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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



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FORM 10-KFOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

|    |  |                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------
|[x] |  | Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended

December 31, 2002

|    |  |                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------
|[ ] |  | Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from      
to

Commission file number 000-26521

Ask Jeeves, Inc.(Exact name of registrant as specified in its charter)

|                                               |  |                                        
|---------------------------------------------- |  | ---------------------------------------
|Delaware                                       |  | 94-3334199                             
|(State or Other Jurisdiction of Incorporation) |  | (I.R.S. Employer Identification Number)

|                                                   |  |                   
|-------------------------------------------------- |  | ------------------
|5858 Horton Street, Suite 350                      |  |                   
|Emeryville, CA 94608                               |  | (510) 985-7400    
|(Address of principal executive offices)(Zip Code) |  | (Telephone number)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value
Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [x] No [ ]

On March 4, 2003, Ask Jeeves had
42,995,642 shares of Common Stock
outstanding and an approximate aggregate public market value of approximately
$247,331,951 (based
on
36,533,523 shares of Common Stock held by non-affiliates and a
closing price of $6.77 per share of Common Stock on the Nasdaq National Market).
On June 28, 2002, which was the last business day of Ask Jeeves most recently
completed second fiscal quarter, Ask Jeeves had 41,269,627
shares of Common Stock outstanding and its public market value was
approximately
$35,851,733 million
(based on
34,807,508 shares of Common Stock then held by
non-affiliates and a closing price that day of $1.03 per share of Common Stock
on the Nasdaq National Market). These public market value calculations exclude
shares held on the stated dates by Ask Jeeves officers, directors and 5% or
greater stockholders. (Exclusion from these public market value calculations
does not imply affiliate status for any other purpose.)

Documents Incorporated By Reference

Portions of Ask Jeeves definitive Proxy Statement to be filed with the
Securities and Exchange Commission (the SEC) pursuant to Regulation 14A in
connection with Ask Jeeves 2003 Annual Meeting of Stockholders are
incorporated by reference in Part III of this report.

Certain exhibits filed with Ask Jeeves Registration Statements on Form S-1,
SEC file nos. 333-77539, 333-95691 and 333-30494; Current Reports on Form 8-K,
filed with the SEC on November 18, 1999, February 14, 2000, May 10, 2001 and
September 17, 2001; Quarterly Reports on Form 10-Q filed with the SEC on
November 14, 2000, August 14, 2001, April 30, 2002 and August 14, 2002; Annual
Reports on Form 10-K filed with the SEC on April 2, 2001 and February 28, 2002;
and Registration Statement on Form S-8, SEC file no. 333-73400, are
incorporated by reference in Item 15 of this report.

The Exhibit Index begins on
page 73.



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TABLE OF CONTENTS



|                                  |                                                                                               |  |  |  |  |  |  | 
|--------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                           
|                                  | ITEM 1. BUSINESS                                                                             
|                                  | ITEM 2. PROPERTIES                                                                           
|                                  | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                          
|                                  | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                  | ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                 
|                                  | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                  | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                  | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                  | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III                         
|                                  | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                  | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                  | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                  | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                  | ITEM 14. CONTROLS AND PROCEDURES                                                             
|                                  | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|SIGNATURES AND POWERS OF ATTORNEY
|CERTIFICATIONS                   
|EXHIBIT INDEX                    
|EXHIBIT 2.1                      
|EXHIBIT 2.4                      
|EXHIBIT 3.1.2                    
|EXHIBIT 3.1.3                    
|EXHIBIT 10.2.3.3                 
|EXHIBIT 10.2.4.2                 
|EXHIBIT 10.2.6.2                 
|EXHIBIT 10.2.7.1                 
|EXHIBIT 10.2.9.1                 
|EXHIBIT 10.2.10.1                
|EXHIBIT 10.2.11                  
|EXHIBIT 10.4.4                   
|EXHIBIT 10.5.1                   
|EXHIBIT 10.5.2.1                 
|EXHIBIT 10.5.2.2                 
|EXHIBIT 10.5.2.3                 
|EXHIBIT 10.8.2                   
|EXHIBIT 10.9                     
|EXHIBIT 10.10.1                  
|EXHIBIT 10.10.2                  
|EXHIBIT 10.10.3                  
|EXHIBIT 10.10.4                  
|EXHIBIT 21.1                     
|EXHIBIT 23.1                     
|EXHIBIT 99.1                     



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ASK JEEVES, INC.
Annual Report on Form 10-K
for the year ended December 31, 2002

TABLE OF CONTENTS

|                                                                             |                                                                                              |  |       |    | 
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- |  | ----- | -- | 
|Part I                                                                       |                                                                                              |  | 3     |   
|                                                                             | Item 1.Business                                                                              |  |       | 3  | 
|                                                                             | Item 2.Properties                                                                            |  |       | 14 | 
|                                                                             | Item 3.Legal Proceedings                                                                     |  |       | 15 | 
|                                                                             | Item 4.Submission of Matters to a Vote of Security Holders                                   |  |       | 15 | 
|Part II                                                                      |                                                                                              |  | 16    |   
|Item 5.Market for Registrants Common Equity and Related Stockholder Matters |                                                                                              |  | 16    |   
|                                                                             | Item 6.Selected Consolidated Financial Data                                                  |  |       | 17 | 
|                                                                             | Item 7.Managements Discussion and Analysis of Financial Condition and Results Of Operations |  |       | 18 | 
|                                                                             | Item 7a.Quantitative And Qualitative Disclosures About Market Risk                           |  |       | 41 | 
|                                                                             | Item 8.Financial Statements and Supplementary Data                                           |  |       | 41 | 
|                                                                             | Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  |       | 66 | 
|Part III                                                                     |                                                                                              |  | 66    |   
|                                                                             | Item 10.Directors and Executive Officers of the Registrant                                   |  |       | 66 | 
|                                                                             | Item 11.Executive Compensation                                                               |  |       | 67 | 
|                                                                             | Item 12.Security Ownership of Certain Beneficial Owners and Management                       |  |       | 67 | 
|                                                                             | Item 13.Certain Relationships And Related Transactions                                       |  |       | 68 | 
|                                                                             | Item 14.Controls and Procedures                                                              |  |       | 68 | 
|                                                                             | Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     |  |       | 68 | 
|Signatures And Powers Of Attorney                                            |                                                                                              |  | 69    |   
|Certifications                                                               |                                                                                              |  | 70,71 |   
|Exhibit Index                                                                |                                                                                              |  | 73    |   

Cautionary Note regarding Forward-Looking Statements

In addition to historical information, this Annual Report on Form 10-K contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Forward-looking statements are those
that predict or describe future events or trends and that do not relate solely
to historical matters. You can generally identify forward-looking statements as
statements containing the words believe, expect, will, anticipate,
intend, estimate, project, assume or other similar expressions,
although not all forward-looking statements contain these identifying words.
All statements in this report regarding our future strategy, future operations,
projected financial position, estimated future revenues, projected costs,
future prospects, and results that might be obtained by pursuing managements
current plans and objectives are forward looking statements. You should not
place undue reliance on our forward-looking statements because the matters they
describe are subject to known and unknown risks, uncertainties and other
unpredictable factors, many of which are beyond our control. Our
forward-looking statements are based on the information currently available to
us and speak only as of the date on which this report was filed with the SEC.
We expressly disclaim any obligation to issue any updates or revisions to our
forward-looking statements, even if subsequent events cause our expectations to
change regarding the matters discussed in those statements. Over time, our
actual results, performance or achievements will likely differ from the
anticipated results, performance or achievements that are expressed or implied
by our forward-looking statements, and such difference might be significant and
materially adverse to our stockholders. Many important factors that could
cause such a difference are described in this Annual Report under the captions
Competition, Proprietary Rights and Risk Factors, which you should review
carefully. Please consider our forward-looking statements in light of those
risks as you read this report.

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PART I




ITEM 1. BUSINESS

Overview

At Ask Jeeves, Inc. our advanced search technologies enable computer users to
locate information quickly and intuitively, whether they are searching for data
across the World Wide Web (which is known as the Web) or in corporate
enterprise systems. We offer our search technology to the public through
advertiser-supported Web sites, and to corporate customers through software
licenses. Users of our flagship Web site, Ask.com, submit their
question to Jeeves, our illustrated Internet butler, whose image guides them
through the question and answer process. Our technology parses their questions
to determine the precise topic of users needs and interests, while analyzing
the relationships among topically relevant Web sites to supply the user with a
list of locations likely to contain the most authoritative answers. Jeeves
also offers suggestions for further questions and links to related products and
services.

We believe that by providing an intuitive way to access information on the Web,
we make online information retrieval a more satisfying experience for users.
We believe that our corporate customers can achieve the same result by
licensing our software. The addition of our intuitive search engine to a
complex corporate Web site can make buried informationincluding information in
linked databases and legacy systemsmore accessible to the average user,
thereby increasing customer satisfaction and, often, decreasing help center
calls.

We offer our search technology through our two divisions: Web Properties and
Jeeves Solutions:



| |  |  | Web Properties. Our Web Properties division administers our
own Web search sites results at Ask.com, Ask.co.uk, Teoma.com and
AJKids.com. It generates revenue in two ways. First by syndicating
our search results and ad products to approximately 45 third party Web sites,
as of December 31, 2002 including portals, infomediaries, and
content and destination Web sites. And second, by offering
advertisers a variety of targeted and effective tools for promoting
their products to our broad user base. Types of advertising range
from ubiquitous banner ads to more advanced keyword products, in
which we receive a fee for either displays of our click-throughs on a link to an advertisers
product offering in response to users pertinent questions. In
December 2002, according to Nielsen//Netratings, our combined U.S.
Web Properties attracted an audience of 12.2 million unique users, who viewed approximately 7.4 million Web pages per day on our
combined U.S. Web Properties. We believe the combination of our
broad user base and our comprehensive suite of keyword targeted
advertising products enables us to offer advertisers an efficient
and effective method of reaching online audiences.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Jeeves Solutions.Our Jeeves Solutions division offers
software and services to our corporate customers. Jeeves Solutions
core software application, JeevesOne, allows corporate customers to
add our intuitive search engine to their corporate Internet or
intranet sites. With the purchase of additional modules JeevesOne
allows users to search and access a variety of linked enterprise
systems and legacy databases. With the addition of Jeeves
Analytics, our corporate customers can learn about their users
behavior, interests and usage trends so as to better serve the needs
of their customers and reduce overall customer support costs. We
believe our Jeeves Solutions technology and service offerings
increase user satisfaction while enabling our corporate customers to
increase sales revenue and retain customers.                                                                                                                                                                                                                                                                                                                                                                                    

Recent Events

Fiscal year 2002 saw Ask Jeeves reach many milestones. Our Web Properties
division integrated the Teoma search technology, which we acquired in late
2001, into our search engine on Ask.com, which increased the relevance and
authority of the search results that we deliver. By so doing, we believe we
increased overall user satisfaction. Additionally, we launched Teoma.com as a
separate search site and added the Teoma technology to our suite of
syndicated search products. In February 2002, we acquired full ownership of
our joint venture in the United Kingdom and integrated its assets into our Web
Properties division. Finally, we experienced strong sales growth for our paid
placement products following the addition of our sponsored links service
offered by Google Inc., which we complemented during the year with our Premier
Listings product.

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Our Jeeves Solutions division acquired the technology assets of Octopus
Software, Inc. addressing what we believe to be a key corporate customer need by adding
secure enterprise connectivity, support for leading technology standards and
deployment tools for corporate information technology and business users to our JeevesOne product
suite. Additionally, we extended the number of technology platforms for which
the JeevesOne product suite is available.

We finished 2002 on a strong note, reporting quarterly net profits from ongoing
operations for the first time in our history. In fiscal year 2002, we
generated revenues of approximately $74.1 million, an 11.4% increase over the
prior year despite there being no noticeable improvement in the economic
environment. We believe that this accomplishment represents a turning point
for us and is the result of our efforts over the past two years to better
position our company to serve customers and target new opportunities as they
arise.

Our Web Properties Division

Properties

Our Web Properties division consists of a network of advertising-supported Web
sites that attract visitors who wish to use our intuitive question and answer
technology to search the Web. Our search network includes the following Web
sites:



| |  |  | Ask.com;                                        
| | - |  | ------------------------------------------------
|
| |  |  | Ask.co.uk;                                      
|
| |  |  | Teoma.com;                                      
|
| |  |  | Ask Jeeves for Kids at AJKids.com; and          
|
| |  |  | Sites to which we syndicate our
search services.

Industry Background

Search engine usage continues to be an essential online activity for the Webs
millions of users. Nearly 80% of Internet users navigate the Web via search
engines, making search sites second only to email providers as the most popular
category of Web site. Already a dynamic and accepted medium, the Internet is
expected to continue its growth in 2003, with the number of active Internet
users in the U.S. projected to increase 6 percent to 147 million users. Correspondingly,
the U.S. online advertising industry is forecast to experience a 6.3 percent growth
in 2003 to $6.7 billion. By 2005, the U.S. online advertising is expected to become an
$8.1 billion industry. These projections are from studies conducted by a
market research firm not affiliated with our company and are forward-looking
statements, as described in the introductory cautionary note.

Web Properties Search Sites

Ask.com

Ask.com is the flagship Web property of our search network. Well known for its
butler Jeeves, this Web site provides a guided experience that
helps users find the best answers to their questions on the Web. By aggregating
our highly advanced search technologies, we strive to deliver the most relevant
answers to users queries and keyword searches. Our technology parses users
questions or keywords to determine their likely topics of interest, and analyzes
relationships among Web sites devoted to those topics, to determine which are
likely to be the most authoritative. In response to a users questions,
Ask.com then delivers the following types of responses:



| |  |  | a list of automatically generated hyperlinks to third-party Web
sites, with the most relevant and authoritative Web sites listed first;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | suggested questions on related topics;                                                                                                 
|
| |  |  | pre-drafted
answers available in the Ask Jeeves Knowledge Base; and                                                                   
|
| |  |  | paid placement listings from our advertisers.                                                                                          

Jeeves, the Webs most famous face (according to NPD Wave 4 Study, March 2001),
serves as a trusted guide for our users, providing them with help and direction
throughout their search experience. In December 2002, Ask.com processed
approximately 3.49 million questions a day compared to approximately 3.17
million questions in December 2001. Additionally, page views on Ask.com were
302.3 million in December 2002 compared to 270.8 million in December 2001. In
September 2001, we acquired Teoma Technologies and in late December 2001 we
integrated their highly advanced, subject-specific popularity algorithm into
Ask.com so as to deliver more authoritative and

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relevant results to Ask Jeeves users. Teomas technology is described under
Teoma.com, below. Within one year from integrating this technology, we
believe user satisfaction on Ask.com increased by 42 percent and site
abandonment rate decreased by 48 percent.

Ask Jeeves UK

In February 2000, we launched Ask Jeeves UK in joint venture with two British
companies. This Web site, at Ask.co.uk, consistently ranks among the top 12 most visited Web sites in the United
Kingdom in its category according to Nielsen//Netratings. Like our
corresponding U.S. Web site, Ask Jeeves UK carries our strong, distinctive
brand of Jeeves, the Internet butler. In February 2002, we announced our
agreement to acquire full ownership of Ask Jeeves UK and we integrated this
venture into our Web Properties division during 2002. Ask Jeeves currently has
the second highest brand awareness of all Web sites in the United Kingdom
(according to RSL Capibus, November 2002).

In December 2002, 5.7 million unique users visited Ask.co.uk compared to 3.9
million users in December 2001. Page views on Ask.co.uk were
90 million in December 2002 compared to 66 million in December 2001.

We added Teomas search
technology to our Ask.co.uk site in July 2002, which now
provides users with the option of choosing to view a global results list or one
limited to the United Kingdom. We believe the addition of this UK result
partition has increased both the number of user visits and questions asked.

Teoma

We acquired Teoma Technologies, Inc. in September 2001 and integrated Teomas
search technology into Ask.com in late December 2001. Utilizing a breakthrough
approach, known as Subject-Specific Popularity,SM Teomas search technology
goes beyond traditional page ranking methods to estimate a Web sites
authority, in addition to its relevance. Instead of simply ranking search
results based upon the Web sites with the most links leading to them, Teoma
analyzes the Web as it naturally occurs in its subject-specific communities to
determine which Web sites are most relevant. Teoma is the only search
technology that ranks a Web site based on the number of same-subject pages that
reference it, not just general popularity, to determine the Web sites level of
authority. We maintain Teoma.com as a stand-alone search engine in addition to
utilizing this technology in Ask.com and Ask.co.uk. We also syndicate
this
technology to Hotbot and InfoSpace, among others.

Teomas technology provides users of Teoma.com with three types of search
results:



| |  |  | Results.The
Results List includes links to topically relevant Web sites in
response to a users query.                                                                                                                                                                                                                                                                                                                                                                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Refine.The
Refine List organizes results into specific sub-topic categories or
communities, so users can refine their search to find the results most
closely related to their query. For example, a search on video games
would let a user choose from folders containing results in the
categories of Video Games Reviews, Home PC Games, Classic Video
Games and more. We believe no other technology can dynamically cluster
search results into these topic-specific Web communities.
|
| |  |  | Resources. The
Resources List includes Web sites created by individual enthusiasts or
experts. These Web sites feature lists of other authoritative Web sites
and links relating to the search topic. For example, an amateur golfer
may have created a page devoted to his personal collection of favorite
golfing Web sites. This Web site would appear under the heading
Resources in response to a golf-related query.                                                                      

Ask Jeeves for Kids

Modeled on Ask.com, Ask Jeeves for Kids at AJKids.com is a child-friendly
version of the Ask.com site that enables children and young adults to find
answers to their questions while learning about the online world. Designed as
a fun destination Web site focused on learning and edutainment, Ask Jeeves
for Kids uses natural-language search technology, which allows children to ask
questions like Why is the sky blue? or Whats it like to live in space? in
a conversational manner. Ask Jeeves for Kids combines human editorial judgment
with our filtering technology, which allows us to provide relevant and
content-appropriate answers to children.

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Web Properties Sources of Revenue

In general, we make our Web properties available without charge to users and
generate revenue primarily through the sale of branded advertisements, paid
placements and paid inclusion. As described below, our Web Properties division
generates revenue from the following categories of products and services:



| |  |  | Ask Jeeves Keyword Network; and
| | - |  | -------------------------------
|
| |  |  | Ask Jeeves Syndicated Search.  

Ask Jeeves Keyword Network

We offer a variety of advertising
opportunities on our four Web sites and our syndicated sites, which we
call the Ask Jeeves Keyword Network. Our suite of integrated marketing tools
is designed to guide our users to advertisers topically relevant Web sites,
thereby helping our advertisers to increase sales and build brands, as well as
fulfilling our users information requests. Benefits we offer advertisers
include the following:



| |  |  | Broad, Loyal Audience.We offer advertisers access to our Ask.coms
broad user audience, many of whom cannot be reached through competitive
search engine Web sites.                                                                                                                                                                                                                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Keyword Targeting.Our natural-language search technology, enables
us to deliver an advertisement at the moment users are most receptive
to its content  when they are searching for information related to the
advertisers message. For example, a flower company can reach potential
customers by paying us to display its message on the Ask.com results
page in response to a users query Where can I find gift ideas for
Mothers Day?

