business traffic to the Companys Web site. There are generally
three economic structures of the affiliate agreements, 1) fixed payments, based
on a guaranteed minimum amount of traffic delivered, which often carry
reciprocal performance guarantees from the affiliate, 2) variable payments
based on a percentage of our revenue or based on a certain metric, such as
number of searches or paid clicks, or 3) a combination of the above.

The Company expenses traffic acquisition costs under two methods;
agreements with fixed payments are generally expensed pro-rata over the term
the fixed payment covers, and agreements based on a percentage of revenue,
number of paid introductions, number of searches, or other metric are generally
expensed based on the volume of the underlying activity or revenue multiplied
by the agreed-upon price or rate.

Approximately 60% of the Companys revenue earned from advertisers for the
year ended December 31, 2002 was supplied by two companies. The Company may
not be successful in renewing any of these agreements, or if they are renewed,
they may not be on as favorable terms. The Company may not be successful in
entering into agreements with new affiliates on commercially acceptable terms.
In addition, several of these affiliates may be considered potential
competitors.

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ADVERTISING COSTS

The Company expenses advertising media costs as incurred and production
costs upon first airing or printing. For the years ended December 31, 2002,
2001 and 2000, the Company incurred advertising costs of approximately $17.0
million, $6.1 million and $14.8 million, respectively.

PRODUCT DEVELOPMENT

Product development expenses consist of expenses incurred by the Company
in the development, creation and enhancement of its Internet site and service.
Product development expenses include compensation and related expenses, costs
of computer hardware and software, and costs incurred in developing features
and functionality of the service. Product development costs are expensed as
incurred or capitalized into property and equipment in accordance with
Statement of Position 98-1 Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 requires that cost
incurred in the preliminary project and post-implementation stages of an
internal use software project be expensed as incurred and that certain costs
incurred in the application development stage of a project be capitalized.

AVAILABLE FOR SALE SECURITIES

The Company considers those investments that are highly liquid, readily
convertible to cash and which mature within three months from the original date
of purchase to be cash equivalents. All of the Companys cash equivalents,
short-term and long-term investments are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with unrealized gains
and losses included in unrealized losses on short-term and long-term
investments as a separate component of stockholders equity net of applicable
income taxes. As of December 31, 2002, the fair value of these securities
approximated cost and the net unrealized holding gains were approximately
$404,000. Realized gains and losses on sales of available-for-sale investments
are calculated using the specific identification method and were not
significant to the Companys results of operations in any period presented.
Long-term investments have original maturities of up to 24 months.

The estimated fair value of cash, cash equivalents, short-term and
long-term investments and restricted investments, which approximate the
carrying costs as of December 31, 2002 and 2001, are as follows (in thousands):

|                        |  |                   |        |             |  |             |         |             |  |   |        |  |  |   |   | 
|----------------------- |  | ----------------- | ------ | ----------- |  | ----------- | ------- | ----------- |  | - | ------ |  |  | - | - | 
|                        |  | December 31, 2002 |        |             |  |             |         |             |  |  
|                        |  |                   |        |             |  |             |         |             |  |  
|                        |  | CASH AND CASH     |        | SHORT-TERM  |  | LONG-TERM   |         | RESTRICTED 
|                        |  | EQUIVALENTS       |        | INVESTMENTS |  | INVESTMENTS |         | INVESTMENTS
|                        |  |                   |        |             |  |             |         |            
|Cash                    |  | $                 | 53,741 |             |  | $           |        |             |  | $ |       |  |  | $ |  | 
|Commercial Paper        |  |                   | 11,599 |             |  |             | 15,838  |             |  |   |       |  |  |   |  | 
|Certificates of deposit |  |                   |       |             |  |             | 11,504  |             |  |   | 2,949  |  |  |   |  | 
|Asset Backed Securities |  |                   | 3,147  |             |  |             | 89      |             |  |   | 1,835  |  |  |   |  | 
|Corporate Bonds         |  |                   |       |             |  |             | 6,168   |             |  |   | 5,343  |  |  |   |  | 
|Government Bonds        |  |                   | 10,500 |             |  |             | 85,306  |             |  |   | 42,725 |  |  |   |  | 
|                        |  |                   |        |             |  |             |         |             |  |   |        |  |  |   |   | 
|                        |  | $                 | 78,987 |             |  | $           | 118,905 |             |  | $ | 52,852 |  |  | $ |  | 
|                        |  |                   |        |             |  |             |         |             |  |   |        |  |  |   |   | 

|                        |  |                   |        |             |  |             |        |             |  |   |        |  |  |   |       | 
|----------------------- |  | ----------------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | - | ------ |  |  | - | ----- | 
|                        |  | December 31, 2001 |        |             |  |             |        |             |  |  
|                        |  |                   |        |             |  |             |        |             |  |  
|                        |  | CASH AND CASH     |        | SHORT-TERM  |  | LONG-TERM   |        | RESTRICTED 
|                        |  | EQUIVALENTS       |        | INVESTMENTS |  | INVESTMENTS |        | INVESTMENTS
|                        |  |                   |        |             |  |             |        |            
|Cash                    |  | $                 | 18,785 |             |  | $           |       |             |  | $ |       |  |  | $ |      | 
|Commercial Paper        |  |                   | 10,005 |             |  |             | 498    |             |  |   |       |  |  |   | 5,744 | 
|Certificates of deposit |  |                   |       |             |  |             | 10,351 |             |  |   |       |  |  |   |      | 
|US Treasury bills       |  |                   | 33,184 |             |  |             | 60,988 |             |  |   | 36,476 |  |  |   |      | 
|                        |  |                   |        |             |  |             |        |             |  |   |        |  |  |   |       | 
|                        |  | $                 | 61,974 |             |  | $           | 71,837 |             |  | $ | 36,476 |  |  | $ | 5,744 | 
|                        |  |                   |        |             |  |             |        |             |  |   |        |  |  |   |       | 

ACCOUNTS RECEIVABLE

The allowance for doubtful account activity for the periods indicated is
as follows (in thousands):

|                                 |                   |  |              |       |            |  |            |       |        |  |            |     |  |  |   |       | 
|-------------------------------- | ----------------- |  | ------------ | ----- | ---------- |  | ---------- | ----- | ------ |  | ---------- | --- |  |  | - | ----- | 
|                                 |                   |  |              |       |            |  | ADDITIONS  |       |        |  |            |     |  |  |  
|                                 |                   |  | BALANCE AT   |       | CHARGED TO |  |            |       |        |  | BALANCE AT
|                                 |                   |  | BEGINNING OF |       | COSTS AND  |  |            |       |        |  | END OF    
|                                 |                   |  | PERIOD       |       | EXPENSES   |  | WRITE-OFFS |       | PERIOD
|                                 |                   |  |              |       |            |  |            |       |       
|Allowance for doubtful accounts: |                   |  |              |       |            |  |            |       |        |  |            |     |  |  |   |      
|                                 | December 31, 2000 |  | $            | 250   |            |  | $          | 1,041 |        |  | $          | 291 |  |  | $ | 1,000 | 
|                                 | December 31, 2001 |  | $            | 1,000 |            |  | $          | 1,735 |        |  | $          | 635 |  |  | $ | 2,100 | 
|                                 | December 31, 2002 |  | $            | 2,100 |            |  | $          | 500   |        |  | $          | 250 |  |  | $ | 2,350 | 

Accounts receivable are typically unsecured and are due from customers
primarily located in the United States. Many of Overtures customers are in the
Internet industry. Credit losses have generally been within managements
expectations. At December 31, 2002 and 2001, no customer represented more than
10 percent of total accounts receivable.

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##### Table of Contents



FAIR VALUE OF FINANCIAL INSTRUMENTS

The Companys financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and other liabilities are carried at
cost, which approximates their fair values because of the short-term maturity
of these instruments.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Property and equipment consists
of computer hardware, computer software and furniture and fixtures.
Depreciation is provided using the straight-line method based upon estimated
useful lives of the assets, which range from 18 months to five years. Equipment
under capital leases and leasehold improvements are recorded at cost.
Amortization is provided using the straight-line method over the shorter of the
term of the related lease or estimated useful lives of the assets.

ACQUIRED PATENTS AND LICENSES

Patents and licenses are recorded at cost and are amortized using the
straight-line method over their estimated useful life.

