<PAGE>   1
                                  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, 2000

                                       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

                                 GoTo.com, Inc.
             (Exact name of registrant as specified in its charter)

                      DELAWARE                         95-4652060
          (State or Other Jurisdiction of           (I.R.S. Employer
           Incorporation or Organization)          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


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. [ ]

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 January 31, 2001, was
approximately $ 290.9 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), holders of greater than 5% and all shares
that have been reported on Schedule 13D, filed March 6, 2000 to be beneficially
owned by Bill Gross' idealab! or members of the group filing such Schedule 13D.
The number of outstanding shares of the registrant's common stock as of the
close of business on January 31, 2001 was 52,582,125.

                       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 2001 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
not later than 120 days after December 31, 2000.



<PAGE>   2

                                 GOTO.COM, INC.

                    FISCAL YEAR 2000 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS




<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
<S>                <C>                                                                                         <C>
PART I

   ITEM 1.          BUSINESS....................................................................................  3

   ITEM 2.          PROPERTIES.................................................................................. 12

   ITEM 3.          LEGAL PROCEEDINGS........................................................................... 12

   ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................... 12

PART II

   ITEM 5.          MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                    MATTERS..................................................................................... 13

   ITEM 6.          SELECTED FINANCIAL DATA..................................................................... 14

   ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF
                    OPERATIONS.................................................................................. 16

   ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................. 32

   ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................. 32

   ITEM 9.          CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING  AND FINANCIAL
                    DISCLOSURE.................................................................................. 32

PART III

   ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................... 32

   ITEM 11.         EXECUTIVE COMPENSATION...................................................................... 32

   ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................. 33

   ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................. 33

PART IV

   ITEM 14.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................. 33

                    SIGNATURES..................................................................................
</TABLE>

                            Forward Looking Statement


        In addition to historical information, this Form 10-K contains
forward-looking statements. These forward-looking statements are subject to
certain risks and uncertainties 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. The Company undertakes no
obligation to revise or publicly release the results of any revision to these
forward-looking statements.


                                       2


<PAGE>   3

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

        GoTo.com, Inc. (the Company or GoTo) operates an online marketplace that
introduces consumers and businesses that search the Internet to advertisers who
provide products, services and information. Advertisers participating in our
marketplace include retail merchants, wholesale and service businesses and
manufacturers. GoTo facilitates these introductions through our search service,
which enables advertisers to bid in an ongoing auction for priority placement in
our search results. Priority placement means that the search results appear on
the page ranked in descending order of bid price, with the highest bidder's
listing appearing first. Each advertiser pays GoTo the amount of its bid
whenever a consumer clicks on the advertiser's listing in our search results.
Advertisers pay GoTo for each click-through, so advertisers bid only on keywords
relevant to the products, services or information that they offer. Because each
advertiser chooses the bid amount and advertisement placement that is optimal
for its business, we believe the GoTo marketplace provides advertisers with a
cost-effective way to target consumers. Consumers access the GoTo search service
primarily through our affiliates, a network of Web sites that have integrated
GoTo's search service into their sites or that direct consumer traffic to our
site. Consumers can also access GoTo's search service directly through GoTo's
Web site.

        GoTo also operates an online comparison shopping service called "GoTo
(TM) Shopping" which provides consumers the ability to locate their desired
products by automating product comparison across multiple attributes. Currently,
GoTo intends to exit the comparison shopping business, and we are evaluating
strategic alternatives.

        GoTo also operates an online resource for merchants to place and manage
their products with other auction sites or services, called "GoTo (TM)
Auctions." Currently, GoTo is evaluating strategic alternatives for GoTo(TM)
Auctions, including an equity partner or the possibility of a sale of this
portion of our business.

        The Company operates in one reportable business segment.

        Our revenue is determined primarily by the number of paid introductions,
that is the result of the number of times consumers click on advertisers' search
listing advertisements, multiplied by the bid price for those listings. The
number of paid introductions for each of the last ten fiscal quarters is as
follows:


<TABLE>
<CAPTION>
                 NUMBER OF PAID INTRODUCTIONS           FOR THE QUARTER ENDED
                 ----------------------------           ---------------------
<S>                                                     <C>
                 228 million .......................    December 31, 2000
                 114 million .......................    September 30, 2000
                 93 million ........................    June 30, 2000
                 88 million ........................    March 31, 2000
                 73 million ........................    December 31, 1999
                 54 million ........................    September 30, 1999
                 31 million ........................    June 30, 1999
                 15 million ........................    March 31, 1999
                  7 million ........................    December 31, 1998
                  2 million ........................    September 30, 1998
</TABLE>

        The average price per paid introduction results from advertisers' online
bidding for priority placement in the search results. The average price per paid
introduction for each of the last ten fiscal quarters is as follows:


<TABLE>
<CAPTION>
                AVERAGE PRICE PER PAID INTRODUCTION     FOR THE QUARTER ENDED
                -----------------------------------     ---------------------
<S>                                                     <C>
                $0.17 .............................     December 31, 2000
                 0.21 .............................     September 30, 2000
                 0.21 .............................     June 30, 2000
                 0.19 .............................     March 31, 2000
                 0.17 .............................     December 31, 1999
                 0.14 .............................     September 30, 1999
                 0.11 .............................     June 30, 1999
                 0.08 .............................     March 31, 1999
                 0.05 .............................     December 31, 1998
                $0.03 .............................     September 30, 1998
</TABLE>



                                       3
<PAGE>   4

        We believe the quarterly number of paid introductions and average
price per paid introduction listed above are not necessarily indicative of
future results and that the periods prior to the three-month period ended
September 30, 1998 are not relevant because our service was only in its initial
stage. It is difficult to forecast the future levels of the average price per
paid introduction, as advertisers, rather than GoTo, determine the price paid.
We do not anticipate our historical revenue growth rate to continue. Our revenue
growth rate and results depend on our ability to continue to increase the number
of advertisers who use our service, the amount our advertisers spend on our
service and the number of consumers who use our service. We anticipate these
variables to fluctuate, affecting our growth rate and results.

        GoTo was incorporated in September 1997 and has a limited operating
history. We launched a proof-of-concept version of our search service in the
fiscal year ended December 31, 1997. Our pay-for-performance service was
announced in February 1998, and following further proof-of-concept testing, was
officially launched on June 1, 1998. In October 2000, GoTo announced its intent
to change its corporate name and expects to make such a change within 2001.

        GoTo has devoted significant resources to launching its search service,
including developing an infrastructure and building a management team. GoTo's
losses for the years ended December 31, 2000, 1999 and 1998 were approximately
$458.6 million, $29.3 million and $14.0 million, respectively. Those losses
include non cash amortization of goodwill and intangible assets in 2000
associated with our acquisitions of Cadabra, Inc., AuctionRover.com, Inc. and
the acquisition of the assets of SearchUP, Inc. of approximately $76.7 million,
$38.6 million and $267,000, respectively, and the impairment write down of
goodwill in 2000 for Cadabra and AuctionRover of approximately $174.3 million
and $135.0 million, respectively.

        On January 31, 2000, GoTo acquired Cadabra, an online comparison
shopping service that we now call GoTo(TM) Shopping. Pursuant to the Agreement
and Plan of Reorganization, GoTo acquired all of the outstanding shares of
capital stock and assumed all outstanding options to acquire shares of capital
stock of Cadabra, for $8.0 million in cash and 3,283,672 shares of GoTo common
stock.

        On May 3, 2000, GoTo acquired AuctionRover, an online resource for
auctions. Pursuant to the Agreement and Plan of Reorganization, GoTo acquired
all the outstanding shares of capital stock and assumed all outstanding options
to acquire shares of capital stock of AuctionRover for 3,470,588 shares of GoTo
common stock. On December 18, 2000, AuctionRover was subsequently merged into a
limited liability company that is wholly owned by GoTo.

        On October 25, 2000, GoTo acquired substantially all the assets of
SearchUP, which did not have significant business operations. Pursuant to the
Asset Purchase Agreement, GoTo acquired SearchUP's operational Web site,
registered URLs, trademarks and patent on its URL Position Manager for 261,255
shares of GoTo common stock.

        During the year, GoTo entered into significant affiliate agreements with
America Online, Inc., Terra Lycos, S.A. and AltaVista Company.

        In August 2000, GoTo and AOL entered into a 19-month distribution
agreement under which AOL displays GoTo's listings on the search results page of
AOL, AOL.com and Netscape's Netcenter. The agreement calls for a guaranteed
payment by GoTo of $50 million over the term of the agreement.

        In November 2000, GoTo and Terra Lycos entered into a three-year
distribution agreement under which a certain number of GoTo's listings have been
added to Lycos.com and HotBot search results.

        In November 2000, GoTo and AltaVista entered into an 18-month
distribution agreement under which GoTo will provide AltaVista's search service
users with a certain number of GoTo's listings on select search results pages of
AltaVista.

INDUSTRY OVERVIEW

        EVOLUTION OF INITIAL SEARCH SERVICES

        Search services enable consumers (including business users) to search
the Internet for a listing of Web sites based on a specific product, service or
topic of interest. After e-mail, consumers use search services more than any
other Internet application. Initially, these search services offered consumers
the ability to efficiently locate desired information on Web sites. However, the
companies



                                       4
<PAGE>   5


who provide search services realized that increasing the number, frequency and
duration of consumer visits to their sites, rather than sending consumers to
other Web sites, yielded greater potential advertising and electronic commerce
opportunities. Accordingly, these companies evolved into portals, or online
media companies that, in addition to search services, deliver a broad array of
content and other services designed to keep consumers at their sites.

        CONSUMERS' UNMET SEARCH NEEDS

        We believe that consumers are not well served by current search
offerings. Consumers want to quickly and easily locate relevant products,
services and information. This desire is in conflict with the economic incentive
of most search services, which require consumers to click-through multiple
branches of a hierarchical directory before locating the relevant products,
services and information. This process benefits the search services that are now
portals because they can earn additional revenue by exposing consumers to
multiple pages of advertisements through a prolonged search process.

        In addition, most portals assign search results to keywords in a way
that often generates irrelevant search listings. Search services that rely upon
automated search technology to catalog search results generally rely on
invisible Web site descriptions or "meta tags" that are authored by Web site
operators. Operators may freely tag their sites as they choose. Consequently,
some operators tag their sites with popular search terms not relevant to their
site because by doing so they may attract additional consumer attention at
little or no marginal cost. In addition, many Web sites have similar tags, and
automated search technology is not equipped to prioritize results in accordance
with consumers' preferences. As a result of this conflict and the growth in the
number of Web sites on the Internet, consumer searches now frequently generate
hundreds and often even thousands of results, many of which may have little
relevance to consumers' interests.

        LIMITATIONS OF TRADITIONAL INTERNET ADVERTISING

        Historically, traditional online advertising has failed to exploit many
of the unique attributes of the Internet. To date, Internet advertising has
primarily taken the form of banner or sponsorship advertisements which, like
traditional media advertising, are typically priced by advertisers, paying for
exposures to potential consumers. This approach, which is called
impression-based advertising, inefficiently exploits the Internet's direct
marketing potential, resulting in what we believe are low consumer click-through
rates averaging less than approximately 1%. Advertisers, therefore are paying
for exposure to many viewers who are not interested in the product or service
advertised. In addition, on the portals, where historically most advertising was
placed, advertising frequently is sold on an exclusive basis, limiting the
advertising opportunities for advertisers and limiting the number of advertisers
who can participate.

        We believe advertiser's are considering alternatives to banner
advertising as industry trends, as reported by Forrester Research, show a
decreased emphasis on broad based banner advertising on portals. Instead, we
believe that advertisers will focus on more targeted marketing opportunities as
they recognize they can offer a level of targetability, interactivity and
measurability not generally available in other media. With the proper tools,
Internet advertisers have the ability to target their messages to specific
groups of consumers and receive prompt feedback as to the effectiveness of their
advertising campaigns. Accordingly, the Internet can give advertisers the
opportunity to develop one-to-one relationships with consumers worldwide without
a local market presence.

        OUTSOURCED INTERNET SERVICES

        Like the portals, other Web sites seek to attract and retain consumer
attention and maximize the revenue opportunity represented by that attention;
however, all but the largest Web sites are limited in their ability to do so. We
believe that although Web sites other than AOL, msn.com and Yahoo currently
represent a majority of all page views on the Web, Internet advertising is
concentrated on the portals.

        In an effort to more effectively capitalize on their consumer audiences
and provide more valuable advertising vehicles, many Web sites are now
outsourcing popular consumer services and content offerings. In traditional
media such as television, radio and print, syndicated content has been widely
used by local media in order to augment their core programming and, in so doing,
extend their audience reach and retention. On the Internet, providers have
emerged offering Web sites syndicated services such as search, e-mail and
mapping as well as content such as stock quotes and news wires. Web sites use
these offerings to enhance consumer usage, loyalty and retention. In order to
address issues of sales force scale for Web site and target ability for
advertisers, some companies, that develop syndicated content also sell the
advertising that goes with it.


                                       5
<PAGE>   6

        THE NEED FOR AN ONLINE CONSUMER AND ADVERTISER MARKETPLACE

        Search on portals increasingly generates multiple pages of irrelevant
results for consumers. At the same time, advertisers find it increasingly
difficult to cost-effectively acquire qualified consumer leads on the Internet
for many reasons, including the diffusion of consumer attention across the
Internet, the concentration of online advertising on large Web sites, the
pricing of Internet advertisements on an impression basis with significant
minimum expenditure requirements, and the frequent use of exclusive
arrangements. This is particularly true for advertisers seeking to reach
targeted markets, despite the unique abilities of the Internet to facilitate
direct marketing. As a result, consumers' needs and advertisers' desires to meet
those needs often go unmatched. GoTo believes there is a significant need for a
sophisticated, distributed online marketplace to serve both of these
constituencies by providing a targeted, cost-effective Internet advertising
solution.

THE GOTO SOLUTION

        We believe the GoTo marketplace offers consumers quick, easy and
relevant search results for products, services and information, while providing
advertisers with a cost-effective way to target them. We also believe our
marketplace offers the same benefits to businesses searching for products,
services and information on the Internet. Key elements of GoTo's solution
include the following:

        WE POWER RESULTS. GoTo is dedicated to assisting consumers in easily
finding what they are looking for on the Internet. Since advertisers must pay
for each click-through, or paid introduction, to their Web site, advertisers
select and bid only on those search keywords that are most relevant to their
offerings. These choices of keywords and bids are consistent with their economic
incentive to secure high conversion rates, that is, to convert traffic into
sales. That same incentive encourages advertisers to write descriptions of their
products, services and information services that describe their offerings as
accurate as possible. GoTo believes that its pay-for-performance advertising
model efficiently aligns advertiser and consumer interests, and improves a
consumer's ability to quickly and easily find relevant search listings for
products, services and information on the GoTo service. Consequently, we believe
GoTo can provide more relevant and higher quality search results by requiring
advertisers to assign a cost to their placement decisions.

        In addition, GoTo believes it ensures relevant search results by
reviewing and editing advertisers' site descriptions and requiring that
advertisers appear only on search results pages that relate to their site.
Furthermore, by foregoing exclusive advertising relationships and extraneous
content, GoTo removes significant barriers and enables consumers to locate
relevant information and pass quickly through GoTo to the desired information
source.

        For those searches conducted at GoTo's Web site or transferred from an
affiliate to GoTo's Web site, GoTo's search results page contains an easily
navigable directory to facilitate consumer search. By generating a list of up to
40 results per page, GoTo frequently allows consumers to locate a relevant
destination site on the first page of results.

        TARGETED PAY-FOR-PERFORMANCE ADVERTISING. Any advertiser in the GoTo
marketplace is able to specifically target those consumers who are interested in
the products, services or information offered by the advertiser. We believe GoTo
enables highly efficient and cost-effective advertising expenditures. An
advertiser pays only for consumers who elect to visit its Web site after
searching targeted keywords on which the advertiser has bid. As a result,
advertisers pay only for self-qualified leads rather than exposures to potential
consumers, as with impression-based advertising.

        Advertisers maintain control on a real-time basis over the amounts of
their bids for keywords they have selected and the aggregate amount spent on
advertising with GoTo. As a result, advertisers are able to precisely control
their costs of customer acquisition using the GoTo service. In addition, GoTo
does not enter into exclusive advertising arrangements, thereby enabling access
to the marketplace by all potential advertisers.

        OUR AFFILIATE NETWORK. By offering our search service to other Web
sites, we have created a network of Web sites, which we call "affiliates," that
have integrated the GoTo search service into their sites or that direct consumer
traffic to the GoTo Web site. Of GoTo's total traffic for the quarter ended
December 31, 2000, approximately 95% came from affiliates as follows:
approximately 20% from portals, such as AOL, Terra Lycos and AltaVista;
approximately 15% from Internet browsers, such as Microsoft Internet Explorer
and Netscape; and approximately 60% from other affiliates. In the contracts
between GoTo and the portals, our premium listings are offered in their search
results. The contracts between GoTo and the Internet browsers provide that the
GoTo search service is offered on the browser's search page or as part of the
browser's search functionality. Affiliates can also provide Internet search
capabilities by having a GoTo search box on their sites, which either transfers
their users to the GoTo Web site or generates GoTo search results while
maintaining the look, feel and navigation features specific to the affiliates'
sites. This enables affiliates to enhance their users' experience with search
functionality and to generate additional revenue from the consumer audiences
visiting their sites



                                       6
<PAGE>   7

through the sale of advertising on search pages. The economics of these
agreements vary from affiliate to affiliate. Because GoTo focuses on deriving
its revenue primarily from search results rather than banner advertising, GoTo
can provide these benefits without charging licensing or set-up fees and without
competition for consumer attention for non-search content. GoTo's agreements
with its affiliates vary in duration and terms, including some that are
terminable at any time by either party. Through our network, we are building
relationships with affiliates that are intended to increase the number of
click-throughs delivered to advertisers, which would increase the value of the
GoTo advertising proposition. According to Media Metrix, GoTo had over 56
million unique users in December 2000 through its own site and affiliate
network.

GOTO STRATEGY

        GoTo's objective is to expand participation and increase transactions in
its online marketplace. We believe that a critical mass of advertisers,
consumers and affiliates supports a self-reinforcing cycle that stimulates
growth in the number of marketplace participants, which in turn can increase the
efficiency of the GoTo service. We further believe that this efficiency will
increase the competition for prominent search result placement on our search
service and may, thereby, increase the amounts advertisers are willing to bid
for participation in the GoTo marketplace. We believe that advertisers are
attracted to GoTo as a result of the large number of opportunities to reach
interested consumers, and that consumers find GoTo useful due to the breadth of
relevant advertiser links displayed on the GoTo service. A large and active base
of paying advertisers increases GoTo's ability to generate comprehensive,
relevant search results and to monetize consumer search requests. The resulting
service quality and revenue opportunity provides the incentive for GoTo's
affiliates to feature GoTo search results on the GoTo Web site or to direct
traffic to GoTo's Web site. Key elements of GoTo's strategy are:

        INCREASE ADVERTISER SPEND. In the month of December 2000, the GoTo
marketplace had over 37,000 paying advertisers. GoTo intends to increase the
revenue from advertisers through a sales force that directly targets advertising
agencies and larger advertisers as well as through the use of its online
automated sign up which accommodates all sizes of businesses. To build further
advertiser participation, GoTo will continue to leverage its reputation for
pay-for-performance, direct response marketing among advertisers and their
intermediaries, such as advertising consultants and media buyers. GoTo reaches
these constituencies through multiple marketing channels, including targeted
online marketing, mailings, sponsorship of Web sites where advertisers
congregate, participation at trade shows, appearances in advertising industry
periodicals and agreements with companies who refer advertisers to us. We
believe that the GoTo marketplace is scalable and can support a broader and
deeper array of advertisers than traditional online advertising solutions.
Accordingly, GoTo intends to capture a significant share of the advertising from
the growing number of new online businesses.