Our Ask Jeeves Keyword Network offers the following categories of advertising
opportunities:



| |  |  | Traditional Products and Branded Response.We offer to display
advertisers branded graphics in a variety of formats, from traditional
Web advertisements to highly-targeted graphic units we call our Branded
Response product. We syndicate our traditional advertising
opportunitiesbanners, towers and interstitialsthroughout our Ask
Jeeves Keyword Network. Branded Response displays an advertisement at the moment users
are most interestedwhen they are searching for information related to
the advertised product or service. In response to pertinent questions,
we display the advertisers graphic, which can appear in question and
answer format, as a helpful fact or hint, in paragraph format, or as an
interactive toolbar offering real-time content. Our Branded Response
product thus allows advertisers to occupy highly visible Web real
estate in the middle of our Ask.com response page as well as some of
our syndication partners. Advertisers can also
pay us to display links to their topically relevant promotions or
incentives. Branded advertising opportunities on Ask.co.uk are
available through banner ads, towers and interstitials.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Paid Placements.We offer advertisers a variety of paid placement
opportunities. Our Premier Listing advertising product displays
text-based links to advertisers Web sites in a response list that
looks more like an answer than an advertisement. These Premier
Listings are displayed in response to keywords used in the users
question and appear as sponsored results just above our automated
search results. This type of paid placement is available on all Web
sites in our Ask Jeeves Keyword Network, except for Ask.co.uk. Our
advertising product, Answer Link, which is only available on Ask.co.uk,
offers companies that have been                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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| |   |  | identified as having high-quality, in-depth content pay for the
opportunity to be an answer in response to a users relevant question on
Ask.co.uks reply page. These companies do not dictate matching or
keywords for the questions as relevance is maintained through the
standard matching of the editorially controlled knowledge base.
Additional paid placement results on Ask.com and the Ask Jeeves Keyword
Network are provided by Google, Inc., a third-party paid listings
provider. The placements appear under the heading Sponsored Results on
Ask.com. Through our agreement with Google, we entered into their
sponsored links program, which syndicates paid placements. Google
shares its advertising revenue under this program with us based on
the number of clicks on the sponsored links we display and other
factors, according to a formula. We began our participation in
Googles sponsored links program in September 2002 and generated
more than 10% of our total revenue for 2002 from our
participation. Additionally, paid placements listed under the heading Web Sites I Can Show
You on Ask.co.uk are provided by e-spotting, a third-party paid
listings provider, based in the United Kingdom.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Paid Inclusion.Our Site Submit and Index Express products
currently comprise our paid inclusion program. These products allow
companies to insert and frequently update their Web pages for inclusion
within Ask Jeeves search index. Fees are based on the number of URLs
submitted for inclusion. These products are distributed on Web sites
throughout the Ask Jeeves Keyword Network.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Ask Jeeves Syndication Network

Ask Jeeves Web Properties division syndicates its technologies and advertising
products to portals, infomediaries and content and destination Web sites to
help companies increase e-commerce and advertising revenue. Web Properties syndicates our services to approximately 45 Web
sites, as of December 31, 2002. Our syndication services
generate revenue through
revenue-share arrangements or licensing agreements.

We license our technology for organizing and ranking search results to third
parties for use on their own Web sites. Our Syndicated Search customers
include Excite, HotBot and InfoSpace, among other Web publishers, portals and
infomediaries. Syndicated Search customers pay us a licensing fee or share
advertising revenue from their search result pages with us.



| |  |  | Teoma Search Technology.Teomas technology filters search results
according to each Web sites level of expertise or authority, as
estimated by a community-based approach called Subject-Specific
Popularity. This approach estimates a Web sites level of authority
based on the number of same-subject pages that reference it, not just
its general popularity. For example, a Web site devoted to baseball
would be ranked based on how many links it receives from other Web
sites geared toward baseball aficionados, with less emphasis placed on
links from general sports or portal Web sites.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Ask Jeeves Popularity Technology.Our popularity technology
aggregates and organizes online content by tracking the products,
services and information people seek, the amount of time they spend at
various Web sites, and how frequently they return. A search algorithm
is then applied and results are ranked by relevance.                                                                                                                                                                                                                                                                           
|
| |  |  | Ask Jeeves Related Search.Our Related Search tool can be used in
connection with a users primary search. This tool increases user
satisfaction by offering suggestions to broaden or narrow a particular
search.                                                                                                                                                                                                                                                                                                                                                                                        

Web Properties Business Strategy

Web Properties connects interested users with relevant information, products
and services through Web-based search and self-service technologies on its
Web sites. We monetize our Web sites by selling advertising placements
designed to match companies with interested consumers. In addition to our Web
sites, which include Ask.com, Ask.co.uk, Teoma.com and Ask Jeeves for Kids, we
also syndicate our search technology and advertising services to a network of
affiliate partners. Opportunities for growth include increasing traffic to Ask
Jeeves Web sites, increasing the percent of traffic that is monetized and
increasing unit pricing.

Web Properties focused on improving relevance of our search experiences through
investments in our proprietary technologies in 2002 and will continue to do so
in 2003. We believe that improved relevance results in increased user
frequency, more unique users and better monetization of page views.

Web Properties Sales and Marketing

Sales Strategy

In 2002, we sold a majority of advertising on our Web properties through our internal
advertising sales force, which is supplemented by a number of
strategic relationships with sales and implementation companies. As
of December 31, 2002, our Web Properties sales organization,
which included direct sales, client services, business development and
syndication, consisted of 29 individuals with offices primarily in California
and New York. As of December 31, 2002, the Ask Jeeves UK sales
organization, which included client sales, agency sales, business
development and commercial operations, consisted of 21 people who
were located in our U.K. office.

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Marketing

We invested in our brand early in our companys history and established a
strong brand with a loyal user base. This investment positioned us to increase
our user base despite a significant decrease in our marketing expenditures in
2002 compared to 2001 and 2000. Our marketing goal for 2003 is to generate
increased traffic to our Web sites by emphasizing our new and improved search
experience, particularly the improved result rankings provided by our Teoma
technology. We intend to spread this message through targeted guerilla
marketing and strategic public relations. These tactics, combined with
positive word of mouth, should encourage new users to try our Web sites, and
old users to try our Web sites again. We expect that once users experience the
improvements we are making to our Web sites, return-usage rates will increase.

Customers

Our Web Properties division reached thousands of customers for our advertising,
paid placement, paid inclusion and syndication services for the year ended
December 31, 2002. We reached these customers both directly and indirectly
through direct sales and our syndication partners. Representative customers
include AT&T, Amazon, Barnes and Noble, Expedia, General Motors, McDonalds,
and Microsoft.

Our Jeeves Solutions Division

Our Jeeves Solutions division offers software and services to improve corporate
customers Web sites. Jeeves Solutions core software application, JeevesOne,
allows corporate customers to add our intuitive natural-language search engine
to their corporate Internet or intranet sites. The functionality we offer
facilitates self-service by end users; i.e., the ultimate customers ability to
navigate through corporate Web sites and perform their desired transactions in
an autonomous, self-directed manner. With the purchase of additional modules,
JeevesOne allows corporate customers to search and interact with a variety of
linked enterprise systems and legacy databases. Our Jeeves Solutions division
also offers Jeeves Analytics software, which assists our corporate customers to
learn about their users behavior, interests and usage trends so as to better
serve the needs of their customers and reduce overall customer
support costs. As of December 31, 2002, our Jeeves Solution
division had 41 total customers.

Industry Background

Customer Relationship Management (or CRM) software has emerged as an important
investment for todays Global 2000 corporation. The promise of CRM is to help
automate many elements of corporations customer relationships, thereby
increasing customer satisfaction while reducing costs. With the emergence of
the Internet, customer interaction processes are being redesigned and
automation is beginning to reach customers in the form of self-service
applications. The potential to increase usability and customer satisfaction
while reducing operating costs is re-defining the way companies sell and
support their products and services.

Customer Benefits Provided by Jeeves Solutions

Our technologies support real-time information retrieval and actions related to
a corporations products and services, including knowledge-based routing,
automated search and natural language question answering. We believe that our
technologies make Internet-based interaction between mainstream corporate
businesses and their customers more intuitive, more accessible, and more
productive than historical approaches to customer interactions such as mail
order and automated telephone systems and call centers. When a corporate Web
site is able to provide automated answers to standard and straightforward
questions, fewer employees are required to handle these basic issues and more
experienced staff can be made available for complex customer inquiries or
urgent sales situations. By facilitating intuitive, Web-based customer
self-service, our natural-language search and enterprise connectivity
technologies can help companies improve customer satisfaction, increase
understanding of customer demand, improve conversion and retention rates, and
reduce expensive support costs generated by call centers and customer care
departments.

We have developed and deployed natural language question answering and
enterprise connectivity technologies for corporate Web-based self-service.
These technologies provide real-time information and actions related to a
corporations products and services. By connecting users to answers and actions
through a suite of self-service technologies that include knowledge-based
routing, automated search and natural language question answering, we believe
our solutions allow our corporate customers to create an intuitive interaction
with their customers. Moreover, we

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believe that by providing a comprehensive, intuitive, and flexible way to
access online information, our customers will be able to maximize conversion
and retention rates, lower support costs, and improve their customer access to
information and actions. In addition, through our analysis and reporting tool
that captures user questions, we believe that we can provide critical insight
into the specific needs, interests and preferences of users to help companies
make customer-driven business decisions.

In addition, our Jeeves Solution division offers a software tool for analyzing
and reporting on user questions, which we believe can provide corporate
customers with critical insight into the specific needs, interests and
preferences of end users, helping our companies make customer-driven business
decisions.

In sum, we believe the return on investment of the Jeeves Solutions products
derives from three distinct areas:



| |  |  | reduced support costs as a result of JeevesOnes ability to
automate the customer interaction role of the customer service
representative;                                                
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | improved conversion rates by offering greater control of the
customer experience and guiding users to desired content; and                                                                
|
| |  |  | JeevesOne Analytics ability to track, measure and decipher
customer interactions that occur on a Web site and then deliver
actionable insight and recommendations from those interactions.

Products and Services

Jeeves Solutions self-service search and navigation products are based on the
JeevesOne engine. JeevesOne accepts free form natural language input from a
user, determines from the request what the most satisfactory action is, either
retrieving information or conducting a transaction, and suggests or performs
that action. In the background, an analytics engine records the current and
subsequent activity of the customer, which reveals through a set of standard
analytics reports how well the corporation is serving its customers and what it
can do to serve them better. JeevesOne can detect the importance or criticality
of the interaction with the customer, such as an angry interaction or a high
likelihood to buy, and determine automatically whether to escalate the
interaction to a human-assisted communication. JeevesOne precision in
understanding a customers question and determining the appropriate action is
derived from information about the corporations business, which is contained
in industry-specific knowledge packs. These knowledge packs were developed and
validated across many of Jeeves Solutions customers over a period of years.

Jeeves Solutions offers three versions of the JeevesOne software product:



| |  |  | JeevesOne Search. JeevesOne Search delivers advanced natural
language-based search technology, for use on corporate Internet and
intranet sites to improve users ability to find information on the
Web site.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | JeevesOne Standard. In addition to natural-language search,
JeevesOne Standard adds greater scalability, industry specific
knowledge packs, and our analytics module. Our analytics module
provides our customers with reports and question tracking
capabilities, so that they may analyze and act upon unconstrained
feedback gathered from user interactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |  | JeevesOne Enterprise. JeevesOne Enterprise contains the
functionality of JeevesOne Standard, and also includes additional
security features and legacy-system adapters. The products
security architecture is designed to complement existing corporate
security systems to avoid duplicative effort and introduction of
risk. The products adapters enable the Web site software to access
the organizations enterprise computing systems as necessary to
answer customers questions or process self-service transactions.
JeevesOne Enterprise contains adapters for connecting to enterprise
resource planning systems, core business systems, relational
database management systems and customer relationship management
systems, among others. JeevesOne Enterprise technology can combine
information from multiple enterprise systems on a single results
page, including information generated by third-party Web sites. For
example, a customer question about the status of an order could
result in a response from the companys distribution system tied to
the shipping status drawn from a parcel delivery tracking system and
displayed with an online map keyed by the shipping address.

Jeeves Solutions Business Strategy

To increase market share in the enterprise search and navigation market, Jeeves
Solutions intends to:

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| |  |  | Continue to develop our technology.We intend to expand the
platforms on which our software operates and add support for new
industry protocols and standards so that our products will be easy to
integrate into our customers software environments.                                                                                                                                                                                                                                                                        
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Forge Strategic Alliances and Expand Market Reach.We are working
together with other technology companies and system integrators to
promote our software as the preferred search component for customers
assembling a Web-site platform from multiple vendors. In addition, we
are seeking to form strategic alliances to enable third parties to
sell, install and support our solutions. We believe that by
collaborating with system integrators we can create an indirect sales
channel that will expand our market reach.

Jeeves Solutions Sales and Marketing

Sales Strategy

Our Jeeves Solutions division markets
its products to Global 2000 companies and other large complex
corporations. We
target companies seeking to increase conversion and retention rates through our
direct sales force, which is complemented by our account management team. Our
account management team maintains close relationships with our corporate
customers to identify and serve their ongoing needs, enabling our sales
professionals to focus on new business opportunities. We believe this approach
leads to a higher level of satisfaction for our corporate customers and
increased cross-selling and up-selling opportunities. As of December 31, 2002,
our Jeeves Solutions sales organizations, which included direct
sales, account management, sales engineering and channel sales, consisted of 21 people with offices in various locations
throughout the United States.

Marketing

The Jeeves Solutions marketing program is designed to acquire new corporate
customers. We engage in a number of marketing programs to build our brand and
reach consumers and companies. These programs include online and offline
advertising, public relations, direct mail, trade shows and ongoing customer
communications programs. Our marketing group assists our sales team by
providing them with product collateral materials, customer case studies, market
surveys and customer profiles. In addition, our marketing group helps identify
and develop strategic relationship opportunities and channel distribution
relationships.

Customers

Our Jeeves Solutions division had 41 total customers as of December 31, 2002,
including customers in our targeted vertical markets of pharmaceutical,
government, retail/consumer goods and technology. Representative Jeeves
Solutions customers as of December 31, 2002 included Ford Motor Co., Nestle,
Nike, Novartis, and the State of Washington.

International Properties

We believe there is a market opportunity for international expansion of our Web
Properties division and Jeeves Solutions division into selected international
markets. We have pursued a cautious strategy of gradual market entry through
joint venture structures with local partners, local management and local
employees. Each joint venture customizes our product and service offerings as
necessary to support the local language and markets them within its geographic
region or language-based market.

Additional information required by this item is incorporated herein by
reference to Note 14 Business Segment and Geographic Information of the Notes
to our Consolidated Financial Statements, which appear in Item 8 of this Annual
Report on Form 10-K.

Ask Jeeves UK

Ask Jeeves UK was formed as a joint venture between our company and two British
media companies, Carlton Communications and Granada Media Group. The venture
marketed our search technologies and services within Great Britain and the
Republic of Ireland. At December 31, 2001, Ask Jeeves owned a 50 percent
interest in this joint venture. In February 2002, we announced an agreement
with our partners to acquire full ownership of Ask Jeeves UK. During 2002, Ask
Jeeves UK was integrated into our Web Properties division.

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Ask Jeeves En Espanol

Originally a joint venture with the
Spanish language media company Univision Communications, Inc.,
Ask Jeeves en Espanol was formed to target Spanish speakers worldwide. In the
fourth quarter of 2001, we dissolved this joint venture.

Ask Jeeves Japan

Ask Jeeves Japan, a joint venture with Trans Cosmos Inc. USA Pacific Holdings
Company III, a subsidiary of a Japanese customer service and information
technology support provider, was established in August 2000 to launch a
Japanese language version of Ask.com, create Japan-specific content for the
Japanese Ask.com Web site, and to market Jeeves Solutions products and services
to the Japanese marketplace. We own approximately 47 percent of the voting
securities of this joint venture. Ask Jeeves has granted to the joint venture an exclusive license to our
current and future products and services in Japan and for the Japanese-speaking
market.

Ask Jeeves Australia

Ask Jeeves Australia was formed in August 2000 to develop a local Australian
version of the Ask.com Web site. Ask Jeeves owns 100% of this entity. In 2001,
we terminated the operations of this project.

Competition

Our ability to compete depends on numerous factors, many of which are outside
our control. Some of our existing competitors, as well as potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources to the
development and promotion of their services than we can to ours. Our
competitors may develop products and services that are equal or superior to
ours or that achieve greater market acceptance. Many of our competitors offer a
wider range of services than we do, which could attract our customers to
competitive software products or our Web users to competitors search sites,
and consequently, result in fewer customers for us or less traffic to our Web
sites.

Web Properties

The ability of our Web Properties division to compete depends on:



| |  |  | the quality of content;                                                  
| | - |  | -------------------------------------------------------------------------
|
| |  |  | the ease of use of its online services; and                              
|
| |  |  | the timing and market acceptance of its new and enhanced online services.

We believe our Web Properties division competes favorably with respect to each
of these factors. However, our competitors may engage in more extensive
research and development efforts, adopt more aggressive pricing policies and
make more attractive offers to existing and potential employees, collaborators,
advertisers and electronic commerce partners. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to better address the
needs of advertisers and businesses engaged in electronic commerce. As a
result, it is possible that new competitors may emerge and rapidly acquire
significant market share.

We face direct competition from companies that provide Internet-wide search
services and directory listings. We compete with the following search Web
sites, among others, for the Web traffic generated by Internet users seeking
links to topically relevant third-party content:



| |  |  | AOL Time Warner Inc.;
| | - |  | ---------------------
|
| |  |  | AltaVista Company;   
|
| |  |  | FAST (AlltheWeb.com);
|
| |  |  | Google, Inc.;        
|
| |  |  | MSN; and             

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| |  |  | Yahoo! Inc. (Inktomi).
| | - |  | ----------------------

We also compete with the following providers of directory services because they
provide alternative ways for users to locate potential Web sources for desired
information:



| |  |  | Google, Inc.;           
| | - |  | ------------------------
|
| |  |  | Overture Services, Inc.;
|
| |  |  | LookSmart, Ltd.; and    
|
| |  |  | Yahoo! Inc.             

Jeeves Solutions

Jeeves Solutions competes with a number of companies that provide self-service
search and navigation for corporate customers. We believe that our products
support a type of intuitive interaction between our corporate customers and
their users that is not duplicated by any one competitive product. The companies providing automated online customer products and services against
which we compete can be categorized as follows:



| |  |  | companies that provide advanced natural language
self-service, including Inquira Inc., iPhrase Technologies, Inc.,
Kanisa Inc. and Primus Knowledge Systems;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | search technology companies, including Autonomy Corporation,
Plc., Google, Inc. and Verity, Inc.; and                                                       
|
| |  |  | catalog search companies, such as EasyAsk, Inc. and Mercado
Software, Inc.                                                                                  

Technology and Operations

We are a provider of Web-based search
and self-service technologies aimed at creating a unique
user experience that emphasizes ease of use, relevance, precision and ability
to learn. The goal of our Web Properties division is to combine the strengths
of automated natural language parsing software, topic-specific Web content
analysis tools and popularity-based search technology with advanced search
algorithms to give Web users easy access to the information they seek.

Our Jeeves Solutions software and service offerings also allow companies to
establish connected self-service solutions that supplement the activities of
call center, contact centers and marketing departments. Our software combines
knowledge-based routing, automated search and natural-language question
answering to enable customers to connect to information from disparate sources,
providing self-service for question answering, education and business
transaction support.