LONG-LIVED ASSETS

The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long
Lived Assets (SFAS 144) which supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
(SFAS 121), and the accounting and reporting provisions of APB 30, Reporting
the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and was adopted by the Company for
the year ended December 31, 2002. The Company assesses the impairment of
long-lived assets and certain identifiable intangibles whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. Accordingly, in 2000, Overture
recorded an impairment charge on the goodwill and intangible assets from the
acquisitions of Cadabra and AuctionRover of approximately $309.3 million in
accordance with SFAS 121.

DEFERRED REVENUE

Deferred revenue represents all payments received from customers in excess
of revenue earned based on line-item click-through activity and will be
recognized as actual click-throughs occur.

LOSS CONTINGENCY

The Company is a defendant in several litigation matters. SFAS No. 5,
Accounting for Contingencies requires an estimated loss to be accrued when a
loss is both probable and can be reasonably estimated. Overture analyzes its
litigation for probability and estimation of loss based on an analysis of
potential results, considering a combination of litigation and settlement
strategies in consultation with outside counsel.

INCOME TAXES

Income taxes are accounted for under SFAS No. 109, Accounting for Income
Taxes (SFAS 109). Under SFAS 109, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

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ACCOUNTING FOR STOCK-BASED COMPENSATION

At December 31, the Company had one stock-based employee compensation
plans, which are described more fully in Note 4. The company accounts for
those plans under the recognition and measurement principles of Accounting
Principles Board Opinion (APB) No. 25 Accounting for Stock Issued to
Employees (APB 25). The following table sets forth the effect on net income
and earnings per share if the Company had applied the fair value provisions of
SFAS No. 123, Accounting for Stock Based Compensation (SFAS 123), to
stock-based employee compensation. For purposes of pro forma disclosures, the
fair value of the options is amortized to expense on a graded methodology basis
over the vesting period of the options.

|                                                                                                                                         |                       |   |                |      |      |   |        |      |  |   |          |        |  
|---------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | -------------- | ---- | ---- | - | ------ | ---- |  | - | -------- | ------ | -
|                                                                                                                                         |                       |   | 2002           |      | 2001 |   | 2000  
|                                                                                                                                         |                       |   |                |      |      |   |       
|                                                                                                                                         |                       |   | (IN THOUSANDS)
|Net income (loss), as reported                                                                                                           |                       | $ | 73,147         |      |      | $ | 20,163 |      |  | $ | (458,621 | )     
|Additional stock-based employee compensation
expense determined under
fair value based method for all awards,
net of related tax effects |                       |   | (28,352        | )    |      |   | (6,474 | )    |  |   | (22,760  | )     
|                                                                                                                                         |                       |   |                |      |      |   |        |      |  |   |          |       
|Pro forma net income (loss)                                                                                                              |                       |   | 44,795         |      |      |   | 13,689 |      |  |   | (481,381 | )     
|Earnings per share:                                                                                                                      |                       |   |                |      |      |   |        |      |  |   |          |       
|                                                                                                                                         | Basic  as reported   |   |                | 1.27 |      |   |        | 0.38 |  |   |          | (9.54  | )
|                                                                                                                                         | Basic  pro forma     |   |                | 0.78 |      |   |        | 0.26 |  |   |          | (10.02 | )
|Earnings per share:                                                                                                                      |                       |   |                |      |      |   |        |      |  |   |          |       
|                                                                                                                                         | Diluted  as reported |   |                | 1.23 |      |   |        | 0.36 |  |   |          | (9.54  | )
|                                                                                                                                         | Diluted  pro forma   |   | $              | 0.75 |      |   | $      | 0.25 |  |   | $        | (10.02 | )

The fair value of these options were estimated at the date of grant using
a Black-Scholes option pricing model with the following assumptions:

|                          |  |                         |      |      |  |      |      |   |  |  |      |  
|------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                          |  | YEAR ENDED DECEMBER 31,
|                          |  |                        
|                          |  | 2002                    |      | 2001 |  | 2000
|                          |  |                         |      |      |  |     
|Risk free interest rate   |  |                         | 1.75 | %    |  |      | 3.75 | % |  |  | 5.0  | %
|Expected lives (in years) |  |                         | 3.0  |      |  |      | 3.0  |   |  |  | 3.0  |  
|Dividend yield            |  |                         |     |      |  |      |     |   |  |  |     |  
|Expected volatility       |  |                         | 0.80 |      |  |      | 0.80 |   |  |  | 0.80 |  

Under SFAS 123, the Company would have incurred an additional compensation
expense of approximately $47.3 million, $6.5 million and $22.8 million for the
years ended December 31, 2002, 2001 and 2000, respectively.

Applying SFAS 123 in the pro forma disclosure may not be representative of
the effects on pro forma net income (loss) for future years as options vest
over several years and additional awards will likely be made each year.

INCOME (LOSS) PER SHARE COMPUTATION

Historical basic net income (loss) per share is computed using the
weighted average number of shares of common stock outstanding. Historical
diluted net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding and the effects of outstanding
stock options and unvested portion of stock issued in connection with the
exercise of such options subject to repurchase.

Pro forma basic net income (loss) per share is computed using the
historical weighted average number of shares of common stock outstanding plus
the weighted average number of shares resulting from the assumed conversion of
all outstanding convertible preferred stock as though such conversion occurred
at the beginning of the period or original date of issuance, if later.

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Options to purchase approximately 8.9 million and 7.6 million shares of
common stock were outstanding as of December 31, 2002 and 2001, respectively.
In addition, as of December 31, 2002, there were approximately 36,000 shares of
unvested common stock outstanding that were issued in connection with the
exercise of options and restricted stock and are subject to repurchase.

The following table sets forth the computation of historical basic and
diluted net income (loss) per share and pro forma basic and diluted net income
(loss) per share for the periods indicated (in thousands, except per share
amounts):

|                                               |                                                                      |                                                                          |      |                        |        |      |      |        |        |   |       |          |        | 
|---------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------------------------------ | ---- | ---------------------- | ------ | ---- | ---- | ------ | ------ | - | ----- | -------- | ------ | 
|                                               |                                                                      |                                                                          |      | YEAR ENDED DECEMBER 31
|                                               |                                                                      |                                                                          |      |                       
|                                               |                                                                      |                                                                          |      | 2002                   |        | 2001 |      | 2000  
|                                               |                                                                      |                                                                          |      |                        |        |      |      |       
|Numerator:                                     |                                                                      |                                                                          |      |                        |        |      |      |        |        |   |       |         
|                                               | Net loss                                                             |                                                                          | $    | 73,147                 |        |      | $    | 20,163 |        |   | $     | (458,621 | )     
|Denominator:                                   |                                                                      |                                                                          |      |                        |        |      |      |        |        |   |       |         
|                                               | Denominator for historical basic
calculationweighted average shares |                                                                          |      | 57,674                 |        |      |      | 53,363 |        |   |       | 48,065   |       
|                                               |                                                                      | Common stock equivalents                                                 |      |                        | 1,929  |      |      |        | 2,170  |   |       |          |       | 
|                                               |                                                                      |                                                                          |      |                        |        |      |      |        |        |   |       |         
|                                               |                                                                      | Denominator for historical diluted
calculation  weighted average shares |      |                        | 59,603 |      |      |        | 55,533 |   |       |          | 48,065 | 
|Net income (loss) per share:                   |                                                                      |                                                                          |      |                        |        |      |      |        |        |   |       |         
|Historical basic net income (loss) per share   |                                                                      | $                                                                        | 1.27 |                        |        | $    | 0.38 |        |        | $ | (9.54 | )       
|Historical diluted net income (loss) per share |                                                                      | $                                                                        | 1.23 |                        |        | $    | 0.36 |        |        | $ | (9.54 | )       



|2. |  | INCOME TAXES
|-- |  | ------------

The components of income (loss) before income taxes are as follows (in
thousands):

|              |  |              |         |      |  |      |        |   |  |   |          |  
|------------- |  | ------------ | ------- | ---- |  | ---- | ------ | - |  | - | -------- | -
|              |  | Year Ended  
|              |  | December 31,
|              |  |             
|              |  | 2002         |         | 2001 |  | 2000
|              |  |              |         |      |  |     
|United States |  | $            | 111,848 |      |  | $    | 29,462 |   |  | $ | (454,796 | )
|Foreign       |  |              | (17,200 | )    |  |      | (8,399 | ) |  |   | (3,824   | )
|              |  |              |         |      |  |      |        |   |  |   |          |  
|              |  | $            | 94,648  |      |  | $    | 21,063 |   |  | $ | (458,620 | )
|              |  |              |         |      |  |      |        |   |  |   |          |  

Overture generated taxable income during the year ended December 31, 2002,
however a tax provision was recorded that was less than the statutory rate due
to the benefit from the release of the valuation allowance relating to deferred
tax assets. As of December 31, 2001, Overture had net operating loss (NOL)
carryforwards available to reduce future federal and state taxable income.
These NOLs and temporary differences (difference between timing of the
recognition on a Generally Accepted Accounting Principle basis versus a tax
basis) were carried on the balance sheet as deferred tax assets. SFAS 109
requires that a valuation allowance be set up to reduce a deferred tax asset to
the extent it is more likely than not that the related tax benefits will not be
realized. Due to the uncertainty regarding if and when these NOLs would be
utilized and temporary differences would reverse, a full valuation allowance
was set up against the related deferred tax asset, resulting in a net zero
balance for deferred tax assets as of December 31, 2001. The valuation
allowance was released during fiscal 2002 based on the expectation of future
income from our ordinary and recurring operations and our assessment that the
utilization of available tax deductions was more likely than not.