        EXPAND CONSUMER BASE WITH OUR AFFILIATE NETWORK. The GoTo marketplace
had approximately 228 million paid introductions in the fourth quarter of 2000.
GoTo believes it can increase the number of consumers participating in the GoTo
marketplace by distributing the GoTo search service on other Web sites not
currently in our affiliate network.

        USE TECHNOLOGY TO EFFECTIVELY SCALE OUR CUSTOMER SUPPORT. The services
GoTo currently provides to advertisers include online account creation and
keyword bidding, as well as a proprietary account maintenance product that
allows advertisers to log in to a secure Web site where they can perform account
management functions, such as adding funds to their accounts, viewing
performance reports and changing their bids in real time. GoTo intends to
utilize its technology to grow an efficient and scalable operations
infrastructure enabling millions of billing events for hundreds of thousands of
advertisers at a high quality service level and at a relatively low internal
cost. In addition, GoTo plans to continue to enhance the services it provides to
advertisers. GoTo intends to increasingly automate the sale of advertising,
enabling advertisers to have greater control over, and satisfaction with,
advertising on the GoTo marketplace. GoTo is able to reduce its cost of revenue
and customer service costs because a majority of advertisers open and maintain
their accounts with GoTo through an automated interface.

        DERIVE STRATEGIC ADVANTAGE FROM EFFICIENT COST STRUCTURE. GoTo believes
that its business model provides a number of competitive advantages. The
advertisers participating in the GoTo marketplace can provide their own Web site
descriptions and, through competitive bidding, with bid amounts visible to all
participants, rank and set the prices paid for their position in the search
results and, consequently, the amounts they pay GoTo for each click on their
search result. This reduces the costs GoTo must pay to perform these tasks. In
addition, our business model does not require us to carry any physical
inventory. GoTo is therefore able to direct the capital that would otherwise be
used for these purposes towards growing our business, enhancing our services and
pursuing other strategic opportunities.


                                       7
<PAGE>   8

        EXPAND THE GOTO SERVICE INTO INTERNATIONAL MARKETS. GoTo believes that
international consumers also desire quick, easy and relevant search results for
products, services and information and that international advertisers can
benefit from a cost-effective, targeted way to reach consumers using GoTo's
pay-for-performance model. GoTo also believes that its automated advertiser
sign-up technology, distributed affiliate network model and efficient cost
structure will enable it to replicate its U.S.-based marketplace in other
countries. As a result, we launched the GoTo service in the United Kingdom in
November 2000.

THE GOTO SERVICE

        SEARCH TOOL

        Consumers use the GoTo search service to locate desired providers of
products, services and information, and can access the GoTo search service from
either the tens of thousands of Web sites that are affiliates or from GoTo's
home page. After entering a targeted keyword search, or performing a directory
search from an affiliate's Web site or from the GoTo home page, consumers are
presented with GoTo search results. For consumers whose search results are
presented at the GoTo Web site, the GoTo search results page also contains an
easily navigable directory to facilitate consumer search. Consumers then access
the desired Web site by clicking on the hypertext links included in the search
results. To further assist consumers in locating desired Web sites, GoTo search
results pages include suggested related searches.

        BIDDING FOR PRIORITY PLACEMENT OF SEARCH RESULTS

        GoTo search results for the search service are prioritized for consumers
based on advertiser bids for placement of their search listings within the
search results. Paying advertisers are listed in descending bid order, with the
highest bidder appearing as the first search result. Bids are expressed as the
amount advertisers pay GoTo for each paid introduction. Based on GoTo search
data, a disproportionate number of GoTo consumers click on the first, second or
third Web sites listed. Following paid priority results of the search service;
GoTo offers a listing of Web sites generated by traditional search technology
currently provided through an agreement with Inktomi Corporation. GoTo's
proprietary database currently includes 7 million search listings.

        Advertiser bid amounts are displayed next to each search result. By
disclosing bids to both consumers and other advertisers, GoTo promotes an open
and efficient marketplace. Using the open bidding information, advertisers are
able to determine the bids necessary to achieve their desired ranking, which
enables competition among advertisers and promotes greater relevancy for
consumers.

        ADVERTISING ON GOTO

        GoTo offers a self-service, online form where advertisers can sign up
and bid for search listings. Potential advertisers find the GoTo Web site
directly or through custom offer pages on our affiliates' sites. On the welcome
page of the sign up form, potential advertisers are able to access a frequently
asked questions page that contains information about GoTo's guidelines for
crafting relevant search results, instructions for opening a new account and
account maintenance information.

        As part of the sign up process, advertisers enter basic contact
information and select a unique user ID and password for accessing and
maintaining account information online using GoTo's proprietary account
maintenance product. Each advertiser also enters keywords on which it wishes to
bid, the bid amounts and information about the advertiser's Web site including a
title customized for the applicable keyword, a description of its Web site
offerings and information necessary for hypertext linking. Advertisers are only
required to provide a textual description of their offerings, as opposed to
labor-intensive graphics and other multimedia content, which enlarges the number
of potential participants.

        During the sign up process, advertisers also enter payment information.
Advertisers must currently commit to a minimum initial payment of $25 or $50. An
advertiser may choose to pay by check or credit card. After entering payment
information, advertisers are presented with the terms and conditions of
advertising on the GoTo service, which must be accepted before an order is
processed. After the advertiser accepts these terms, a confirmation screen
appears with a tracking number for the advertiser's convenience. If an
advertiser contacts GoTo's customer service, the tracking number enables us to
quickly find the advertiser's enrollment application. Once the sign up process
has been completed, the advertiser receives a confirmation by e-mail that GoTo
received the sign up form.

        By automating the sale and maintenance of advertising accounts, GoTo
enables advertisers to have greater control over, and satisfaction with, the
advertising process, while simultaneously reducing GoTo's cost of revenue. GoTo
also employs a sales and support team to attract large accounts, to review
advertising for relevancy and to assist advertisers in cases where more personal
attention is required.



                                       8
<PAGE>   9

        GoTo offers advertisers a variety of payment plans to ensure that
advertisers maintain sufficient funds in their GoTo account and remain active on
the service. Advertisers on the GoTo service pay for advertising in advance, or
for qualified accounts, may elect to be invoiced. GoTo notifies advertisers
using its service by e-mail when account balances are running low so that they
can add to their account balances. As an alternative, advertisers that prepay
GoTo may authorize GoTo to charge them on a monthly basis to refresh their
account or to charge them an additional fixed amount each time their account
approaches a zero balance.

        To promote fairness and efficiency, GoTo has adopted marketplace rules
and policies. For example, advertisers are not permitted to bid on search
results unrelated to their Web site offerings. Each advertiser's compliance with
these rules and policies is enforced in part by other advertisers participating
in the service. The GoTo service also uses proprietary click-through analysis
systems that are designed to exclude from an advertiser's charges click-throughs
that are unlikely to be genuine leads.

MARKETING, SALES AND SERVICE

Consumers

        GoTo attracts consumers through its affiliate network and its home page.
The affiliate network consists of other Web sites that display GoTo search
listings by incorporating our search results on their Web site, providing a link
that transfers a user to the GoTo home page or search results page, or
incorporating some of our search results on their site (such as the top 3 to 5
search results, which we call Premium Listings). GoTo has established
relationships with search engines and portals, including AOL, Terra Lycos and
AltaVista, that offer GoTo's Premium Listings as part of the portal's search
results. GoTo has also established relationships with browsers that offer GoTo
search functionality as a default search service in rotation with other
providers of search functionality.

        Web sites may be compensated for being an affiliate in several ways:

        First, affiliate sites can place a GoTo search box on their site and
earn a payment for each consumer that conducts a search and is delivered to the
GoTo search results. Affiliates interested in receiving payment for directing
traffic to GoTo's Web site fill out an application form at our site. Once the
application form is accepted, the affiliate receives a confirmation e-mail from
us, which directs the affiliate to a Web site where it can obtain a search box
to place on its site. At this Web site, the affiliate can also obtain user
traffic information and revenue reports. GoTo offers affiliates several
different search box options. Once an affiliate selects a search box, it
receives a tracking ID that enables GoTo, with assistance from a third party
provider, to track traffic from the affiliate to GoTo.

        Second, GoTo generates traffic on its service by syndicating GoTo's pay
for performance search service to other sites. Through this part of our
affiliate network, a consumer queries the GoTo search service at an affiliate's
Web site and receives GoTo's search results with or without leaving the
affiliate's site, at the affiliate's choice.

        Third, an affiliate serves the GoTo search results as part of other
search results that they provide their users. For example, as part of our
affiliate 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. Similarly, GoTo has entered into contracts with portals, in
which our Premium Listings are offered in their search results. Finally, in
contracts with Internet browsers, like Microsoft Internet Explorer and Netscape
Communicator, our search service is offered on the browser's search page or as
part of the browser's search functionality.

        The economic arrangements for the offering of our service generally vary
and include:

        -       payment for impressions of our search results;

        -       payment for impressions of our search box;

        -       payment for searches done on our service;

        -       payment for clicks on our search results;

        -       sharing revenue; and

         -      fixed guarantees, provided the affiliate meets and maintains
                certain performance standards.

        Affiliates electing to host GoTo search functionality on their sites can
take advantage of any or all of the following benefits:

        -       acquire turnkey search service without the need to develop and
                manage it in-house;

        -       generate revenue without the costs and challenges associated
                with building and maintaining their own advertising sales force;

        -       enable rapid implementation of search functionality with no
                out-of-pocket investment; and

        -       build and maintain brand loyalty by delivering content with the
                look, feel and navigation features specific to each affiliate,
                creating the impression to consumers that they have not left the
                affiliate's site.



                                       9
<PAGE>   10

        Microsoft: In February 2001, GoTo and Microsoft entered into a one-year
extension of an agreement entered into between GoTo and Microsoft in January
2000. Under the terms of the extension, Microsoft will continue to include GoTo
along with other search engines among the choices of search engines provided to
users of their Internet Explorer 4 and Internet Explorer 5 browsers.

        Terra Lycos: In November 2000, GoTo and Terra Lycos entered into a
three-year distribution agreement under which a certain number of GoTo's
listings was added to Lycos.com and HotBot search results.

        AltaVista: In November 2000, GoTo and AltaVista entered into an 18-month
distribution agreement under which GoTo will provide AltaVista's search service
users with a certain number of GoTo's listings on select search results pages of
AltaVista.

        AOL: In August 2000, GoTo and AOL entered into a 19-month distribution
agreement under which AOL will display GoTo's listings on the search results
page of AOL, AOL.com and Netscape's Netcenter. The agreement calls for a
guaranteed payment by GoTo of $50 million over the term of the agreement.

        Netscape Premier Provider Agreement: In July 2000, GoTo and Netscape
renewed our agreement for another year under which GoTo remained one of
Netscape's premier search and directory service providers on the Netscape
browser.

        CompuServe: In May 2000, CompuServe and GoTo entered into a two-year
agreement under which CompuServe will integrate GoTo search services and display
GoTo search results.

        Go2Net: In March 2000, Go2Net and GoTo renewed an agreement for another
two years, under which GoTo will provide search results for inclusion in
MetaCrawler.

        EarthLink: In September 1999, EarthLink and GoTo entered into a two-year
agreement beginning on January 1, 2000, that provides for GoTo to be the default
provider of search engine services on the EarthLink site.

Advertisers

        GoTo attracts advertisers through direct marketing efforts, which
include mailings and other promotional material sent directly to advertising
agencies and to targeted accounts. To build further advertiser participation,
GoTo will continue to leverage its reputation for pay-for-performance, direct
response marketing among advertisers and their intermediaries, such as
advertising consultants and media buyers. GoTo will continue to reach these
constituencies through multiple marketing channels, including targeted online
marketing, mailings, sponsorship of Web sites where advertisers congregate,
participation at trade shows and appearances in advertising industry
periodicals. GoTo also enters into referral agreements with companies that
receive payment for each advertiser that they refer to us who becomes an
advertiser of our service.

TECHNOLOGY

        The GoTo technical operating environment is designed to provide the best
search experience on the Internet to our consumers, advertisers and affiliates.
GoTo intends to continue investing in its technology infrastructure to maintain
and enhance its competitive advantage.

        GoTo makes its services available to advertisers and consumers through a
combination of its own proprietary technology and commercially available
technology from industry leading providers such as Sun Microsystems, Cisco,
Oracle, Informix and Silknet. GoTo also relies upon third parties to provide Web
hosting services, including hardware support and service and network
coordination. These offsite locations are managed by:

        GlobalCenter, in Sunnyvale, California

        Qwest Communications International, Inc., in Burbank,

        California Cable and Wireless USA, Inc., in Reston, Virginia

        ESAT Net, in Dublin, Ireland

        Colo.com, in Las Vegas, Nevada (expected opening in second quarter of
        2001)

        GoTo currently maintains its data warehouse at the Sunnyvale facility,
and is scheduled to move it to the Las Vegas facility in the second quarter of
2001. Any disruption in the Internet access or other services provided by third
parties could have a material adverse effect on our business. Accordingly, our
research and development efforts include the development and implementation of
business continuity and disaster recovery systems, improvement of data
retention, backup and recovery processes and systems and standardization of
technology platforms.



                                       10
<PAGE>   11

COMPETITION

        The market for Internet products, services and advertising is rapidly
evolving and intensely competitive. Currently, GoTo has no direct competition of
any significant scale. That is, there are currently no other companies that have
our advertiser base or affiliate distribution breadth, providing Web site search
results that are ordered by bid price and set by advertisers bidding for
priority placement in an ongoing auction. However, some companies are competing
directly, including PRIMEDIA, which owns About.com, which has a pay per click
product called Sprinks. GoTo potentially competes with many other providers of
Web directories, search and information services, as well as traditional media,
for consumer attention and advertising expenditures. We expect competition to
remain intensely competitive in the future. Barriers to entry may not be
significant, and current and new competitors may be able to launch new competing
services at a relatively low cost. Accordingly, we believe that our success will
depend heavily upon achieving significant market acceptance before our
competitors and potential competitors introduce competing services.

        GoTo competes with online services, 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 for a share of advertisers'
total advertising budgets. We believe that the number of companies selling
Web-based advertising and the available inventory of advertising space has
recently increased substantially. Accordingly, GoTo may face increased pricing
pressure for the sale of advertisements and direct marketing opportunities,
which could adversely affect our business and operating results.

        GoTo also competes with providers of Web directories, search, shopping,
auction and information services, all of whom offer services competitive with
GoTo, including, among others: AltaVista, Amazon.com, Inc., Ask Jeeves, Inc.,
CNET, Inc. (including mySimon Inc.), DealTime.com, eBay, Excite@Home, Inc.
(including WebCrawler and Magellan), Google, Inc., Inktomi Corporation,
LookSmart, Ltd., Microsoft Corporation (LinkExchange, Inc. and msn.com), NBCi,
Terra Lycos, Inc. (including HotBot) and Yahoo! Inc. In addition, PRIMEDIA,
which owns About.com, offers a product called Sprinks, which is a pay per click
advertising service, and there are other companies that offer directly competing
services as well.

        Some of these competitors, as well as potential entrants into our
market, have longer operating histories, larger customer or user bases, greater
brand recognition and significantly greater financial, marketing and other
resources than we do. Some of these 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
the GoTo 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 and could adversely affect our business and operating
results.

INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES

        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. Any claims could result in costly
litigation and be time consuming to defend, divert management's attention and
resources, cause delays in releasing new or upgrading existing services or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
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 affect on our business, operating results and
financial condition.

        GoTo seeks to protect its proprietary rights, but its actions may be
inadequate to protect its trademarks or other proprietary rights or to prevent
others from claiming violations of their proprietary rights. GoTo has filed for
patents to protect proprietary technology that it is using or developing;
however, we cannot be assured that we will be granted these patents or that we
will successfully defend them, should a claim arise. GoTo enters into
confidentiality agreements with its employees and consultants and generally
controls access to and distribution of its proprietary information. We also
enter into non-disclosure agreements with third parties to which we disclose
confidential information. Despite GoTo's efforts to protect its proprietary
rights from unauthorized use or disclosure, parties may attempt to disclose,
obtain or use its proprietary information. Third parties may infringe or
misappropriate GoTo's proprietary rights, which could have a material adverse
effect on GoTo's business, results of operations and financial condition.



                                       11
<PAGE>   12


        We seek to protect our copyrights, service marks, trademarks, trade
dress and trade secrets through a combination of laws and contractual
restrictions, such as confidentiality agreements. 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.

        On November 3, 2000, GoTo was served with a summons and complaint by
MercExchange, Inc., alleging patent infringement relating to GoTo's online
auction and shopping services. The action is pending in the U.S. District Court
in the Eastern District of Virginia. GoTo is currently investigating the merits
of this claim.

EMPLOYEES

        GoTo had 524 full-time employees as of January 31, 2001. As of January
31, 2001, GoTo's employees were comprised of 160 people who are engaged in
technical operations and product development, 261 in marketing, sales and
service and 103 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.

ITEM 2. PROPERTIES

        GoTo leases approximately 58,000 square feet of office space in
Pasadena, California, approximately 12,000 square feet of office space in San
Mateo, California and approximately 6,000 square feet of office space in
Morrisville, North Carolina. GoTo believes its current facilities will be
adequate to sustain the anticipated increase in headcount for the next fiscal
year.

ITEM 3. LEGAL PROCEEDINGS

        On November 3, 2000, GoTo was served with a summons and complaint by
MercExchange, Inc., alleging patent infringement relating to GoTo's online
auction and shopping services The action is pending in the U.S. District Court
in the Eastern District of Virginia. GoTo is currently investigating the merits
of this claim.

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 the Company is set forth below. The following table sets forth
certain information with respect to the executive officers of GoTo as of January
31, 2001.


<TABLE>
<CAPTION>
               NAME                                       AGE            POSITION
               ----                                       ---            --------
<S>                                                      <C>            <C>
               Ted Meisel .....................            37            Chief Executive Officer and President
               Todd Tappin ....................            39            Chief Financial Officer
               Jaynie Studenmund ..............            46            Chief Operating Officer
               Harry Chandler .................            47            Executive Vice President
               Stephanie A. Sarka .............            37            Senior Vice President of Marketing
               James B. Gallinatti Jr .........            44            Senior Vice President of Sales and Services
</TABLE>

        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.