Scalability and Operations

Our question answering technology runs on arrays of Intel-based server systems
running Microsoft Windows 2000 and Internet Information Server Software. The
Question Processing Engine, or QPE, is written in the C++ computer language and
is optimized to handle high traffic volumes. The Ask Jeeves knowledge bases are
deployed on these servers as read-only, memory mapped files. To scale our
service as traffic increases, we only need to install our QPE and knowledge
base on additional servers.

Our Popularity Engine distribution servers are arrays of Intel-based server
systems running the FreeBSD operating system and Apache Web Server Software.
The software is written as C++ FastCGI modules for highest scalability and
real-time performance. The Popularity Engine Processing Servers are also Intel
systems as well as Sun Sparc Systems running Solaris, utilizing Oracle back-end
software. To scale as user traffic increases, we need only install additional
distribution servers. To scale as we add more data sources such as
international search or corporate databases, we add more capacity to the Oracle
systems or increase the number of systems.

Our proprietary search technology runs on arrays of Intel-based server systems
running the Linux operating system. The environment is scalable and cost
effective. It has been optimized to provide fast real-time performance. The
system is automated, secure and is replicated to ensure sufficient redundancy
and failover capabilities.

The servers hosting Ask Jeeves and some of our customers Web sites are located
at Metromedia Fiber Network in San Jose, California and London, England,
Worldcom in Billerica, Massachusetts, and Cable & Wireless Communications in
London, England. Additionally, some of our corporate customers Web sites are
co-located with our customers servers

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at other facilities. The hosting centers provide routing and communication
lines with a variety of major Internet backbone providers, as well as
continuous monitoring and communications support. They also provide their own
power generators and multiple, redundant backup systems. We maintain
significant server over-capacity at each location so that if one hosting
facility fails, another can service our entire user traffic.

Proprietary Rights

We seek to protect our intellectual property rights, but we face the risk that
our actions might be inadequate to protect our patents, copyrights, trademarks or other
proprietary rights. We rely upon trademark, patent and copyright law, trade
secret protection and confidentiality or license agreements with our employees,
customers, partners and others to help protect our proprietary rights.

We have been granted four United
States patents and have eight patent applications pending
with the United States Patent and Trademark Office for various aspects of our
natural-language search and other database search technologies, which
technologies power the JeevesOne software product and our Ask.com Web site. Our
policy is to apply for patents or for other appropriate statutory protection
when we develop valuable new or improved technology. The status of any patent
involves complex legal and factual questions, and the breadth of claims allowed
is uncertain. Accordingly, we cannot assure that any patent application
filed by us will result in a patent being issued, or that our patents, and any
patents that may be issued in the future, will afford adequate protection
against competitors with similar technology; nor can we provide assurance that
patents issued to us will not be infringed or designed around by others.

We have entered into an agreement with
The Wodehouse No. 3 Trust concerning our use of the Jeeves name
and butler logo. The Wodehouse No. 3 Trust is successor in
interest to the late author, P.G. Wodehouse, who published a number
of works that included a butler character named Jeeves.
Under the agreement we make quarterly payments to The Wodehouse
No. 3 Trust. By its terms, the agreement is perpetual unless
terminated by us on 30 days notice. Upon any termination we
would retain only such rights to use the Jeeves name as are provided
by applicable trademark and unfair competition law, which may be
limited. Our right to continue to use the butler logo would not be
restricted by any termination.

We have been issued registered
trademarks in the U.S. covering certain goods or services for Ask Jeeves, the Ask!
button design, Ask.com, Jeeves Solutions and the Jeeves design, a
stylized depiction of our butler logo, and the phrase
Search with Authority used on the Teoma.com Web site. In
addition, the trademarks Ask Jeeves and the
Jeeves design are registered in Australia, Canada, China,
the European Community, France, Germany, Japan, Korea, Mexico,
Norway, Spain and the United Kingdom. We have applied for
registered trademark status for Teoma and the
Teoma design for certain services. We do not know
whether we will be able to defend our proprietary rights since the validity,
enforceability and scope of protection of proprietary rights in
Internet-related industries are uncertain and still evolving. Because we are
devoting significant resources to building our brands, primarily Ask Jeeves,
Ask.com, Teoma, and Jeeves Solutions, if we are unable to register the
trade and service marks for which we have applied, or if we are unable to
defend our intellectual property rights, our business may be seriously harmed.

From time to time in the ordinary course of business we have been, and we
expect to continue to be, subject to claims of alleged infringement of the
trademarks and other intellectual property rights of third parties. These
claims and any resultant litigation, should it occur, could subject us to
significant liability for damages. In addition, even if we prevail, litigation
could be time-consuming and expensive to defend, and could result in the
diversion of our time and attention. Any claims from third parties may also
result in limitations on our ability to use the intellectual property subject
to these claims unless we are able to enter into agreements with the third
parties making these claims.

Regulation of the Internet

There are still relatively few laws or regulations specifically addressed to
the Internet. As a result, the manner in which existing laws and regulations
should be applied to the Internet in general, and how they relate to Ask
Jeeves business in particular, is unclear in many cases. Such uncertainty
arises under existing laws regulating matters, including user privacy,
defamation, pricing, advertising, taxation, gambling, sweepstakes, promotions,
content regulation, quality of products and services, and intellectual property
ownership and infringement.

To resolve some of the current legal uncertainty, we expect new laws and
regulations to be adopted that will be directly applicable to our activities.
Any existing or new legislation applicable to Ask Jeeves could expose us to
substantial liability, including significant expenses necessary to comply with
such laws and regulations, and could dampen the growth in use of the Internet
in general. Several new federal laws have already been adopted that could have
an impact on our business. The Digital Millennium Copyright Act is intended to
reduce the liability of online service providers for listing or linking to
third-party Web sites that include materials that infringe copyrights or other
rights of others. The Childrens Online Protection Act and the Childrens
Online Privacy Protection Act are intended to restrict the distribution of
certain materials deemed harmful to children and impose additional restrictions
on the ability of online services to collect user information from minors. In
addition, the Protection of Children From Sexual Predators Act of 1998 requires
online service providers to report evidence of violations of federal child
pornography laws under certain circumstances. Under the U.K. Data
Protection Act and the European Union Data Protection Directive, a failure to
ensure that personal information is accurate and secure or a transfer
of personal information to a country without adequate privacy
protections could result in criminal or civil penalties. Such legislation may impose
significant additional costs on our business or subject us to additional
liabilities. We post our privacy policy and practices concerning the use and
disclosure of user data. Any failure by us to

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comply with our posted privacy policy, Federal Trade Commission requirements or
other domestic or international privacy-related laws and regulations could
result in proceedings by governmental or regulatory bodies that could
potentially harm our business, results of operations and financial condition.
In this regard, there are a large number of legislative proposals before the
European Union, as well as before the United States Congress and various state
legislative bodies regarding privacy issues related to our business. It is not
possible to predict whether or when such legislation may be adopted, and
certain proposals, if adopted, could harm our
business through a decrease in user registrations and revenues. These decreases
could be caused by, among other possible provisions, the required use of
disclaimers or other requirements before users can utilize our services.

Due to the global nature of the Web, it is possible that the governments of
other states and foreign countries might attempt to regulate its transmissions
or prosecute us for violations of their laws. We might unintentionally violate
such laws, such laws may be modified and new laws may be enacted in the future.
Any such developments could harm our business,
operating results and financial condition. We may be subject to legal liability
for our online services. We direct users to a wide variety of services that
enable individuals to exchange information, generate content, conduct business
and engage in various online activities on an international basis, including
public message posting, sweepstakes and services relating to online auctions
and homesteading. The law relating to the liability of providers of these
online services for activities of their users is currently unsettled both
within the United States and abroad. Claims may be threatened against us for
aiding and abetting defamation, negligence, copyright or trademark
infringement, or other theories based on the nature and content of information
that we provide links to or that may be posted online.

Employees

Our future success is substantially dependent on the performance of our senior
management and key technical personnel, and our continuing ability to attract
and retain highly qualified technical and managerial personnel. As part of our
business realignment and reorganization, we conducted additional workforce
reductions during 2002. As of December 31, 2002, we had 347 employees. No
employees are represented under collective bargaining agreements. We consider
our relations with our employees to be good.

See the Risk Factors section in Item 7 for a further discussion of
certain risks related to our employees.

Web Site Access to Our Periodic SEC Reports

Our primary Internet address is www.ask.com. We make our periodic SEC Reports
(Forms 10-Q and Forms 10-K) and current reports (Form 8-K) available free of
charge through our Web site as soon as reasonably practicable after they are
filed electronically with the SEC. We may from time to time provide important
disclosures to investors by posting them in the investor relations section of
our Web site, as allowed by SEC rules.

Materials we file with the SEC may be read and copied at the SECs Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information
on the operation of the Public Reference Room may be obtained by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet Web site at
www.sec.gov that contains reports, proxy and information statements, and other
information regarding our company that we file electronically with the SEC.

Incorporation History

We were incorporated in 1996 in California and reincorporated in Delaware in
1999.




ITEM 2. PROPERTIES

Our headquarters are currently located in a leased facility in Emeryville,
California. Our operations in the United Kingdom, Ask Jeeves UK, are headquartered in London,
England. We also lease facilities for sales, research and development and
other support functions in various locations in the United States.

We believe that our remaining facilities will be adequate to meet our needs for
the foreseeable future. See Note 6 of Notes to Consolidated Financial
Statements for information regarding our lease obligations.

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ITEM 3. LEGAL PROCEEDINGS

From time to time, we are subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
patents, trademarks, copyrights and other intellectual property rights, and a
variety of claims arising in connection with our services, such as claims
alleging defamation or invasion of privacy.

On October 25, 2001, a putative class action lawsuit captioned Leonard Turroff,
et al. vs Ask Jeeves, Inc., et al. was filed against us and two of our officers
and directors (collectively the Individual Defendants) in the United States
District Court for the Southern District of New York. Also named as defendants
were Morgan Stanley & Co,, Inc., FleetBoston Robertson Stephens, Goldman Sachs
& Co., U.S. Bancorp Piper Jaffray, and Dain Rauscher, Inc., the underwriters of
our initial public offering. The complaint alleges violations of Section 11 of
the Securities Act of 1933 against all defendants, and violations of Section 15
of the Securities Act against the Individual Defendants in connection with our
initial public offering (IPO). An amended complaint was filed on December 6,
2001, which includes the same allegations in connection with our secondary
offering in March 2000. The complaints seek unspecified damages on behalf of a
purported class of purchasers of our common stock between June 30, 1999 and
December 6, 2000. We believe the claims are without merit and
intend to defend the actions vigorously.

In May 2, 2002, a stockholder derivative lawsuit was filed in the Superior
Court of California, County of Alameda, titled Brenner v. Strauch et al. The
lawsuit purported to be filed on behalf of our company, asserting claims
against the officers and directors at the time of our IPO. Also named as
defendants were Morgan Stanley & Co., Inc., and FleetBoston Robertson Stephens,
the underwriters of our IPO. The complaint alleged breach of fiduciary duty,
negligence an unjust enrichment of the named officers and directors, for
acquiescing and/or conspiring with the underwriter defendants in underpricing
the IPO. Upon Defendants motion, the lawsuit was transferred to the U.S.
District Court in Northern California. On October 31, 2002, the Court dismissed
the lawsuit, with prejudice. The plaintiff has appealed and the case has been
consolidated with similar derivative actions. Appellate briefing will occur from late March to early
May 2003.

In managements opinion, resolution of these matters is not expected to have a material adverse impact on our results of
operation, cash flows or financial position. However, depending on the amount and timing, an unfavorable resolution of these matters
could materially and adversely affect our future results of operations, cash flows or financial position in a future period.




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

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2002.

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PART II




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

Price Range of Common Stock

Our common stock has been quoted on the Nasdaq National Market under the symbol
ASKJ since our initial public offering in July 1999. The following table sets
forth, for the periods indicated, the high and low sales prices for our common
stock as reported by the Nasdaq National Market:

|     |                                 |  |      |      |     |  |   |      | 
|---- | ------------------------------- |  | ---- | ---- | --- |  | - | ---- | 
|     |                                 |  | High |      | Low
|     |                                 |  |      |      |    
|2001 |                                 |  |      |      |     |  |   |     
|     | First Quarter                   |  | $    | 5.44 |     |  | $ | 0.87 | 
|     | Second Quarter                  |  | $    | 3.15 |     |  | $ | 0.75 | 
|     | Third Quarter                   |  | $    | 2.44 |     |  | $ | 0.75 | 
|     | Fourth Quarter                  |  | $    | 4.20 |     |  | $ | 0.92 | 
|2002 |                                 |  |      |      |     |  |   |     
|     | First Quarter                   |  | $    | 3.91 |     |  | $ | 1.06 | 
|     | Second Quarter                  |  | $    | 2.52 |     |  | $ | 0.95 | 
|     | Third Quarter                   |  | $    | 1.37 |     |  | $ | 0.86 | 
|     | Fourth Quarter                  |  | $    | 2.80 |     |  | $ | 0.92 | 
|2003 |                                 |  |      |      |     |  |   |     
|     | First
Quarter (through March 4) |  | $    | 7.48 |     |  | $ | 2.42 | 

As of March 4, 2003, the
number of holders of record of our common stock was 998. To date, we have not paid any dividends on our common
stock and we do not currently intend to pay our dividends in the foreseeable
future.

In 2002, we did not sell any unregistered equity securities in connection with
any equity compensation plan that was not approved by our stockholders. In
addition, we have not sold any securities during the past three years that were
not registered under the Securities Act.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated selected financial data set forth below presents the
consolidated financial results of Ask Jeeves, Inc. and our subsidiaries and
should be read in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations, and our Consolidated Financial
Statements and the related notes, included in this annual report. The
consolidated operating information set forth below for the periods in the three
years ended December 31, 2002 and the consolidated balance sheet data as of
December 31, 2001 and 2002, are derived from and qualified by reference to our
audited financial statements included in this annual report. The consolidated
operating information set forth below for the years ended December 31, 1998 and
1999, and the consolidated balance sheet data as of December 31, 1998, 1999 and
2000 are derived from and qualified by reference to our audited financial
statements that are not included in this annual report. Our historical results
are not necessarily indicative of results for any future period.

|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |       |       | 
|------------------------------------------------------------------------------------------ | ---------------------------------------------------- | ------------------------ | ---------- | ------------------------------------------------------ | ------ | ---- | ---------- | ------- | ------- | ---- | ---------- | ------ | ------- | - | ---------- | ------ | ------ | - | --------- | ----- | ----- | 
|                                                                                           |                                                      |                          |            | Year Ended December 31,                               
|                                                                                           |                                                      |                          |            |                                                       
|                                                                                           |                                                      |                          |            | 2002                                                   |        | 2001 |            | 2000    |         | 1999 |            | 1998  
|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |       
|                                                                                           |                                                      |                          |            | (in thousands, except share and per share information)
|Consolidated Statements of
Operations Data:                                                |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |      
|Revenues:                                                                                  |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |      
|                                                                                           | Web Properties                                       |                          | $          | 58,763                                                 |        |      | $          | 32,154  |         |      | $          | 58,397 |         |   | $          | 14,564 |        |   | $         | 577   |      
|                                                                                           | Jeeves Solutions (1)                                 |                          |            | 15,373                                                 |        |      |            | 34,397  |         |      |            | 37,303 |         |   |            | 7,463  |        |   |           | 223   |      
|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |       |      
|                                                                                           |                                                      | Total revenues           |            |                                                        | 74,136 |      |            |         | 66,551  |      |            |        | 95,700  |   |            |        | 22,027 |   |           |       | 800   | 
|Cost of revenues:                                                                          |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |      
|                                                                                           | Web Properties                                       |                          |            | 16,281                                                 |        |      |            | 14,648  |         |      |            | 19,166 |         |   |            | 6,284  |        |   |           | 603   |      
|                                                                                           | Jeeves Solutions                                     |                          |            | 6,089                                                  |        |      |            | 13,025  |         |      |            | 20,103 |         |   |            | 7,800  |        |   |           | 796   |      
|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |       |      
|                                                                                           |                                                      | Total cost of revenues   |            |                                                        | 22,370 |      |            |         | 27,673  |      |            |        | 39,269  |   |            |        | 14,084 |   |           |       | 1,399 | 
|Gross profit (loss)                                                                        |                                                      |                          | 51,766     |                                                        |        |      | 38,878     |         |         |      | 56,431     |        |         |   | 7,943      |        |        |   | (599      | )    
|Operating expenses:                                                                        |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |      
|                                                                                           | Product development                                  |                          |            | 13,168                                                 |        |      |            | 20,206  |         |      |            | 24,502 |         |   |            | 8,610  |        |   |           | 1,712 |      
|                                                                                           | Sales and marketing                                  |                          |            | 35,742                                                 |        |      |            | 41,548  |         |      |            | 81,641 |         |   |            | 35,304 |        |   |           | 2,301 |      
|                                                                                           | General and administrative                           |                          |            | 21,086                                                 |        |      |            | 21,980  |         |      |            | 29,598 |         |   |            | 8,411  |        |   |           | 2,325 |      
|                                                                                           | Stock-based compensation                             |                          |            | 90                                                     |        |      |            | 706     |         |      |            | 2,996  |         |   |            | 3,936  |        |   |           | 29    |      
|                                                                                           | Amortization of goodwill and
other intangible assets |                          |            |                                                       |        |      |            | 22,855  |         |      |            | 82,624 |         |   |            |       |        |   |           |      |      
|                                                                                           | Write-off of in-process technology                   |                          |            |                                                       |        |      |            |        |         |      |            | 11,652 |         |   |            | 544    |        |   |           |      |      
|                                                                                           | Acquisition costs                                    |                          |            |                                                       |        |      |            |        |         |      |            |       |         |   |            | 6,045  |        |   |           |      |      
|                                                                                           | Impairment of long-lived assets                      |                          |            | 2,593                                                  |        |      |            | 355,291 |         |      |            |       |         |   |            |       |        |   |           |      |      
|                                                                                           | Restructuring costs                                  |                          |            | 2,470                                                  |        |      |            | 18,127  |         |      |            | 13,466 |         |   |            |       |        |   |           |      |      
|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |       |      
|                                                                                           |                                                      | Total operating expenses |            |                                                        | 75,149 |      |            |         | 480,713 |      |            |        | 246,479 |   |            |        | 62,850 |   |           |       | 6,367 | 
|Operating loss                                                                             |                                                      |                          | (23,383    | )                                                      |        |      | (441,835   | )       |         |      | (190,048   | )      |         |   | (54,907    | )      |        |   | (6,966    | )    
|Gain on dissolution of joint venture                                                       |                                                      |                          |           |                                                        |        |      | 13,356     |         |         |      |           |        |         |   |           |        |        |   |          |      
|Interest and other income, net                                                             |                                                      |                          | 2,080      |                                                        |        |      | 3,221      |         |         |      | 2,252      |        |         |   | 1,978      |        |        |   | 160       |      
|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |       |      
|Net loss before income tax provision                                                       |                                                      |                          | (21,303    | )                                                      |        |      | (425,258   | )       |         |      | (187,796   | )      |         |   | (52,929    | )      |        |   | (6,806    | )    
|Income tax provision                                                                       |                                                      |                          |           |                                                        |        |      |           |         |         |      | 1,810      |        |         |   |           |        |        |   |          |      
|Net loss                                                                                   |                                                      | $                        | (21,303    | )                                                      |        | $    | (425,258   | )       |         | $    | (189,606   | )      |         | $ | (52,929    | )      |        | $ | (6,806    | )    
|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |       |      
|Basic and diluted net loss per share                                                       |                                                      | $                        | (0.52      | )                                                      |        | $    | (11.48     | )       |         | $    | (5.51      | )      |         | $ | (2.64      | )      |        | $ | (0.74     | )    
|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |       |      
|Weighted average shares outstanding
used in computing basic and diluted
net loss per share |                                                      |                          | 40,698,137 |                                                        |        |      | 37,032,933 |         |         |      | 34,399,200 |        |         |   | 20,046,959 |        |        |   | 9,162,624 |      
|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |       |      
|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |      
|                                                                                           |                                                      |                          |            |                                                        |        |      |            |         |         |      |            |        |         |   |            |        |        |   |           |      
|(1) Revenues from related parties                                                          |                                                      | $                        | 6,189      |                                                        |        | $    | 18,991     |         |         | $    | 12,308     |        |         | $ | 118        |        |        | $ |          |      

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|                                                                                      |  |                |        |      |  |      |         |      |  |      |         |  |  |   |        |  |  |   |       | 
|------------------------------------------------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------ |  |  | - | ----- | 
|                                                                                      |  | December 31,  
|                                                                                      |  |               
|                                                                                      |  | 2002           |        | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                                                      |  |                |        |      |  |      |         |      |  |     
|                                                                                      |  | (in thousands)
|Consolidated Balance Sheet Data:                                                      |  |                |        |      |  |      |         |      |  |      |         |  |  |   |        |  |  |   |       | 
|Cash and cash equivalents,
short-term marketable
securities and marketable
securities |  | $              | 44,440 |      |  | $    | 76,602  |      |  | $    | 104,966 |  |  | $ | 51,530 |  |  | $ | 8,511 | 
|Working capital                                                                       |  | $              | 14,055 |      |  | $    | 15,893  |      |  | $    | 52,112  |  |  | $ | 35,357 |  |  | $ | 7,318 | 
|Total assets                                                                          |  | $              | 72,176 |      |  | $    | 111,338 |      |  | $    | 537,867 |  |  | $ | 75,764 |  |  | $ | 9,933 | 
|Capital lease obligations, less
current portion                                       |  | $              |       |      |  | $    | 573     |      |  | $    | 1,465   |  |  | $ | 2,351  |  |  | $ | 46    | 
|Total stockholders equity                                                            |  | $              | 29,277 |      |  | $    | 47,214  |      |  | $    | 465,768 |  |  | $ | 41,451 |  |  | $ | 8,291 | 




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

The following discussion should be read in conjunction with our financial
statements and the related notes contained elsewhere in this Annual Report on
Form 10-K. All statements in the following discussion which are not reports of
historical information or descriptions of current accounting policy are
forward-looking statements. Please consider our forward-looking statements in
light of the risks referred to in this reports introductory cautionary note.