The Company has deductions that resulted from the exercise of certain
stock options and sale of certain related stock by employees. Because no book
charge is recorded upon the generation of these deductions, the corresponding
tax benefits are recorded directly to stockholders equity. However, these
deductions will offset taxable income, to the extent available, upon filing the
Companys corporate income tax returns resulting in a cash benefit.

The following is a reconciliation of the statutory federal income tax rate
to the Companys effective income tax rate:

|                                                    |  |              |     |      |  |      |     |   |  |  |     |   
|--------------------------------------------------- |  | ------------ | --- | ---- |  | ---- | --- | - |  |  | --- | --
|                                                    |  | Year Ended  
|                                                    |  | December 31,
|                                                    |  |             
|                                                    |  | 2002         |     | 2001 |  | 2000
|                                                    |  |              |     |      |  |     
|Statutory federal rate                              |  |              | 35  | %    |  |      | 35  | % |  |  | (34 | )%
|State income taxes (net of federal benefit)         |  |              | 2   |      |  |      | 6   |   |  |  | (1  | ) 
|Valuation allowance                                 |  |              | (17 | )    |  |      | (47 | ) |  |  | 3   |   
|Effect of foreign losses benefited at varying rates |  |              | 4   |      |  |      | 8   |   |  |  | 0   |   
|Other                                               |  |              | (1  | )    |  |      | 2   |   |  |  | 32  |   
|                                                    |  |              |     |      |  |      |     |   |  |  |     |   
|                                                    |  |              | 23  | %    |  |      | 4   | % |  |  | 0   | % 
|                                                    |  |              |     |      |  |      |     |   |  |  |     |   

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The provision for income taxes is composed of the following (in
thousands):

|          |         |                |        |              |        |      |     |      |     |   |   |   |   | 
|--------- | ------- | -------------- | ------ | ------------ | ------ | ---- | --- | ---- | --- | - | - | - | - | 
|          |         |                |        | Year Ended  
|          |         |                |        | December 30,
|          |         |                |        |             
|          |         |                |        | 2002         |        | 2001 |     | 2000
|          |         |                |        |              |        |      |     |     
|Current:  |         |                |        |              |        |      |     |      |     |   |   |  
|          | Federal |                | $      | 18,455       |        |      | $   | 725  |     |   | $ |  |  
|          | State   |                |        | 8,591        |        |      |     | 175  |     |   |   | 1 |  
|          | Foreign |                |        | 390          |        |      |     |     |     |   |   |  |  
|          |         |                |        |              |        |      |     |      |     |   |   |  
|          |         | Total current  |        |              | 27,436 |      |     |      | 900 |   |   |   | 1 | 
|Deferred: |         |                |        |              |        |      |     |      |     |   |   |  
|          | Federal |                |        | 2,576        |        |      |     |     |     |   |   |  |  
|          | State   |                |        | (5,524       | )      |      |     |     |     |   |   |  |  
|          | Foreign |                |        | (2,987       | )      |      |     |     |     |   |   |  |  
|          |         |                |        |              |        |      |     |      |     |   |   |  
|          |         | Total deferred |        |              | (5,935 | )    |     |      |    |   |   |   |  | 
|          |         |                |        |              |        |      |     |      |     |   |   |  
|          |         | $              | 21,501 |              |        | $    | 900 |      |     | $ | 1 |  
|          |         |                |        |              |        |      |     |      |     |   |   |  

The components of the deferred tax assets and related allowance at
December 31, 2002 and 2001 are as follows (in thousands):

|                          |                                           |   |              |       |      |   |         |        | 
|------------------------- | ----------------------------------------- | - | ------------ | ----- | ---- | - | ------- | ------ | 
|                          |                                           |   | Year Ended  
|                          |                                           |   | December 31,
|                          |                                           |   |             
|                          |                                           |   | 2002         |       | 2001
|                          |                                           |   |              |       |     
|Deferred tax assets:      |                                           |   |              |       |      |   |         |       
|                          | Net operating loss & credit carryforwards |   | $            | 8,498 |      |   | $       | 31,120 | 
|                          | Deferred revenue                          |   |              | 6,618 |      |   |         | 3,520  | 
|                          | Other assets                              |   |              | 6,655 |      |   |         | 2,102  | 
|                          |                                           |   |              |       |      |   |         |       
|Total deferred tax assets |                                           |   | 21,771       |       |      |   | 36,742  |       
|Valuation Allowance       |                                           |   |             |       |      |   | (36,742 | )     
|                          |                                           |   |              |       |      |   |         |       
|                          |                                           | $ | 21,771       |       |      | $ |        |       
|                          |                                           |   |              |       |      |   |         |       

In September 2002, the state of California passed legislation suspending
the use of the operating loss carryforwards for the 2002 and 2003 tax years.
The legislation added two years to the carryforward period for these losses.
As a result, Overture will not be able to utilize its California net operating
loss carryforwards during 2002 and 2003 against its expected current tax
liabilities.

As of December 31, 2002, the Company had net operating loss carry forwards
of approximately $54.1 million, $23.9 million and $2.7 million available to
reduce future state, foreign and federal taxable income, respectively. The
state net operating loss carryforwards expire beginning in the years 2007 to
2017, whereas the foreign net operating loss carryforwards have an indefinite
life and have no expiration. Under Section 382 of the Internal Revenue Code,
the utilization of the federal and state net operating loss carryforwards can
be limited based on changes in the percentage of ownership of the Company.

Overture has not provided for U.S. deferred income taxes or foreign
withholding taxes on the undistributed earnings of its non-U.S. subsidiaries as
of December 31, 2001, since these earnings are intended to be reinvested
indefinitely.



|3. |  | STOCKHOLDERS EQUITY
|-- |  | --------------------

SHAREHOLDERS RIGHTS PLAN

On March 8, 2002, the Board of Directors of Overture Services, Inc.,
declared a dividend of one preferred share purchase right for each outstanding
share of common stock, par value $0.0001 per share. Each right entitles the
holder to purchase one unit consisting of one one-thousandth of a share of our
Series A Junior Participating Preferred Stock for $200 per unit. Under certain
circumstances, if a person or group acquires 15% or more of Overtures
outstanding common stock, holders of the rights (other than the person or group
triggering their exercise) will be able to purchase, in exchange for the $200
exercise price, shares of Overtures common stock or of any company into which
the Company is merged having a value of $400. The rights expire on March 29,
2012 unless extended by Overtures Board of Directors. Because the rights may
substantially dilute the stock ownership of a person or group attempting to
take Overture over without the approval of our Board of Directors, the
Companys rights plan could make it more difficult for a third party to acquire
Overture (or a significant percentage of Overtures outstanding capital stock)
without first negotiating with the Companys Board of Directors regarding such
acquisition.