        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.



                                       12
<PAGE>   13

        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.

        Harry Chandler has served as Executive Vice President since March 1999.
From April 1994 to March 1999, he served as Director of New Business Development
at the Los Angeles Times. From 1991 to 1994, he served as President of Dream
City Films. Mr. Chandler holds a B.A. in Communications from Stanford
University.

        Stephanie A. Sarka has served as Senior Vice President of Marketing
since March 1998. From March 1993 to September 1997, Ms. Sarka worked for Mark
Cross, the American luxury goods brand, where she served first as Senior Manager
of Product Management, then as Director of Merchandise Planning & Brand
Development, then as Divisional Vice President & General Manager. Ms. Sarka
holds a B.A. in Economics from Stanford University and a M.B.A. from Harvard
Business School.

        James B. Gallinatti Jr. has served as Senior Vice President of Sales and
Service since March 1998. From May 1996 to September 1997, Mr. Gallinatti served
as Vice President of Sales and Marketing at Austin James, Inc., a consumer
software company. From June 1986 to July 1995, he worked for Lotus Development
Corporation in a variety of roles, including West Coast Regional Director of
Sales from March 1990 to June 1994, and Director of Marketing for cc:Mail from
June 1994 to July 1995. Mr. Gallinatti received his B.A. in Human Biology from
Stanford University.

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

        Our common stock has been quoted on the Nasdaq National Market under the
symbol "GOTO" since June 18, 1999. Prior to that time, there was no public
market for our common stock. According to records of our transfer agent, there
were approximately 890 stockholders of record as of January 31, 2001. The
following table sets forth the high and low per share sale prices of our common
stock as reported on the Nasdaq National Market for the periods indicated:


<TABLE>
<CAPTION>
                                                                                  High Price          Low Price
                                                                                 ------------        -----------
<S>                                                                              <C>                 <C>
               Fiscal 2001:
                   First Quarter (through January 31, 2001) .........            $     15.250        $     5.875

               Fiscal 2000:
                    Fourth Quarter ..................................            $     18.250        $     4.813
                    Third Quarter ...................................            $     25.250        $    10.000
                    Second Quarter ..................................            $     46.000        $    13.125
                    First Quarter ...................................            $    102.000        $    35.875

               Fiscal 1999:
                    Fourth Quarter ..................................            $    114.500        $    46.375
                    Third Quarter ...................................            $     69.875        $    20.625
                    Second Quarter ..................................            $     28.500        $    20.000
</TABLE>

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

        During the quarter ended December 31, 2000, we used approximately $15.8
million of the proceeds from our initial public offering to fund on-going
operations, including payments to affiliates and capital expenditures for
computer hardware, software and leasehold improvements.

        During the quarter ended December 31, 2000, GoTo issued 261,255 shares
of GoTo's common stock in connection with the purchase of assets of SearchUP,
Inc.



                                       13
<PAGE>   14


ITEM 6: SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)

        The following selected 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, 2000, 1999 and 1998 and the balance sheet data at December 31, 2000, 1999
and 1998 are derived from our audited financial statements included elsewhere in
this Form 10-K. The historical results are not necessarily indicative of results
to be expected for any future period.


<TABLE>
<CAPTION>
                                                                                                        SEPTEMBER 15, 1997
                                                                     YEAR ENDED DECEMBER 31,              (INCEPTION)
                                                         -------------------------------------------      TO DECEMBER 31,
                                                           2000               1999            1998             1997
                                                         ---------        ---------        ---------    -----------------
                                                                               (IN THOUSANDS)
<S>                                                      <C>              <C>              <C>              <C>
STATEMENT OF OPERATIONS DATA:
Revenue ..........................................       $ 103,052        $  26,809        $     822        $      22
Cost of revenue ..................................          13,109            6,213            1,429                6
                                                         ---------        ---------        ---------        ---------
Gross profit (loss) ..............................          89,943           20,596             (607)              16

Operating expenses:
  Marketing, sales and service ...................          94,531           34,459            9,645               65
  General and administrative .....................          33,798           12,467            1,655               24
  Product development ............................          13,523            3,689            1,232               46
  Amortization of deferred
    compensation .................................           1,376            3,585            1,199               --
  Write-off acquired in-process
    research and development .....................           7,550               --               --               --
  Amortization of intangible assets ..............         115,600               --               --               --
  Impairment of intangible assets ................         309,253               --               --               --
                                                         ---------        ---------        ---------        ---------
                                                           575,631           54,200           13,731              135
                                                         ---------        ---------        ---------        ---------
Loss from operations .............................        (485,688)         (33,604)         (14,338)            (119)

  Interest income, net ...........................           5,809            3,777              316               --
  Other income ...................................          21,259              566               --               --
                                                         ---------        ---------        ---------        ---------
Loss before provision for income taxes ...........        (458,620)         (29,261)         (14,022)            (119)
Provision for income taxes .......................               1                1                1                1
                                                         ---------        ---------        ---------        ---------
Net loss .........................................       $(458,621)       $ (29,262)       $ (14,023)       $    (120)
                                                         =========        =========        =========        =========

Pro forma net loss per share .....................       $   (9.54)       $   (0.77)       $   (0.75)       $      --
                                                         =========        =========        =========        =========
Historical basic and diluted net
   loss per share ................................       $   (9.54)       $   (1.04)       $   (1.36)       $   (0.01)
                                                         =========        =========        =========        =========
Weighted average shares used to
   compute pro forma net loss per share(a)
                                                            48,065           38,219           18,714               --
Weighted average shares used to
   compute historical basic and
   diluted net loss per share(a) .................          48,065           28,207           10,296            9,869
</TABLE>

If deferred compensation were allocated to expense
   categories, it would be allocated as follows:

<TABLE>
<CAPTION>
                                                            2000             1999             1998             1997
                                                         ---------        ---------        ---------        ---------
<S>                                                      <C>              <C>              <C>              <C>
  Cost of revenue ................................       $       4        $      16        $      24        $      --
  Marketing, sales and service ...................             381              670              265               --
  General and administrative .....................             922            2,673              745               --
  Product development ............................              69              226              165               --
                                                         ---------        ---------        ---------        ---------
    Total amortization of deferred
      compensation ...............................       $   1,376        $   3,585        $   1,199        $      --
                                                         =========        =========        =========        =========
</TABLE>


<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                         ------------------------------------------------------------
                                                           2000              1999            1998              1997
                                                         ---------        ---------        ---------        ---------
                                                                                 (IN THOUSANDS)
<S>                                                      <C>              <C>              <C>              <C>
BALANCE SHEET DATA:
Cash, cash equivalents, short-term investments,
  long-term investments and
  restricted investments .........................       $  60,537        $ 110,255        $  16,357        $      87
Working capital ..................................          52,956           95,165           15,215               18
Total assets .....................................         121,413          129,512           19,969              214
Long-term capital lease obligations ..............              78              768              183               --
Total stockholders' equity .......................       $  88,095        $ 112,774        $  16,397        $     123
</TABLE>

(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, 2000, 1999, 1998 and for the
        period from inception to December 31, 1997 .


                                       14
<PAGE>   15

QUARTERLY RESULTS OF OPERATIONS

        The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the eight quarters ended December 31, 2000.
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 the Company's financial position, results of
operations and cash flows for the periods shown, except for the write-off of
approximately $7.6 million of in-process research and development associated
with GoTo's acquisition of Cadabra in the first quarter of 2000, other income of
approximately $21.5 million from the settlement on GoTo's trademark infringement
lawsuit against The Walt Disney Company in the second quarter of 2000 and an
impairment of intangible assets of approximately $309.3 million in the fourth
quarter of 2000. 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.


<TABLE>
<CAPTION>
                                                                                               FOR THE THREE MONTHS ENDED
                                                                                        ------------------------------------------
                                                     DECEMBER 31,    SEPTEMBER 30,      JUNE 30,      MARCH 31,       DECEMBER 31,
                                                        2000             2000            2000           2000             1999
                                                     ------------    -------------      --------      ---------       ------------
                                                                                                    (IN THOUSANDS)
<S>                                                   <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
  Revenue .........................................   $  39,776       $  25,050       $  21,011       $  17,215       $  13,298
  Gross profit ....................................      35,395          21,740          18,198          14,610          11,327
  Operating expenses:
    Marketing, sales and service ..................      38,765          21,185          18,267          16,314          14,250
    General and administrative ....................      10,464           9,012           8,055           6,267           4,366
    Product development ...........................       3,526           3,534           4,262           2,201           1,035
    Amortization of deferred
      compensation ................................         265             311             375             425             599
    Write-off of acquired in-process research
      and development .............................          --              --              --           7,550              --
    Amortization of intangible assets .............      35,667          35,401          30,578          13,954              --
    Impairment of intangible assets ...............     309,253              --              --              --              --
                                                      ---------       ---------       ---------       ---------       ---------
                                                        397,940          69,443          61,537          46,711          20,250
                                                      ---------       ---------       ---------       ---------       ---------
  Loss from operations ............................    (362,545)        (47,703)        (43,339)        (32,101)         (8,923)

    Interest income, net ..........................       1,159           1,592           1,511           1,547           1,644
    Other income (expense), net ...................        (306)              8          21,512              45              40
                                                      ---------       ---------       ---------       ---------       ---------
  Loss before provision for income taxes ..........    (361,692)        (46,103)        (20,316)        (30,509)         (7,239)

  Provision for income taxes ......................           1              --              --              --               1
                                                      ---------       ---------       ---------       ---------       ---------
  Net loss ........................................   $(361,693)      $ (46,103)      $ (20,316)      $ (30,509)      $  (7,240)
                                                      =========       =========       =========       =========       =========

  Pro forma net loss per share ....................   $   (7.27)      $   (0.94)      $   (0.42)      $   (0.67)      $   (0.17)
                                                      =========       =========       =========       =========       =========

  Historical basic and diluted net
    loss per share ................................   $   (7.27)      $   (0.94)      $   (0.42)      $   (0.67)      $   (0.17)
                                                      =========       =========       =========       =========       =========

  Weighted average shares used to
    compute pro forma net loss per
    share .........................................      49,768          48,998          48,007          45,323          43,263

  Weighted average shares used to
    compute historical basic and
    diluted net loss per share ....................      49,768          48,998          48,007          45,323          43,263

  If deferred compensation were allocated to expense
    categories, it would be allocated as follows:
  Cost of revenue .................................   $      --       $       1       $       1       $       2       $       2
  Marketing, sales and service ....................          63              67             148             103             126
  General and administrative ......................         189             224             214             295             439
  Product development .............................          13              19              12              25              32
                                                      ---------       ---------       ---------       ---------       ---------
    Total amortization of deferred
      compensation ................................   $     265       $     311       $     375       $     425       $     599
                                                      =========       =========       =========       =========       =========

<CAPTION>

                                                       SEPTEMBER 30,     JUNE 30,       MARCH 31,
                                                          1999            1999            1999
                                                       -------------     --------       ---------

<S>                                                     <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
  Revenue .........................................     $   8,428       $   3,632       $   1,451
  Gross profit ....................................         6,488           2,287             494
  Operating expenses:
    Marketing, sales and service ..................         9,852           5,743           4,614
    General and administrative ....................         4,122           2,424           1,555
    Product development ...........................         1,155             979             520
    Amortization of deferred
      compensation ................................           586           1,103           1,297
    Write-off of acquired in-process research
      and development .............................            --              --              --
    Amortization of intangible assets .............            --              --              --
    Impairment of intangible assets ...............            --              --              --
                                                        ---------       ---------       ---------
  Total operating expenses ........................        15,715          10,249           7,986
                                                        ---------       ---------       ---------
  Loss from operations ............................        (9,227)         (7,962)         (7,492)

    Interest income, net ..........................         1,605             396             132
    Other income (expense), net ...................            --             526              --
                                                        ---------       ---------       ---------
  Loss before provision for income taxes ..........        (7,622)         (7,040)         (7,360)
                                                                                        ---------
  Provision for income taxes ......................            --              --              --
                                                        ---------       ---------       ---------
  Net loss ........................................     $  (7,622)      $  (7,040)      $  (7,360)
                                                        =========       =========       =========

  Pro forma net loss per share ....................     $   (0.18)      $   (0.20)      $   (0.24)
                                                        =========       =========       =========

  Historical basic and diluted net
    loss per share ................................     $   (0.18)      $   (0.46)      $   (0.68)
                                                        =========       =========       =========

  Weighted average shares used to
    compute pro forma net loss per
    share .........................................        42,985          35,823          30,387

  Weighted average shares used to
    compute historical basic and
    diluted net loss per share ....................        42,985          15,264          10,894

  If deferred compensation were allocated to expense
    categories, it would be allocated as follows:
  Cost of revenue .................................     $       3       $       5       $       6
  Marketing, sales and service ....................           129             310             105
  General and administrative ......................           417             740           1,077
  Product development .............................            37              48             109
                                                        ---------       ---------       ---------
    Total amortization of deferred
      compensation ................................     $     586       $   1,103       $   1,297
                                                        =========       =========       =========
</TABLE>


                                       15
<PAGE>   16

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

        THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WE USE WORDS SUCH AS "ANTICIPATES," "BELIEVES," "PLANS,"
"EXPECTS," "FUTURE" AND "INTENDS" AND SIMILAR EXPRESSIONS TO IDENTIFY
FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS DOCUMENT.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE IN OUR FORWARD-LOOKING
STATEMENTS FOR MANY REASONS, INCLUDING WITHOUT LIMITATION THE RISKS DESCRIBED IN
"RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
BELOW.

OVERVIEW

        GoTo operates an online marketplace that introduces consumers and
businesses that search the Internet to advertisers who provide products,
services and information. Advertisers participating in our marketplace include
retail merchants, wholesale and service businesses and manufacturers. GoTo
facilitates these introductions through our search service, which enables
advertisers to bid in an ongoing auction for priority placement in our search
results. Priority placement means that the search results appear on the page
ranked in descending order of bid price, with the highest bidder's listing
appearing first. Each advertiser pays GoTo the amount of its bid whenever a
consumer clicks on the advertiser's listing in our search results. Advertisers
pay GoTo for each click-through, so advertisers bid only on keywords relevant to
the products, services or information that they offer. Because each advertiser
chooses the bid amount and advertisement placement that is optimal for its
business, we believe the GoTo marketplace provides advertisers with a
cost-effective way to target consumers. Consumers access the GoTo search service
primarily through our affiliates, a network of Web sites that have integrated
GoTo's search service into their sites or that direct consumer traffic to our
site. Consumers can also access GoTo's search service directly through GoTo's
Web site.

        GoTo also operates an online comparison shopping service called "GoTo
(TM) Shopping." Currently, GoTo intends to exit the comparison shopping
business, and accordingly we are evaluating strategic alternatives.

        GoTo also operates an online resource for merchants to place and manage
their products with other auction sites or services, called "GoTo (TM)
Auctions." Currently, GoTo is evaluating strategic alternatives for GoTo(TM)
Auctions, including an equity partner or the possibility of a sale of this
portion of our business.

        A large and growing number of consumers using the GoTo search service at
our affiliates' Web sites across the Internet and at our Web site increases the
incentive for advertisers to bid in the GoTo marketplace. In turn, a breadth of
relevant advertiser links increases the value to consumers of using the GoTo
search service. Consequently, we believe a large and active base of advertisers,
consumers and affiliates in our marketplace can stimulate growth in bidding,
searches and paid introductions. GoTo was incorporated in September 1997 and has
a limited operating history. We launched a proof-of-concept version of our
search service in the fiscal year ended December 31, 1997. Our
Pay-for-Performance (TM) service was announced in February 1998, and following
further proof-of-concept testing, was officially launched in June 1998. In
October 2000, GoTo announced its intent to change its corporate name and expects
to make such a change within 2001. GoTo has devoted significant resources to
launching and expanding its search service, including developing an
infrastructure and building a management team. GoTo's losses for the years ended
December 31, 2000, 1999 and 1998 were approximately $458.6 million, $29.3
million and $14.0 million, respectively. Those losses include non cash
amortization of goodwill and intangible assets associated with our acquisitions
of Cadabra and AuctionRover and the acquisition of the assets of SearchUP,
representing approximately $76.7 million, $38.6 million and $267,000,
respectively, and the impairment write down of goodwill in 2000 for Cadabra and
AuctionRover of approximately $174.3 million and $135.0 million, respectively.

        A significant component of our expenses consists of costs incurred to
attract consumers to our service through GoTo's affiliate network. We expect to
continue to rely upon these sources for a significant proportion of consumer
searches conducted on our service. Our future success is dependent upon
increasing the revenue we derive from this traffic.

Acquisitions

        On January 31, 2000, GoTo acquired Cadabra, an online comparison
shopping service. Pursuant to the Agreement and Plan of Reorganization, GoTo
acquired all of the outstanding shares of capital stock and assumed all
outstanding options to acquire shares of capital stock of Cadabra, for $8.0
million in cash and 3,283,672 shares of GoTo common stock, including 214,833
shares to be issued upon the exercise of options assumed by GoTo. The
acquisition was accounted for as a purchase. Under the purchase method of


                                       16
<PAGE>   17

accounting, the purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair values as determined by GoTo
at the date of the acquisition. The operations of Cadabra have been included in
our results of operations since the date of the acquisition. The total purchase
price of the acquisition was approximately $263.1 million and consisted of cash
of $8.0 million; GoTo common stock of $252.5 million valued at the closing price
of GoTo's common stock on the date the exchange ratio was set, net of expected
proceeds from the exercise of Cadabra stock options assumed by GoTo; and
acquisition costs of $2.6 million, primarily for investment banking, legal and
accounting costs. 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 and will be amortized on a
straight-line basis over three years and $ million was allocated to the net
tangible assets. The excess purchase price over the estimated fair value of the
assets acquired and liabilities assumed was allocated to goodwill in the amount
of $245.1 million and was scheduled to be amortized on a straight-line basis
over three years. In accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121), in the fourth quarter of the year ended
December 31, 2000 GoTo recorded an impairment charge on the goodwill and
intangible assets from the acquisition of Cadabra of the entire remaining
balance of goodwill and intangible assets, which was approximately $174.3
million.

        On May 3, 2000, GoTo acquired AuctionRover, an online resource for
auctions. Pursuant to the Agreement and Plan of Reorganization, GoTo acquired
all of the outstanding shares of capital stock and assumed all outstanding
options to acquire shares of capital stock of AuctionRover for 3,470,588 shares
of GoTo common stock, including 521,408 shares to be issued upon the exercise of
options assumed by GoTo. Based on the price of GoTo common stock on the date the
exchange ratio was set, the purchase price was valued at approximately $174.2
million, which consisted of GoTo common stock of $173.7 million, net of expected
proceeds from the exercise of stock options assumed by GoTo and including
acquisition costs of approximately $500,000 for legal and accounting services.
The purchase price was determined by arms-length negotiations between the
parties. Timothy Draper, a former director of GoTo, is affiliated with certain
entities that were principal stockholders of AuctionRover. Of the purchase
price, $6.7 million was assigned to the value of purchased technology and other
intangible assets and was to be 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. In
accordance with SFAS 121, in the fourth quarter of the year ended December 31,
2000 GoTo recorded an impairment charge on the goodwill and intangible assets
from the acquisition of AuctionRover of the entire remaining balance of goodwill
and intangible assets, which was approximately $135.0 million.