Overview

Ask Jeeves is a provider of Web-based
search and self-service technologies. We
create a search experience focused on understanding users specific needs and
interests and connecting them to the most relevant information, products and
services.

Our Web Properties division administers our
own Web search sites results at Ask.com, Ask.co.uk, Teoma.com and
AJKids.com. It generates revenue in two ways. First by syndicating
our search results and ad products to approximately 45 third party Web sites,
as of December 31, 2002, including portals, infomediaries, and
content and destination Web sites. And second, by offering
advertisers a variety of targeted and effective tools for promoting
their products to our broad user base. Types of advertising range
from ubiquitous banner ads to more advanced keyword products, in
which we receive a fee for either displays of our click-throughs on a link to an advertisers
product offering in response to users pertinent questions. In
December 2002, according to Nielsen//Netratings, our combined U.S.
Web Properties attracted an audience of 12.2 million unique users, who viewed approximately 7.4 million Web pages per day on our
combined U.S. Web Properties. We believe the combination of our
broad user base and our comprehensive suite of keyword targeted
advertising products enables us to offer advertisers an efficient
and effective method of reaching online audiences.

Our Jeeves Solutions division offers software and services to our corporate
customers. Jeeves Solutions core software application, JeevesOne, allows
corporate customers to add our intuitive search engine to their corporate
Internet or intranet sites. With the purchase of additional modules JeevesOne
allows users to search and access a variety of linked enterprise systems and
legacy databases. With the addition of Jeeves Analytics, our corporate
customers can learn about their users behavior, interests and usage trends so
as to better serve the needs of their customers and reduce overall customer
support costs. We believe our Jeeves Solutions technology and service
offerings increase user satisfaction while enabling our corporate customers to
increase sales revenue and retain customers.

Application of Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which are known
as GAAP. These accounting principles require us to make certain estimates,
judgments and assumptions. We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon information available
to us at the time that these estimates, judgments and assumptions were made.
These estimates, judgments and assumptions can affect the reported amounts of
assets and liabilities as of the date of the financial statements, as well as
the reported amounts of revenues and expenses during the periods presented. To
the extent there are material differences between these estimates, judgments or
assumptions and actual results, our financial statements will be affected. Our
accounting policies that we believe are the most critical to a full
understanding and evaluation of our reported financial results include those
relating to:



| |  |  | revenue;                         
| | - |  | ---------------------------------
|
| |  |  | allowances for doubtful accounts;
|
| |  |  | legal contingencies; and         
|
| |  |  | accounting for income taxes.     

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Each of these critical accounting policies is described in more detail below.

In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require managements judgment in its
application. There are also areas in which managements judgment in selecting
among available alternatives would not produce a materially different result.
Our management has reviewed these critical accounting policies and related
disclosures with our Audit Committee. See the Notes to our Consolidated
Financial Statements, which contain additional information regarding our
accounting policies and other disclosures required by GAAP.

Revenue

We generally recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. If we have doubt about the collectibility of
revenue at the time it is earned, such revenue is deferred until cash has been
received. Our revenue streams are derived from different sources in our two
business divisions, Web Properties and Jeeves Solutions, as described below.

Web Properties

Revenues associated with our Web Properties division are generated from four general sources:



| |  |  | sales of branded advertising products;                                     
| | - |  | ---------------------------------------------------------------------------
|
| |  |  | sales of premier listings and other paid placement products;               
|
| |  |  | sales of paid inclusion products;
and                                      
|
| |  |  | syndication of services offered on
our Web sites to other companies sites.

Our branded advertising ranges from traditional advertising units such as
banners, towers and interstitials to dynamic animated placements through our
branded animation service and highly targeted graphic units through our branded
response service. Branded advertising is generally sold on a cost per
impression basis with the revenue derived from such arrangements recognized
during the period that the service is provided, provided that no significant
obligations remain at the end of the period. Such obligations typically include
the guarantee of a minimum number of impressions or times that an
advertisement appears in pages viewed by users of our online properties. To the
extent the minimum guaranteed impressions are not delivered, we defer
recognition of the corresponding revenue until the remaining guaranteed
impressions levels are achieved.

Our premier listings and other paid placement products are text messages that
are designed to simply connect users interested in a particular product or
service with an advertiser offering that product or service at the exact moment
they need the information, much like a Yellow Pages listing. With these
products, advertisers pay only for performance, thus these revenues are
generated when a user clicks on the answer that links to a merchants Web site
on a cost per click, or CPC basis. Alternatively, we may recognize revenue on
a revenue-sharing basis when the paid placement service is offered through one
of our third party providers.

Our syndication services range from the sale of promotional material on behalf
of partners to the syndication of our Web-wide search technology to portals,
infomediaries, and content and destination Web sites. Syndication license fees
primarily consist of revenue-sharing arrangements, fixed fee arrangements or
fee-per-use arrangements, and revenues are recognized as the service is
delivered. Revenues from revenue-sharing arrangements are recorded net of
amounts paid to syndication partners, except when we act as the primary obligor
in the arrangement and bear risk with respect to the inventory of promotional
space and credit risk, in accordance with Emerging Issues Task Force Issue No.
99-19, which expense is recognized as a cost of sale and revenue is recorded on
a gross basis.

Our paid inclusion products provide an opportunity for Web sites to ensure that
they are included in our search index. Paid inclusion products are generally
priced on a per URL basis to have the URL included in our database and
periodically refreshed over a set period of time, which is typically one year.
Revenues are collected in advance and recognized over the appropriate service
period.

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Jeeves Solutions

Revenues from our Jeeves Solutions division are derived from two sources:
software license revenues and services revenue. Software license revenues are
generated from companies licensing the rights to use our natural language and
customer intelligence technologies for use on their corporate Web sites.
Services revenue is generated from sales of maintenance agreements, consulting
services and training services associated with our licensed software.

We recognize software license revenues in accordance with AICPA Statement of
Position 97-2, Software Revenue Recognition or SOP 97-2, as amended by
Statement of Position 98-9. SOP 97-2 provides specific industry guidance and
stipulates that revenue recognized from software arrangements is to be
allocated to each element of the arrangement based on the relative fair value
of the elements. Under SOP 97-2, the determination of fair value is based on
the objective evidence that is specific to the vendor. We utilize the residual
method under which revenue is allocated to the undelivered element, based on
vendor specific evidence of fair value and the residual amounts of revenue are
allocated to the delivered element.

We recognize license revenues at the end of the core implementation period if
implementation services are included in the original license arrangement and
are considered to be essential to the functionality of the software. As a
result, even where we have a signed license agreement for the purchase of our
software and have delivered the software, license revenue recognition depends
on whether we have begun core implementation. For license agreements under
which we have no implementation responsibility, or where implementation is not
considered to be essential to the functionality of the software, we recognize
revenue upon delivery of the software. Examples of situations under which we
have no implementation responsibility include additional license sales to
existing customers or customers who elect to use internal or third party
resources to implement the software. In software license arrangements where a
service element is critical to the functionality of the software, license,
implementation and service fees are recognized ratably over the life of the
arrangement, commencing upon service implementation. License payments from our
joint venture are recorded as deferred revenue and are being recognized as
revenues on a straight-line basis over a four year period.

We generally provide consulting and training services on a time and materials
basis. We provide maintenance and support services under renewable, term
maintenance agreements, which we price as a percentage of our license fees.
Maintenance and support fee revenue is recognized ratably over the contractual
term, which is generally twelve months and commences from the implementation of
service or delivery of product. Amounts paid prior to service
implementation are recorded as deferred revenue, with recognition commencing
upon service implementation.

Allowances for Doubtful Accounts

We make judgments as to our ability to collect outstanding receivables and
provide allowances for the portion of receivables when collection becomes
doubtful. Provisions are made based upon a specific review of all significant
outstanding invoices. For those invoices not specifically reviewed, provisions
are provided at differing rates, based upon the age of the receivable. In
determining these percentages, we analyze our historical collection experience
and current economic trends. If the historical data we use to calculate the
allowance provided for doubtful accounts does not reflect the future ability to
collect outstanding receivables, additional provisions for doubtful accounts
may be needed and our future results of operations could be harmed.

We also record a provision for returns and revenue adjustments in the same
period as the related revenues are recorded. These estimates are based on
historical analysis of credit memo data and other known factors. If the
historical data we use to calculate these estimates does not properly reflect
future uncollectible revenue, then a change in the allowances would be made in
the period in which such a determination is made and revenues in that period
could decrease.

Legal Contingencies

We are involved currently in various claims and legal proceedings.
Periodically, we review the status of each significant matter and assess our
potential financial exposure. If the potential loss from any claim or legal
proceeding is considered probable and the amount can be estimated, we accrue a
liability for the estimated loss. Because of uncertainties related to these
matters, accruals are based only on the best information available at the time.
As additional information becomes available, we reassess the potential
liability related to our pending claims and litigation and may revise our
estimates. Such revisions in the estimates of the potential liabilities could
have a material impact on our results of operations and financial position. See
Note 13 of Notes to Consolidated Financial Statements for a description of our
material legal proceedings.

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Income Tax

As of December 31, 2002, we had net operating loss carryforwards of
approximately $211.0 million and
$83.0 million available to reduce future federal
and state taxable income. These net operating loss carryforwards are carried on
our balance sheet as a deferred tax asset, but due to the uncertainty
surrounding the timing of realizing the benefits of our deferred tax assets
from our net operating loss carryforwards in future years, we have recorded a
100% valuation allowance against our deferred tax assets. Financial Accounting
Statement Standard No. 109, Accounting for Income Taxes or SFAS 109 requires
that a valuation allowance be set up to reduce a deferred tax asset to the
extent it is more likely than not that the related tax benefits will not be
realized. In order for a company to realize the tax benefits associated with a
net operating loss, it must have taxable income within the applicable carryback
or carryfoward periods. Sources of taxable income that may allow for the
realization of those tax benefits include taxable income in the current year or
prior years that is available though a carryback claim; future taxable income
that will result from the reversal of existing taxable temporary differences,
(i.e. the reversal of deferred tax liabilities); and future taxable income
generated by future operations.

SFAS 109 indicates that all available evidence, both positive and negative,
should be identified and considered in making a determination as to whether it
is more likely than not that all or some portion of the deferred tax asset will
not be realized. Examples of positive evidence include: strong earnings
history; existing contracts or backlog; and assets with net built in gains for
tax purposes.

Examples of negative evidence include but are not limited to the following: a
pretax loss for financial reporting purposes for the current year or a recent
preceding year; a deficit in stockholders equity; a history of operating loss
or tax credit carryforwards expiring unused; and cumulative losses in recent
years.

We believe that our losses in recent years and deficit in stockholders equity
present negative evidence that required a valuation allowance to be recorded to
reduce to zero the deferred tax asset associated with the net operating losses.
Accordingly, we have not taken a benefit for that asset. If we generate taxable
income in 2003, this would be positive evidence that could allow us to release
a portion of the valuation allowance set up against the asset. However, since
we still have losses in recent years and because there is no other compelling
positive evidence, we believe that it would not be appropriate for us to
release any more of the valuation than can be utilized in 2003.

Results of Operations

Revenues

|                         |                              |      |            |        |   |      |       |        |  |      |        |      |   |  |       |    |  |   |        |      |  
|------------------------ | ---------------------------- | ---- | ---------- | ------ | - | ---- | ----- | ------ |  | ---- | ------ | ---- | - |  | ----- | -- |  | - | ------ | ---- | -
|                         |                              |      | Year Ended
|                         |                              |      |           
|(dollars in thousands)   |                              | 2002 |            | Change |   | 2001 |       | Change |  | 2000
|                         |                              |      |            |        |   |      |       |        |  |     
|Web Properties revenue   |                              | $    | 58,763     |        |   |      | 82.8  | %      |  | $    | 32,154 |      |   |  | (44.9 | %) |  | $ | 58,397 |     
|                         | Percentage of total revenues |      |            | 79.3   | % |      |       |        |  |      |        | 48.3 | % |  |       |    |  |   |        | 61.0 | %
|Jeeves Solutions revenue |                              | $    | 15,373     |        |   |      | (55.3 | %)     |  | $    | 34,397 |      |   |  | (7.8  | %) |  | $ | 37,303 |     
|                         | Percentage of total revenues |      |            | 20.7   | % |      |       |        |  |      |        | 51.7 | % |  |       |    |  |   |        | 39.0 | %
|Total revenue            |                              | $    | 74,136     |        |   |      | 11.4  | %      |  | $    | 66,551 |      |   |  | (30.5 | %) |  | $ | 95,700 |     

Our revenues are derived from our two business divisions. Web Properties
revenues are related to our Internet search services and to the syndication of
Web search services to third party Web sites. Jeeves Solutions revenues are related to the
sales of our software and service products to corporations. Total revenues for
2002 grew 11.4% as compared with 2001.

21



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Web Properties Revenue

Total Web Properties revenue increased 82.8% over 2001. Our revenues from this
division consist of three main categories: (1) sales of paid placement
products; (2) branded advertising; and (3) paid inclusion. The following table
presents sales for each product line, split between the U.S. and the U.K.

|                          |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |        |  | 
|------------------------- | ---- | ---- | ------ | ---------- |  | ---- | ----- | ------ | -- | ---- | ------ | ------ |  |  | ----- | ----- | -- | - | ------ | ------ |  | 
|                          |      |      |        | Year Ended
|                          |      |      |        |           
|(dollars in thousands)    |      | 2002 |        | Change     |  | 2001 |       | Change |    | 2000
|                          |      |      |        |            |  |      |       |        |    |     
|Paid Placement:           |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|                          | U.S. |      | $      | 23,570     |  |      |       | 139.1  | %  |      | $      | 9,858  |  |  |       | (16.9 | %) |   | $      | 11,857 | 
|                          | U.K. |      |        | 9,144      |  |      |       |       |    |      |        |       |  |  |       |      |    |   |        |       | 
|                          |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Total Paid Placement      |      |      | 32,714 |            |  |      | 231.9 | %      |    |      | 9,858  |        |  |  | (16.9 | %)    |    |   | 11,857 |       
|                          |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Branded Advertising:      |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|                          | U.S. |      |        | 17,875     |  |      |       | (19.8  | %) |      |        | 22,296 |  |  |       | (52.1 | %) |   |        | 46,540 | 
|                          | U.K. |      |        | 7,349      |  |      |       |       |    |      |        |       |  |  |       |      |    |   |        |       | 
|                          |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Total Branded Advertising |      |      | 25,224 |            |  |      | 13.1  | %      |    |      | 22,296 |        |  |  | (52.1 | %)    |    |   | 46,540 |       
|                          |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Paid Inclusion:           |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|                          | U.S. |      |        | 825        |  |      |       |       |    |      |        |       |  |  |       |      |    |   |        |       | 
|                          | U.K. |      |        |           |  |      |       |       |    |      |        |       |  |  |       |      |    |   |        |       | 
|                          |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Total Paid Inclusion      |      |      | 825    |            |  |      |      |        |    |      |       |        |  |  |      |       |    |   |       |       
|                          |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Total Web Properties      |      | $    | 58,763 |            |  |      | 82.8  | %      |    | $    | 32,154 |        |  |  | (44.9 | %)    |    | $ | 58,397 |       
|                          |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Total:                    |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|                          | U.S. |      |        | 42,270     |  |      |       | 31.5   | %  |      |        | 32,154 |  |  |       | (44.9 | %) |   |        | 58,397 | 
|                          | U.K. |      |        | 16,493     |  |      |       |       |    |      |        |       |  |  |       |      |    |   |        |       | 
|                          |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Total Web Properties      |      | $    | 58,763 |            |  |      | 82.8  | %      |    | $    | 32,154 |        |  |  | (44.9 | %)    |    | $ | 58,397 |       
|                          |      |      |        |            |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       

Throughout 2002, we made significant investments in technology, new products
and in our Web sites, with the overall goals of improving relevance of our
search answers and user satisfaction. We believe that these investments
resulted in the significant growth in revenues in the U.S. and, combined with
our acquisition of our former joint venture in the U.K., to overall revenue
growth.

Paid placement revenues increased in 2002 significantly from those in 2001 as
we had improvement in both unit volumes and unit pricing. Additionally, we
benefited from higher revenue sharing terms from one of our paid placement
partners. Paid placement revenues also increased from the introduction of our
Premier Listings product, which was launched in the first quarter of 2002.

Total advertising revenues grew for 2002 from those in 2001 due to the
acquisition of our U.K. joint venture. U.S. revenue decreased slightly in 2002
as the market demand for traditional online advertising products remained soft.
Additionally, as part of our efforts to improve the user experience, we
removed interstitial advertising and all banner advertising on Ask.com during
the fourth quarter of 2002, which negatively impacted revenues. However our
Branded Response product experienced strong growth, with its revenues
increasing 144% as compared to those in 2001.