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DEFERRED STOCK OPTION COMPENSATION

Subsequent to our initial public offering in June 1999, the deemed fair
value of the common stock was determined by closing stock price on the date the
options were issued as quoted on the Nasdaq National Market. The typical
vesting period of the options is 20%, 10% or zero immediately upon grant with
the remaining balance vesting evenly either annually or quarterly over the
following four years. The amortization of deferred compensation is charged to
operations on a graded methodology basis over the vesting period of the
options. During the year ended December 31, 2002, 2001, and 2000, deferred
compensation amortization of approximately $553,000, $849,000 and $1.4 million,
respectively, was recorded. At December 31, 2002 and 2001, deferred
compensation was approximately $210,000 and $763,000, respectively. The
deferred compensation amortization relates only to stock options awarded to
employees and directors; the salaries and related benefits of these employees
are included in the applicable search serving or operating expense line items.



|4. |  | STOCK PLAN AND STOCK PURCHASE PLAN
|-- |  | ----------------------------------

The Companys 1998 Stock Plan provides for the granting of options for the
purchase of shares of the Companys common stock, plus an annual increase to
be added on the first day of the Companys fiscal year beginning equal to the
lesser of (i) 7.50 million shares, (ii) 5% of the outstanding shares on such
date or (iii) a lesser amount determined by the Board. As of December 31, 2002,
there were 20.8 million shares authorized under the plan. Options available for
future grant totaled approximately 4.0 million at December 31, 2002 and 2001.
Under the terms of the plan, options may be granted to employees, non-employee
directors or consultants at prices not less than the fair value at the date of
grant. Options granted to non-employees are recorded at the value of negotiated
services received. Options typically vest ratably on a quarterly basis over
four years.

Information relating to the outstanding stock options is as follows:

|                                 |           |  |                |        |                |   |          |       | 
|-------------------------------- | --------- |  | -------------- | ------ | -------------- | - | -------- | ----- | 
|                                 |           |  |                |        |                |   | WEIGHTED
|                                 |           |  |                |        |                |   | AVERAGE 
|                                 |           |  | SHARES         |        | EXERCISE PRICE
|                                 |           |  |                |        |               
|                                 |           |  | (IN THOUSANDS) |        |                |   |         
|Outstanding at December 31, 1999 |           |  | 2,830          |        |                | $ | 19.87    |      
|                                 | Granted   |  |                | 5,161  |                |   |          | 25.87 | 
|                                 | Exercised |  |                | (720   | )              |   |          | 2.11  | 
|                                 | Cancelled |  |                | (789   | )              |   |          | 36.27 | 
|                                 |           |  |                |        |                |   |          |      
|Outstanding at December 31, 2000 |           |  | 6,482          |        |                |   | 24.66    |      
|                                 | Granted   |  |                | 3,451  |                |   |          | 14.33 | 
|                                 | Exercised |  |                | (1,136 | )              |   |          | 8.18  | 
|                                 | Cancelled |  |                | (1,194 | )              |   |          | 19.44 | 
|                                 |           |  |                |        |                |   |          |      
|Outstanding at December 31, 2001 |           |  | 7,603          |        |                |   | 23.04    |      
|                                 | Granted   |  |                | 3,950  |                |   |          | 26.82 | 
|                                 | Exercised |  |                | (1,683 | )              |   |          | 11.28 | 
|                                 | Cancelled |  |                | (983   | )              |   |          | 27.10 | 
|                                 |           |  |                |        |                |   |          |      
|Outstanding at December 31, 2002 |           |  | 8,887          |        |                | $ | 26.41    |      
|                                 |           |  |                |        |                |   |          |      

The following table summarizes information regarding options outstanding
and exercisable at December 31, 2002 (in thousands except per share data):

|                         |  |                     |       |                     |  |          |      |          |  |          |        |  |  |          |       |  |  |   |        | 
|------------------------ |  | ------------------- | ----- | ------------------- |  | -------- | ---- | -------- |  | -------- | ------ |  |  | -------- | ----- |  |  | - | ------ | 
|                         |  | OPTIONS OUTSTANDING |       | OPTIONS EXERCISABLE
|                         |  |                     |       |                    
|                         |  |                     |       |                     |  | WEIGHTED |      |          |  |          |        |  |  |          |       |  |  |  
|                         |  |                     |       |                     |  | AVERAGE  |      | WEIGHTED |  |          |        |  |  | WEIGHTED
|                         |  | NUMBER              |       | REMAINING           |  | AVERAGE  |      | NUMBER   |  | AVERAGE 
|                         |  | OF                  |       | CONTRACTUAL         |  | EXERCISE |      | OF       |  | EXERCISE
|RANGE OF EXERCISE PRICES |  | SHARES              |       | LIFE                |  | PRICE    |      | SHARES   |  | PRICE   
|                         |  |                     |       |                     |  |          |      |          |  |         
|$0.01 -$11.00            |  |                     | 1,697 |                     |  |          | 7.88 |          |  | $        | 9.00   |  |  |          | 523   |  |  | $ | 5.95   | 
|$11.38-$21.29            |  |                     | 1,605 |                     |  |          | 6.91 |          |  |          | 15.65  |  |  |          | 431   |  |  |   | 14.46  | 
|$21.53-$23.43            |  |                     | 1,716 |                     |  |          | 6.34 |          |  |          | 22.62  |  |  |          | 185   |  |  |   | 23.01  | 
|$23.44-$34.50            |  |                     | 2,087 |                     |  |          | 6.68 |          |  |          | 29.47  |  |  |          | 549   |  |  |   | 32.60  | 
|$34.56-68.31             |  |                     | 1,599 |                     |  |          | 6.54 |          |  |          | 46.48  |  |  |          | 697   |  |  |   | 53.49  | 
|$108.25  $108.25        |  |                     | 183   |                     |  |          | 6.88 |          |  |          | 108.25 |  |  |          | 140   |  |  |   | 108.25 | 
|                         |  |                     |       |                     |  |          |      |          |  |          |        |  |  |          |       |  |  |   |        | 
|                         |  |                     | 8,887 |                     |  |          | 6.86 |          |  | $        | 26.41  |  |  |          | 2,525 |  |  | $ | 36.32  | 
|                         |  |                     |       |                     |  |          |      |          |  |          |        |  |  |          |       |  |  |   |        | 

In April 1999, the Board of Directors also approved the establishment,
upon the closing of the Companys initial public offering, of the 1999 Employee
Stock Purchase Plan (1999 Purchase Plan). The 1999 Purchase Plan initially
reserved 2,000,000 shares of common stock for future issuance, which increases
annually by the lesser of 1,000,000 shares, 3% of the outstanding shares on
such date, or a lesser amount determined by the Board. The 1999 Purchase Plan
provides for successive six month offering periods and allows eligible
employees to participate in the plan through payroll deductions that will be
used to purchase common stock at the end

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##### Table of Contents



of each six month period for the
lesser of 85% of the price of the common stock at the beginning or the end of
the six month offering period. As of December 31, 2002, 506,000 shares were
issued under the plan and 2.9 million shares are available for future grant.



|5. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------

Idealab is considered a related party of Overture because a member of
management of Idealab has a presence on Overtures board.

In January 2000, Overture entered into an arrangement to lease
approximately 58,000 square feet of office space from Idealab, which terminates
on October 31, 2004. In March 2002, Overture entered into an arrangement with
Parfinco EWA, LLC and Idealab whereby Idealab assigned its lease with Parfinco
to Overture for the 58,000 square feet of office space and Overture entered
into an amendment with Parfinco for an additional 29,000 square feet of office
space, which expires at the same time as its existing 58,000
square feet of office space in October 2004. As a result of the assignment
by Idealab to Overture in March 2002, Overture no longer has any obligation to
make lease payments to Idealab. Overture also subleased office space in the
U.K. from Idealab, which ended June 30, 2002. Total payments for the lease for
both the U.S. and U.K. office space to Idealab were $509,000 and $2.1 million
for the year ended December 31, 2002 and 2001, respectively. Management
believes these amounts were materially representative of the fair value of the
lease.

During the year ended December 31, 2002 and 2001, Overture recorded
approximately $1.1 million and $501,000 respectively, of search listing
advertising revenue from companies affiliated with Idealab. Management believes
these amounts are materially representative of the fair value of advertising
services provided. During the year ended December 31, 2002, Overture recorded
approximately $186,000 of traffic acquisition costs to Idealab. Management
believes these amounts are materially representative of fair value.



|6 |  | COMMITMENTS AND CONTINGENCIES
|- |  | -----------------------------

LEASES

The Company leases office space under operating lease agreements expiring
through December 2007. The future minimum lease payments under non-cancelable
operating leases are as follows (in thousands):

|                             |  |           |        | 
|---------------------------- |  | --------- | ------ | 
|                             |  | OPERATING
|                             |  | LEASES   
|                             |  |          
|2003                         |  | $         | 4,386  | 
|2004                         |  |           | 3,663  | 
|2005                         |  |           | 1,279  | 
|2006                         |  |           | 1,262  | 
|2007                         |  |           | 1,073  | 
|Thereafter                   |  |           |       | 
|                             |  |           |        | 
|Total minimum lease payments |  | $         | 11,663 | 
|                             |  |           |        | 

Total rent expense was approximately $3.2 million, $2.0 million and $2.0
million during the years ended December 31, 2002, 2001 and 2000, respectively.