        On October 25, 2000, GoTo acquired substantially all the assets of
SearchUP, which did not have significant business operations. Pursuant to the
Asset Purchase Agreement, GoTo 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 consideration for the
assets consisted of 261,255 shares of GoTo common stock, valued at approximately
$3.5 million, as determined by the closing price of GoTo's common stock on the
purchase date. GoTo allocated the purchase price to the intangible assets
acquired based on their estimated fair values as determined by GoTo. It is
anticipated that such amounts will be amortized on a straight-line basis over
three years.

International Expansion

        We launched our service in the United Kingdom in November 2000. Our
international expansion will require continued investment, and we expect to
incur significant costs to build internal infrastructure and grow our advertiser
and affiliate bases overseas. Therefore, in order to scale and expand more
rapidly, our strategy is to align with partners that may provide key
distribution channels for our products as well as additional financing. Once
such a deal is consummated, GoTo will then evaluate entering into other foreign
markets. At this stage, the structure of potential partnerships is not known,
but it is intended that any partner will take an equity position in GoTo's
international venture, which could potentially reduce the start-up losses that
we would record. The results of our international operations are consolidated
and, if appropriate partnerships with terms acceptable to us are not obtained,
we will continue to consolidate all of the results from our international
operations.



                                       17
<PAGE>   18



RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                                    ----------------------------
                                                                      2000                1999
                                                                    ---------          ---------
                                                                            (IN THOUSANDS)
<S>                                                                 <C>                <C>
               Revenue ....................................         $ 103,052          $  26,809
               Cost of revenue ............................            13,109              6,213
                                                                    ---------          ---------
               Gross profit ...............................            89,943             20,596

               Operating expenses:
                 Marketing, sales and service .............            94,531             34,459
                 General and administrative ...............            33,798             12,467
                 Product development ......................            13,523              3,689
                 Amortization of deferred compensation ....             1,376              3,585
                 Write-off acquired in-process research and
                   development ............................             7,550                 --
                 Amortization of intangible assets ........           115,600                 --
                 Impairment of intangible assets ..........           309,253                 --
                                                                    ---------          ---------
                                                                      575,631             54,200
                                                                    ---------          ---------
               Loss from operations .......................          (485,688)           (33,604)
                 Interest income, net .....................             5,809              3,777
                 Other income .............................            21,259                566
                                                                    ---------          ---------
               Loss before provision for income taxes .....          (458,620)           (29,261)
               Provision for income taxes .................                 1                  1
                                                                    ---------          ---------
               Net loss ...................................         $(458,621)         $ (29,262)
                                                                    =========          =========
</TABLE>

        Revenue. Revenue is generated primarily through paid introductions, that
is, the number of click throughs that users make on advertiser's listings.
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 banner advertising, which constitutes less
than 10 percent of our revenue for the year ended December 31, 2000. GoTo has no
barter transactions. 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.

        The number of paid introductions for each of the last ten fiscal
quarters is as follows:


<TABLE>
<CAPTION>
               NUMBER OF PAID INTRODUCTIONS                       FOR THE QUARTER ENDED
               ----------------------------                       ---------------------
<S>                                                              <C>
               228 million ....................                   December 31 ,2000
               114 million ....................                   September 30, 2000
                93 million ....................                   June 30, 2000
                88 million ....................                   March 31, 2000
                73 million ....................                   December 31, 1999
                54 million ....................                   September 30, 1999
                31 million ....................                   June 30, 1999
                15 million ....................                   March 31, 1999
                 7 million ....................                   December 31, 1998
                 2 million ....................                   September 30, 1998
</TABLE>

        The average price per paid introduction results from advertisers' online
bidding for priority placement in the search results. The average price per paid
introduction for each of the last ten fiscal quarters is as follows:

<TABLE>
<CAPTION>
               AVERAGE PRICE PER PAID INTRODUCTION                   FOR THE QUARTER ENDED
               -----------------------------------                   ---------------------
<S>                                                                 <C>
               $0.17 ......................................          December 31, 2000
                0.21 ......................................          September 30, 2000
                0.21 ......................................          June 30, 2000
                0.19 ......................................          March 31, 2000
                0.17 ......................................          December 31, 1999
                0.14 ......................................          September 30, 1999
                0.11 ......................................          June 30, 1999
                0.08 ......................................          March 31, 1999
                0.05 ......................................          December 31, 1998
               $0.03 ......................................          September 30, 1998
</TABLE>



                                       18
<PAGE>   19

        Average price per paid introduction decreased from the quarter ended
September 30, 2000 to the quarter ended December 31, 2000. We believe this was
primarily due to increased traffic at our site, which doubled during the
quarter, as a result of the recent deals signed with AOL, Terra Lycos, and
AltaVista. The rapid increase in traffic that resulted primarily from these
deals caused advertisers who bid on GoTo's top 3 to 5 listings to spend their
allocated budget more quickly than previously. Because the AOL, Terra Lycos and
AltaVista implementations serve GoTo's top 3 to 5 listings, advertisers with
listings in these positions received traffic more quickly than prior to GoTo
entering into these agreements. As these advertisers' budgets were depleted, the
listings with lower bids rose higher in the search results even though the
advertiser in the lower bid positions did not increase their bid. GoTo believes
that continued growth in advertisers and increased pay for performance
advertising budgets will promote competition and allow our average price per
paid introduction to stabilize or grow over the next year. We believe that after
our large increase in traffic, we may experience a drop in the average price per
paid introduction and may subsequently experience a recovery period in which the
price may continue to drop slightly or be flat for a period of time. There is
evidence that advertisers are increasing their budgets with GoTo, since the
average spend per advertiser in the quarter ended September 30, 2000 was $810
and rose to $1,120 in the quarter ended December 31, 2000. Second, to a lesser
extent, the softness in the online advertising market has resulted in lower bids
and, as a result, a lower average price per paid introduction.

        We believe the quarterly number of paid introductions and average price
per paid introduction listed above are not necessarily indicative of future
results and that the periods prior to the three-month period ended September 30,
1998 are not relevant because our service was only in its initial stage. It is
difficult to forecast the future growth of the average price per paid
introduction, as advertisers, rather than GoTo, determine the price paid. We do
not anticipate our historical revenue growth rate to continue. Our growth rate
and results depend on our ability to continue to increase the number of
advertisers who use our service, the amount our advertisers spend on our service
and the number of consumers who use our service. We anticipate these variables
to fluctuate, affecting our growth rate and results.

        Revenue was approximately $103.1 million for the year ended December 31,
2000 compared to approximately $26.8 million for the year ended December 31,
1999. The increase was the result of continued growth of our marketplace and the
corresponding participants, our advertisers and the number of consumers using
our product. We do not anticipate our historical revenue growth rate to continue
as a percentage of growth as expressed on a year-to-year basis.

        Our growth is dependent on obtaining additional traffic and increasing
the average price per paid introduction. During the year ended December 31,
2000, approximately 20% of GoTo's total traffic came from portals (AOL, Terra
Lycos and AltaVista), and approximately 15% of the total traffic came from the
browsers (Microsoft Internet Explorer and Netscape), and approximately 60% of
the total traffic came from other affiliates. In August 2000, GoTo and AOL
entered into a 19-month distribution agreement under which AOL displays GoTo's
listings on the search results pages of AOL, AOL.com and Netscape's Netcenter.
In November 2000, GoTo and Terra Lycos entered into a three-year distribution
agreement under which GoTo's listings were added to Lycos.com and HotBot search
results. In November 2000, GoTo and AltaVista entered into an 18-month
distribution agreement under which GoTo provides AltaVista's search service
users with GoTo's listings on select search results pages of AltaVista. We
recently extended our existing agreement with Microsoft for an additional year,
which will allow for continued traffic from their Internet Explorer 4 and
Internet Explorer 5 browsers. Microsoft delivered a diminishing level of traffic
to us in 2000 compared to 1999, and we anticipate that we eventually will
receive no traffic from Internet Explorer 4 and Internet Explorer 5. Our
agreement with Netscape was renewed in July of 2000 and will expire on June 30,
2001. Even though we currently anticipate growth in traffic from existing and
new affiliates, we must renew our affiliate agreements or replace this traffic
with other sources and grow our advertising base; otherwise, our revenue may be
materially, adversely affected.

        Cost of Revenue. Cost of revenue consists 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, software license fees and salaries of related personnel. Cost of
revenue was approximately $13.1 million for the year ended December 31, 2000
compared to approximately $6.2 million for the year ended December 31, 1999. The
increase was primarily due to the increased database and hardware capacity
requirements, an increase in the number of personnel required to support our Web
site and increased fees paid to outside service providers. We anticipate cost of
revenue to continue to increase as our traffic and number of advertisers
increase.

        Marketing, Sales and Service. Marketing, sales and service expenses
consist primarily of our payments to affiliates, advertising and promotional
expenditures, and payroll and related expenses for personnel engaged in
marketing, customer service and sales functions. Marketing, sales and service
expenses were approximately $94.5 million for the year ended December 31, 2000
compared to approximately $34.5 million for the year ended December 31, 1999.
The increase was primarily due to increased distribution of our



                                       19
<PAGE>   20

search service, and the hiring of additional personnel for marketing, sales and
service functions. We believe that continued investment in marketing, sales and
service and in the increased distribution of our search services, which includes
our recent agreements with AOL, AltaVista and Terra Lycos are critical to
attaining our strategic objectives and, as a result, expect these costs to
continue to increase in the future. In August 2000, we entered into a 19-month
distribution agreement under which AOL displays GoTo's listings on the search
results page of AOL, AOL.com and Netscape's Netcenter. The agreement calls for a
guaranteed payment by GoTo of $50 million over the term of the agreement. In
November 2000, we entered a three-year distribution agreement under which our
Premium Listings keyword search service has been added to Lycos.com and HotBot
search results. Also in November 2000, we entered into an 18-month distribution
agreement under which we provide AltaVista's search service users with GoTo's
Premium Listings on select search results pages of AltaVista. Costs associated
with payments to affiliates were $66.4 million for the year ended December 31,
2000, compared to $14.3 million year ended December 31, 1999.

        General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; facilities; professional services, including legal; insurance and
other general corporate expenses. General and administrative expenses were
approximately $33.8 million for the year ended December 31, 2000 compared to
approximately $12.5 million for the year ended December 31, 1999. The increase
was the result of increased headcount and related expenses, including facilities
and increased personnel-related insurance costs, as well as increased
professional services. We expect general and administrative expenses to continue
to increase as we incur additional costs related to the growth of our business.

        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. Product development expenses were approximately $13.5 million
for the year ended December 31, 2000 compared to approximately $3.7 million for
the year ended December 31, 1999. The increase was a result of increased
staffing and associated costs relating to enhancing features and functionality
to our Web site and search service. The increase was offset by the
capitalization of software under Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" of
approximately $4.7 million, which we began amortizing in the third quarter of
2000. We believe our continued investment in product development is critical to
attaining our strategic objectives and, as a result, expect product development
expenses to continue to increase in the future.

        Amortization of Deferred Compensation. Certain stock options granted
from the inception of GoTo through our initial public offering have been
considered to be compensatory for financial accounting purposes. Total
compensation resulting from these stock options amounted to approximately $7.3
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 $1.4
million and $3.6 million were amortized and charged to operations for the years
ended December 31, 2000 and 1999, respectively.

        During the fourth quarter of 2000 and in accordance with SFAS 121,
management identified certain conditions as indicators of asset impairment on
the net assets from the acquisitions of Cadabra and AuctionRover. These
indicators included:

        1.      The significant decline in the valuations of public companies
                operating in the Internet space.

        2.      Management's re-evaluation of its strategies and fit for these
                business lines.

        3.      A significant decrease in the stock price of GoTo compared to
                the purchase price of these acquisitions.

        4.      Management's decision to decrease its investment in these
                business lines.

        In accordance with SFAS 121, an impairment loss should be measured as
the amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset. The estimate of fair value shall consider selling prices or
fair values for similar assets and the results of valuation techniques (e.g.,
discounted cash flows) as well as other strategic and market factors to the
extent available in the circumstances. Management has estimated the fair value
of the net assets acquired, based on discounted future cash flows as well as
strategic and market factors, to be below the carrying values of goodwill and
intangible assets. Accordingly, GoTo took a charge to operations during the
fourth quarter of 2000 for approximately $309.3 million, to write down these
assets. An additional factor considered by management was the difficulty in
estimating future cash flows for the comparison-shopping business line and the
Internet auctions business line because they are still in their infancy. It is
possible that the ultimate realizability of the assets of these business lines
could differ from these estimates in the near term.



                                       20
<PAGE>   21

        Currently GoTo intends to exit the comparison shopping business and
accordingly GoTo is evaluating strategic alternatives. GoTo is also currently
evaluating strategic alternatives for GoTo(TM) Auctions, including an equity
partner or the possibility of a sale of this portion of our business.

        Interest Income. Interest income consists primarily of earnings on our
cash, cash equivalents and short-term and long-term investments, net of interest
expense attributable to leased equipment and debt. Interest income, net was
approximately $5.8 million for the year ended December 31, 2000 compared to
approximately $3.8 million for the year ended December 31, 1999. The increase
was primarily due to GoTo's holding the initial public offering proceeds for the
entire year of 2000 versus partial year in 1999, together with the $21.5 million
settlement paid by the Walt Disney Company to GoTo in settlement of trademark
litigation, offset by the declining balance of cash and investments.

        Other Income. Other income consists primarily of the settlement of
litigation with The Walt Disney Company. Other income was approximately $21.3
million for the year ended December 31, 2000 compared to approximately $566,000
for the year ended December 31, 1999. The increase was primarily due to the
settlement of litigation with Disney, pursuant to which Disney paid GoTo $21.5
million.


YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998


<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                               --------------------------------
                                                                                 1999                    1998
                                                                               --------                --------
                                                                                         (IN THOUSANDS)
<S>                                                                            <C>                     <C>
               Revenue .........................................               $ 26,809                $    822
               Cost of revenue .................................                  6,213                   1,429
                                                                               --------                --------
               Gross profit (loss) .............................                 20,596                    (607)

               Operating expenses:
                 Marketing, sales and service ..................                 34,459                   9,645
                 General and administrative ....................                 12,467                   1,655
                 Product development ...........................                  3,689                   1,232
                 Amortization of deferred compensation .........                  3,585                   1,199
                                                                               --------                --------
                                                                                 54,200                  13,731
                                                                               --------                --------
               Loss from operations ............................                (33,604)                (14,338)
                 Interest income, net ..........................                  3,777                     316
                 Other income ..................................                    566                      --
                                                                               --------                --------
               Loss before provision for income taxes ..........                (29,261)                (14,022)
               Provision for income taxes ......................                      1                       1
                                                                               --------                --------
               Net loss ........................................               $(29,262)               $(14,023)
                                                                               ========                ========
</TABLE>

        Revenue. Revenue consists of search listing advertisements and banner
advertisements. GoTo.com has no barter transactions. For the year ended December
31, 1999, banner advertisement revenue constituted less than 10 percent of our
revenue. Revenue was approximately $26.8 million for the year ended December 31,
1999 compared to approximately $822,000 for the year ended December 31, 1998.
The increase was the result of continued growth of our marketplace and the
corresponding participants, our advertisers and the number of consumers using
our product. We have experienced rapid growth from the quarter ended December
31, 1998 through the quarter ended December 31, 1999, including an increase in
revenue from approximately $580,000 to approximately $13.3 million,
respectively. For the quarter ended December 31, 1999, 40% of our overall
traffic came from the browsers, Microsoft's Internet Explorer and Netscape.

        Cost of Revenue. Cost of revenue consists primarily of fees paid to
outside service providers that provide and manage our unpaid listings and costs
associated with maintaining our Web site. Costs associated with maintaining our
Web site include salaries of related personnel, depreciation of Web site
equipment, co-location charges for our Web site equipment and software license
fees. Cost of revenue was approximately $6.2 million for the year ended December
31, 1999 compared to approximately $1.4 million for the year ended December 31,
1998. The increase was primarily due to the increased fees paid to outside
service providers, increased database and hardware capacity requirements and an
increase in the number of personnel required to support our Web site. We
anticipate cost of revenue to continue to increase as our traffic and number of
advertisers increase.



                                       21
<PAGE>   22

        Marketing, Sales and Service. Marketing, sales and service expenses
consist primarily of our advertising and promotional expenditures, such as
online links from other Web sites associated with our affiliate network, banner
advertisements on other sites, offline media advertising and public relations,
as well as payroll and related expenses for personnel engaged in marketing,
customer service and sales functions. Marketing, sales and service expenses were
approximately $34.5 million for the year ended December 31, 1999 compared to
approximately $9.6 million for the year ended December 31, 1998. The increase
was primarily due to increased distribution of our search service, the hiring of
additional personnel for marketing, sales and service functions and our print
and television media advertising campaign in the fourth quarter of 1999. We
believe that continued investment in marketing, sales and service and in the
increased distribution of our search service is critical to attaining our
strategic objectives and, as a result, expect these costs to continue to
increase in the future.

        General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; facilities; professional services, including legal; insurance and
other general corporate expenses. General and administrative expenses were
approximately $12.5 million for the year ended December 31, 1999 compared to
approximately $1.7 million for the year ended December 31, 1998. The increase
was the result of increased headcount and related expenses associated with the
hiring of additional personnel and increased professional services. We expect
general and administrative expenses to continue to increase as we expand our
staff and incur additional costs related to the growth of our business. In
addition, these expenses will vary based on the outcome of our litigation with
The Walt Disney Company and certain of its affiliates.

        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. Product development expenses were approximately $3.7 million
for the year ended December 31, 1999 compared to approximately $1.2 million for
the year ended December 31, 1998. The increase was a result of increased
staffing and associated costs relating to enhancing features and functionality
to our Web site and search service. The increase was offset by capitalization of
software under Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" of approximately $2.0 million.
We believe our continued investment in product development is critical to
attaining our strategic objectives and, as a result, expect product development
expenses to continue to increase in the future.

        Amortization of Deferred Compensation. Certain stock options granted
from the inception of GoTo.com through our initial public offering have been
considered to be compensatory for financial accounting purposes. Total
compensation resulting from these stock options amounted to approximately $7.4
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 $3.6
million and $1.2 million were amortized and charged to operations for the years
ended December 31, 1999 and 1998, respectively.

        Interest Income. Interest income consists primarily of earnings on our
cash, cash equivalents and short-term and long-term investments, net of interest
expense attributable to leased equipment and debt. Interest income, net was
approximately $3.8 million for the year ended December 31, 1999 compared to
approximately $316,000 for the year ended December 31, 1998. The increase was
primarily due to increased earnings on cash, cash equivalents, and short-term
and long-term investments in available-for-sale securities, which increased as a
result of our initial public offering and series D preferred stock issuance.