Our paid inclusion product, which was launched in the first quarter of 2002,
contributed approximately one percent of our revenues. This product showed
strong growth on a percentage basis every quarter during the year, from a small
base. We believe revenues from this product will ramp more slowly due to the
nature of this products revenue model, with fees recognized gradually over the
service periods, which typically run one year.

During 2001, Web Properties revenues were impacted by softer demand for online
advertising, most significantly with respect to banner advertising, resulting
in a decrease in rates paid. The decrease was partially offset by revenue from
new advertising products, such as Branded Animation and interstitials, which
were introduced during the year.

For 2003, we expect the continued
revenue growth we experienced in 2002. We
intend to seek revenue growth by increasing traffic to our Web sites,
increasing the percentage of our traffic that produces revenue for us and, by
increasing the price we charge for our products and services. We intend to
seek increased Web traffic by improving the relevance of our search answers
and, thereby, increasing user satisfaction. During the fourth quarter of 2002,
we launched Teoma 2.0, which is the second generation of our search technology.
This version doubled the size of our search index and added spell check
functionality as well as some advanced search tools. We plan to continue our
investments in technology, by doubling the size of the search index again
during 2003 and adding more features and functionality. Further, we plan to
increase our marketing efforts to new users, which during 2002 consisted of
relatively few and minor initiatives. We believe that these steps, combined
with improvements to the user experience, will lead to growth in traffic of our
Web sites.

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##### Table of Contents



Jeeves Solutions Revenue

Total Jeeves Solutions revenue decreased 55.3% as compared with 2001. Revenues
from this division consist of license and services revenue. The following
table presents sales from each category and to corporate customers and our
joint venture partners.

|                       |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |        | 
|---------------------- | ------------------------- | ---- | ---------- | ------ |  | ---- | ----- | ------ | -- | ---- | ------ | ------ |  |  | ----- | ----- | -- | - | ------ | ------ | 
|                       |                           |      | Year Ended
|                       |                           |      |           
|(dollars in thousands) |                           | 2002 |            | Change |  | 2001 |       | Change |    | 2000
|                       |                           |      |            |        |  |      |       |        |    |     
|Licenses:              |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|                       | Corporate                 |      | $          | 1,418  |  |      |       | (42.5  | %) |      | $      | 2,467  |  |  |       | (41.8 | %) |   | $      | 4,238  | 
|                       | Japan                     |      |            | 4,547  |  |      |       | 0.5    | %  |      |        | 4,525  |  |  |       | 140.1 | %  |   |        | 1,885  | 
|                       | U.K. and Spanish Language |      |            | 1,607  |  |      |       | (88.6  | %) |      |        | 14,052 |  |  |       | 39.8  | %  |   |        | 10,053 | 
|                       |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |        | 
|Total licenses         |                           |      | 7,572      |        |  |      | (64.0 | %)     |    |      | 21,044 |        |  |  | 30.1  | %     |    |   | 16,176 |       
|                       |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Services:              |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|                       | Corporate                 |      |            | 7,766  |  |      |       | (40.0  | %) |      |        | 12,939 |  |  |       | (37.7 | %) |   |        | 20,757 | 
|                       | Japan                     |      |            |       |  |      |       | (100.0 | %) |      |        | 17     |  |  |       |      |    |   |        |       | 
|                       | U.K. and Spanish Language |      |            | 35     |  |      |       | (91.2  | %) |      |        | 397    |  |  |       | 7.3   | %  |   |        | 370    | 
|                       |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Total services         |                           |      | 7,801      |        |  |      | (41.6 | %)     |    |      | 13,353 |        |  |  | (36.8 | %)    |    |   | 21,127 |       
|                       |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Total Jeeves Solutions |                           | $    | 15,373     |        |  |      | (55.3 | %)     |    | $    | 34,397 |        |  |  | (7.8  | %)    |    | $ | 37,303 |       
|                       |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|Total:                 |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       
|                       | Corporate                 |      |            | 9,184  |  |      |       | (40.4  | %) |      |        | 15,406 |  |  |       | (38.4 | %) |   |        | 24,995 | 
|                       | Japan                     |      |            | 4,547  |  |      |       | 0.1    | %  |      |        | 4,542  |  |  |       | 141.0 | %  |   |        | 1,885  | 
|                       | U.K. and Spanish Language |      |            | 1,642  |  |      |       | (88.6  | %) |      |        | 14,449 |  |  |       | 38.6  | %  |   |        | 10,423 | 
|                       |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |        | 
|Total Jeeves Solutions |                           | $    | 15,373     |        |  |      | (55.3 | %)     |    | $    | 34,397 |        |  |  | (7.8  | %)    |    | $ | 37,303 |       
|                       |                           |      |            |        |  |      |       |        |    |      |        |        |  |  |       |       |    |   |        |       

License revenues decreased significantly in 2002 as compared with 2001. This
was due to the termination of license arrangements with our Spanish language
joint venture, Ask Jeeves en Espanol, in late 2001 and with our U.K. joint
venture, which we acquired in early 2002. Additionally, licensing to corporate
customers decreased in 2002 from 2001. In 2002, corporate licenses were
adversely affected by the reductions in spending across the market for
information technology.

Services revenues were lower in 2002 compared to 2001, almost entirely due to
reductions in spending from corporate customers. Services to corporate
customers decreased by approximately the same amount as licensing, as demand
for services were similarly impacted by the decrease in information technology
spending.

In 2001, license revenues increased compared to those in 2000, due to the
recognition of deferred revenue associated with international licensing
arrangements with our joint ventures, which was partially offset by decreases
in new customer bookings for domestic corporate licenses. Service revenue in
2001 compared to 2000 was reduced because of the decrease in new customer bookings
during the year. A significant portion of service revenues result from the
provision of consulting and training services. Such services frequently are
associated with new customer bookings. When customers renew subscription-based
contracts, such renewals may not result in additional consulting service
revenue.

We expect the market for corporate information technology to continue to be
soft for the foreseeable future. For 2003, we plan to continue to develop
Jeeves Services product offerings to meet the needs of our customers, so that
we will be well positioned when corporate spending on technology recovers.

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Gross Margin

|                              |                               |      |            |        |   |      |       |        |  |      |        |      |   |  |       |    |  |   |        |      |  
|----------------------------- | ----------------------------- | ---- | ---------- | ------ | - | ---- | ----- | ------ |  | ---- | ------ | ---- | - |  | ----- | -- |  | - | ------ | ---- | -
|                              |                               |      | Year Ended
|                              |                               |      |           
|(dollars in thousands)        |                               | 2002 |            | Change |   | 2001 |       | Change |  | 2000
|                              |                               |      |            |        |   |      |       |        |  |     
|Web Properties gross profit   |                               | $    | 42,482     |        |   |      | 142.7 | %      |  | $    | 17,506 |      |   |  | (55.4 | %) |  | $ | 39,231 |     
|                              | Web Properties gross margin   |      |            | 72.3   | % |      |       |        |  |      |        | 54.4 | % |  |       |    |  |   |        | 67.2 | %
|Jeeves Solutions gross profit |                               | $    | 9,284      |        |   |      | (56.6 | %)     |  | $    | 21,372 |      |   |  | 24.3  | %  |  | $ | 17,200 |     
|                              | Jeeves Solutions gross margin |      |            | 60.4   | % |      |       |        |  |      |        | 62.1 | % |  |       |    |  |   |        | 46.1 | %
|Total gross profit            |                               | $    | 51,766     |        |   |      | 33.1  | %      |  | $    | 38,878 |      |   |  | (31.1 | %) |  | $ | 56,431 |     
|                              | Total gross margin            |      |            | 69.8   | % |      |       |        |  |      |        | 58.4 | % |  |       |    |  |   |        | 59.0 | %

Web Properties Gross Margin

Cost of revenues for our Web Properties division consists primarily of costs
related to traffic acquisition and the delivery of our search results. Costs
to acquire traffic to our Web sites include revenue sharing and similar
arrangements with our partners and affiliates who direct traffic to our
properties. Costs related to delivering our search results includes
depreciation of Web site equipment, salaries and related personnel costs and
amortization charges related to technology acquired in certain of our business
combinations.

Gross margin for Web Properties increased in 2002 due to the increase in
revenue. On a dollar basis, cost of revenues increased $1.6 million to $16.3
million in 2002 as compared with 2001, reflecting increased traffic acquisition
costs associated with the higher levels of traffic, partially offset by
decreases in compensation-related costs and facilities charges relating to our
restructuring activities. Additionally, cost of revenues in 2001 included
amortization of acquired technology that did not continue into 2002.

For 2001 as compared with 2000, on a dollar basis, cost of revenues for Web
Properties decreased $4.5 million to $14.6 million in 2001, reflecting
significant decreases in compensation and compensation-related costs and
facilities charges relating to our restructuring activities during the year, as
well as reduced cost of site expenses associated with the reduction of Web
Properties revenue. This decrease in cost of revenues was more than offset by
the decrease in Web Properties revenue.

Jeeves Solutions Gross Margin

Cost of revenues for our Jeeves Solutions division consists primarily of
salaries and related personnel costs and other direct costs of providing
consulting and licensing to our corporate customers. Cost of revenues for
Jeeves Solutions also includes amortization charges related to technology
acquired in certain of our business combinations.

Gross margin for Jeeves Solutions decreased in 2002 due entirely to the
decrease in Jeeves Solutions revenue, primarily related to the terminated
license arrangements with Ask Jeeves en Espanol and our U.K. joint venture, which
had high margin characteristics. On a dollar basis, cost of revenues decreased
$6.9 million to $6.1 million in 2002 as compared with 2001. The decrease is
reflective of significant decreases in salary and related costs resulting from
the decrease in revenue levels and to the reduced personnel needs due to our
migration to the JeevesOne software platform, which is less labor intensive
than our hosted product.

The increase in Jeeves Solutions gross margin in 2001 over 2000 reflects
significant decreases in compensation and compensation-related costs and
facilities charges relating to our restructuring activities during the year.
This decrease in costs more than offset the decrease in Jeeves Solutions
revenue during the period.

Operating Expenses

|                                                     |                              |      |            |        |   |      |        |        |  |      |        |      |   |  |       |    |  |   |        |      |  
|---------------------------------------------------- | ---------------------------- | ---- | ---------- | ------ | - | ---- | ------ | ------ |  | ---- | ------ | ---- | - |  | ----- | -- |  | - | ------ | ---- | -
|                                                     |                              |      | Year Ended
|                                                     |                              |      |           
|(dollars in thousands)                               |                              | 2002 |            | Change |   | 2001 |        | Change |  | 2000
|                                                     |                              |      |            |        |   |      |        |        |  |     
|Product development                                  |                              | $    | 13,168     |        |   |      | (34.8  | %)     |  | $    | 20,206 |      |   |  | (17.5 | %) |  | $ | 24,502 |     
|                                                     | Percentage of total revenues |      |            | 17.8   | % |      |        |        |  |      |        | 30.4 | % |  |       |    |  |   |        | 25.6 | %
|Sales and marketing                                  |                              | $    | 35,742     |        |   |      | (14.0  | %)     |  | $    | 41,548 |      |   |  | (49.1 | %) |  | $ | 81,641 |     
|                                                     | Percentage of total revenues |      |            | 48.2   | % |      |        |        |  |      |        | 62.4 | % |  |       |    |  |   |        | 85.3 | %
|General and administrative                           |                              | $    | 21,086     |        |   |      | (4.1   | %)     |  | $    | 21,980 |      |   |  | (25.7 | %) |  | $ | 29,598 |     
|                                                     | Percentage of total revenues |      |            | 28.4   | % |      |        |        |  |      |        | 33.0 | % |  |       |    |  |   |        | 30.9 | %
|Stock-based compensation                             |                              | $    | 90         |        |   |      | (87.3  | %)     |  | $    | 706    |      |   |  | (76.4 | %) |  | $ | 2,996  |     
|                                                     | Percentage of total revenues |      |            | 0.1    | % |      |        |        |  |      |        | 1.1  | % |  |       |    |  |   |        | 3.1  | %
|Amortization of goodwill and
other intangible assets |                              | $    |           |        |   |      | (100.0 | %)     |  | $    | 22,855 |      |   |  | (72.3 | %) |  | $ | 82,624 |     
|                                                     | Percentage of total revenues |      |            | 0.0    | % |      |        |        |  |      |        | 34.3 | % |  |       |    |  |   |        | 86.3 | %

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##### Table of Contents



Product Development Expenses

Product development expenses consist primarily of salaries and related
personnel costs, consultant fees and expenses related to the design,
development, testing and enhancement of our technology and services. To date,
all software development costs have been expensed as incurred.

Decreased compensation and
compensation-related costs and the use of consultants
comprise the majority of the dollar decrease in 2002 over 2001, and resulted
from our focus on key, strategic areas of product development to support our
business plan and reduction in the number of product development initiatives
that are not essential to delivering future financial results. Further, we
reached several significant product release milestones in the Jeeves Solutions
division, including the release of JeevesOne in late 2001 and the extension of
JeevesOne to additional platforms in 2002, which decreased our need for
consultants and other product development expenses. The decrease in product
development expenses from 2000 to 2001 reflects the benefit of our
restructuring activities during 2001, including decreased compensation and
compensation-related costs.

Key strategic areas in Web Properties for the year ended December 31, 2002
focused on:



| |  |  | Search and information retrieval improvements, including scaling of
the Teoma technology to support our traffic; integration of Teoma with
our prior search technologies; and enhancement of search/retrieval
technology for better relevance.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Knowledgebase development, including extension in our use of
natural language and knowledge base techniques to improve relevance of
search results and ad products;                                                                           
|
| |  |  | Data collection and database mining improvements, including
expansion in the coverage of our data collection system to include all
products and properties;                                                                                   
|
| |  |  | Site engineering improvement, including a redesigned site
architectures to support new ad products, new partners and increased
syndication; and                                                                                               
|
| |  |  | Division-wide improvements such as enhanced technology for more
efficient scalability; and implementation of new features to improve
users experience.                                                                                       

During 2003, we expect to continue to incur development expenses in connection
with ongoing development efforts in these areas.

Key strategic areas of product development in Jeeves Solutions for the year
ended December 31, 2002 focused on:



| |  |  | Expansion of platform support including the Sun Solaris operating system;
| | - |  | -------------------------------------------------------------------------
|
| |  |  | Improved scalability for query processing tasks;                         
|
| |  |  | Support for databases and other structured sources;                      
|
| |  |  | Role based security framework for administrative activities; and         
|
| |  |  | Enhanced analytics to support complex multi-site deployments.            

During 2003, we expect to continue to increase the functionality of Jeeves
Solutions products and services. We plan to improve connectivity with
enterprise content management systems through additional enhancement of our
products. In addition, we plan to implement security enhancements to allow
greater access control for documents and database sources. Going forward, we
expect Jeeves Solutions product development expenses to stabilize, after significant investments last year.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries, commissions and
related personnel expenses as well as advertising and promotional expenditures.

The decrease in sales and marketing expenses in both 2002 and 2001 reflects
cost-cutting measures in variable spending areas including advertising,
promotional programs and public relations, which was partially offset in 2002
by slightly higher sales commissions reflecting the increased revenues. During
2001, we replaced mass-market promotion with targeted marketing initiatives,
resulting in a decrease in the total amount of sales and marketing spending
compared to 2000.

We anticipate that spending on
marketing initiatives will increase slightly in 2003 as compared with
2002. During 2002, we launched relatively few marketing initiatives
as we focused on cost cutting efforts. In 2003, we plan to increase
spending as we launch marketing efforts to attract new users to our
sites and increase traffic.

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##### Table of Contents



General and Administrative Expenses

General and administrative expenses consist of costs for general corporate
functions including depreciation and other facilities charges, and
insurance. Further, the provision for doubtful accounts, various accounting, investor
relations and legal costs associated with operating our business as well as
administrative function salaries, are also included.

Expenses were lower primarily due to decreased salary and incentive
compensation charges, decreased use of outside consultants and decreased
charges for doubtful accounts receivable, partially offset by increased costs
for insurance and legal expenses. The decrease in general and administrative
expenses in 2001 over 2000 is the result of significant cost cutting measures
in the area of travel and entertainment and other discretionary spending, as
well as decreased compensation.

Stock-based Compensation

Stock-based compensation reflects the amortization of stock compensation
charges from certain employee stock options. Deferred compensation charges arise from
the difference between the exercise price and the deemed fair value of specific
stock options granted to our employees and is amortized over the vesting
period. We recorded $90,000, in amortization of deferred stock-based
compensation in connection with the grant of stock options to employees and
consultants for the year ended December 31, 2002, $706,000 for the year ended
December 31, 2001, and $3.0 million for the year ended
December 31, 2000. The
decrease in amortization is due to our graded vesting method of amortization
resulting in larger deferred compensation charges being incurred in earlier
periods.

Amortization of Goodwill and Other Intangible Assets

We have recorded goodwill and other intangible assets as a result of various
purchase acquisitions we have completed. Prior to the adoption of SFAS 142 on
January 1, 2002, goodwill and intangible assets were amortized ratably over the
estimated economic lives of the respective assets, which is generally three to
five years. Subsequent to the adoption of SFAS 142, we review long-lived assets
and identifiable intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be
recoverable. We assess these assets for impairment based on estimated
undiscounted future cash flows from these assets. If the carrying value of the
assets exceeds the estimated future undiscounted cash flows, a loss is recorded
for the excess of the assets carrying value over the fair value.

We recorded no amortization of goodwill and other intangible assets in
operating expense for the year ended December 31, 2002 compared to $22.9
million for the year ended December 31, 2001 and $82.6 million for the year
ended December 31, 2000. During 2001, we recorded an impairment loss of $355.3
million on goodwill and other intangible assets relating to certain of our
acquisitions. This impairment loss reduced our recorded basis in goodwill and
other intangible assets and had the effect of reducing amortization expense
during 2001 and eliminating the expense in 2002.

|                                   |  |      |       |        |  |      |       |        |   |      |         |  |        |    |      |   |        |   |        |  | 
|---------------------------------- |  | ---- | ----- | ------ |  | ---- | ----- | ------ | - | ---- | ------- |  | ------ | -- | ---- | - | ------ | - | ------ |  | 
|(dollars in thousands)             |  | 2002 |       | Change |  | 2001 |       | Change |   | 2000
|                                   |  |      |       |        |  |      |       |        |   |     
|Write-off of in-process technology |  | $    |      |        |  |     |       | $      |  |      |         |  | (100.0 | %) |      | $ | 11,652 |  
|                                   |  |      |       |        |  |      |       |        |   |      |         |  |        |    |      |   |        |   |        |  | 
|Impairment of long-lived assets    |  | $    | 2,593 |        |  |      | (99.3 | %)     |   | $    | 355,291 |  |        |   |      | $ |       |  
|                                   |  |      |       |        |  |      |       |        |   |      |         |  |        |    |      |   |        |   |        |  | 
|Restructuring costs                |  | $    | 2,470 |        |  |      | (86.4 | %)     |   | $    | 18,127  |  |        |    | 34.6 | % |        | $ | 13,466 | 
|                                   |  |      |       |        |  |      |       |        |   |      |         |  |        |    |      |   |        |   |        |  | 

In-Process Technology

For the year ended December 31, 2000, we wrote off in-process technology of
$11.7 million in connection with the acquisition of certain technology from
Evergreen Project, Inc. and Direct Hit Technologies, Inc. There were no similar write-offs of in-process
technology during 2001 or 2002.