AFFILIATE COMMITMENTS

The Company is obligated to make guaranteed payments totaling
approximately $190.5 million, $199.3 million, $25.0 million and $0.4 million
in 2003, 2004, 2005 and 2006, respectively under contracts to provide search
services to its affiliates.

LITIGATION

The Company is currently in separate litigations with Google and FindWhat
in which the Company is alleging that these parties infringe the Companys U.S.
Patent No. 6,269,361 (the 361 patent) entitled System And Method For
Influencing A Position On A Search Result List Generated By A Computer Network
Search Engine. The 361 patent protects various features and innovations
relating to bid-for-placement products and Overtures Pay-For-Performance
search technologies, including our DirecTraffic Center account management
system and tools. In each litigation, the respective parties, Google and
FindWhat, have alleged invalidity and unenforceability of the 361 patent. When
the validity and enforceability of the 361 patent is determined, in either
litigation, that determination may have a material effect on the Companys
competitive position.

The complaint against FindWhat was filed on January 25, 2002, in the
United States District Court for the Central District of California. The
lawsuit charges FindWhat with willful infringement of the 361 patent. The
Company also seeks a permanent injunction against FindWhat, an award of
increased damages, and an award of attorneys fees, costs and expenses. Also on
January 25,

F-15



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##### Table of Contents



2002, FindWhat served the Company with an amended complaint filed
in the United States District Court for the Southern District of New York for
declaratory judgment of invalidity, unenforceability and non-infringement
relating to the Companys 361 patent. On February 13,
2003, the New York Court
ordered FindWhats declaratory judgment be transferred to the Central District
of California.

The complaint against Google was filed on April 23, 2002 in the United
States District Court for the Northern District of California. The lawsuit
charges Google with willful infringement of the 361 Patent. The Company also
seeks a permanent injunction against Google, an award of increased damages, and
an award of attorneys fees, costs and expenses. On June 7, 2002, Google filed
its answer to the Overture complaint, denying that it infringes the 361 Patent
and alleging counterclaims of non-infringement, invalidity and unenforceability
relating to the 361 Patent. The parties continue to move through the
discovery process. A hearing regarding the interpretation of the claims
contained in the 361 Patent (commonly referred to as a Markman hearing)
currently is scheduled for early August.

The Company is a defendant in five trademark infringement actions (JR
Cigar, Mark Nutritionals, PlasmaNet, Pets Warehouse and Shar Products). The
plaintiffs in these cases allege that they have trademark rights in certain
search terms and that the Company violates these rights by allowing competitors
of the plaintiffs to bid on these search terms. The amount of damages that are
claimed and, if awarded, in one or more of these lawsuits might have a material
effect on the Companys results of operations, cash flow or financial position.
The Company believes that it has meritorious defenses to liability and damages
in each of these lawsuits and it is contesting them vigorously. If the Company
were to incur one or more unfavorable judgments that in themselves are not
material, or if there were a development in the law in a similar case to which
the Company is not a party that was negative to the Companys position, the
Company might as a result decide to change the general manner in which it
accepts bids on certain search terms and this change might have a material
adverse effect upon the results of operations, cash flows or financial position
of the Company.

The following sets forth details regarding other litigation, which may be
material to the Company.

On June 19, 2001, InternetFuel.com, Inc. filed a complaint against
Overture in the Superior Court of the State of California for the County of Los
Angeles. The complaint alleges that Overture wrongfully terminated an agreement
pursuant to which InternetFuel participated in Overtures affiliate program and
that Overture did not properly account for monies owed under that agreement.
The complaint also alleges libel for messages allegedly placed by Overture on
an Internet forum, and it contains claims of unfair business practices. The
complaint seeks, among other remedies, monetary damages for the value of the
terminated agreement and for alleged harm to InternetFuels reputation,
punitive and exemplary relief and an injunction against alleged unfair business
practices. In December 2001, Overture successfully moved the court to transfer
the case to arbitration. InternetFuel.com thereafter supplemented its claims,
alleging fraud under California law.

This matter was arbitrated in late December 2002 and early January 2003.
On January 10, 2003, the arbitrator issued an interim award. Although the
arbitrator found in Overtures favor on InternetFuels claims for fraud and
unfair business practices, the arbitrator found for InternetFuel on the breach
of contract claim and awarded InternetFuel approximately $8.7 million. On
January 16, 2003, InternetFuel filed an application with the arbitrator seeking
approximately $840,000 in pre-judgment interest on the award. On January 28,
2003, Overture filed its opposition to InternetFuels request for pre-judgment
interest. InternetFuel is also seeking to recover certain costs incurred
during the litigation, none of which have been specified to date. Overture
filed its statement of opposition recovery of those costs. Overture disagrees
with the arbitrators breach of contract award and is currently considering all
of its available legal options.

On July 12, 2001, the first of several purported securities class action
lawsuits was filed in the United States District Court, Southern District of
New York against certain underwriters involved in Overtures initial public
offering, Overture, and certain of Overtures current and former officers and
directors. The Court consolidated the cases against Overture into case number
01 Civ. 6339. Plaintiffs allege, among other things, violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934 involving
undisclosed compensation to the underwriters, and improper practices by the
underwriters, and seek unspecified damages. Similar complaints were filed in
the same court against numerous public companies that conducted initial public
offerings of their common stock since the mid-1990s. All of these lawsuits were
consolidated for pretrial purposes before Judge Shira Scheindlin. On April 19,
2002, plaintiffs filed an amended complaint, alleging Rule 10b-5 claims of
fraud. On July 15, 2002, the issuers filed an omnibus motion to dismiss for
failure to comply with applicable pleading standards. On October, 8, 2002, the
Court entered an Order of Dismissal as to all of the individual defendants in
the Overture IPO litigation, without prejudice. On February 19, 2003, the Court
denied the motion to dismiss the Rule 10b-5 claims against Overture. Overture
continues to deny the allegations against it, believes that it has meritorious
defenses to the amended complaint, and intends to contest the allegations
vigorously.

On January 31, 2002, a complaint was filed against the Company as a result
of its acquisition in May 2000 of AuctionRover.com, Inc., and other defendants
in North Carolina Superior Court by an individual, Paul Rony, relating to
alleged trade secrets concerning interaction with Internet auction Web sites.
The causes of action alleged against the Company include misappropriation of
trade secrets, quantum meruit, and constructive trust. Overture believes that
it has meritorious defenses to the allegations and is contesting

F-16



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##### Table of Contents



the
allegations vigorously. The parties are in the early phase of the discovery
process. The parties are in the early phase of the discovery process.

On February 20, 2002, Overture filed a complaint against Did-It.com, Inc.
for trespass, unfair competition and violations of the Computer Fraud and Abuse
Act. In response to Overtures complaint, on June 14, 2002, Did-It filed a
counterclaim against Overture alleging federal and state antitrust violations,
violations of the Unfair Trade Practices Act, fraud and deceit, negligent
misrepresentation, false and misleading advertising, unfair competition,
interference with contract and prospective economic advantage and violations of
California Civil Code Section 1812.600, et.seq. On August 7, 2002, Overture
filed a motion to dismiss various claims contained in Did-Its counterclaim,
including claims for antitrust violations. On August 30, 2002, Did-It filed its
first amended counterclaim, which omitted some of the antitrust causes of
action contained in its initial counterclaim. On October 2, 2002, Overture
filed its answer to Did-Its first amended counterclaim. The parties are
entering the early phase of discovery. Overture believes that it has
meritorious defenses to the allegations and is contesting the allegations
vigorously.

The Company may also be subject to litigation brought against it in the
ordinary course of business.



|7. |  | ACQUISTIONS
|-- |  | -----------

Cadabra

On January 31, 2000, Overture acquired Cadabra, an online comparison
shopping service, which Overture called GoTo Shopping. Overture acquired all
of the outstanding shares of capital stock and assumed all outstanding options
to acquire shares of capital stock of Cadabra. The acquisition was accounted
for as a purchase. The total purchase price of the acquisition was
approximately $263.1 million and consisted of cash of $8.0 million; Overture
common stock of $252.5 million valued at the closing price of Overtures common
stock on the date the exchange ratio was set. Of the purchase price, $7.6
million was assigned to in-process research and development which was expensed
immediately following the consummation of the acquisition, $6.0 million was
assigned to the value of purchased technology and other intangibles to be
amortized on a straight-line basis over three years and $4.4 million was
allocated to the net tangible assets.