        Other Income. Other income of approximately $566,000 for the year ended
December 31, 1999 was primarily due from a non-recurring transaction, in which
we received a payment from an affiliate in settlement for the early termination
of a distribution agreement.

LIQUIDITY AND CAPITAL RESOURCES

        Net cash used in operating activities totaled approximately $30.4
million and $16.9 million for the years ended December 31, 2000 and 1999,
respectively. The increase was due primarily to the rapid growth and increased
size and scope of operations. Net cash provided by investing activities totaled
approximately $30.2 million and net cash used in investing activities totaled
approximately $110.0 million for the years ended December 31, 2000 and 1999,
respectively. The change resulted from purchases of short-term and



                                       22
<PAGE>   23

long-term investments in 1999, which were sold in 2000, and additional capital
expenditures for properties and equipment. Net cash provided by financing
activities totaled approximately $1.3 million and $122.4 million for the years
ended December 31, 2000 and 1999, respectively. The decrease was due primarily
to the issuance of common stock through our initial public offering and the
issuance of preferred stock in 1999.

        On January 31, 2000, GoTo acquired Cadabra, an online comparison
shopping service, which provides consumers the ability to locate their desired
products by automating product comparison across multiple attributes. Pursuant
to the Agreement and Plan of Reorganization, GoTo acquired all of the
outstanding shares of capital stock and assumed all outstanding options to
acquire shares of capital stock of Cadabra, for $8.0 million in cash and
3,283,672 shares of GoTo common stock.

        On May 3, 2000, GoTo acquired AuctionRover, an online resource for
auctions. Pursuant to the Agreement and Plan of Reorganization, GoTo acquired
all the outstanding shares of capital stock and assumed all outstanding options
to acquire shares of capital stock of AuctionRover for 3,470,588 shares of GoTo
common stock.

        On October 25, 2000, GoTo acquired substantially all of the assets of
SearchUP, Inc., which did not have significant business operations. Pursuant to
the Asset Purchase Agreement, GoTo SearchUP's operational Web site, registered
URLs, trademarks and patent on its URL Position Manager for 261,255 shares of
GoTo common stock.

        Our principal sources of liquidity consisted of unrestricted cash, cash
equivalents and short-term investments of approximately $55.0 million as of
December 31, 2000 and approximately $105.3 million as of December 31, 1999. We
believe that our cash and liquid investment reserves are sufficient to sustain
operations through the next 12 months, however, unknown factors may require us
to seek additional capital. Such unknown factors may include, among other
things, competitive pressure, higher cost of intellectual capital, higher costs
to accommodate increases in capacity and acquisitions. We are obligated to make
guaranteed payments totaling approximately $38.8 million, $16.4 million and
$12.3 million in 2001, 2002 and 2003, respectively, under contracts to provide
search services to its affiliates

        We may seek additional capital through the issuance of debt or equity
depending upon the results of operations, market conditions or unforeseen
opportunities. Our future liquidity and capital requirements will depend upon
numerous factors. The pace of expansion of our operations will affect our
capital requirements. Our forecast of the period of time through which our
financial resources will be adequate to support our operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary materially as a result of the factors described above. If we
require additional capital resources, we may seek to sell additional equity or
debt securities or obtain a bank line of credit. The sale of additional equity
or convertible debt securities could result in additional dilution to our
stockholders. There can be no assurance that any financing arrangements will be
available in amounts or on terms acceptable to us, if at all.

        RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

WE HAVE A LIMITED OPERATING HISTORY.

        GoTo was founded in September 1997, officially launched its service in
June 1998, and has a limited operating history. An investor in our common stock
must consider the risks and difficulties frequently encountered by companies in
new and rapidly evolving markets. These risks include our:

        -       complete dependence on online advertising and consumer search
                services with only limited market acceptance;

        -       need to develop and upgrade our infrastructure, including
                internal controls, transaction processing systems, data storage
                and retrieval systems and Web site;

        -       need to manage changing operations;

        -       dependence upon and need to hire and retain key personnel; and

        -       ability to integrate acquisitions.

        We cannot assure you that the GoTo service will retain its existing, or
attract new, advertisers, consumers and "affiliates," which are Web sites that
include GoTo's services on their sites or that direct consumer traffic to the
GoTo Web site. We also cannot assure you that GoTo will achieve significant
additional revenues or improve operating margins in future periods. There can be
no assurance that GoTo's services will continue to achieve commercial success
and, if they do not, our business, operating results and financial condition may
be materially and adversely affected.



                                       23
<PAGE>   24



WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.

        We have not achieved profitability. We expect to be profitable during
the fourth quarter of 2001, but we may never become profitable should adverse
events occur. We incurred a net loss of approximately $458.6 million and $29.3
million for the years ended December 31, 2000 and 1999, respectively, and as of
December 31, 2000, we had an accumulated deficit of approximately $502.0
million.

        Our limited operating history makes it difficult to forecast our future
operating results. Although our revenue has grown in recent quarters, we cannot
be certain that this growth will continue. We expect to continue to increase our
marketing, sales and service, product development and general and administrative
expenses. As a result, we will need to generate significant additional revenue
to achieve profitability and in the absence of significant additional revenue,
we may need to raise additional funds. If we do achieve profitability, we cannot
be certain that we will sustain or increase it.

OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS BECAUSE
OF MANY FACTORS, AND ANY OF THESE COULD ADVERSELY AFFECT OUR STOCK PRICE.

        We believe that quarter-to-quarter comparisons of our operating results
are not a good indication of our future performance. It is likely that in some
future quarter our operating results may be below 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 or significantly fluctuate. Our operating
results have varied widely in the past, and we expect that they will continue to
vary significantly from quarter to quarter due to a number of factors,
including:

        -       demand for our services by advertisers and consumers, 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 the GoTo services, which are
                not determined by GoTo;

        -       our costs of attracting consumers to GoTo's services, including
                costs of receiving exposure on third-party Web sites and
                advertising costs;

        -       costs related to agreements with suppliers of consumer traffic
                to our service and professional services;

        -       loss of our agreements with suppliers of consumer traffic;

        -       the mix of paying vs. non-paying results on the GoTo services;

        -       our ability to significantly increase our distribution channels;

        -       seasonality, typical of our industry, which in the past has been
                lower in the first and third quarters of our fiscal year;

        -       the amount and timing of operating costs and capital
                expenditures relating to expansion of our operations;

        -       costs and delays in introducing new GoTo services and
                improvements to existing services;

        -       costs related to the integration of acquisitions;

        -       changes in the growth rate of Internet usage and acceptance by
                consumers of e-commerce;

        -       technical difficulties, system failures or Internet downtime;

        -       government regulations related to the Internet;

        -       our ability to upgrade and develop our information technology
                systems and infrastructure;

        -       costs related to acquisitions of technologies or businesses; and

        -       general economic conditions, as well as those specific to the
                Internet and related industries.

        As a result of our limited operating history, it is difficult to
accurately forecast our revenue, and we have limited meaningful historical
financial data upon which to base planned operating expenses. We plan to
significantly increase our operating expenses to expand our marketing and sales
operations, broaden our customer support capabilities and fund greater levels of
product development. We base our current and future expense levels on our
operating plans and estimates of future revenue, and 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 keyword search listings on the service and the
number of advertisers that bid on the service, none of which are under our
control. As a result, we may be unable to adjust our spending in a timely manner
to compensate for any unexpected revenue shortfall. 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 it exceeds our expectations.


                                       24
<PAGE>   25


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

        The consumers who conduct searches on our service come from a limited
number of sources. Our sources for consumers conducting searches are members of
our affiliate network, including portals, such as AOL, Terra Lycos and
AltaVista, providers of Internet browsers such as Netscape Communicator and
Microsoft Internet Explorer, aggregators of search offerings of various
providers, Internet Service Providers, such as Earthlink, and our Web site. In
August 2000, we entered into a 19-month distribution agreement under which AOL
will display GoTo's listings on the search results page of AOL, AOL.com and
Netscape's Netcenter. We also recently entered into a one-year extension to an
existing agreement with Microsoft Corporation for continued traffic from their
Internet Explorer 4 and Internet Explorer 5 browsers. This source delivered a
diminishing level of traffic to us in 2000 compared to 1999, and we expect that
we will eventually receive no traffic from this source. In addition, our
agreement with Netscape will expire on June 30, 2001. Although sources of
consumer traffic to our service fluctuate, in any given month we typically
depend upon one or a few of these sources for a significant majority of traffic
and searches conducted on our service. For the quarter ended December 31, 2000,
approximately 95% of all of GoTo's traffic came from our affiliates. Of GoTo's
total traffic, approximately 20% of the total traffic came from portals, (AOL,
Terra Lycos and AltaVista), approximately 15% of the total traffic came from the
browsers, (Microsoft's Internet Explorer and Netscape), approximately 60% of the
total traffic came from other affiliates, and the remaining 5% of the total
traffic came directly to the GoTo Web site. GoTo's agreements with affiliates
vary in duration and terms. There can be no assurance that we will be successful
in renewing any of these agreements or entering into new distribution agreements
on commercially acceptable terms.

OUR SUCCESS DEPENDS UPON ACHIEVING A LARGE AND ACTIVE BASE OF ADVERTISERS AND
CONSUMERS.

        Our ability to increase the volume of transactions on our service and
the amounts bid by our advertisers is dependent upon achieving market acceptance
from more advertisers and consumers using our services. Most 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. 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 on algorithmic or other traditional search and retrieval
technologies, consumers may perceive our results to be less objective than those
provided by traditional search methods. Failure to achieve and maintain a large
and active base of advertisers and consumers could have a material adverse
affect on our business, operating results and financial condition.

OUR FUTURE SUCCESS IS DEPENDENT UPON FURTHER DEVELOPING AND ENHANCING THE
AFFILIATE NETWORK.

        We believe that our future success in penetrating our target markets
depends in part on our ability to further develop and maintain relationships
with affiliates, who provide their users with GoTo services on their sites or
direct their traffic to our Web site. We believe these relationships are
important in order to facilitate broad market acceptance of our services and
enhance our sales. Our future ability to attract consumers to our services is
dependent upon the growth of our affiliate network, which is new and unproven.
Our agreements with some of our affiliates are generally terminable at will by
either party at any time. The loss of our agreements with our existing
affiliates could damage our business. If we are unable to successfully develop
and maintain relationships with affiliates, our business, operating results and
financial condition may be materially and adversely affected.

WE CANNOT ASSURE YOU THAT OUR STOCK PRICE WILL NOT DECLINE OR WILL NOT BE
EXTREMELY VOLATILE.

        The price of our common stock may decline or may be extremely volatile.
Since our initial public offering in June 1999, the per share closing price of
our common stock has ranged from a high of $114.50 as of November 15, 1999 to a
low of $4.81 as of December 21, 2000. In addition, an active public market for
GoTo's common stock may not continue.



                                       25
<PAGE>   26


OUR INDUSTRY IS HIGHLY COMPETITIVE, AND WE CANNOT ASSURE YOU THAT WE WILL BE
ABLE TO COMPETE EFFECTIVELY.

        GoTo competes with online services, 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 for a share of advertisers'
total advertising budgets. We believe that the number of companies selling
Web-based advertising and the available inventory of advertising space has
recently substantially increased. Accordingly, GoTo may face increased pricing
pressure for the sale of advertisements and direct marketing opportunities,
which could adversely affect our business and operating results.

        GoTo also competes with providers of Web directories, search, shopping,
auction and information services, all of whom offer services competitive with
GoTo, including, among others, AltaVista, Amazon.com, Inc., Ask Jeeves, Inc.,
CNET, Inc. (including mySimon Inc.), DealTime.com, eBay, Excite@Home, Inc.
(including WebCrawler and Magellan), Google, Inc., Inktomi Corporation,
LookSmart, Ltd., Microsoft Corporation (LinkExchange, Inc. and msn.com), NBCi,
Terra Lycos, Inc. (including HotBot) and Yahoo! Inc. In addition, PRIMEDIA,
which owns About.com, offers a product called Sprinks, which is a pay per click
advertising service, and there are other companies that offer directly competing
services as well.

        Many of these competitors, as well as potential entrants into our
market, have longer operating histories, larger customer or user bases, greater
brand recognition and significantly greater financial, marketing and other
resources than we do. Many of these 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, shopping, auction and information services or advertising
solutions, and existing providers of Web directories, search, shopping, auction
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 GoTo 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 and could have a material
adverse affect on our business, operating results and financial condition.

WE ARE DEPENDENT UPON MAINTAINING AND EXPANDING OUR COMPUTER AND COMMUNICATIONS
SYSTEMS.

        Our failure to achieve or maintain high capacity data transmission
without system downtime and achieve improvements to our transaction processing
systems and network infrastructure would adversely affect our business and
results of operations. We believe that our current transaction-processing
systems and network infrastructure are insufficient to support our future
growth. Although we are enhancing and expanding our transaction-processing
systems and network infrastructure, we have experienced occasional systems
interruptions and infrastructure failures, which we believe will continue to
occur.

WE MUST MAINTAIN AND CONTINUE TO UPGRADE OUR NEW FINANCIAL AND ACCOUNTING
SYSTEMS.

        If we are not able to maintain or continue to automate our sales,
financial and accounting systems and processes, and upgrade those systems in
accordance with our growth, including the integration of any acquired companies'
systems and data, we may not have adequate, accurate or timely financial
information. Failure to have adequate, accurate or timely financial information
would harm our business and could lead to volatility in our stock price. If we
grow rapidly, we will face additional challenges in upgrading and maintaining
these systems.

A SIGNIFICANT PORTION OF OUR REVENUE IS CONCENTRATED AMONG A LIMITED NUMBER OF
ADVERTISERS.

        If our major advertisers were to substantially cut back advertising or
stop using our services, our business would be seriously harmed. 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. We do not
have formal contractual relationships with many of our advertisers and when we
do have contracts all are terminable at any time by the advertiser. As a result,
we cannot assure you that any of our advertisers will purchase advertising from
us in the future.



                                       26
<PAGE>   27


CONTINUED ADOPTION OF THE INTERNET AS A METHOD OF CONDUCTING BUSINESS IS
NECESSARY FOR OUR FUTURE GROWTH.

        The failure of the Internet to continue to develop as a commercial and
business medium would adversely affect our business. The widespread acceptance
and adoption of the Internet by traditional businesses for conducting business
and exchanging information is likely only if the Internet provides these
businesses with greater efficiencies and improvements.

FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT OUR FUTURE GROWTH.

        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 our individual advertisers' and consumers' networking infrastructures
to alleviate overloading and congestion.

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 consumers 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, 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 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 security could deter people from using 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.

WE FACE THE RISKS OF SYSTEM FAILURES.

        We currently do not have a disaster recovery plan in effect and do not
have fully redundant systems for our services at an alternate site. A disaster
such as fire, flood, earthquake, power loss, telecommunications failure,
break-in, sabotage or a similar event could severely damage our business and
results of operations because our services could be interrupted for an
indeterminate length of time. Our operations depend upon our ability to maintain
and protect our computer systems, which are located in Pasadena, California and
at five offsite locations. These offsite locations are managed by third parties.
They are managed by:

         GlobalCenter, in Sunnyvale, California

         Qwest Communications International, Inc., in Burbank, California

         Cable and Wireless USA, Inc., in Reston, Virginia

         ESAT Net, in Dublin, Ireland

         Colo.com, in Las Vegas, Nevada (expected opening in second quarter of
         2001.)

        Pasadena, Sunnyvale and Burbank exist on or near known earthquake fault
zones. The occurrence of a natural disaster or unanticipated problems at our
principal headquarters or at a third-party facility could cause minor
interruptions or delays in our business, limited loss of data or 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. The occurrence of any or all of these events could
adversely affect our reputation, brand and business, which could have a material
adverse affect on our business, operating results and financial condition.

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

        California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for the State of California fall below 1.5%,
California has on some occasions implemented, and may in the future continue to
implement, rolling blackouts throughout California. Our computer systems are
supplied primary power by the local power company. In addition, the systems are
connected to battery backup and diesel generators. These alternative sources of
power are provided by our hosting provider and are subject to their upkeep and
maintenance. Our current



                                       27
<PAGE>   28

insurance does not provide coverage for any damages our customers or we may
suffer as a result of any interruption in our power supply. If blackouts
interrupt our third party power supply, we would be temporarily unable to
continue operations at our affected facilities. Any such interruption in our
ability to continue operations at our facilities could damage our reputation and
could result in lost revenue, which could have a material adverse effect on our
business, operating results and financial condition.

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. 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 that we will be able to successfully attract and retain
a sufficient number of qualified personnel.

WE MAY BE UNABLE TO 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 service in the United
Kingdom in November 2000. Our strategy is to align with partners that will
accelerate the timing of expansion, provide key distribution channels for our
products and provide additional financing. At this stage, the structure of
potential partnerships is not known, but it is intended that the partners will
take an equity position in our European entity, which may reduce the start-up
losses that GoTo would incur. If appropriate partnerships with terms acceptable
to us are not obtained, our share of international start-up costs may be higher.
To date, we have only operated internationally in the United Kingdom, and we may
be unable to execute our business model in this market or new markets. Further,
foreign providers of competing online services may have a substantial advantage
over us in attracting users in their country due to more established branding in
that country, greater knowledge with respect to the cultural differences of
users 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. 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;

-       our potential inability to aggregate a large amount of Internet traffic
        and find and develop relationships with international advertising and
        distribution partners;

-       competition in international markets from a broad range of competitors,
        including Yahoo!, LookSmart, AltaVista and other United States and
        foreign search engines, content aggregators and portals, some of which
        have greater local experience than we do;

-       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;

-       higher costs of doing business in foreign countries;

-       trade barriers and unexpected changes and differences in regulatory, tax
        and legal requirements applicable to Internet services; and

-       longer payment cycles and foreign currency fluctuations.

        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.



                                       28
<PAGE>   29


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 is 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 affect on our business, operating results and financial
condition.

WE ARE EXPOSED TO RISKS ASSOCIATED WITH CREDIT CARD FRAUD.

        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 could have a material adverse affect on our business, operating
results and financial condition.

MANY OF OUR ADVERTISERS ARE EMERGING INTERNET COMPANIES THAT REPRESENT CREDIT
RISKS.

        Some of our advertisers have limited operating histories, are operating
at a loss, have limited cash reserves or have limited access to capital. If any
significant part of our customer base experiences financial difficulties, is not
commercially successful or is unable to pay our advertising fees for any reason,
our business, operating results and financial condition may be materially and
adversely affected.

WE FACE RISKS OF CLAIMS FROM THIRD PARTIES FOR INTELLECTUAL PROPERTY
INFRINGEMENT AND OTHER MATTERS THAT COULD ADVERSELY AFFECT OUR BUSINESS.

        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. Any claims could result in costly
litigation and be time consuming to defend, divert management's attention and
resources, cause delays in releasing new or upgrading existing services or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
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 affect on our business, operating results and
financial condition.