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Impairment of Long-lived Assets

During the year ended December 31, 2002, we recorded impairment charges
totaling $2.6 million, including $2.3 million relating to computer equipment
and software, furniture and fixtures that we disposed of or were no longer in
use, as well as charges related to the impairment of intangible assets
associated with the discontinued E-tours product.

During the first quarter of 2001, we identified indicators of possible
impairment of our long-lived assets, consisting principally of acquired
intangible assets and goodwill.

With the assistance of independent valuation experts, we performed asset
impairment tests at the enterprise level, the lowest level for which there were
identifiable cash flows related to our acquired intangible assets and goodwill.
The tests were performed by comparing the expected undiscounted cash flows for
a four-year period, plus a terminal value for future cash flows, to the
carrying amount of the long-lived assets resulting from purchase business
combinations. Based on the results of these tests, we determined that
long-lived assets initially recorded in connection with our business
combinations were impaired.

We measured the impairment loss related to long-lived assets based on the
amount by which the carrying amount of such assets exceeded its fair value.
Measurement of fair value was based on an analysis by us, with assistance from
independent valuation experts, of the future discounted cash flows at the
enterprise level. The analysis indicated that our long-lived assets were
impaired by an amount totaling $339.2 million. Accordingly, we recorded an
impairment write-down, allocated to goodwill, of this amount during the first
quarter of 2001.

During the third quarter of 2001, we identified additional indicators of
possible impairment of our long-lived assets, consisting principally of
acquired intangible assets and goodwill.

We performed asset impairment tests using similar methodologies as those
employed in the first quarter. Based on the results of these tests, we
determined that the carrying value of long-lived assets recorded in connection
with our business combinations were impaired.

We measured the impairment loss related to long-lived assets based on the
amount by which the carrying amount of such assets exceeded its fair value,
using similar methodologies as employed in the first quarter of 2001. The
analysis indicated that our long-lived assets were impaired by an amount
totaling $16.1 million. Accordingly, we recorded an impairment write-down,
allocated to acquired intangible assets and goodwill, of this amount during the
three month period ended September 30, 2001.

We did not record any write-downs of long-lived assets during the year ended
December 31, 2000.

Restructuring Costs

In response to new challenges in the business environment, in December 2000,
our board of directors approved a restructuring program aimed at streamlining
our underlying cost structure to better position us for growth and improved
operating results. As part of the restructuring program, we implemented a
reduction in force of approximately 152 positions. The reductions came from all
areas of our company and, as of December 31, 2000, all of the affected
employees had been notified and the majority of these terminations were
completed. As part of the restructuring, we determined that the operations of
the Evergreen Project, Inc., which was acquired in January 2000, no longer fit
our strategic objectives and were terminated. We incurred a charge of
approximately $13.5 million in the fourth quarter of the year ended December
31, 2000 relating to the restructuring. This charge included $2.2 million
related to costs associated with employee terminations, which included
severance pay and medical and other benefits plus legal and accounting costs.
The charge also included approximately $8.0 million in estimated facility exit
costs and $3.3 million in non-cash asset write-downs. The facility exit costs
were associated with the consolidations of various facilities in California and
Missouri. Non-cash asset write-downs related to the termination of the
Evergreen operation were approximately $3.1 million of goodwill and $200,000 of
equipment.

In the year ended December 31, 2001, we reported charges of approximately $18.1
million, which included approximately $13.8 million related to facility
consolidations in California, as a result of unsuccessful attempts to sublease
in a rapidly deteriorating market which led to our decision to terminate a
significant lease obligation for a termination fee. In addition, the charge
included additional severance pay and medical and other benefits of

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approximately $2.9 million, costs relating to termination of marketing
agreements totaling approximately $1.3 million and an asset write-off related
to the termination of the Evergreen operation of approximately
$100,000. As of December 31, 2001, all of the affected employees
had been notified and the majority of the terminations were completed.

In the year ended December 31, 2002, we incurred additional restructuring
charges of approximately $2.5 million relating to workforce reductions and
facilities exit costs. During the second and third quarters, we implemented
workforce reductions totaling approximately 102 positions and resulting in
charges of $1.4 million for severance pay and medical and other benefits.
As of December 31, 2002, all of the affected employees had been
notified and the majority of the terminations were completed. Additionally, in the fourth quarter, we revised our assumptions relating to our
ability to sublease vacated facilities, resulting in facilities exit charges
totaling $1.1 million.

While we believe that our business realignment will assist us in streamlining
operations, reducing expenses and thereby achieving profitability, we may in the future
be required to take additional actions, including further changes to the
business organization, to realign the business with anticipated requirements.
If we are not successful in realigning our business to increase revenues and
decrease costs, we may not remain profitable or cash flow positive.

Gain on Dissolution of Joint Venture

In October 2001, we dissolved Ask Jeeves en Espanol, our Spanish language joint
venture with Univision Communications, Inc. In connection with the dissolution,
we received cash of approximately $7.5 million and reacquired the rights and
licenses originally assigned to the venture. We recorded a gain of $13.4
million in the fourth quarter of 2001, representing the remaining balance of
deferred revenue paid to us by the venture as well as the value of cash
received by us.

Interest and other income, net

|                               |  |      |       |        |  |      |       |        |  |      |       |  |  |  |      |   |  |   |       |  | 
|------------------------------ |  | ---- | ----- | ------ |  | ---- | ----- | ------ |  | ---- | ----- |  |  |  | ---- | - |  | - | ----- |  | 
|(dollars in thousands)         |  | 2002 |       | Change |  | 2001 |       | Change |  | 2000
|                               |  |      |       |        |  |      |       |        |  |     
|Interest and other income, net |  | $    | 2,080 |        |  |      | (35.4 | %)     |  | $    | 3,221 |  |  |  | 43.0 | % |  | $ | 2,252 | 

Interest income was $1.5 million, for the year ended December 31, 2002, $4.2
million for the year ended December 31, 2001 and $7.0 million for the year
ended December 31, 2000. Interest income relates primarily to interest earned
on fixed income securities and correlates with the average balance of those
investments and prevailing interest rates. The decrease in interest income in
2002 over 2001, as well as the decrease in 2001 over 2000, relates to decreases
in both average balances and prevailing interest rates during the year.

Interest expense was $478,000 for the year ended December 31, 2002, $630,000
for the year ended December 31, 2001 and $464,000 for the year ended December
31, 2000. The decrease in interest expense is attributable to decreases in the
amounts due under capital leases. The increase in interest expense from 2000
to 2001 is attributable to the interest charges incurred on borrowings under
our line of credit and on capital lease obligations.

Further, during the year ended December 31, 2002, we recorded a gain of
$974,000 representing the remaining balance of deferred license fees paid to us
by Ask Jeeves UK, for a licensing arrangement that was terminated when we
acquired the remaining outstanding equity interest of Ask Jeeves UK.

In February 2002, we acquired the
entire outstanding equity interests in Ask Jeeves UK. The terms of
the agreement include an obligation for us to pay to our former
partners fifty percent of the net proceeds of any qualifying sale or
offering of shares of Ask Jeeves UK through March 2003. As of
December 31, 2002, we have recorded a deferred gain of $6.2
million representing the fair value of assets acquired by us in
excess of consideration paid. The gain will be recognized as other
income when the contingent payment obligation to our former partners
expires in March 2003.

Seasonality and Quarterly Fluctuations In Operating Results

Our operating results may fluctuate significantly in the future as a result of
a variety of factors, many of which are beyond our control. Factors that may
adversely affect our results of operations include:



| |  |  | our ability to obtain new corporate customers, the length of the
development cycle for corporate customers and the timing of revenue
recognition with respect to contracts with corporate customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to obtain new advertising contracts, maintain existing
ones, and effectively manage our advertising inventory;                                                                          
|
| |  |  | the number of questions asked and
answered on our Web sites and on
the Web sites of our corporate customers;                                                                                        
|
| |  |  | our ability to attract and retain advertisers and our ability to link our partners to potential customers;                                                                                          
|
| |  |  | rate changes for advertising on our Web sites;                                                                                                                                                      

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| |  |  | marketing expenses and technology infrastructure costs as well as
other costs that we may incur as we expand our operations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | seasonal and other fluctuations in demand for our services and for advertising space on our Web sites;                      
|
| |  |  | our ability to develop and introduce new technology;                                                                        
|
| |  |  | announcements and new technology introductions by our competitors;                                                          
|
| |  |  | our ability to attract and retain key personnel; and                                                                        
|
| |  |  | costs relating to possible
acquisitions and integration of technologies or businesses.                                      

Because of the foregoing factors, we believe that period-to-period comparisons
of our operating results should not be relied upon as an indicator of our
future performance.

As the Internet advertising market continues to develop, seasonal and cyclical
patterns may emerge, or become more pronounced, thereby causing
period-to-period variability within each years revenues. For example, we have
historically experienced stronger periods of growth in the second and fourth
quarters of the year. Similar to the advertising revenue cycle experienced by
traditional media companies, this apparent trend may result in our advertising
sales being lower during the summer vacation period. Seasonality in the retail
industry and in Internet service usage is likely to cause quarterly
fluctuations in our results of operations, which could harm our business.

Liquidity and Capital Resources

|                                                              |                            |      |                                                 |      |   |   |         |      |  
|------------------------------------------------------------- | -------------------------- | ---- | ----------------------------------------------- | ---- | - | - | ------- | ---- | -
|                                                              |                            |      | December 31,
or
For the year ended December 31,
|                                                              |                            |      |                                                
|(dollars in thousands)                                        |                            | 2002 |                                                 | 2001
|                                                              |                            |      |                                                 |     
|Unrestricted cash, cash equivalents and marketable securities |                            | $    | 33,375                                          |      |   | $ | 51,796  |     
|Restricted cash, cash equivalents and marketable securities   |                            | $    | 11,065                                          |      |   | $ | 24,806  |     
|Total cash, cash equivalents and marketable securities        |                            | $    | 44,440                                          |      |   | $ | 76,602  |     
|                                                              | Percentage of total assets |      |                                                 | 61.6 | % |   |         | 68.8 | %
|Current ratio*                                                |                            |      | 2.22                                            |      |   |   | 1.69    |     
|Days sales outstanding                                        |                            |      | 47                                              |      |   |   | 47      |     
|Cash used in operating activities                             |                            | $    | (38,924                                         | )    |   | $ | (25,702 | )   
|Cash provided by investing activities                         |                            | $    | 32,287                                          |      |   | $ | 6,135   |     
|Cash provided by financing activities                         |                            | $    | 533                                             |      |   | $ | 11,247  |     



---

|* |  | Calculated excluding deferred revenue and deferred gain
|- |  | -------------------------------------------------------

Our principal source of liquidity is our cash, cash equivalents and investments
in marketable securities. Since our inception, we have financed our operations
primarily through the private placement of equity securities, our initial
public offering in June 1999 and our follow-on public offering in March 2000.
As of December 31, 2002, we had $44.4 million in cash and cash equivalents, and
marketable securities, of which $11.1 million was restricted. Marketable
securities consist of highly liquid instruments (primarily U.S., state and
municipal government securities and corporate debt securities) with short
maturities. Of this amount, $27.6 million was categorized as cash and cash
equivalents at December 31, 2002, representing a decrease of $5.5 million from
December 31, 2001. We consider all cash and highly liquid investments with an
original maturity of less than three months at the date of purchase to be cash
equivalents. The decrease resulted primarily from cash used in operations of
$38.9 million, which was partially offset by cash flows from investing
activities of $32.3 million and financing activities of $0.5 million.

Net cash used in operating activities
increased by $13.2 million, or 51%, to
$38.9 million in 2002 from $25.7 million in 2001. The increase resulted
primarily from net losses of $21.3 million adjusted for non-cash
items of $15.2
million, and decreases in working capital of $32.8 million. Significant
non-cash items included depreciation and amortization charges of $8.7 million.
The decrease in working capital resulted from payments of accrued restructuring
costs of $17.7 million and accounts payable of $3.9 million in addition to
decreases in deferred revenue of $5.3 million.

Net cash provided by investing
activities increased by $26.2 million to $32.3
million in 2002 from $6.1 million in 2001. Cash from investing activities
resulted primarily from the net redemption of marketable securities of $26.2
million and cash acquired in business combinations of $10.9 million, which was
partially offset by capital expenditures of $5.3 million for the purchase of
fixed assets.

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Net cash provided by financing
activities decreased by $10.7 million to $0.5
million in 2002 compared to $11.2 million in 2001. Cash from financing relates
primarily to net issuances of common stock of $1.4 million reduced by payments
on capital lease obligations.

We have a revolving line of credit with a bank in the amount of $15 million.
The line of credit expires on July 1, 2003, unless extended. Borrowings under
the line of credit bear interest at LIBOR plus 0.5% (2.6% at December 31,
2002.) All borrowings are collateralized by an equal amount of our marketable
securities. The line of credit agreement contains various covenants. As of
December 31, 2002, borrowings of $11.0 million were outstanding under the line
of credit. Additionally, standby letters of credit of approximately $65,000
were issued and outstanding under the line of credit, which are being
maintained as security for performance under lease obligations.
Should we choose not to renew the line of credit, we do not believe
our business would be harmed.

Our capital requirements depend on numerous factors, including market
acceptance of our services and the amount of resources we invest in Web site
and content development, marketing and selling our products and services, our
brand promotions and any future acquisitions or divestitures.

We anticipate that our existing unrestricted cash and marketable securities
will be sufficient to fund our anticipated needs for working capital and
capital expenditures for at least the next twelve months. At the end of such
period, we will need to generate sufficient cash flow from operations to meet
our anticipated needs for working capital and capital expenditures, or we will
need to raise additional capital. However, if we are not successful in
generating sufficient cash flow from operations or in raising additional
capital when required in sufficient amounts and on terms acceptable to us,
these failures could seriously harm our business. If we raise additional funds
through the issuance of equity or convertible debt securities, the percentage
ownership of our existing stockholders will be reduced.

Off Balance Sheet Arrangements

As of December 31, 2002, our only
unconsolidated subsidiary is in Ask Jeeves Japan, which
generally provides Ask Jeeves services within a defined
geographic region. The Company does not have majority voting rights
or majority residual interests in the assets or income of any off balance sheet
entities, including Ask Jeeves Japan. Further, we have not
guaranteed any obligations of unconsolidated entities nor do we have any
commitment or intent to provide additional funding to any such entities.
Accordingly, we are not materially exposed to any market, credit, liquidity or
financing risk that could arise from engaging in such relationships.

We do not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.

Contractual Obligations, Contingent Liabilities and Commitments

The following table summarizes our contractual obligations at December 31,
2002, and the effect such obligations are expected to have on our liquidity and
cash flows in future periods:

|                                |       |       |        |                  |  |           |        |           |  |            |       |       |  |   |       |       |  |   |       |       | 
|------------------------------- | ----- | ----- | ------ | ---------------- |  | --------- | ------ | --------- |  | ---------- | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|(in thousands)                  |       | Total |        | Less than 1 year |  | 1-3 years |        | 4-5 years |  | Thereafter
|                                |       |       |        |                  |  |           |        |           |  |           
|Borrowings under line of credit |       | $     | 11,000 |                  |  | $         | 11,000 |           |  | $          |      |       |  | $ |      |       |  | $ |      |      
|Capital lease obligations       |       |       | 572    |                  |  |           | 572    |           |  |            |      |       |  |   |      |       |  |   |      |      
|Non-cancelable operating leases |       |       | 12,699 |                  |  |           | 4,115  |           |  |            | 5,391 |       |  |   | 1,502 |       |  |   | 1,691 |      
|                                |       |       |        |                  |  |           |        |           |  |            |       |       |  |   |       |       |  |   |       |      
|                                | Total |       | $      | 24,271           |  |           | $      | 15,687    |  |            | $     | 5,391 |  |   | $     | 1,502 |  |   | $     | 1,691 | 

Amounts above include sublease rental
income. We have no material commitments or obligations other than those under leases
and our line of credit.

Recent Accounting Pronouncements

In July 2001, the FASB issued
Statements of Financial Accounting Standards No. 141, Business
Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible
Assets (SFAS 142). SFAS 141 eliminates the pooling-of-interests
method of accounting for business combinations except for qualifying
business combinations that were initiated prior to July 1, 2001. SFAS
141 further clarifies the criteria to recognize intangible assets
separately from goodwill. The requirements of SFAS 141 are effective
for any business combination accounted for by the purchase method
that is completed after September 30, 2001. Under SFAS 142,
goodwill and indefinite lived intangible assets are
no longer amortized but are reviewed annually (or more frequently if
impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their useful lives (but with no maximum life). The
amortization provisions of Statement 142 apply to goodwill and
intangible assets acquired after June 30, 2001. SFAS 142 will have no
affect on our financial statements. Had the provisions of SFAS 142 been in effect during the year
ended December 31, 2001, our results would not have been materially
impacted from those reported. Had the provisions of SFAS 142 been in effect during the year
ended December 31, 2000, adjusted net loss would have
been $(106,982,000) and adjusted net loss per share would have been
$(3.11).

During August 2001, the Financial
Accounting Standards Board also issued Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 is effective
for fiscal years beginning after December 15, 2001 and
supercedes Statements of Financial Accounting Standards No. 121,
Accounting for the Impairment or Disposal of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30
relating to the disposal of a segment of business. The adoption of
SFAS 144 did not have a material impact on our consolidated financial
position, results of operations or cash flows.

In July 2002, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit and Disposal
Activities. This statement supercedes the accounting for exit and
disposal activities under Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity. Commitment to a plan to exit
an activity or dispose of long-lived assets will no longer be
sufficient to record a one-time charge for most anticipated costs.
Instead, SFAS 146 requires exit or disposal costs be recorded when
they are incurred and can be measured at fair value. SFAS 146
further requires that the recorded liability be adjusted for changes
in estimated cash flows. The provisions of SFAS 146 are effective
prospectively for exit or disposal activities initiated after
December 31, 2002. Previously issued financial statements cannot
be restated for the effect of the provisions of SFAS 146 and
liabilities previously recorded under EITF Issue No. 94-3 are
grandfathered. We do not believe SFAS 146 will have a material impact
on our consolidated financial statements.

In November 2002, the EITF reached a
consensus on Issue  No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provided guidance on how to
account for arrangements that involve the delivery or performance of
multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. We
are currently evaluating the effect that the adoption of EITF Issue
No. 00-21 will have on our results of operations and financial
condition.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation, Transition and
Disclosure. SFAS No. 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also requires
that disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be
displayed more prominently and in a tabular format. Additionally,
SFAS No. 148 requires disclosure of the pro forma effect in interim
financial statements. The transition and annual disclosure
requirements of SFAS No. 148 are effective for our fiscal year 2003.
The interim disclosure requirements are effective for the first
quarter of our fiscal year 2003. We do not expect SFAS No. 148 to
have a material impact on our consolidated financial statements.

In January 2003 the Financial
Accounting Standards Board issued FASB Interpretation 146
Consolidation of Variable Interest Entities. The interpretation
defines variable interest entities as those in which equity
investment at risk is not sufficient to permit the entity to finance
its activities with out additional subordinated financial support
from other parties, or entities in which equity investors lack
certain essential characteristics of a controlling financial
interest. The primary beneficiary of a variable interest entity is
the party that absorbs a majority of the entitys expected losses,
receives a majority of its expected residual returns, or both, as a
result of holding variable interests, which are the ownership,
contractual, or other pecuniary interests in an entity. The primary
beneficiary is required to consolidate the financial position and
results of operations of the variable interest entity. The
interpretation applies immediately to interests in variable interest
entities acquired after January 31, 2003 and for the first
fiscal year or interim period beginning after June 15, 2003 for
interests previously acquired in such entities. We believe that
adoption of this statement will not have a material effect on our
consolidated financial statements.