On April 30, 2001, Overture closed the GoTo Shopping operations. The
operations of Cadabra had been included in the Companys results of operations
from the date of the acquisition through the closing date. Upon disposition,
the Company recorded a charge for restructuring and exit costs. The net charges
were approximately $1.0 million, which included approximately $201,000 of cash
termination benefits associated with the involuntary termination of 21 GoTo
Shopping employees. The terminations of these positions, primarily in sales and
service, and product development functions, were completed by June 30, 2001.
The charge, also included approximately $59,000 for non-cash termination
benefits, related to the acceleration of options; approximately $256,000 for
fixed asset write-downs; approximately $485,000 for the remaining lease
payments on a facility lease which Overture has not been able to sub-lease; and
other exit costs of approximately $1,000. These costs were included in the Loss
on Closure of GoTo Shopping in the statement of operations. Cash payments were
funded from operations and did not have a significant impact on Overtures
liquidity.

AuctionRover

On May 3, 2000, Overture acquired AuctionRover, an online resource for
auctions, which Overture called GoTo Auctions. Overture acquired all of the
outstanding shares of capital stock and assumed all outstanding options to
acquire shares of capital stock of AuctionRover. The acquisition was accounted
for as a purchase. Based on the price of Overture common stock on the date the
exchange ratio was set, the purchase price was valued at approximately $174.2
million, which consisted of Overture common stock of $173.7 million. Of the
purchase price, $6.7 million was assigned to the value of purchased technology
and other intangible assets and amortized on a straight-line basis over three
years and $600,000 was allocated to the net tangible assets. The excess
purchase price over the estimated fair value of the assets acquired and
liabilities assumed has been allocated to goodwill in the amount of $167.0
million and was scheduled to be amortized on a straight-line basis over three
years.

On June 29, 2001, Overture completed a management buyout of GoTo Auctions,
whereby the operating management of GoTo Auctions purchased GoTo Auctions
assets from Overture. The newly formed company is called ChannelAdvisor
Corporation. Overture received a minority stake in this new corporation and as
of December 31, 2001, Overture retained approximately 8% of ChannelAdvisor.
ChannelAdvisors goal is to provide online and offline businesses with the
ability to leverage online auctions as a channel of distribution. In
connection with the management buyout, Overture incurred net charges for the
disposition of certain assets and exit costs. The net charges were
approximately $2.0 million, which included in the exit costs approximately
$280,000 of cash termination benefits associated with the involuntary
termination of 31 GoTo Auction employees. The terminations of these positions,
primarily in sales and service, and product development functions, were
completed by June 30, 2001. The charge also included approximately $1.6 million
for fixed asset write-downs and approximately $102,000 for other exit costs.
These costs were included in

F-17



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##### Table of Contents



Loss on Disposition of GoTo Auctions in the
statement of operations. Cash payments were funded from operations and did not
have a significantly impact on Overture s liquidity.

During the fourth quarter of 2000 and in accordance with SFAS 121,
management identified certain conditions as indicators of asset impairment
related to the net assets resulting from the acquisitions of Cadabra and
AuctionRover. Accordingly, Overture took a charge to operations during the
fourth quarter of 2000 for approximately $309.3 million, to write down these
assets.

SearchUP

On October 25, 2000, Overture acquired substantially all the assets of
SearchUP, which did not have significant business operations. Pursuant to the
Asset Purchase Agreement, Overture acquired SearchUPs operational Web site,
registered URLs, trademarks and patent on its URL Position Manager. The
acquisition was accounted for as a purchase. The total purchase price was
approximately $3.5 million and was determined by the closing price of
Overtures common stock on the purchase date. Overture allocated the purchase
price to the intangible assets acquired based on their estimated fair values as
determined by Overture.



|8. |  | GEOGRAPHICAL SEGMENT INFORMATION
|-- |  | --------------------------------

The following table sets forth revenues and long-lived assets by
geographic area.

|              |       |         |                              |         |                              |        |            |        |                   |         |       |         |   |        |       |        | 
|------------- | ----- | ------- | ---------------------------- | ------- | ---------------------------- | ------ | ---------- | ------ | ----------------- | ------- | ----- | ------- | - | ------ | ----- | ------ | 
|              |       |         | As of and for the Year Ended |         | As of and for the Year Ended
|              |       |         | December 31, 2002            |         | December 31, 2001           
|              |       |         |                              |         |                             
|              |       |         |                              |         |                              |        | Long-Lived |        |                   |         |       |         |   |        |      
|              |       |         | Revenues                     |         | Assets                       |        | Revenues   |        | Long-Lived Assets
|              |       |         |                              |         |                              |        |            |        |                  
|              |       |         | (IN THOUSANDS)              
|United States | $     | 635,107 |                              |         | $                            | 82,339 |            |        | $                 | 282,575 |       |         | $ | 32,390 |      
|International |       |         | 32,623                       |         |                              |        | 13,857     |        |                   |         | 5,558 |         |   |        | 2,023 |       
|              |       |         |                              |         |                              |        |            |        |                   |         |       |         |   |        |       |       
|              | Total |         | $                            | 667,730 |                              |        | $          | 96,196 |                   |         | $     | 288,133 |   |        | $     | 34,413 | 
|              |       |         |                              |         |                              |        |            |        |                   |         |       |         |   |        |       |       



|9. |  | SUBSEQUENT EVENT (UNAUDITED)
|-- |  | ----------------------------

On February 18, 2003, Overture signed an agreement subject to customary
closing conditions with AltaVista, a provider of search services and
technology, to acquire AltaVistas business for $60.0 million in cash and
approximately $80.0 million in stock.

On February 25, 2003, Overture announced its plan to acquire the Web
search unit of Fast, a developer of search and real-time filtering
technologies, for $70.0 million in cash, plus a potential performance-based
cash incentive payment of up to $30 million over three years.

F-18



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##### Table of Contents



(A)(2) FINANCIAL STATEMENT SCHEDULES

All financial statement schedules required by Item 14(A)(2) have been
omitted because they are inapplicable or because the required information has
been included in item 6 and Notes to the financial statements.



|(B) |  | REPORTS ON FORM 8-K
|--- |  | -------------------

No reports on Form 8-K were filed during the quarter ended December 31, 2002.



|(C) |  | EXHIBITS
|--- |  | --------

The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Commission. The Company shall furnish
copies of exhibits for a reasonable fee (covering the expense of furnishing
copies) upon request.