        On November 3, 2000 GoTo was served with a summons and complaint by
MercExchange Inc.; alleging patent infringement relating to GoTo's online
auction and shopping services. The action is pending in the U.S. District Court
in the Eastern District of Virginia. GoTo is currently investigating the merits
of this claim.

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 and trademark law. We have no patents
issued to date on our technology. There can be no assurance that we will
adequately be able to protect our technology and data resources.

        We are aware that certain other companies are using or may have plans to
use the terms "GoTo," "Go," "Go2" and variations of these terms as part of a
company name, domain name, trademark or service mark. In addition, we have
received notice from companies claiming superior rights to marks such as these.
In particular, Go2 Systems, Inc. has recently threatened to file a claim against
GoTo for violating its trademark rights. GoTo denies that it is violating Go2
Systems' rights. In the event a lawsuit is filed, GoTo will contest the claim
vigorously. We cannot assure you that additional companies will not claim such
superior rights or that we will not be subject to infringement claims. A
successful infringement claim by the owner of a mark including "GoTo," "Go,"
"Go2" or a variation could require us to change our name or our logo, which
would be expensive and disruptive to our business, and could result



                                       29
<PAGE>   30

in damages. Further, 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.

        On October 26, 2000, GoTo announced its intent to change its corporate
name and expects to make such a change within 2001. If the new name has a URL
that belongs to a third party, that URL or other rights may be difficult to
acquire and may delay our planned name change. There are also certain costs
associated with the planned name change, which may increase depending on, among
other things, the availability of the URL and other rights belonging to third
parties.

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. Since our
inception, we have experienced negative cash flow from operations and expect to
experience significant 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 through at least
the next 12 months. However, we may choose to raise additional funds prior to
the expiration of this period or at a later date.

WE MAY NOT FIND A STRATEGIC ALTERNATIVE FOR GOTO TM SHOPPING.

        We may not find a suitable exit strategy for the shopping business. If
we are unable to find an acceptable strategic alternative, we will cease
operations of this product line. If we were to terminate this product line we
would incur additional costs such as severance charges.

WE MAY NOT FIND A STRATEGIC ALTERNATIVE FOR GOTO TM AUCTIONS.

        We may not find a suitable exit strategy for the auctions business. If
we are unable to find an acceptable equity partner, we may cease operations of
this product line. Any delays in finding a suitable exit strategy could
adversely affect our operating results.

OTHER POTENTIAL ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS.

        We may make investments in or acquire complementary products,
technologies and businesses. These acquisitions and investments could disrupt
our ongoing business, distract our management and employees and increase our
expenses. 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.
If we finance the acquisitions by issuing equity securities, this could dilute
our existing stockholders. Any amortization of goodwill or other assets, or
other charges resulting from the costs of these acquisitions could adversely
affect our operating results.

WE MAY LOSE PUBLIC RECOGNITION FROM OUR NAME CHANGE.

        In October 2000, we announced our intent to change our corporate name
and expect to officially change our name by the middle of 2001. The possible
loss of public recognition with our advertisers, consumers, affiliates and
investors could adversely affect our operating results and our stock price.

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 consumers; and

-       respond to technological advances and emerging industry standards and
        practices on a cost-effective and timely basis.



                                       30
<PAGE>   31

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY DAMAGE OUR BUSINESS.

        The laws and regulations applicable to the Internet and our services are
evolving and unclear and could damage our business. There are currently few laws
or regulations directly applicable to access to, or commerce on, the Internet.
Due to the increasing popularity and use of the Internet, it is possible that
laws and regulations may be adopted, covering issues such as user privacy,
defamation, database protection, pricing, taxation, content regulation, quality
of products and services, and intellectual property ownership and infringement.
Such legislation could expose GoTo to substantial 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 GoTo to incur significant
expenses in complying with any new regulations.

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 is currently unsettled and could damage our business.
We do not carry insurance that will indemnify us for liability for activities of
our users. We cannot assure you that GoTo will successfully avoid civil or
criminal liability for unlawful activities carried out by users of our service.
The imposition upon GoTo of potential liability for unlawful activities of users
of our service 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
affect on our business, operating results and financial condition.

WE HAVE BROAD DISCRETION TO USE OUR CAPITAL AND HOW WE INVEST THESE PROCEEDS MAY
NOT YIELD A FAVORABLE RETURN.

        Our management can spend our capital in ways with which the stockholders
may not agree.

FUTURE SALES OF OUR COMMON STOCK BY OUR STOCKHOLDERS MAY DEPRESS OUR STOCK
PRICE.

        If our stockholders sell substantial amounts of common stock in the
public market, including shares issued upon the exercise of outstanding options,
the market price of our common stock could fall. Up to approximately 52.6
million shares of common stock outstanding at December 31, 2000 may be available
for sale in the public market, except for 2.5 million shares that are subject to
repurchase by GoTo and transfer restrictions as a result of vesting agreements.

OUR CHARTER DOCUMENTS AND CHANGE OF CONTROL SEVERANCE AGREEMENTS WITH OUR
MANAGEMENT WILL MAKE IT MORE DIFFICULT TO ACQUIRE US.

        Provisions of our Amended and Restated Certificate of Incorporation and
Bylaws could 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
GoTo.

        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 providing for certain benefits, including acceleration
of option vesting, to these members if they are terminated other than for cause
following an acquisition of GoTo. 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 more expensive.



                                       31
<PAGE>   32

        Furthermore, in March 2000, we entered into a Stockholder Agreement with
Bill Gross' idealab!, which limits Bill Gross' idealab!'s and its affiliates'
ability to beneficially own 35% or more of our outstanding common stock, to
transfer shares of our common stock or to knowingly assist or advise, or
knowingly provide or arrange financing to facilitate any other person or entity
to beneficially own 15% or more of our outstanding common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        GoTo is exposed to the impact of interest rate changes and foreign
currency fluctuations:

        GoTo's exposure to market rate risk for changes in interest rates relate
primarily to GoTo's investment portfolio. GoTo has not used derivative financial
instruments in its investment portfolio. GoTo invests its excess cash in high
quality credit instruments, which are spread over many issuers. GoTo's
investments are principally confined to cash equivalents and available-for-sale
debt securities.

        International revenues from GoTo's foreign subsidiaries were less than
1% of total revenues in 2000. International sales are made from GoTo's United
Kingdom operations and are denominated in the local currency. This subsidiary
and our other foreign subsidiary in Ireland also incur most of its expenses in
the local currency. Accordingly, all foreign subsidiaries use the local currency
as their functional currency.

        GoTo's 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,
GoTo's future results could be materially adversely impacted by changes in these
or other factors.

        GoTo's exposure to foreign exchange rate fluctuations arises in part
from intercompany accounts in which costs incurred in the United States are
charged to GoTo's foreign sales subsidiaries. These intercompany accounts are
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
GoTo is 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 GoTo in 2000 was not material.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        See item 14 (A).

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

        None.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Information regarding the directors of GoTo is incorporated by reference
to the sections entitled "Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" appearing in the GoTo'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 the Company's
fiscal year ended December 31, 2000. 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 GoTo's Definitive Proxy Statement for
the Annual Meeting of Stockholders to be filed with Commission within 120 days
after the end of the Company's fiscal year ended December 31, 2000.



                                       32
<PAGE>   33

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 GoTo Common Stock" in GoTo's Definitive
Proxy Statement for the Annual Meeting of Stockholders to be filed with the
Commission within 120 days after the end of GoTo's fiscal year ended December
31, 2000.

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 GoTo's Definitive Proxy Statement for the Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the end of GoTo's fiscal year ended December 31, 2000.

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

(A)(1) INDEX TO FINANCIAL STATEMENTS




                                       33
<PAGE>   34


                          INDEX TO FINANCIAL STATEMENTS



<TABLE>
<S>                                                                         <C>
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
</TABLE>


<PAGE>   35


                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
GoTo.com, Inc.

        We have audited the accompanying consolidated balance sheets of
GoTo.com, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
GoTo.com, Inc. at December 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.

                                        /s/ ERNST & YOUNG LLP

Los Angeles, California
February 6, 2001



                                      F-2
<PAGE>   36

                                 GOTO.COM, INC.

                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                             AS OF
                                                                           DECEMBER 31,
                                                                   ----------------------------
                                                                     2000                1999
                                                                   ---------          ---------
<S>                                                                <C>                <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents ..............................         $  12,986          $  11,914
  Short-term investments .................................            41,694             93,409
  Accounts receivable, net of allowance of $1,000 and $250
    for 2000 and 1999, respectively ......................             5,365              2,927
  Prepaid expenses and other .............................             1,970                851
  Prepaid marketing expenses .............................            23,605              2,034
                                                                   ---------          ---------
Total current assets .....................................            85,620            111,135

Property and equipment:
  Computer hardware ......................................            21,035              9,036
  Computer software ......................................            11,364              4,234
  Furniture and fixtures .................................             3,942              1,923
                                                                   ---------          ---------
                                                                      36,341             15,193
Accumulated depreciation and amortization ................           (10,265)            (2,490)
                                                                   ---------          ---------
                                                                      26,076             12,703

Intangible assets, net ...................................             3,234                 --
Restricted investments ...................................             5,564                 --
Long-term investments ....................................               293              4,932
Other assets .............................................               626                742
                                                                   ---------          ---------
Total assets .............................................         $ 121,413          $ 129,512
                                                                   =========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable .......................................         $  23,284          $  11,910
  Accrued payroll expenses ...............................             2,491                976
  Accrued expenses .......................................             1,657                141
  Deferred revenue .......................................             4,441              2,058
  Current portion of debt ................................                --                131
  Current portion of capital lease obligations ...........               791                754
                                                                   ---------          ---------
Total current liabilities ................................            32,664             15,970

Other long-term liabilities ..............................               576                 --
Long-term capital lease obligations ......................                78                768
Commitments and contingencies

STOCKHOLDERS' EQUITY:
  Common stock, $0.0001 par value, and 200,000
    shares authorized as of December 31, 2000 and
    1999; shares issued and outstanding--52,566
    and 45,519 as of December 31, 2000 and 1999,
    respectively .........................................                 5                  5
  Additional paid-in capital .............................           591,239            158,799
  Deferred compensation, net .............................            (1,128)            (2,584)
  Accumulated deficit ....................................          (502,026)           (43,405)
  Accumulated other comprehensive income (loss) ..........                 5                (41)
                                                                   ---------          ---------
Total stockholders' equity ...............................            88,095            112,774
                                                                   ---------          ---------
Total liabilities and stockholders' equity ...............         $ 121,413          $ 129,512
                                                                   =========          =========
</TABLE>


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



                                      F-3
<PAGE>   37

                                 GOTO.COM, INC.

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



<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                  -----------------------------------------------
                                                                    2000               1999                1998
                                                                  ---------          ---------          ---------
<S>                                                               <C>                <C>                <C>
Revenue .................................................         $ 103,052          $  26,809          $     822
Cost of revenue .........................................            13,109              6,213              1,429
                                                                  ---------          ---------          ---------
Gross profit (loss) .....................................            89,943             20,596               (607)

Operating expenses:
  Marketing, sales and service ..........................            94,531             34,459              9,645
  General and administrative ............................            33,798             12,467              1,655
  Product development ...................................            13,523              3,689              1,232
  Amortization of deferred compensation .................             1,376              3,585              1,199
  Write-off of acquired in-process research
     and development ....................................             7,550                 --                 --
  Amortization of intangible assets .....................           115,600                 --                 --
  Impairment of intangible assets .......................           309,253                 --                 --
                                                                  ---------          ---------          ---------
                                                                    575,631             54,200             13,731
                                                                  ---------          ---------          ---------
Loss from operations ....................................          (485,688)           (33,604)           (14,338)
Other income:
  Interest income, net ..................................             5,809              3,777                316
  Other income ..........................................            21,259                566                 --
                                                                  ---------          ---------          ---------
Loss before provision for income taxes ..................          (458,620)           (29,261)           (14,022)
Provision for income taxes ..............................                 1                  1                  1
                                                                  ---------          ---------          ---------
Net loss ................................................         $(458,621)         $ (29,262)         $ (14,023)
                                                                  =========          =========          =========

Pro forma net loss per share ............................         $   (9.54)         $   (0.77)         $   (0.75)
Historical basic and diluted net loss per share .........         $   (9.54)         $   (1.04)         $   (1.36)
Weighted average shares used to compute pro forma net
  loss per share ........................................            48,065             38,219             18,714
Weighted average shares used to compute historical basic
  and diluted net loss per share ........................            48,065             28,207             10,296


If deferred compensation were allocated
   to expense categories, it would be
   allocated as follows:
                                                                    2000               1999               1998
                                                                  ---------          ---------          ---------
  Cost of revenue .......................................         $       4          $      16          $      24
  Marketing, sales and service ..........................               381                670                265
  General and administrative ............................               922              2,673                745
  Product development ...................................                69                226                165
                                                                  ---------          ---------          ---------
    Total amortization of deferred compensation .........         $   1,376          $   3,585          $   1,199
                                                                  =========          =========          =========
</TABLE>

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



                                      F-4
<PAGE>   38

                                 GOTO.COM, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                      SERIES A                   SERIES B AND C                  SERIES D
                                                     CONVERTIBLE                  CONVERTIBLE                   CONVERTIBLE
                                                    PREFERRED STOCK             PREFERRED STOCK               PREFERRED STOCK
                                                 -----------------------     -----------------------     -----------------------
                                                  SHARES        AMOUNT         SHARES        AMOUNT        SHARES        AMOUNT
                                                 ---------     ---------     ---------     ---------     ---------     ---------
<S>                                               <C>          <C>            <C>          <C>            <C>           <C>
BALANCE AT DECEMBER 31, 1997 ................           --     $      --            --     $      --            --     $      --
 Issuance of common stock for cash and
   services .................................           --            --            --            --            --            --
 Issuance of series A convertible
   preferred stock ..........................          471           212            --            --            --            --
 Issuance of series B convertible
   preferred stock and capital
   contribution .............................           --            --         8,312         6,281            --            --
 Issuance of series C convertible
   preferred stock ..........................           --            --        10,710        22,152            --            --
 Issuance of warrants for services ..........           --            --            --            --            --            --
 Stock option compensation ..................           --            --            --            --            --            --
 Amortization of deferred compensation ......           --            --            --            --            --            --
 Net loss ...................................           --            --            --            --            --            --
                                                 ---------     ---------     ---------     ---------     ---------     ---------
BALANCE AT DECEMBER 31, 1998 ................          471           212        19,022        28,433            --            --
 Issuance of common stock, net of
   issuance costs of $8,655 .................           --            --            --            --            --            --
 Issuance of series D convertible
   preferred stock ..........................           --            --            --            --         3,628        24,969
 Conversion of preferred stock to
   common stock .............................         (471)         (212)      (19,022)      (28,433)       (3,628)      (24,969)
 Exercise of common stock options and
   warrants, net of repurchases .............           --            --            --            --            --            --
 Issuance of warrants and options for
   services .................................           --            --            --            --            --            --
 Stock option compensation ..................           --            --            --            --            --            --
 Amortization of deferred compensation ......           --            --            --            --            --            --
 Unrealized losses on short-term and
   long-term investments ....................           --            --            --            --            --            --
 Net loss ...................................           --            --            --            --            --            --
                                                 ---------     ---------     ---------     ---------     ---------     ---------
BALANCE AT DECEMBER 31, 1999 ................           --            --            --            --            --            --
 Exercise of common stock, net of repurchases
    and issuance of common stock pursuant to
    Employee Stock Purchase Plan ............           --            --            --            --            --            --
 Issuance of common stock for acquisitions ..           --            --            --            --            --            --
 Amortization of deferred compensation ......           --            --            --            --            --            --
 Unrealized losses on short-term and
   long-term investments ....................           --            --            --            --            --            --
 Cumulative translation adjustment ..........           --            --            --            --            --            --
 Net loss ...................................           --            --            --            --            --            --
                                                 ---------     ---------     ---------     ---------     ---------     ---------
BALANCE AT DECEMBER 31, 2000 ................           --     $      --            --     $      --            --     $      --
                                                 =========     =========     =========     =========     =========     =========

<CAPTION>

                                                                                         ACCUMULATED
                                               COMMON STOCK      ADDITIONAL    DEFERRED     OTHER
                                          --------------------    PAID-IN       COMPEN-  COMPREHENSIVE  ACCUMULATED
                                           SHARES      AMOUNT     CAPITAL      SATION    INCOME (LOSS)    DEFICIT      TOTAL
                                         ---------   ---------   ---------    ---------  -------------  -----------  ---------
<S>                                       <C>        <C>         <C>          <C>          <C>          <C>         <C>
BALANCE AT DECEMBER 31, 1997 .........      10,017   $       1   $     242    $      --    $      --    $    (120)   $     123
 Issuance of common stock for cash and
   services ..........................         427          --         286           --           --           --          286
 Issuance of series A convertible
   preferred stock ...................          --          --          --           --           --           --          212
 Issuance of series B convertible
   preferred stock and capital
   contribution ......................          --          --          77           --           --           --        6,358
 Issuance of series C convertible
   preferred stock ...................          --          --          --           --           --           --       22,152
 Issuance of warrants for services ...          --          --          90           --           --           --           90
 Stock option compensation ...........          --          --       2,517       (2,517)          --           --           --
 Amortization of deferred compensation          --          --          --        1,199           --           --        1,199
 Net loss ............................          --          --          --           --           --      (14,023)     (14,023)
                                         ---------   ---------   ---------    ---------    ---------    ---------    ---------
BALANCE AT DECEMBER 31, 1998 .........      10,444           1       3,212       (1,318)          --      (14,143)      16,397
 Issuance of common stock, net of
   issuance costs of $8,655 ..........       6,900           1      94,834           --           --           --       94,835
 Issuance of series D convertible
   preferred stock ...................          --          --          --           --           --           --       24,969
 Conversion of preferred stock to
   common stock ......................      23,121           2      53,612           --           --           --           --
 Exercise of common stock options and
   warrants, net of repurchases ......       5,054           1       2,044           --           --           --        2,045
 Issuance of warrants and options for
   services ..........................          --          --         246           --           --           --          246
 Stock option compensation ...........          --          --       4,851       (4,851)          --           --           --
 Amortization of deferred compensation          --          --          --        3,585           --           --        3,585
 Unrealized losses on short-term and
   long-term investments .............          --          --          --           --          (41)          --          (41)
 Net loss ............................          --          --          --           --           --      (29,262)     (29,262)
                                         ---------   ---------   ---------    ---------    ---------    ---------    ---------
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 losses 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)
                                         =========   =========   =========    =========    =========    =========    =========
</TABLE>