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RISK FACTORS

Included below are other risk factors that may affect our future operating
results.

Risks Related to our Company

We have a history of net losses and might not remain profitable.

We have incurred net losses every year since our inception. Although we were
profitable in the fourth quarter of 2002, as of December 31, 2002 we had an
accumulated deficit of $696.7 million. We cannot assure you that we will
remain profitable or cash flow positive. Moreover, we might not be able to
increase our operating profitability on a quarterly or annual basis. To
increase profits, we will need to generate revenue growth from our advertising
and corporate customers while continuing to control our expenses. Beginning in
late 2000, we announced steps to control costs, including business realignment
and a reduction in our workforce. These measures reduced our operating costs
during 2002 but might yet result in long-term problems, such as delayed product
development or reduced morale, which could be expensive and difficult to
remedy. Moreover, we might be unable to reduce operating costs any further and
we face the risk that our costs might increase again in the future. Indeed, we
believe it is critical that we continue to expend financial and management
resources to develop our brand loyalty through marketing and promotion, to
enhance our search technologies and to expand our other services. If we fail
to increase revenues or control costs, our annual net losses would likely
resume, in which case we would eventually need to obtain additional financing
or cease operations.

We derive a significant amount of
revenue from our paid placement arrangement
with Google Inc.

We derive a significant amount of our
revenues under an agreement with Google Inc., to participate in their
sponsored links program through which we share revenues generated from Googles advertisers
on our search Web sites. We generated more than 10% of our total
revenue for 2002 from our participation. The contract is scheduled to terminate in September 2005,
however if the contract were to end unexpectedly, we would need to find another
suitable partner or otherwise replace the lost revenues. Further, if Googles
performance under this contract were to unexpectedly deteriorate or our ability
to generate traffic for these listings were to decrease, our results of
operations could be harmed.

Web-based business models are still
evolving.

Our advertising revenue will depend on our ability to achieve,
measure and demonstrate to advertisers the breadth of Web traffic using our
search service and the value of our targeted advertising. Currently, there are
a variety of pricing models for selling advertising on the Internet, including
models based on the number of impressions delivered, the number of
click-throughs by users, the duration over which the advertisement is displayed
or the number of keywords to which the advertisement is linked. It is still
difficult to predict which pricing model, if any, will emerge as the industry
standard. This uncertainty makes it difficult to project our future
advertising rates and revenues. A decrease in advertising sold or further cuts
in advertising rates would reduce our total revenue.

If our Jeeves Solutions division fails to obtain new sources of licensing
revenue, its 2003 financial results will be weaker than 2002.

For the year ended December 31, 2002, our Jeeves Solutions division generated
$15.4 million, or approximately 20.7% of our total revenues, from licensing
software and services. Included in that amount are intellectual property
licensing revenues of approximately $6.2 million that Jeeves Solutions received
from Ask Jeeves UK and Ask Jeeves Japan. However, in February 2002, we
acquired full ownership of Ask Jeeves UK from our joint venture partner.
Consequently,

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its intellectual property license has terminated, which may cause a decrease in
future licensing revenues of Jeeves Solutions. If our Jeeves Solutions division
cannot obtain new sources of licensing revenue from third parties in 2003, its
financial results will suffer.

We rely on third-party advertising delivery that could affect our ability to
deliver advertisements on our Web sites.

We rely on third-party advertising services, provided by DoubleClick, Inc. to
deliver advertisements to our users. DoubleClick is currently the only provider
available in the market that meets our delivery needs. If DoubleClick fails to
deliver advertisements as contracted for due to reliability or performance
problems, or if advertisements cannot be targeted as promised to advertisers,
our revenues may decrease.

If we cannot maintain the popularity of our search engine among Internet users,
our business plan will fail.

We will be successful only if a critical mass of Internet users adopt our
search technologies and services as a primary method of navigating the
Internet. Internet users have a variety of other search techniques, including
other search engines and subject-matter directories, available to them to find
information on the Web. Users can also use non-Web-based methods of obtaining
information through the Internet, including call centers, chat rooms and
e-mail, rather than browsing through difficult-to-navigate corporate Web sites.
Our search technologies, including those of our recent acquisition of Teoma
Technologies, Inc., are novel and unproven. It is difficult to predict the rate
at which users will sample our services and the extent to which they will adopt
them as their primary search technology. Even in the case of repeat users, it
is difficult to know whether they return to our Web sites because they are
satisfied with our offerings or because they are dissatisfied with the
alternatives. At any time, users of our services might revert to prior search
techniques or choose new search techniques altogether. We cannot assure you
that widespread acceptance of our search technologies and services will occur.
If we cannot maintain the popularity of our search engine among Internet users,
our business plan will fail.

If high quality, third-party data ceases to be available, or directly
accessible, on the Web, our business plan might fail.

Our Internet search services are designed to directly link users to a page
within a third-party Web site that contains an answer to the users question.
We have little control over the content of these third-party Web sites. If
these third-party Web sites do not contain high-quality, up-to-date
information, the utility of our service to the user will be reduced. In
addition, when our search engine attempts to direct the user to a page within a
third-party companys Web site, the company administering the site sometimes
automatically redirects users to that companys own home page. If third-party
companies prevent us from directly linking our users to pages within their Web
sites, and if there are no comparable alternative Web sites to which we can
direct our users, the utility and attractiveness of our services to users will
be reduced. If the utility of our services diminishes for either of the above
reasons, traffic on our Web sites will likely fall, which would reduce our
ability to charge for advertising and premium listings.

If we fail to compete effectively against our current and potential
competitors, we will lose market share.

We compete in markets that are new, intensely competitive, fragmented and
rapidly changing. Many of our competitors are bringing new search technologies
to market, establishing alliances with key portals and focusing on specific
segments of the search market. In particular:



| |  |  | Web Properties: Our Web Properties division faces direct
competition from companies that provide Internet search and
directory services. For example, Web Properties competes with search
providers, including AltaVista Company, FAST (AlltheWeb.com),
Google, Inc. and Yahoo! Inc. (Inktomi), for the traffic generated by
Internet users seeking links to third-party content to address their
online information retrieval needs. Web Properties also competes
with directory services, including Overture Services, Inc.,
LookSmart, Ltd. and Yahoo! Inc., because they provide alternative
ways for users to obtain the desired information.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Jeeves Solutions: Our Jeeves Solutions division competes
with a number of companies that provide customer self-service
solutions for corporate customers. For example, Jeeves Solutions
competes with companies providing advanced natural language
solutions, including iPhrase Technologies, Inc. and                                                                                                                                                                                                                                                                                                                                           

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| |  |  | Kanisa Inc.; search technology companies, including Google, Inc. and
Verity, Inc.; and catalog search companies, including EasyAsk, Inc.
and Mercado Software, Inc.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our growth will depend on our ability to attract and retain new users through
effective promotional campaigns.

We believe that favorable consumer and business community perceptions of the
Ask Jeeves brands are essential to our future success. Accordingly, we intend
to continue pursuing brand-enhancement strategies, which may include mass
market and multimedia advertising, promotional programs and public relations
activities. As with any public awareness campaign, we face the risk that our
expenditures might not lead to the desired result; that is we might experience
no net increase in our brand recognition or brand loyalty, our number of new
users, our Web site traffic or our number of corporate customers. Furthermore,
even if such increases occur, they might not be sufficiently large to justify
the expenditures. If we are unable to promote brand awareness and loyalty in a
cost-effective manner, we are unlikely to attract new users and our existing
user base might shrink through attrition.

If we are unable to rapidly and successfully develop new products and new
product enhancements, as well as to integrate acquired technologies, we might
be unable to meet customer demand.

In the highly competitive, rapidly changing Internet search environment, our
future success depends in large part on our ability to develop and introduce
new products that meet the needs of our customers more rapidly than our
competitors. In our Web Properties division, for example, we are currently
developing new enhancements to many of our advertising products, including
Branded Response, Premier Listings, Site Submit and Index Express to meet new
demands in the marketplace. If we are unable to develop these and other new and
enhanced products on a timely basis, we might lose market share to our faster
competitors and never recoup our development costs. Product development is
complicated by the following factors, among others:



| |  |  | It is difficult, expensive and time consuming to design
alternate versions of a product to run on each of the operating
system platforms that our customers might have in place.                                                                                                                                                                                                                                                                                                                                               
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Additionally, we have acquired technology to accelerate our
ability to meet new product requirements and enhancements. For
example, in September 2001 we acquired Teoma Technologies, Inc. and
in January 2002 we announced the acquisition of certain technology
from Octopus Software, Inc. We must continue to scale and integrate
these technologies into our existing and new products. If we are
unable to successfully and rapidly integrate these and other
technologies into our products, our business may be harmed.

Our business may suffer in a variety of ways unless overall economic conditions
improve.

Current economic conditions pose a variety of additional challenges to our
business. The financial condition of many of our customers has deteriorated and
continues to deteriorate because of their inability to raise additional funds
for their businesses. Many of our customers are making and will continue to
make significant cutbacks in their sales and marketing efforts and capital
expenditures, which will in turn harm our financial results. Our inability to
rapidly replace this portion of our customer base will negatively impact our
business.

Our past acquisitions and any future acquisitions may disrupt our business,
dilute stockholder value, divert management attention or be difficult to
integrate.

We have acquired a number of companies since our initial public offering,
including Teoma Technologies, Inc. in September 2001 and Ask Jeeves UK in
February 2002. We may in the future seek to acquire or invest in additional
businesses, products or technologies that we believe could complement or expand
our business, augment our market coverage, enhance our technical capabilities
or that may otherwise offer growth opportunities. However, in doing so, we may
encounter problems with the assimilation of acquired businesses, products or
technologies including:



| |  |  | difficulties in assimilation of acquired personnel, operations, technologies or products;
| | - |  | -----------------------------------------------------------------------------------------
|
| |  |  | unanticipated costs associated with acquisitions;                                        

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| |  |  | diversion of managements attention from other business concerns
and potential disruption of our ongoing business;
| | - |  | ------------------------------------------------------------------------------------------------------------------
|
| |  |  | adverse effects on our existing business relationships with our customers;                                        
|
| |  |  | potential patent or trademark infringement from acquired technologies;                                            
|
| |  |  | adverse effects on our current employees and the inability to retain employees of acquired companies;             
|
| |  |  | use of substantial portions of our available cash as all or a portion of the purchase price; and                  
|
| |  |  | dilution of our current stockholders due to issuances of additional
securities as consideration for acquisitions. 

If we are unable to successfully integrate our acquired companies or to create
new or enhanced services, we may not achieve the anticipated benefits from our
acquisitions. If we fail to achieve the anticipated benefits from the
acquisitions, we may incur increased expenses and experience a shortfall in our
anticipated revenues and we may not obtain a satisfactory return on our
investment. In addition, if a significant number of employees of acquired
companies fail to remain employed with us, we may experience difficulties in
achieving the expected benefits of the acquisitions.

If we fail to maintain effective internal financial and managerial systems,
controls and procedures, our results of operations may be harmed.

Our recent business realignment and reductions in workforce placed a
significant strain on our managerial staff, financial controls and operational
resources as our employees have assumed greater responsibilities and learned to
manage their increased workload with reduced resources. We continue to
evaluate our operational and financial systems and our managerial controls and
procedures to determine what additional changes, if any, might help us to
better manage our current operations. We face the risk that our systems,
procedures and controls might not be adequate to support our operations or to
maintain accountability for our assets. Any such failure could harm our
results of operations.

Our international expansion efforts might lose money.

Any expansion by us into international markets will require substantial
management attention and financial resources. Establishing operations in other
countries is a significant investment that might not produce the desired levels
of revenue. In addition, our foreign operations are subject to other inherent
risks and problems, including:



| |  |  | the impact of business cycles and downturns in economies outside the United States;                                             
| | - |  | --------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | longer payment cycles and greater difficulty in accounts receivable collections;                                                
|
| |  |  | unexpected changes in regulatory requirements;                                                                                  
|
| |  |  | difficulties and costs of staffing and managing foreign operations;                                                             
|
| |  |  | reduced protection for intellectual property rights in some countries;                                                          
|
| |  |  | unanticipated tax costs associated with the cross-border use of intangible assets;                                              
|
| |  |  | political and economic instability;                                                                                             
|
| |  |  | fluctuations in currency exchange rates;                                                                                        
|
| |  |  | difficulty in maintaining effective communications with employees
and customers due to distance, language and cultural barriers;
|
| |  |  | lower brand recognition for Ask Jeeves and the Jeeves character in
non-English speaking countries;                              

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| |  |  | lower per capita Internet usage in many foreign countries, for a
variety of reasons including lower disposable incomes, lack of adequate
telecommunications and computer infrastructure and concerns regarding
online security for e-commerce transactions; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | competition in international markets from a broad range of
competitors, including AltaVista Company, Google, Inc., Overture Services, Inc.,
LookSmart, Ltd., Yahoo! Inc. and other United States and foreign portals, search
engines and service providers.    

Some or all of the above factors could
seriously harm the results of our operations.

Legal actions may be initiated against us seeking to hold us liable for our
links to third-party Web sites.

Our Internet search services are designed to directly link users to a page
within a third-party Web site that contains an answer to the users question.
These direct links might expose us to legal actions seeking to hold us liable
for the content of those third-party Web sites. These actions might claim, for
example, that we should be liable for copyright or trademark infringement or
other unauthorized actions by the third-party Web site. Other claims may be
based on errors or false or misleading information provided through our Web
sites, including information deemed to constitute professional advice including
legal, medical, financial or investment advice. Other claims may be based on
our links to sexually explicit Web sites and our provision of sexually explicit
advertisements when this content is displayed. While no such claims are pending
and we do not believe that any such claim would have legal merit, defending
against such a legal action could be expensive and distract management.
Implementing measures to reduce our exposure to such claims may require us to
spend substantial resources and limit the attractiveness of our service to
users.

Risks Related to Operating in our Industry

The operating performance of our computer systems and Web servers is critical
to our business and reputation.

Any system failure, including network,
software or hardware failure due to a computer virus or otherwise, that
causes an interruption in our service or a decrease in our responsiveness could
result in reduced user traffic on our Web sites and reduced revenues for our
business. We have network and server equipment located at Metromedia
Fiber Network in California and England, Worldcom in Massachusetts,
and Cable &
 Wireless Communications in England. Although we believe that our current back-up methods are
adequate, we face the risk that our back-up servers might fail or might cause
an interruption in our service.

We have experienced slower response times and interruptions in service due to
malfunction at our hosting facilities and on the Internet backbone networks,
major software upgrades on our Web sites and undetected software defects. Our
Web sites have had partial interruptions for periods ranging from a few minutes
to three hours. In addition, our Web sites also could be affected by computer
viruses, electronic break-ins or other similar disruptions. If we experience
outages, frequent or persistent system failures or degraded response times,
user satisfaction would decrease, we would likely lose advertising revenues and
our reputation and brands could be permanently harmed.

Our users and customers depend on Internet service providers, online service
providers and other Web site operators for access to our Web sites. Each of
these types of providers has experienced significant outages in the past and
could experience outages, delays and other operating difficulties due to system
failures unrelated to our systems.

The occurrence of an earthquake or other natural disaster or unanticipated
problem at our principal facilities or at the servers that host or back-up our
systems could cause interruptions or delays in our interactive network or a
loss of data. Our systems are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and
similar events. We have not developed a comprehensive disaster recovery plan to
respond to system failures. Our general liability insurance policies may not
adequately compensate us for losses that may occur due to interruptions in our
service.

Our long-term success depends upon the growth and acceptance of Internet
advertising as an effective alternative to traditional advertising media.

We compete with traditional media including television, radio and print, in
addition to other high-traffic Web sites, for a share of advertisers total
advertising expenditures. We face the risk that advertisers might find
Internet advertising to be a less effective than traditional media at promoting
their products or services and may further reduce or eliminate their

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expenditures on Internet advertising. Many potential advertisers and
advertising agencies have only limited experience
advertising on the Internet and have not devoted a significant portion of their
advertising expenditures to Internet advertising. Acceptance of the Internet
among advertisers will depend, to a large extent, on the perceived
effectiveness of Internet advertising and the continued growth of commercial
usage of the Internet. Filter software programs that limit or prevent
advertising from being displayed on a users computer are available. It is
unclear whether this type of software will become widely accepted, but if it
does, it would negatively affect Internet-based advertising. Our business could
be seriously harmed if the market for Internet advertising does not continue to
grow.

A breach of our computer security could damage our reputation and deter
customers from using our services.

We attempt to protect our computer systems and network from physical break-ins,
security breaches and other disruptive problems caused by the Internet or other
users. Computer break-ins could jeopardize the security of information stored
in and transmitted through our computer systems and network, which could reduce
our ability to retain or attract customers, damage our reputation or subject us
to litigation. We could be subject to denial of service, vandalism and other
attacks on our systems by Internet hackers. Although we intend to continue to
implement security technology and establish operational procedures to prevent
break-ins, damage and failures, these security measures might fail. Our
insurance coverage in certain circumstances might be insufficient to cover
issues that might result from such events.

If we do not adapt our search services for users of cell phones, PDAs and
similar devices, we might lose market share as users increasingly use handheld
devices to access the Internet.

In the coming years, the number of individuals who access the Internet through
devices other than a personal computer is expected to increase. These
alternative devices include personal digital assistants, known as PDAs,
cellular telephones and television set-top devices. The low resolution,
functionality and memory currently associated with some of these alternative
devices may prevent or impede their users from accessing our graphics-rich Web
services. Unless we successfully launch a version of our Web search service
that is easily accessible through these alternative devices, we face a risk of
losing market share if personal computer users migrate toward use of these
alternative devices to access the Internet.

Our ability to remain profitable might depend on continued growth of Internet
use.

Our revenue model depends in large part on the volume of Internet user traffic
to our Web sites. Our business will be harmed if Internet usage does not
continue to grow or grows at significantly lower rates compared to current
trends. The continued growth of the Internet is subject to various risks, many
of which are outside our control. These risks include the following:



| |  |  | the Internet infrastructure might not be able to support the
demands placed on it;                                                                                               
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | performance and reliability of the Internet might decline as usage
grows and disruptions caused by malicious users or hackers increases;                                         
|
| |  |  | locating useful information online might become more difficult as
the number of Web sites proliferates, causing Internet usage rates to
decrease or to grow at a decreasing rate;
|
| |  |  | users might hesitate to engage in online commerce because they feel
insecure transmitting confidential information, such as credit card
numbers, over the Internet; and          
|
| |  |  | users privacy concerns might lead them to reduce Internet use so
as to prevent Web sites from gathering user information without the
users knowledge or consent.               

Our reliance on Internet companies leaves us vulnerable to credit risks.

We expect to continue to derive a significant portion of our revenues from
sales to Internet companies. Many of these companies have limited operating
histories and are operating at a loss. Moreover, many of these companies have
limited cash reserves and limited access to additional capital. We have in some
cases experienced difficulties collecting outstanding accounts receivable from
Internet companies. Our collection difficulties might increase as economic

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recovery is delayed, particularly in light of the general unavailability of new
public or private funding for companies in the Internet sector.