|        |  |                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                   
|NUMBER  |  |                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                   
|2.1     |  | Asset purchase agreement by and among Overture, AltaVista Company, Aurora I, LLC (a wholly-owned limited
liability company of AltaVista) and CMGI, Inc. dated as of February 18, 2003 (1)         
|2.2     |  | Registration rights agreement between Overture and AltaVista dated as
of February 18, 2003 (1)                                                                                                    
|2.3     |  | Asset purchase agreement by and among Overture, Fast Search and Transfer ASA and U.S. Bank, National
Association dated as of February 25, 2003 (1)                                                
|2.4     |  | Intellectual Property License Agreement by and among Overture, Fast
Search and Transfer ASA and certain other parties, dated as of
February 25, 2003 (1)                                          
|3.1     |  | Amended and Restated Certificate of Incorporation of GoTo.com Inc. (2)                                                                                                                            
|3.2     |  | Certificate of Ownership and Merger Merging Overture Services, Inc.
into GoTo.com, Inc. (2)                                                                                                       
|3.3     |  | Certificate of Designations of Series A Junior Participating
Preferred Stock of Overture Services, Inc. (3)                                                                                       
|3.4     |  | Amended and Restated Bylaws of Overture Services, Inc.                                                                                                                                            
|4.1     |  | Specimen Stock Certificate (4)                                                                                                                                                                    
|10.1    |  | Form of Change of Control Severance Agreement between Overture and each of Ted Meisel, Jaynie Studenmund and
Todd Tappin effective June 30, 2002 (5)                                              
|10.2    |  | Distribution agreement between Overture and Microsoft (GoTo-in-a-Box or Internet Explorer Panel) effective
as of April 15, 2001 and amendments effective as of
July 12, 2001 and June 18, 2002 (6)
|10.3    |  | Distribution agreement between Overture and Microsoft (msn.com) effective as of December 19, 2001 and
amendment effective as of March 17, 2002 (7)                                                
|10.4    |  | Distribution agreement between Overture and Yahoo effective as of
May 1, 2002 (8)                                                                                                                 
|10.5    |  | Amendment No. 2 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
September 1, 2002 (9)                                                                      
|10.6    |  | Amendment No. 3 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
September 1, 2002 (10)                                                                     
|10.7    |  | Amendment No. 3 to the distribution agreement between Overture and Microsoft (GoTo-in-a-Box or Internet
Explorer Panel) effective as of September 1, 2002 (11)                                    
|10.8    |  | First Addendum to the distribution agreement between Overture and
Yahoo effective as of October 1, 2002 (12)                                                                                      
|10.9    |  | Second Addendum to the distribution agreement between Overture and Yahoo effective as of January 13, 2003
(12)                                                                                    
|10.10   |  | Amendment No. 4 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
January 1, 2003 (12)                                                                       
|10.11   |  | Amendment No. 5 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
January 1, 2003 (12)                                                                       
|10.12   |  | Form of Indemnification Agreement between Overture and certain of its officers and each of its directors (13)                                                                                     
|10.13   |  | 1998 Stock Plan and forms of option agreements thereunder (13)                                                                                                                                    
|10.14   |  | 1999 Employee Stock Purchase Plan and form of agreement thereunder (13)                                                                                                                           
|10.15   |  | Series A Preferred Stockholders Rights Agreement by and among GoTo and certain investors (13)                                                                                                    
|10.16   |  | Amended and Restated Series B Preferred Stockholders
Rights Agreement by and among GoTo and certain investors (13)                                                                               
|10.17   |  | Series C Preferred Stockholders Rights Agreement by and among GoTo and certain investors (13)                                                                                                    





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##### Table of Contents



|        |  |                                                                                                                                   
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                   
|NUMBER  |  |                                                                                                                                   
|        |  |                                                                                                                                   
|10.18   |  | Series D Preferred Stockholders Rights Agreement by and among GoTo and certain investors. (13)                                   
|10.19   |  | Form of Restricted Stock Purchase Agreement                                                                                       
|23.1    |  | Consent from Ernst & Young LLP.                                                                                                   
|99.1    |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002



---

|(1)  |  | The registrant agrees to furnish
supplementally to the Commission a copy
of any omitted schedule upon request.                                                                                                                                                                                                                                              
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Previously filed as Exhibit 3.1 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on August 14, 2002 and incorporated
by reference herein.                                                                                                                                                                                    
|    
|(3)  |  | Previously filed as Exhibit 3.3 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on May 15, 2002 and incorporated by
reference herein.                                                                                                                                                                                       
|    
|(4)  |  | Previously filed as Exhibit 4.1 to the Registrants Form 8-K filed with
the Securities and Exchange Commission on March 25, 2002 and incorporated
by reference herein.                                                                                                                                                                                      
|    
|(5)  |  | Previously filed as Exhibit 10.1 to the Registrants Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2002 and
incorporated by reference herein. Confidential treatment granted on
certain portions of this exhibit. An unredacted version of this exhibit
has been filed separately with the Securities and Exchange Commission.  
|    
|(6)  |  | Previously filed as Exhibit 10.2 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on August 14, 2002 and incorporated
by reference herein. Confidential treatment granted on certain portions
of this exhibit. An unredacted version of this exhibit has been filed
separately with the Securities and Exchange Commission.  
|    
|(7)  |  | Previously filed as Exhibit 10.3 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on August 14, 2002 and incorporated
by reference herein. Confidential treatment granted on certain portions
of this exhibit. An unredacted version of this exhibit has been filed
separately with the Securities and Exchange Commission.  
|    
|(8)  |  | Previously filed as Exhibit 10.4 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on August 14, 2002 and incorporated
by reference herein. Confidential treatment granted on certain portions
of this exhibit. An unredacted version of this exhibit has been filed
separately with the Securities and Exchange Commission.  
|    
|(9)  |  | Previously filed as Exhibit 10.1 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on November 12, 2002 and
incorporated by reference herein. Confidential treatment granted on
certain portions of this exhibit. An unredacted version of this exhibit
has been filed separately with the Securities and Exchange Commission.
|    
|(10) |  | Previously filed as Exhibit 10.2 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on November 12, 2002 and
incorporated by reference herein. Confidential treatment granted on
certain portions of this exhibit. An unredacted version of this exhibit
has been filed separately with the Securities and Exchange Commission.
|    
|(11) |  | Previously filed as Exhibit 10.3 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on November 12, 2002 and
incorporated by reference herein. Confidential treatment granted on
certain portions of this exhibit. An unredacted version of this exhibit
has been filed separately with the Securities and Exchange Commission.
|    
|(12) |  | Confidential treatment requested on certain portions of this exhibit. An
unredacted version of this exhibit has been filed separately with the
Securities and Exchange Commission.                                                                                                                                                                          
|    
|(13) |  | Previously filed as an Exhibit to the Registrants Registration
Statement on Form S-1 (Commission File No. 333-76415) and
incorporated by reference herein.                                                                                                                                                                                                 





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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on
February 28, 2003.

| |  |                         |  |                                                  | 
| |  | ----------------------- |  | ------------------------------------------------ | 
| |  | Overture Services, Inc.
| |  |                         |  |                                                 
| |  | By:                     |  | /s/     TED MEISEL                              
| |  |                         |  |                                                 
| |  |                         |  | Ted Meisel
President and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Ted Meisel and
Todd Tappin, each of them acting individually, as his or her attorney-in-fact,
each with full power of substitution, for him or her any and all capacities, to
sign any and all amendments to this Form 10-K, with all exhibits and any and
all documents required to be filed with respect thereto, with the Securities
and Exchange Commission or any regulatory authority, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
order to effectuate the same as fully to all intents and purposes as he or she
might or could do if personally present, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.

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

|                                               |  |                                                                                        |  |                  
|---------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | -----------------
|SIGNATURE                                      |  | TITLE                                                                                  |  | DATE             
|                                               |  |                                                                                        |  |                  
|/s/ TED MEISEL(Ted Meisel)                     |  | President, Chief Executive Officer and Director
(Principal Executive Officer)          |  | February 28, 2003
|                                              
|/s/ JAYNIE STUDENMUND(Jaynie Studenmund)       |  | Chief Operating Officer                                                                |  | February 28, 2003
|                                              
|/s/ TODD TAPPIN(Todd Tappin)                   |  | Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer) |  | February 28, 2003
|                                              
|/s/ ROBERT M. KAVNER(Robert M. Kavner)         |  | Chairman of the Board                                                                  |  | February 28, 2003
|                                              
|/s/ WILLIAM GROSS(William Gross)               |  | Director                                                                               |  | February 28, 2003
|                                              
|/s/ LINDA FAYNE LEVINSON(Linda Fayne Levinson) |  | Director                                                                               |  | February 28, 2003
|                                              
|/s/ WILLIAM ELKUS(William Elkus)               |  | Director                                                                               |  | February 28, 2003
|                                              
|/s/ STEVE ALESIO(Steve Alesio)                 |  | Director                                                                               |  | Feburary 28, 2003
|                                              
|/s/ TERRELL JONES(Terrell Jones)               |  | Director                                                                               |  | February 28, 2003
|                                              
|/s/ BALAKRISHNAN IYER(Balakrishnan Iyer)       |  | Director                                                                               |  | February 28, 2003





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##### Table of Contents






I, Todd Tappin, certify that:



| |  |  | 1. I have reviewed this annual report on Form 10-K of Overture Services, Inc.;                                                                                                                                                                                                                                             
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 2. Based on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;
|
| |  |  | 3. Based on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;                   
|
| |  |  | 4. The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and have:                                                                                                  



| |  |  | (a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90
days prior to the filing date of this annual report (the
Evaluation Date); and                                                                                                  
|
| |  |  | (c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;                                                                                                                        



| |  |  | 5. The registrants other certifying officers and I have disclosed, based on our most
recent evaluation, to the registrants auditors and the audit committee of registrants
board of directors (or persons performing the equivalent function):
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | (a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrants ability to record, process,
summarize and report financial data and have identified
for the registrants auditors any material weaknesses in
internal controls; and
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrants internal controls; and                                                                                                                                        



| |  |  | 6. The registrants other certifying officers and I have indicated in this annual report
whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                     |  |  |  | 
|----------------------- |  | ----------------------------------- |  |  |  | 
|Date: February 28, 2003 |  | /s/ Todd Tappin                    
|                        |  |                                    
|                        |  | Todd Tappin
Chief Financial Officer