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



                                      F-5
<PAGE>   39

                                 GOTO.COM, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -----------------------------------
                                                                 2000         1999        1998
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ................................................   $(458,621)   $ (29,262)   $ (14,023)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
  Amortization of deferred compensation ...................       1,376        3,585        1,199
  Accretion of discounts from the purchase of
    short-term and long-term investments ..................      (1,357)      (1,990)          --
  Losses from disposition of property and equipment .......         351           --           --
  Other common stock and warrants .........................          --          246          370
  Depreciation and amortization ...........................       8,422        2,247          294
  Write-off of acquired in-process research and
    development............................................       7,550           --           --
  Amortization of intangible assets .......................     115,600           --           --
  Impairment of intangible assets .........................     309,359           --           --
  Changes in operating assets and liabilities:
    Accounts receivable ...................................      (2,415)      (2,571)        (334)
    Prepaid expenses and other ............................      (1,026)        (701)        (150)
    Prepaid marketing expenses ............................     (21,571)        (293)      (1,741)
    Accounts payable and accrued expenses .................       9,541        9,929        3,007
    Deferred revenues .....................................       2,383        1,877          181
                                                              ---------    ---------    ---------
  Net cash used in operating activities ...................     (30,408)     (16,933)     (11,197)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Sales/(purchases) of short-term and long-term
    investments, net ......................................      52,194      (96,392)      (1,554)
  Capital expenditures for property and equipment .........     (20,575)     (12,820)          --
  Net cash used in acquisition ............................        (863)          --           --
  Other assets ............................................        (596)        (745)          --
                                                              ---------    ---------    ---------
  Net cash provided by (used in) investing activities .....      30,160     (109,957)      (1,554)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from the issuance of common stock, net .........       2,863       96,880            6
  Proceeds from the issuance of preferred stock, net ......          --       24,969       28,722
  Proceeds from lease line ................................          --        1,203          330
  Repayments under lease line .............................        (708)        (499)         (37)
  Repayment of debt .......................................        (835)        (106)          --
                                                              ---------    ---------    ---------
  Net cash provided by financing activities ...............       1,320      122,447       29,021

Net increase (decrease) in cash and cash equivalents ......       1,072       (4,443)      16,270
Cash and cash equivalents at beginning of period ..........      11,914       16,357           87
                                                              ---------    ---------    ---------
Cash and cash equivalents at end of period ................   $  12,986    $  11,914    $  16,357
                                                              =========    =========    =========

Cash paid during the period for:
  Income taxes ............................................   $       1    $       1    $       2
  Interest ................................................   $     178    $     214    $      11

Non-cash investing and financing activities:
  Issuance of common stock for acquisition of businesses ..   $ 422,106    $      --    $      --
  Acquired equipment under capital leases arrangements ....          --          525           --
  Acquired equipment under debt arrangement ...............   $      --    $     237    $      --
</TABLE>


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



                                       F-6
<PAGE>   40

                                 GOTO.COM, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SIGNIFICANT ACCOUNTING POLICIES

GENERAL

        GoTo.com, Inc. (the Company or GoTo) operates an online marketplace that
introduces consumers and businesses that search the Internet to advertisers who
provide products, services and information. Advertisers participating in our
marketplace include retail merchants, wholesale and service businesses and
manufacturers. GoTo facilitates these introductions through our search service,
which enables advertisers to bid in an ongoing auction for priority placement in
our search results. Priority placement means that the search results appear on
the page ranked in descending order of bid price, with the highest bidder's
listing appearing first. Each advertiser pays GoTo the amount of its bid
whenever a consumer clicks on the advertiser's listing in our search results.
Advertisers pay GoTo for each click-through, so advertisers bid only on keywords
relevant to the products, services or information that they offer. Because each
advertiser chooses the bid amount and advertisement placement that is optimal
for its business, we believe the GoTo marketplace provides advertisers with a
cost-effective way to target consumers. Consumers access the GoTo search service
primarily through our affiliates, a network of Web sites that have integrated
GoTo's search service into their sites or that direct consumer traffic to our
site. Consumers can also access GoTo's search service directly through GoTo's
Web site.

        GoTo also operates an online comparison shopping service called
"GoTo(TM)Shopping" (see Note 7). Currently, GoTo intends to exit the comparison
shopping business, and accordingly GoTo is evaluating strategic alternatives.

        GoTo also operates an online resource for merchants to place and manage
their products with other auction sites or services, called "GoTo(TM)Auctions"
(see Note 7). Currently GoTo is evaluating strategic alternatives for
GoTo(TM)Auctions, including an equity partner or the possibility of a sale of
this portion of the business.

        GoTo was incorporated on September 15, 1997 in the state of Delaware and
officially launched its service on June 1, 1998. The Company operates in one
reportable business segment. In October 2000, GoTo announced its intent to
change its corporate name and expects to make such a change within 2001.

PRINCIPLES OF CONSOLIDATION

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

FOREIGN CURRENCY

        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
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 materially from those
estimates.

RECLASSIFICATIONS

        Certain prior year balances have been reclassified to conform to current
year presentation.



                                      F-7
<PAGE>   41

REVENUE RECOGNITION

        Revenue is generated from clickthroughs that users make on advertiser's
listings. Search listing advertisement revenue is determined by multiplying the
number of click-throughs on paid search results by the price bid for the
particular keyword listing at the time of the click-through. Search listing
advertising revenues are earned and recognized as actual click-throughs occur to
the extent that the customer has deposited sufficient funds with the Company or
provided that the collection of any resulting receivable is probable. Revenue
also consists of banner advertising, which constitutes less than 10 percent of
our revenue. GoTo has no barter transactions. 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.

        In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition" (SAB 101), which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the SEC. The Company adopted SAB 101 in 2000, which had no impact on the
Company's financial position and results of operations.

COMPREHENSIVE INCOME (LOSS)

        The Company accounts for comprehensive income (loss) using Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, 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. Total
comprehensive loss for 2000 and 1999 approximated net loss.

COST OF REVENUE

        Cost of revenue consists 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.

AFFILIATES

        The Company enters into short-term agreements with other Internet
companies (affiliates) whereby the Company provides search services within the
affiliates' Web sites or the affiliates provide a link to the Company's site. In
some cases, the Company pays the affiliates fees based on the term of the
agreement and the amount of traffic the Company receives from the Web sites.
Some of these fees are paid at the beginning of the contract resulting in
prepaid distribution affiliate fees and some of the fees are billed during the
term of the contracts resulting in accrued affiliate fees. In other cases
affiliates are paid a portion of revenues earned by GoTo. Affiliate fees are
charged to marketing, sales and service expense ratably over the contract or
based on actual traffic received under the terms of the agreements. A
significant portion of the Company's traffic has been generated from a small
number of the Company's larger affiliates, which include AOL, Terra Lycos,
AltaVista, Netscape, CompuServe, Go2Net, Microsoft and Earthlink. The traffic
from these affiliates converts to revenue when consumers click on paid listings.

        The Company expenses advertising media costs as incurred and production
cost upon first airing or printing. For the years ended December 31, 2000 and
1999 and 1998, the Company incurred advertising costs, including affiliate fees,
of approximately $81.2 million, $30.2 million and $8.8 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 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. In 2000, GoTo adopted Emerging Issues Task Force 00-2,
"Accounting for Web Site Development Costs"



                                      F-8
<PAGE>   42
(EITF 00-2). EITF 00-2 requires either capitalizing or expensing costs as
incurred on specific Web site development costs based on the nature of each
cost. The adoptation of EITF 00-2 did not have a material impact on the
Company's financial position and results of operations.

CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, LONG-TERM INVESTMENTS AND
RESTRICTED INVESTMENTS

        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, consisting of commercial paper and
certificate of deposits, 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, 2000, the fair value of these securities
approximated cost and the unrealized holding gains was approximately $46,000.
The realized gains and losses on sales of available-for-sale investments for the
year ended December 31, 2000 were not significant. All available-for-sale
investments generally mature within one year or less, except for one investment
with a fair value of approximately $293,000 and original maturity of 17 months.

        The estimated fair value of cash, cash equivalents and short-term and
long-term investments, which approximates the carrying costs as of December 31,
2000, are as follows (in thousands):


<TABLE>
<CAPTION>
                                                  CASH AND CASH          SHORT-TERM             LONG-TERM
                                                   EQUIVALENTS           INVESTMENTS           INVESTMENTS
                                                   -----------           -----------           -----------
<S>                                                  <C>                   <C>                   <C>
               Cash ......................           $ 5,839               $    --               $    --
               Commercial Paper ..........             2,481                28,490                   293
               Certificates of deposit ...             1,001                 8,132                    --
               US Treasury bills .........             3,665                 5,072                    --
                                                     -------               -------               -------
                                                     $12,986               $41,694               $   293
                                                     =======               =======               =======
</TABLE>

        GoTo also has approximately $5.6 million of investments which are
restricted (see Note 6).

ACCOUNTS RECEIVABLE

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


<TABLE>
<CAPTION>
                                                                           ADDITIONS
                                                         BALANCE AT        CHARGED TO                           BALANCE AT
                                                         BEGINNING OF       COSTS AND                             END OF
                                                           PERIOD           EXPENSES          WRITE-OFFS          PERIOD
                                                         ------------      ----------         ----------        ----------
<S>                                                        <C>               <C>               <C>               <C>
               Allowance for doubtful accounts:
                 December 31, 1998 ............            $   --            $   86            $   --            $   86
                 December 31, 1999 ............            $   86            $  164            $   --            $  250
                 December 31, 2000 ............            $  250            $1,041            $  291            $1,000
</TABLE>

CONCENTRATION OF CREDIT RISK

        Accounts receivable are typically unsecured and are due from customers
primarily located in the United States. Many of GoTo's customers are in the
Internet industry. Credit losses have generally been within management's
expectations. At December 31, 2000 and 1999, no customer represented more than
10 percent of total accounts receivable.

PROPERTY AND EQUIPMENT

        Property and equipment are stated at cost. Property and equipment
consists of computer hardware, computer software, which includes costs incurred
in the application development stage for computer software developed for
internal use, 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.



                                      F-9
<PAGE>   43


LONG-LIVED ASSETS

        The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" (SFAS 121). 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, GoTo
recorded an impairment charge on the goodwill and intangible assets from the
acquisitions of Cadabra and AuctionRover of approximately $309.3 million (see
Note 7).

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.

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. Valuation
reserves against deferred tax assets are provided as necessary.

ACCOUNTING FOR STOCK-BASED COMPENSATION

        SFAS No. 123, "Accounting for Stock-Based Compensation," requires that
stock awards granted subsequent to January 1, 1995 be recognized as compensation
expense based on their fair value at the date of grant. Alternatively, a company
may account for granted stock awards under Accounting Principles Board Opinion
(APB) No. 25 "Accounting for Stock Issued to Employees" (APB 25) and disclose
pro forma income amounts, which would have resulted from recognizing such awards
at their fair value. The Company has elected to account for stock-based
compensation expense under APB 25 and make the required pro forma disclosures
for compensation expense (see Note 4).

EARNINGS (LOSS) PER SHARE COMPUTATION

        Historical basic and diluted net loss per share is computed using the
weighted average number of shares of common stock outstanding excluding the
unvested portion of stock issued in connection with the exercise of such options
subject to repurchase. The effect of outstanding stock options, convertible
preferred stock and unvested stock are excluded from the calculation of
historical diluted net loss per share for the periods presented as their
inclusion would be antidilutive.

        Pro forma basic and diluted net 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. The
effect of outstanding stock options and unvested stock are excluded from the
calculation of pro forma diluted net loss per share for the periods presented as
their inclusion would be antidilutive.

        Options to purchase approximately 6.5 million and 2.8 million shares of
common stock were outstanding as of December 31, 2000 and 1999, respectively. In
addition, as of December 31, 2000, there were approximately 2.5 million shares
of unvested common stock outstanding that were issued in connection with the
exercise of options and are subject to repurchase.



                                      F-10
<PAGE>   44


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


<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                         -----------------------------------------------
                                                                           2000               1999               1998
                                                                         ---------          ---------          ---------
<S>                                                                      <C>                <C>                <C>
               Numerator:
                 Net loss ..........................................     $(458,621)         $ (29,262)         $ (14,023)
                                                                         =========          =========          =========
               Denominator:
                 Denominator for historical basic and diluted
                    calculation--weighted average shares ...........        48,065             28,207             10,296
               Weighted average effect of pro forma securities:
                 Series A convertible preferred stock ..............            --                226                360
                 Series B convertible preferred stock ..............            --              3,994              5,403
                 Series C convertible preferred stock ..............            --              5,147              2,655
                 Series D convertible preferred stock ..............            --                645                 --
                                                                         ---------          ---------          ---------
                 Denominator for pro forma calculation .............        48,065             38,219             18,714
                                                                         =========          =========          =========
               Net loss per share:
                 Pro forma basic and diluted net loss per share ....     $   (9.54)         $   (0.77)         $   (0.75)
                 Historical basic and diluted net loss per share ...     $   (9.54)         $   (1.04)         $   (1.36)
</TABLE>

2. INCOME TAXES

        As a result of the net operating losses incurred since inception, no
income tax provision has been recorded except for state minimum taxes of $800
for the years ended December 31, 2000, 1999 and 1998. The following is a
reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate:


<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                                  --------------------------------
                                                                  2000          1999          1998
                                                                  ----          ----          ----
<S>                                                                <C>           <C>           <C>
               Statutory federal rate .........................    (34)%         (34)%         (34)%
               State income taxes (net of federal benefit) ....     (1)           (6)           (5)
               Valuation allowance ............................      3            36            37
               Nondeductible expenses .........................     32             4             3
               Other ..........................................     --            --            (1)
                                                                   ---           ---           ---
                                                                    --%           --%           --%
                                                                   ===           ===           ===
</TABLE>

        The components of the deferred tax assets and related valuation
allowance at December 31, 2000 and 1999 are as follows:


<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                        --------------------------
                                                          2000              1999
                                                        --------          --------
                                                               (IN THOUSANDS)
<S>                                                     <C>               <C>
               Net operating loss carryforwards ....    $ 37,838          $ 16,739
               Other ...............................         503               350
                                                        --------          --------
               Deferred tax assets .................      38,341            17,089
               Valuation allowance .................     (38,341)          (17,089)
                                                        --------          --------
                                                        $     --          $     --
                                                        ========          ========
</TABLE>

        Due to the uncertainty surrounding the timing of realizing the benefits
of its deferred tax assets in future tax returns, the Company has recorded a
valuation allowance against its deferred tax assets.

        At December 31, 2000, the Company had net operating loss carryforwards
of approximately $98.6 million and $74.1 million available to reduce future
federal and state taxable income, respectively, which expire beginning in the
years 2017 through 2020 for federal and in 2005 to 2015 for state purpose. Under
Section 382 of the Internal Revenue Code, the utilization of the net operating
loss carryforwards can be limited based on changes in the percentage of
ownership of the Company.

        Approximately $10.7 million of the valuation allowance for deferred tax
assets relating to net operating loss carryforwards is attributable to employee
stock option deductions, the benefit from which will be allocated to additional
paid in capital, when and if subsequently realized.


                                      F-11
<PAGE>   45

3. STOCKHOLDERS' EQUITY

COMMON AND PREFERRED STOCK

        GoTo issued shares of its preferred stock as described below:

        In March 1998, GoTo issued a total of 471,111 shares of series A
preferred stock to various investors at a purchase price of $0.45 per share.

        In May 1998, GoTo issued a total of 8,311,688 shares of series B
preferred stock to various investors at a purchase price of $0.77 per share.

        In July 1998, November 1998 and December 1998, GoTo issued a total of
10,710,348 shares of series C preferred stock to various investors at a purchase
price of $2.076 per share.

        In April 1999, GoTo issued a total of 3,628,447 shares of series D
preferred stock to various investors at a purchase price of $6.89 per share.

        As part of the series B preferred stock financing, Bill Gross, the
Company's founder, paid a consultant 111,111 shares of the Company's common
stock owned by him for services provided in connection with the series B
preferred stock financing. The exchange of the founder's shares was recorded at
the fair market value of the common stock, on the date of the exchange, as a
contribution to capital and cost of the series B preferred financing.

        In June 1999, the Company completed its initial public offering and
issued 6,900,000 shares of its common stock at a price to the public of $15.00
per share. The Company received approximately $94.8 million in cash, net of
underwriting discounts, commissions and other offering costs. Simultaneously
with the closing of the initial public offering, each outstanding share of
series A, B, C and D preferred stock was automatically converted into one share
of common stock.

        Upon completion of the Company's initial public offering the number of
common and undesignated preferred shares authorized for issuance changed to
200,000,000 and 10,000,000, respectively.

        GoTo issued common stock in connection with its acquisitions during 2000
(see Note 7).

WARRANTS

        In September and November of 1998, the Company issued warrants in
exchange for certain consulting services to purchase an aggregate of 63,272
shares of the Company's Common Stock at exercise prices ranging from $0.77 to
$2.076 per share. In February 1999, the Company issued additional warrants in
exchange for certain consulting and other services to purchase 41,699 shares of
the Company's common stock at exercise prices ranging from $2.076 to $5.00 per
share. The warrants were fully exercisable upon issuance and those warrants not
exercised by the warrant holders for common stock prior to our initial public
offering on June 18, 1999 were terminated. The deemed fair value of warrants
issued in 1999 and 1998 was $180,000 and $90,000, respectively; these amounts
were recorded in general and administrative expenses in the respective periods.

DEFERRED STOCK OPTION COMPENSATION

        The excess of the deemed fair value of the Company's common stock over
the exercise price of options granted during the year ended December 31, 1999
and 1998 at the date of grant, adjusted for the return of unvested options or
repurchase of restricted stock resulting from employee terminations, amounted to
an aggregate of approximately $4.9 million and $2.5 million, respectively. The
deemed fair value of the common stock was determined by the Company based on the
selling prices of contemporaneous sales of each series of preferred stock
considering the relative rights and privileges of each security, the stages of
development of the Company's business and the inherent risks and perceived
future potential of the Company at the time of grant or issuance. 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, 2000 and 1999, deferred compensation
amortization of approximately $1.4 million and $3.6 million, respectively, was
recorded. At December 31, 2000 and 1999, deferred compensation of approximately
$1.1



                                      F-12
<PAGE>   46


million and $2.6 million, respectively, was reflected as a reduction of
stockholders' equity. The deferred compensation amortization relates only to
stock options awarded to employees; the salaries and related benefits of these
employees are included in the applicable cost of revenue or operating expense
line item.

OTHER STOCK COMPENSATION

        The Company sold or issued 427,195 shares of common stock to various
consultants during 1998 at prices less than the deemed fair value of the common
stock on the day it was sold. The excess of the deemed fair value of the common
stock on the day it was sold aggregating $280,000 was recognized as consulting
expense.

4. STOCK PLAN AND STOCK PURCHASE PLAN

        The Company's 1998 Stock Plan provides for the granting of options for
the purchase of up to 15.3 million 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 in 2001 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. The increase for fiscal 2001 was determined to be approximately 2.6
million shares. Under terms of the plan, options may be granted to employees,
nonemployee directors or consultants at prices not less than the fair value at
the date of grant. Options granted to nonemployees are recorded at the value of
negotiated services received. All options are immediately exercisable, however,
shares issuable upon exercise of the option vest typically 20%, 10% or zero
immediately upon grant of the option with the remaining balance vesting evenly
either annually or quarterly over the following four years. The Company has the
right to repurchase unvested shares issued upon exercise of the option.