---



##### Table of Contents



I, Ted Meisel, certify that:



| |  |  | 1. I have reviewed this annual report on Form 10-K of Overture Services, Inc.;                                                                                                                                                                                                                                             
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 2. Based on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;
|
| |  |  | 3. Based on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;                   
|
| |  |  | 4. The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and have:                                                                                                  



| |  |  | (a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90
days prior to the filing date of this annual report (the
Evaluation Date); and                                                                                                  
|
| |  |  | (c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;                                                                                                                        



| |  |  | 5. The registrants other certifying officers and I have disclosed, based on our most
recent evaluation, to the registrants auditors and the audit committee of registrants
board of directors (or persons performing the equivalent function):
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | (a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrants ability to record, process,
summarize and report financial data and have identified
for the registrants auditors any material weaknesses in
internal controls; and
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrants internal controls; and                                                                                                                                        



| |  |  | 6. The registrants other certifying officers and I have indicated in this annual report
whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                    |  |  |  | 
|----------------------- |  | ---------------------------------- |  |  |  | 
|Date: February 28, 2003 |  | /s/ Ted Meisel                    
|                        |  |                                   
|                        |  | Ted Meisel
Chief Executive Officer





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##### Table of Contents



EXHIBIT INDEX

|        |  |                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                   
|NUMBER  |  |                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                   
|2.1     |  | Asset purchase agreement by and among Overture, AltaVista Company, Aurora I, LLC (a wholly-owned limited
liability company of AltaVista) and CMGI, Inc. dated as of February 18, 2003 (1)         
|2.2     |  | Registration rights agreement between Overture and AltaVista dated as
of February 18, 2003 (1)                                                                                                    
|2.3     |  | Asset purchase agreement by and among Overture, Fast Search and Transfer ASA and U.S. Bank, National
Association dated as of February 25, 2003 (1)                                                
|2.4     |  | Intellectual Property License Agreement by and among Overture, Fast
Search and Transfer ASA and certain other parties, dated as of
February 25, 2003(1)                                           
|3.1     |  | Amended and Restated Certificate of Incorporation of GoTo.com Inc. (2)                                                                                                                            
|3.2     |  | Certificate of Ownership and Merger Merging Overture Services, Inc.
into GoTo.com, Inc. (2)                                                                                                       
|3.3     |  | Certificate of Designations of Series A Junior Participating
Preferred Stock of Overture Services, Inc. (3)                                                                                       
|3.4     |  | Amended and Restated Bylaws of Overture Services, Inc.                                                                                                                                            
|4.1     |  | Specimen Stock Certificate (4)                                                                                                                                                                    
|10.1    |  | Form of Change of Control Severance Agreement between Overture and each of Ted Meisel, Jaynie Studenmund and
Todd Tappin effective June 30, 2002 (5)                                              
|10.2    |  | Distribution agreement between Overture and Microsoft (GoTo-in-a-Box or Internet Explorer Panel) effective
as of April 15, 2001 and amendments effective as of
July 12, 2001 and June 18, 2002 (6)
|10.3    |  | Distribution agreement between Overture and Microsoft (msn.com) effective as of December 19, 2001 and
amendment effective as of March 17, 2002 (7)                                                
|10.4    |  | Distribution agreement between Overture and Yahoo effective as of
May 1, 2002 (8)                                                                                                                 
|10.5    |  | Amendment No. 2 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
September 1, 2002 (9)                                                                      
|10.6    |  | Amendment No. 3 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
September 1, 2002 (10)                                                                     
|10.7    |  | Amendment No. 3 to the distribution agreement between Overture and Microsoft (GoTo-in-a-Box or Internet
Explorer Panel) effective as of September 1, 2002 (11)                                    
|10.8    |  | First Addendum to the distribution agreement between Overture and
Yahoo effective as of October 1, 2002 (12)                                                                                      
|10.9    |  | Second Addendum to the distribution agreement between Overture and Yahoo effective as of January 13, 2003
(12)                                                                                    
|10.10   |  | Amendment No. 4 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
January 1, 2003 (12)                                                                       
|10.11   |  | Amendment No. 5 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
January 1, 2003 (12)                                                                       
|10.12   |  | Form of Indemnification Agreement between Overture and certain of its officers and each of its directors (13)                                                                                     
|10.13   |  | 1998 Stock Plan and forms of option agreements thereunder (13)                                                                                                                                    
|10.14   |  | 1999 Employee Stock Purchase Plan and form of agreement thereunder (13)                                                                                                                           
|10.15   |  | Series A Preferred Stockholders Rights Agreement by and among GoTo and certain investors (13)                                                                                                    
|10.16   |  | Amended and Restated Series B Preferred Stockholders
Rights Agreement by and among GoTo and certain investors (13)                                                                               
|10.17   |  | Series C Preferred Stockholders Rights Agreement by and among GoTo and certain investors (13)                                                                                                    





---



##### Table of Contents



|        |  |                                                                                                                                   
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                   
|NUMBER  |  |                                                                                                                                   
|        |  |                                                                                                                                   
|10.18   |  | Series D Preferred Stockholders Rights Agreement by and among GoTo and certain investors. (13)                                   
|10.19   |  | Form of Restricted Stock Purchase Agreement                                                                                       
|23.1    |  | Consent from Ernst & Young LLP.                                                                                                   
|99.1    |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002



---

|(1)  |  | The registrant agrees to furnish
supplementally to the Commission a copy
of any omitted schedule upon request.                                                                                                                                                                                                                                              
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Previously filed as Exhibit 3.1 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on August 14, 2002 and incorporated
by reference herein.                                                                                                                                                                                    
|    
|(3)  |  | Previously filed as Exhibit 3.3 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on May 15, 2002 and incorporated by
reference herein.                                                                                                                                                                                       
|    
|(4)  |  | Previously filed as Exhibit 4.1 to the Registrants Form 8-K filed with
the Securities and Exchange Commission on March 25, 2002 and incorporated
by reference herein.                                                                                                                                                                                      
|    
|(5)  |  | Previously filed as Exhibit 10.1 to the Registrants Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2002 and
incorporated by reference herein. Confidential treatment granted on
certain portions of this exhibit. An unredacted version of this exhibit
has been filed separately with the Securities and Exchange Commission.  
|    
|(6)  |  | Previously filed as Exhibit 10.2 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on August 14, 2002 and incorporated
by reference herein. Confidential treatment granted on certain portions
of this exhibit. An unredacted version of this exhibit has been filed
separately with the Securities and Exchange Commission.  
|    
|(7)  |  | Previously filed as Exhibit 10.3 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on August 14, 2002 and incorporated
by reference herein. Confidential treatment granted on certain portions
of this exhibit. An unredacted version of this exhibit has been filed
separately with the Securities and Exchange Commission.  
|    
|(8)  |  | Previously filed as Exhibit 10.4 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on August 14, 2002 and incorporated
by reference herein. Confidential treatment granted on certain portions
of this exhibit. An unredacted version of this exhibit has been filed
separately with the Securities and Exchange Commission.  
|    
|(9)  |  | Previously filed as Exhibit 10.1 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on November 12, 2002 and
incorporated by reference herein. Confidential treatment granted on
certain portions of this exhibit. An unredacted version of this exhibit
has been filed separately with the Securities and Exchange Commission.
|    
|(10) |  | Previously filed as Exhibit 10.2 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on November 12, 2002 and
incorporated by reference herein. Confidential treatment granted on
certain portions of this exhibit. An unredacted version of this exhibit
has been filed separately with the Securities and Exchange Commission.
|    
|(11) |  | Previously filed as Exhibit 10.3 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on November 12, 2002 and
incorporated by reference herein. Confidential treatment granted on
certain portions of this exhibit. An unredacted version of this exhibit
has been filed separately with the Securities and Exchange Commission.
|    
|(12) |  | Confidential treatment requested on certain portions of this exhibit. An
unredacted version of this exhibit has been filed separately with the
Securities and Exchange Commission.                                                                                                                                                                          
|    
|(13) |  | Previously filed as an Exhibit to the Registrants Registration
Statement on Form S-1 (Commission File No. 333-76415) and
incorporated by reference herein.