        Information relating to the outstanding stock options is as follows:


<TABLE>
<CAPTION>
                                                                                  WEIGHTED
                                                                                  AVERAGE
                                                                  SHARES       EXERCISE PRICE
                                                                  ------       --------------
                                                               (IN THOUSANDS)
<S>                                                               <C>           <C>
               Outstanding at December 31, 1997 .........            115          $ 0.44
                 Granted ................................          4,888            0.15
                 Exercised ..............................             --              --
                 Canceled ...............................             (3)           0.15
                                                                  ------
               Outstanding at December 31, 1998 .........          5,000            0.16
                 Granted ................................          2,979           19.62
                 Exercised ..............................         (5,035)           0.37
                 Cancelled ..............................           (114)          11.58
                                                                  ------
               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
                                                                  ======
</TABLE>

        The following table summarizes information regarding options outstanding
and options exercisable at December 31, 2000 (in thousands except per share
data):


<TABLE>
<CAPTION>
                                                                     OUTSTANDING AND EXERCISABLE
                                                       ---------------------------------------------------------
                                                                                WEIGHTED
                                                                                AVERAGE                 WEIGHTED
                                                        NUMBER                 REMAINING                AVERAGE
                                                          OF                  CONTRACTUAL               EXERCISE
               RANGE OF EXERCISE PRICES                 SHARES                   LIFE                    PRICE
               ------------------------                ---------              -----------              ---------
<S>                                                   <C>                      <C>                    <C>
              $ 0.15 -  $11.6875 ........                  2,132                     8.7               $    5.39
                                                       =========               =========               =========
              $12.00 -  $14.56 ..........                  1,185                     9.0               $   12.74
                                                       =========               =========               =========
              $14.88 -  $34.50 ..........                  1,866                     9.4               $   25.27
                                                       =========               =========               =========
              $35.71 -  $68.31 ..........                  1,056                     9.0               $   56.71
                                                       =========               =========               =========
              $80.11 - $108.25 ..........                    243                     8.9               $  107.98
                                                       =========               =========               =========
                                                           6,482
                                                       =========
</TABLE>

        Options available for future grant totaled approximately 4.2 million and
0.7 million at December 31, 2000 and 1999, respectively. As of January 1, 2001
the Company added approximately 2.6 million options available for future grant
in accordance with the Company's 1998 Stock Plan.



                                      F-13
<PAGE>   47


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


<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                 --------------------------------------------
                                                                 2000                1999                1998
                                                                 ----                ----                ----
<S>                                                              <C>                <C>                 <C>
               Risk free interest rate ...........                5.0%               5.38%               5.14%
               Expected lives (in years) .........                3.0                 2.5                 4.0
               Dividend yield ....................                 --                  --                  --
               Expected volatility ...............               0.80                0.80                  --
</TABLE>

        For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Under SFAS
123, the Company would have incurred an additional compensation expense of
approximately $22.8 million, $2.4 million and $51,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.



<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                              ------------------------------------------------------
                                                                 2000                 1999                1998
                                                              -----------          -----------          -----------
                                                                                  (IN THOUSANDS)
<S>                                                           <C>                  <C>                  <C>
               Net loss, as reported ................         $  (458,621)         $   (29,262)         $   (14,023)
               Pro forma net loss ...................            (481,381)             (31,656)             (14,074)

               Pro forma loss per share .............              (10.02)               (0.83)               (0.75)
               Pro forma historical basic
                 and diluted loss per share .........         $    (10.02)         $     (1.12)         $     (1.37)
</TABLE>

        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.

        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
reserves 2,000,000 shares of common stock for future issuance which will
increase 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 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.

5. RELATED PARTY TRANSACTIONS

        During 1997 and 1998, GoTo shared facilities and received certain
management services including certain accounting, payroll processing, access to
shared local area computer communications network, and general business
insurance from Bill Gross' idealab!, which, with its affiliate, idealab!
Holdings, L.L.C., is a significant stockholder of GoTo. Bill Gross' idealab!
charged a management fee for the use of its facilities and the services
provided. During 1998 and through January 1999, Bill Gross' idealab! provided
certain payroll processing services for GoTo and charged a fee for those
services. On February 1, 1999, GoTo entered into a lease with Bill Gross'
idealab! for office space. GoTo also uses a shared local area computer
communications network. In 1999, GoTo entered into a lease agreement with Bill
Gross' idealab! for additional office space. The term of the agreement is from
August 1999 through January 2000. The total management and leasing fee
associated with both facilities was approximately $1.8 million, $364,000 and
$229,000 during the years ended December 31, 2000, 1999 and 1998, respectively.
From inception through March 1, 1998, Bill Gross, GoTo's founder and a principal
of idealab! Holdings, L.L.C. and Bill Gross' idealab!, was the President and
Chief Executive Officer of GoTo and received no compensation for his service.
The value of these services was not material to the financial statements. During
March 1998, certain stockholders provided temporary funding of $2.5 million to
GoTo which carried no interest. In early May 1998 this funding was contributed
to GoTo in return for series B preferred stock. In December 1999, GoTo
terminated both leases in effect during 1999 and entered into an arrangement
with Bill Gross' idealab! for approximately 58,000 square feet of office space.
The term of the lease commenced on January 15, 2000 and will terminate on
October 31, 2004 with total lease payments of approximately $7.1 million.
Management believes these amounts are materially representative of the fair
value of services recorded.


                                      F-14
<PAGE>   48

        During 2000, GoTo recorded approximately $377,000 of search listing
advertising revenue from Bill Gross' idealab!, which, with its affiliate,
idealab! Holdings, L.L.C., is a significant stockholder of GoTo. During 2000,
GoTo also recorded approximately $143,000 of search listing and banner revenue
from Cadabra. Cadabra began listing on GoTo on December 17, 1999 and ceased
advertising on GoTo on January 13, 2000. On January 31, 2000, GoTo acquired
Cadabra (see Note 7). Management believes these amounts are materially
representative of the fair value of advertising services provided.

6. COMMITMENTS AND CONTINGENCIES

LEASES

        The Company leases office space under operating lease agreements
expiring through October 2005. The future minimum lease payments under
non-cancelable operating leases and present value of future minimum capital
lease payments are as follows (in thousands):


<TABLE>
<CAPTION>
                                                        OPERATING         CAPITAL
                                                          LEASE            LEASE
                                                        ---------         -------
<S>                                                      <C>              <C>
               2001 .................................    $ 2,495          $   836
               2002 .................................      2,120              104
               2003 .................................      1,731                2
               2004 .................................      1,496               --
               2005 .................................         74               --
                                                         -------          -------
               Total minimum lease payments .........    $ 7,916              942
                                                         =======
               Less amount representing interest ....                         (73)
                                                                          -------
                                                                          $   869
                                                                          =======
</TABLE>

        Total rent expense was approximately $2.0 million, $504,000 and $116,000
during the years ended December 31, 2000, 1999 and 1998, respectively.

EQUIPMENT FINANCING ARRANGEMENT

        At December 31, 2000, the Company had a line of credit arrangement with
a leasing institution that provides for a capital equipment lease line of up to
a maximum of $1,500,000. The terms of the agreement include a requirement for
the Company to keep an unrestricted cash balance of no less than $1.0 million at
any time. The Company was in compliance as of December 31, 2000 and 1999. Under
this agreement, $117,000 was available for future financing transactions at
December 31, 2000.

LETTER OF CREDIT

        In August 2000, GoTo entered into a 19-month agreement under which
America Online (AOL) will display GoTo's listings on the search results page of
AOL, AOL.com and Netscapes's Netcenter. The agreement calls for a guaranteed
payment by GoTo of $50 million over the term of the agreement. As part of the
guaranteed payment, GoTo issued to AOL a letter of credit for the benefit of
AOL, in the amount of $5 million. In order to secure the line of credit, GoTo
has an investment of approximately $5.6 million, which is restricted until the
termination of the letter of credit in March 2002.

AFFILIATE COMMITMENTS

        The Company is obligated to make guaranteed payments totaling
approximately $38.8 million, $16.4 million and $12.3 million in 2001, 2002 and
2003, respectively, under contracts to provide search services to its
affiliates.

LITIGATION

        On May 25, 2000, GoTo settled its trademark infringement lawsuit against
The Walt Disney Company. Pursuant to a settlement agreement, Disney paid GoTo
$21.5 million, which is included in other income, and Disney has also agreed to
permanently discontinue its use of the disputed Go Network logo and the
replacement logo. GoTo will continue to use the logo it has used since 1997. In
addition, Disney agreed to dismiss its counterclaim against GoTo.



                                      F-15
<PAGE>   49

        On November 3, 2000 GoTo was served with a summons and complaint by
MercExchange, Inc., alleging patent infringement relating to GoTo's auction and
shopping services. The action is pending in the U.S. District Court in the
Eastern District of Virginia. GoTo is currently investigating the merits of this
claim.

7. ACQUISITIONS

        Cadabra

        On January 31, 2000, GoTo acquired Cadabra, an online comparison
shopping service. Pursuant to the Agreement and Plan of Reorganization, GoTo
acquired all of the outstanding shares of capital stock and assumed all
outstanding options to acquire shares of capital stock of Cadabra, for $8.0
million in cash and 3,283,672 shares of GoTo common stock, including 214,833
shares to be issued upon the exercise of options assumed by GoTo. The
acquisition was accounted for as a purchase. Under the purchase method of
accounting, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values as determined by GoTo
at the date of the acquisition. The operations of Cadabra have been included in
our results of operations since the date of the acquisition. The total purchase
price of the acquisition was approximately $263.1 million and consisted of cash
of $8.0 million; GoTo common stock of $252.5 million valued at the closing price
of GoTo's common stock on the date the exchange ratio was set, net of expected
proceeds from the exercise of Cadabra stock options assumed by GoTo; and
acquisition costs of $2.6 million, primarily for investment banking, legal and
accounting costs. 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 and will be amortized on a
straight-line basis over three years and $4.4 million 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 $245.1 million and was scheduled to be amortized on a straight-line
basis over three years. The projects identified as in-process research and
development were those that were underway at the time of the acquisition, that
required additional effort to establish technological feasibility, had no
alternative future use and were expected to add features that would enhance the
operating capabilities of the service. At the acquisition date, these projects
were approximately 80% complete. GoTo completed these projects in the third
quarter of 2000, incurring additional costs of approximately $1.2 million to do
so. To determine the value of in-process research and development, the expected
future cash flows, including costs to reach technological feasibility, were
discounted at an after-tax rate of 25%, taking into account risks related to the
characteristics and applications of the technology, existing and future markets,
and assessments of the life cycle stage of the technology. GoTo obtained an
independent appraisal to derive the purchase price allocation.

        AuctionRover

        On May 3, 2000, GoTo acquired AuctionRover, an online resource for
auctions. Pursuant to the Agreement and Plan of Reorganization, GoTo acquired
all of the outstanding shares of capital stock and assumed all outstanding
options to acquire shares of capital stock of AuctionRover for 3,470,588 shares
of GoTo common stock, including 521,408 shares to be issued upon the exercise of
options assumed by GoTo. The acquisition was accounted for as a purchase. The
operations of AuctionRover have been included in GoTo's results of operations
since the date of acquisition. Based on the price of GoTo common stock on the
date the exchange ratio was set, the purchase price was valued at approximately
$174.2 million, which consisted of GoTo common stock of $173.7 million, net of
expected proceeds from the exercise of stock options assumed by GoTo and
including acquisition costs of approximately $500,000 for legal and accounting
services. The purchase price was determined by arms-length negotiations between
the parties. Timothy Draper, who was a director GoTo at the time of the
AuctionRover acquisition, is affiliated with certain entities that were
principal stockholders of AuctionRover. 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. GoTo assumed a line of credit with an
outstanding balance of approximately $700,000, which GoTo paid off in the second
quarter of 2000.



                                      F-16
<PAGE>   50


        The following unaudited pro forma financial information presents the
combined results of operations of GoTo, Cadabra and AuctionRover as if the
acquisitions had occurred as of the beginning of each period presented, after
giving effect to certain adjustments, including amortization of goodwill and
intangible assets, but excludes the non-recurring charge for the write-off of
in-process research and development associated with the Cadabra acquisition. The
pro forma financial information does not necessarily reflect the results of
operations that would have occurred had GoTo, Cadabra and AuctionRover
constituted a single entity during such periods (in thousands).


<TABLE>
<CAPTION>
                                                               Year Ended           Year Ended
                                                            December 31, 2000     December 31, 1999
                                                            -----------------     -----------------
<S>                                                            <C>                  <C>
               Revenue ...............................         $   102,927          $    27,057
               Net loss ..............................            (346,773)            (171,412)
               Pro forma net loss per share ..........               (7.10)               (4.07)
               Historical net loss per share .........         $     (7.10)         $     (5.33)
</TABLE>

        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. These indicators included:

        1.      The significant declines in the valuations of public companies
                operating in the Internet space.

        2.      Management's re-evaluation of its strategies and fit for these
                business lines.

        3.      A significant decrease in the stock price of GoTo compared to
                the purchase price of these acquisitions.

        4.      Management's decision to decrease its investment in these
                business lines.

        In accordance with SFAS 121, an impairment loss should be measured as
the amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset. The estimate of fair value shall consider selling prices or
fair values for similar assets and the results of valuation techniques (e.g.,
discounted cash flows) as well as other strategic and market factors to the
extent available in the circumstances. Management has estimated the fair value
of the net assets acquired, based on discounted future cash flows as well as
strategic and market factors, to be below the carrying values of goodwill and
intangible assets. Accordingly, GoTo took a charge to operations during the
fourth quarter of 2000 for approximately $309.3 million, to write down these
assets. An additional factor considered by management was the difficulty in
estimating future cash flows for the comparison-shopping business line and the
Internet auctions business line because they are still in their infancy. It is
possible that the ultimate realizability of the assets of these business lines
could differ from these estimates in the near term.

        Currently GoTo intends to exit the comparison shopping business and
accordingly GoTo is evaluating strategic alternatives. GoTo is also currently
evaluating strategic alternatives for GoTo(TM) Auctions, including an equity
partner or the possibility of a sale of this portion of our business.

SearchUP

        On October 25, 2000, GoTo acquired substantially all the assets of
SearchUP, which did not have significant business operations. Pursuant to the
Asset Purchase Agreement, GoTo 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 GoTo's
common stock on the purchase date. GoTo allocated the purchase price to the
intangible assets acquired based on their estimated fair values as determined by
GoTo. It is anticipated that such amounts will be amortized on a straight-line
basis over three years.


                                      F-17
<PAGE>   51


(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 the 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,
2000.

(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


<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S>           <C>
3.1**          Amended and Restated Certificate of Incorporation of GoTo to be
               in effect after the closing of the offering made under this
               Registration Statement.

3.2**          Amended and Restated Bylaws of GoTo to be in effect after the
               closing of the offering made under this Registration Statement.

4.1**          Specimen Common Stock Certificate.

10.1**         Form of Indemnification Agreement between GoTo and certain of its
               officers and each of its directors.

10.2**         Form of Change of Control Severance Agreement between GoTo and
               certain of its officers.

10.3**         1998 Stock Plan and forms of option agreements thereunder.

10.4**         1999 Employee Stock Purchase Plan and form of agreement
               thereunder.

10.5**         Series A Preferred Stockholders' Rights Agreement among GoTo and
               certain investors.

10.6**         Amended and Restated Series B Preferred Stockholders' Rights
               Agreement among GoTo and certain investors.

10.7**         Series C Preferred Stockholders' Rights Agreement among GoTo and
               certain investors.

10.8**         Series D Preferred Stockholders' Rights Agreement among GoTo and
               certain investors.

10.9**         Sublease Agreement dated February 1, 1999 between GoTo and Bill
               Gross' idealab!.

10.10**        Information Services Agreement dated April 30, 1998 between GoTo
               and Inktomi Corporation.

10.11**        Premier Search Services Agreement dated September 16, 1998
               between GoTo and Microsoft Corporation.

10.12**        Letter of Agreement dated April 1, 1999 between GoTo and Pile,
               Inc.

10.13**        GlobalCenter Master Service Agreement between GoTo, and
               GlobalCenter, Inc.

10.14**        Distinguished Provider Agreement dated May 13, 1998 between GoTo
               and Netscape Communications Corporation

10.15**        Distinguished Provider Agreement between GoTo and Netscape
               Communications Corporation

10.16**        Amendment No. 1 to U.S. English Language Net Search Services
               Agreement-Distinguished Provider dated May 19, 1999 between GoTo
               and Netscape Communications Corporation

10.17**        Insertion Order dated March 11, 1999 between GoTo and Netscape
               Communications Corporation

10.18**        Amendment No. 1 to Bookmark Program Agreement dated August 1,
               1999 between GoTo and Netscape Communications Corporation

10.19**        Amendment No. 1 to Netscape Communications Corporation U.S.
               English-Language Net Search Program Distinguished Provider
               Services Agreement dated April 30, 1999 between GoTo and Netscape
               Communications Corporation

10.20**        Insertion Order dated September 15, 1998 between GoTo and Warner
               Bros. Online 10.21 Sublease Agreement dated December 14, 1999
               between GoTo and Bill Gross' idealab!

10.21*         Sublease Agreement dated December 14, 1999 between GoTo and Bill
               Gross' idealab!.

10.22*         idealab! Stockholder Agreement dated March 3, 2000 between GoTo
               and Bill Gross' idealab!
</TABLE>


<PAGE>   52

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S>           <C>
23.1           Consent from Ernst & Young LLP.

24.1**         Power of Attorney.
</TABLE>

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

*       Previously filed as an Exhibit to the Form 10-K filed on March 16, 2000
        and incorporated by reference herein.

**      Previously filed as an Exhibit to the Registrant's Registration
        Statement in Form S-1 (Commission File No. 333-76415) and incorporated
        by reference herein.


<PAGE>   53

                                   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 March 16, 2001.

                                    GoTo.com, 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 by the following persons on behalf of the Registrant
and in the capacities and on the date indicated.


<TABLE>
<CAPTION>
              SIGNATURE                                      TITLE                                  DATE
              ---------                                      -----                                  ----
<S>                                           <C>                                             <C>
           /s/ TED MEISEL                      President,                                      March 16, 2001
---------------------------------------        Chief Executive Officer and Director
            (Ted Meisel)                       (Principal Executive Officer)

          /s/ TODD TAPPIN                      Chief Financial Officer (Principal              March 16, 2001
---------------------------------------        Financial Officer and Principal
           (Todd Tappin)                       Accounting Officer)

        /s/ ROBERT M. KAVNER                   Chairman of the Board                           March 16, 2001
---------------------------------------
         (Robert M. Kavner)

       /s/ JEFFREY S. BREWER                   Director                                        March 16, 2001
---------------------------------------
        (Jeffrey S. Brewer)

         /s/ WILLIAM GROSS                     Director                                        March 16, 2001
---------------------------------------
          (William Gross)

      /s/ LINDA FAYNE LEVINSON                 Director                                        March 16, 2001
---------------------------------------
       (Linda Fayne Levinson)

         /s/ WILLIAM ELKUS                     Director                                        March 16, 2001
---------------------------------------
          (William Elkus)
</TABLE>