Our success depends on our ability to attract and retain skilled technical
employees.

Our success depends on our ability to attract, retain and motivate highly
skilled employees. Competition for employees in the San Francisco Bay Area,
where our headquarters is located, has in the past been intense. This was due,
in part, to the high concentration of high-tech companies vying for qualified
employees, high housing costs and traffic congestion. We have experienced, and
we expect to continue to experience in the future, difficulty in hiring and
retaining highly skilled employees with appropriate qualifications. If we fail
to attract, retain and motivate our employees, our business will be harmed.

In addition, hiring highly qualified customer service and account management
personnel is very competitive in our industry due to the limited number of
people available with the necessary technical skills and understanding of the
Internet. If we are unable to hire and retain qualified sales personnel our
business may suffer.

We may face potential liability, loss of users and damage to our reputation for
violation of privacy policies.

We have a policy against using personally identifiable information obtained
from users of our natural language question answering technologies without the
users permission. In the past, the Federal Trade Commission has investigated
companies that have used personally identifiable information without permission
or in violation of a stated privacy policy. Under the UK Data
Protection Act and the EU Data Protection Directive, a failure to
ensure that personal information is accurate and secure or a transfer
of personal information to a country without adequate privacy
protections could result in criminal or civil penalties. If we use
personally identifiable information without
permission or in violation of our policy, we may face potential liability for
invasion of privacy for compiling and providing information to our corporate
customers and electronic commerce merchants.

Government regulation and legal uncertainties could harm our business.

Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could decrease the demand for our services,
increase our cost of doing business or otherwise seriously harm our business.
There is, and will likely continue to be, an increasing number of laws and
regulations pertaining to the Internet. These laws or regulations may relate to
liability for information retrieved from or transmitted over the Internet,
online content regulation, user privacy, taxation and the quality of products
and services. Furthermore, the growth and development of electronic commerce
may prompt calls for more stringent consumer protection laws that may impose
additional burdens on electronic commerce companies as well as companies like
us that provide electronic commerce services.

We file tax returns in such states as required by law based on principles
applicable to traditional businesses. However, one or more states could seek to
impose additional income tax obligations or sales tax collection obligations on
out-of-state companies, such as ours, which engage in or facilitate electronic
commerce. A number of proposals have been made at state and local levels that
could impose such taxes on the sale of products and services through the
Internet or the income derived from such sales. Such proposals, if adopted,
could substantially impair the growth of electronic commerce and seriously harm
our profitability.

Legislation limiting the ability of the states to impose taxes on
Internet-based transactions was enacted recently by the United States Congress.
However, this legislation, known as the Internet Tax Freedom Act, imposed only
a three-year moratorium on state and local taxes on electronic commerce, where
such taxes are discriminatory, unless such taxes were generally imposed and
actually enforced prior to October 1, 1998. The legislation, which commenced
October 1, 1998 and was to have expired on October 21, 2001, has since been
given a five-year extension by the House of Representatives. It is unclear
which steps the legislature will take next, and failure to continue to renew
this legislation would allow various states to impose taxes on Internet-based
commerce. The imposition of such taxes could impair the growth of the
electronic commerce marketplace and impair our ability to remain profitable.

In addition, we are not certain how our business may be affected by the
application of existing laws governing issues including property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. The vast majority of such laws were
adopted prior to the advent of the Internet. As a result, they do not
contemplate or address the unique issues of the Internet and related
technologies. Changes in laws intended to address such issues could create
uncertainty in the Internet market. Such uncertainty could reduce demand for
our services or increase the cost of doing business as a result of litigation
costs or increased service delivery costs.

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Third parties may bring intellectual property infringement claims against us
that would be expensive to defend and, if successful, could subject us to
significant liability and block us from using key technology.

From time to time in the ordinary course of business we have been subject to
claims of alleged infringement of the trademarks and other intellectual
property rights of third parties. Any such claims, if made, and any resulting
litigation, should it occur, could subject us to significant liability for
damages. In addition, even if we prevail, litigation could be time-consuming
and expensive to defend, and could result in the diversion of our time and
attention. Any claims from third parties may also result in limitations on our
ability to use the intellectual property subject to these claims unless we are
able to enter into license agreements that might not be available on reasonable
terms, or at all.

Terrorist activities and resulting
military and other actions could harm our business.

Terrorist attacks in New York and
Washington, D.C. in September of 2001 disrupted commerce
throughout the world. The continued threat of terrorism and the
potential for military action and heightened security measures in
response to this threat may cause significant disruption to commerce
throughout the world. To the extent that disruptions result in a
general decrease in corporate spending on information technology or
advertising, our business and results of operations could be harmed.
We are unable to predict whether the threat of terrorism or the
responses thereto will
result in any long-term commercial disruptions or if such activities
or responses will have a long-term adverse effect on our business,
results of operations or financial condition. Additionally, if any
attacks were to affect the operation of the Internet or key data
centers, our business could be harmed. These and other developments
arising out of the attacks may make the occurrence of one or more of
the factors discussed under Risk Factors likely to occur.

Risks Related to Accounting Matters

If requirements relating to
accounting treatment for employee stock options are changed, we may
be forced to change our business practices.

We currently account for the issuance
of stock options under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. If
proposals currently under consideration by administrative and
governmental authorities are adopted, we may be required to treat the
value of the stock options granted to employees as compensation
expense. Such a change could have a negative effect on our earnings.
In response to a requirement to expense the value of stock options,
we could decide to decrease the number of employee stock options
granted to our employees. Such a reduction could affect our ability
to retain existing employees and attract qualified candidates, and
increase the cash compensation we would have to pay to them.

If accounting interpretations relating to revenue recognition change, our
reported revenues could decline or we could be forced to make changes in our
business practices.

Over the last several years, the accounting profession has issued several
standards and interpretations relating to revenue recognition. For example,
the Emerging Issues Task Force reached a consensus on Issue
No. 00-21, Revenue Arrangements with Multiple
Deliverables, the American Institute of Certified Public Accountants issued Statement of
Position or SOP 97-2, Software Revenue Recognition, and SOP 98-9
Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions. These standards address software revenue recognition
matters primarily from a conceptual level and do not include specific
implementation guidance. In addition, in December 1999, the Securities and
Exchange Commission staff issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, or SAB 101, which explains how the SEC
staff believes existing revenue recognition rules should be applied. We believe
that our revenue recognition policies are currently in compliance with SOP
97-2, SOP 98-9 and SAB 101.

The accounting profession continues to discuss certain provisions of SOP 97-2
and SAB 101 as well as other revenue recognition standards with the objective
of providing guidance on potential interpretations. These discussions and the
issuance of interpretations, once finalized, could lead to unanticipated
changes in our current revenue accounting practices, which could cause us to
recognize lower revenues. These changes may extend sales cycles, increase
administrative costs and otherwise harm our business.

Risks Related to the Capital Markets

We may not be able to secure additional financing to meet our future capital
needs.

We currently anticipate that we will remain cash flow positive on a sustained
basis. However, if we are unable to generate sufficient cash flows from
operations to cover our expenses and capital expenditures, we will need to
raise additional funds. We may require additional funding, for example, to
fund brand promotion, develop new or enhanced products and services, respond to
competitive pressures or make acquisitions. We may be unable to obtain any
required additional financing on terms favorable to us, or at all. If adequate
funds are not available on acceptable terms, we may be unable to fund our
expansion, successfully promote our brand, develop or enhance products and
services, respond to competitive pressures or take advantage of acquisition
opportunities, any of which could seriously harm our business. If we raise
additional funds through the issuance of equity securities, our stockholders
may experience dilution of their ownership interest, and the newly issued
securities may have rights superior to those of the common stock. If we raise
additional funds by issuing debt, its terms may impose limitations on our
operations, including limitations on the payment of dividends. If we do not
sustain profitability in the future and are unable to obtain additional
financing, then we will eventually be unable to continue our operations.

Our stock price may fluctuate significantly regardless of our actual operating
performance.

Our common stock is listed for trading on the Nasdaq National Market. The
trading price of our common stock has been and may continue to be highly
volatile. Our stock price may be subject to wide fluctuations in response to a
variety of factors, including:



| |  |  | actual or anticipated variations in quarterly operating results and
announcements of technological innovations;
| | - |  | ---------------------------------------------------------------------------------------------------------------
|
| |  |  | new products or services offered by us or our competitors;                                                     

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| |  |  | changes in financial estimates by securities analysts;                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in research coverage by securities analysts;                                                                                            
|
| |  |  | conditions or trends in the Internet services industry and the
online customer service segment in particular;                                   
|
| |  |  | Any announcement by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;                              
|
| |  |  | additions or departures of key personnel;                                                                                                       
|
| |  |  | sales by current holders of our common stock and general financial
conditions and investor sentiment regarding Internet companies
generally; and
|
| |  |  | other events that may be beyond our control.                                                                                                    

In addition, the Nasdaq National Market, where most publicly held Internet
companies are traded, has periodically experienced extreme price and volume
fluctuations. These fluctuations may be unrelated or disproportionate to the
operating performance of these companies. These broad market and industry
factors may harm the market price of our common stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of an individual companys securities, securities class action
litigation often has been instituted against that company. For example, on
October 25, 2001, a putative class action lawsuit captioned Leonard Turroff, et
al. vs. Ask Jeeves, Inc., et al. was filed against us and two of our officers
and directors in the United States District Court for the Southern District of
New York, alleging violation of Federal securities laws. This type of
litigation could result in substantial costs and a diversion of managements
attention and resources. See further discussion of this lawsuit and other
litigation in Item 3, Legal Proceedings.

If we fail to meet the expectations of public market analysts and investors,
the market price of our common stock may decrease significantly.

Public market analysts and investors have not been able to develop consistent
financial models for the Internet market because of the unpredictable rate of
growth of Internet use, the rapidly changing models of doing business on the
Internet and the Internets relatively low barriers to entry. As a result, and
because of the other risks noted in this discussion, it may be that our actual
results will not meet the expectations of public market analysts and investors
in future periods. If this occurs, the price of our common stock will likely
decrease.

Future sales of our stock could affect our stocks market price.

If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and in connection with
acquisitions, the market price of our common stock could fall. These sales also
might make it more difficult for us to sell equity or equity-related securities
in the future at a time and price that we deem appropriate.

Provisions in Delaware law and our charter, stock option agreements and offer
letters to executive officers may prevent or delay a change of control.

We are subject to the Delaware anti-takeover laws regulating corporate
takeovers. These anti-takeover laws prevent Delaware corporations from engaging
in a merger or sale of more than 10% of its assets with any stockholder,
including all affiliates and associates of the stockholder, who owns 15% or
more of the corporations outstanding voting stock, for three years following
the date that the stockholder acquired 15% or more of the corporations assets
unless:



| |  |  | the board of directors approved the transaction in which the
stockholder acquired 15% or more of the corporations assets;                                                                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | after the transaction in which the stockholder acquired 15% or more
of the corporations assets, the stockholder owned at least 85% of the
corporations outstanding voting stock, excluding shares owned by
directors, officers

39



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| |   |  | and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held under the plan will be tendered in a tender or exchange
offer; or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | on or after this date, the merger or sale is approved by the board
of directors and the holders of at least two-thirds of the outstanding
voting stock that is not owned by the stockholder.   

A Delaware corporation may opt out of the Delaware anti-takeover laws if its
certificate of incorporation or bylaws so provide. We have not opted out of the
provisions of the anti-takeover laws. As such, these laws could prohibit or
delay mergers or other takeover or change of control of Ask Jeeves and may
discourage attempts by other companies to acquire us.

Our certificate of incorporation and bylaws include a number of provisions that
may deter or impede hostile takeovers or changes of control or management.
These provisions include:



| |  |  | our board is classified into three classes of directors as nearly
equal in size as possible with staggered three year-terms;                                                                                                                                             
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the authority of our board to issue up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences and
privileges of these shares, without stockholder approval;                                                                              
|
| |  |  | all stockholder actions must be effected at a duly called meeting
of stockholders and not by written consent;                                                                                                                                                            
|
| |  |  | except under limited circumstances, special meetings of the
stockholders may be called only by the chairman of the board, the chief
executive officer, the board of directors or by holders of shares
entitled to cast not less than 50% of the votes of the meeting; and
|
| |  |  | except under limited circumstances, no cumulative voting.                                                                                                                                                                                                                

These provisions may have the effect of delaying or preventing a change of
control.

Furthermore, in April 2001, we adopted a stockholder rights plan and declared a
dividend distribution of one right for each outstanding share of common stock
to stockholders of record as of May 7, 2001. Each right entitles the holder to
purchase one unit consisting of one one-thousandth of a share of our Series A
Junior Participating Preferred Stock for $20 per unit. Under certain
circumstances, if a person or group acquires 15% or more of our outstanding
common stock, holders of the rights (other than the person or group triggering
their exercise) will be able to purchase, in exchange for the $20 exercise
price, shares of our common stock or of any company into which we are merged
having a value of $40. The rights expire on May 7, 2011 unless extended by our
board of directors. Because the rights may substantially dilute the stock
ownership of a person or group attempting to take us over without the approval
of our board of directors, our rights plan could make it more difficult for a
third party to acquire us or a significant percentage of our outstanding
capital stock without first negotiating with our board of directors regarding
such acquisition.

Our certificate of incorporation and bylaws provide that we will indemnify
officers and directors against losses that they may incur in investigations and
legal proceedings resulting from their services to us, which may include
services in connection with takeover defense measures. These provisions may
have the effect of preventing changes in our management.

In addition, our option agreements under the 1996 Stock Option plan provide
that if a change of control of Ask Jeeves occurs prior to the first anniversary
of the vesting commencement date of an option, then the vesting which would
have occurred by such anniversary shall occur. After the first anniversary of
the date of grant, these option agreements provide that the vesting of each
option shall accelerate by six months upon a change of control. Furthermore,
offer letters with our executive officers provide for the payment of severance
and acceleration of options upon the termination of these executive officers
following a change of control of Ask Jeeves. These provisions in our stock
option agreements and offer letters could have the effect of discouraging
potential takeover attempts.

40



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##### Table of Contents






ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate, market and credit risk and related change in
the market values of our investment portfolio. We place our investment
portfolio primarily in high credit, quality, corporate, asset-backed, agency
and
municipal debt instruments. Investments in both fixed and floating rate
securities have some degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted by increases in interest rates.
Floating rate securities may produce less income than anticipated if interest
rates fall. As a result, changes in interest rates may cause us to incur losses
in principal if we are forced to sell securities that have declined in market
value or may result in lower than anticipated investment income. Our investment
portfolio is categorized as available-for-sale and accordingly is presented at
fair value on the balance sheet.

We manage our exposure to interest rate, market and credit risk in the
investment portfolio with investment policies and procedures that limit such
things as term, credit rating and the amount of credit exposure to any one
issue, issuer and type of instrument. We have not used derivative financial
instruments in our investment portfolio.

During the year ended December 31, 2002, the effects of changes in interest
rates on the fair market value of our marketable investment securities and our
earnings were insignificant. Further, we believe that the impact on the fair
market value of our securities and our earnings from a hypothetical 10% change
in interest rates would not be significant.

The majority of our revenue, expense and capital purchasing activities are
transacted in U.S. dollars. However, since a portion of the operations consist
of operations outside of the U.S., we enter into transactions in other
currencies, primarily the British pound. We currently do not hedge our
exposure to foreign exchange rate fluctuations. Our international business is
subject to risks typical of an international business, including but not
limited to differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions and foreign
exchange rate volatility, particularly the exchange rate between British pound
and the U.S. dollar. Accordingly, the impact of changes in these or other
factors could harm our business, operating results and financial condition.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                  |  |      |    | 
|------------------------------------------------- |  | ---- | -- | 
|                                                  |  | Page
|Report of Ernst & Young LLP, Independent Auditors |  |      | 42 | 
|Consolidated Balance Sheets                       |  |      | 43 | 
|Consolidated Statements of Operations             |  |      | 44 | 
|Consolidated Statements of Stockholders Equity   |  |      | 45 | 
|Consolidated Statements of Cash Flows             |  |      | 48 | 
|Notes to Consolidated Financial Statements        |  |      | 50 | 

41



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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Ask Jeeves, Inc.

We have audited the accompanying consolidated balance sheets of Ask Jeeves,
Inc. as of December 31, 2002 and 2001, and the related consolidated statements
of operations, stockholders equity and cash flows for each of the three years
in the period ended December 31, 2002. Our audits also included the financial
statement schedule listed in the Table of Contents as
Item 15(a)(2). These
financial statements and the financial statement schedule are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule
based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ask Jeeves, Inc.
at December 31, 2002 and 2001, and the consolidated results of its operations,
and its cash flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

/s/ ERNST & YOUNG LLP

Walnut Creek, California
January 22, 2003

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CONSOLIDATED BALANCE SHEETS

|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |          |         | 
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | ------------ | ------ |  | ------ | -------- | ------- | 
|                                     |                                                                                                                                                                   |                                                        |        | December 31,
|                                     |                                                                                                                                                                   |                                                        |        |             
|(in thousands, except share data)    |                                                                                                                                                                   | 2002                                                   |        | 2001        
|                                     |                                                                                                                                                                   |                                                        |        |             
|Assets                               |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|Current assets:                      |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|                                     | Cash and cash equivalents                                                                                                                                         |                                                        | $      | 27,613       |        |  | $      | 33,125   |        
|                                     | Marketable securities                                                                                                                                             |                                                        |        | 5,762        |        |  |        | 18,671   |        
|                                     | Restricted cash and marketable securities                                                                                                                         |                                                        |        | 11,065       |        |  |        | 15,489   |        
|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|                                     |                                                                                                                                                                   | Total cash, cash equivalents and marketable securities |        |              | 44,440 |  |        |          | 67,285  | 
|                                     | Accounts receivable, net of allowance for doubtful accounts of
$1,945 and $1,813 at December 31, 2002 and 2001, respectively                                      |                                                        |        | 9,554        |        |  |        | 8,482    |        
|                                     | Prepaid expenses and other current assets                                                                                                                         |                                                        |        | 2,634        |        |  |        | 2,453    |        
|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|                                     |                                                                                                                                                                   | Total current assets                                   |        |              | 56,628 |  |        |          | 78,220  | 
|Restricted marketable securities     |                                                                                                                                                                   |                                                        |       |              |        |  | 9,317  |         
|Property and equipment, net          |                                                                                                                                                                   |                                                        | 11,306 |              |        |  | 17,098 |         
|Intangible assets, net               |                                                                                                                                                                   |                                                        | 2,948  |              |        |  | 5,384  |         
|Other assets                         |                                                                                                                                                                   |                                                        | 1,294  |              |        |  | 1,319  |         
|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|                                     |                                                                                                                                                                   | Total assets                                           |        | $            | 72,176 |  |        | $        | 111,338 | 
|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|Liabilities and Stockholders Equity |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|Current liabilities                  |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|                                     | Accounts payable                                                                                                                                                  |                                                        | $      | 1,525        |        |  | $      | 3,428    |        
|                                     | Accrued compensation and related expenses                                                                                                                         |                                                        |        | 4,163        |        |  |        | 5,282    |        
|                                     | Accrued marketing expenses                                                                                                                                        |                                                        |        | 361          |        |  |        | 1,501    |        
|                                     | Accrued restructuring costs                                                                                                                                       |                                                        |        | 1,907        |        |  |        | 18,429   |        
|                                     | Other accrued liabilities                                                                                                                                         |                                                        |        | 6,029        |        |  |        | 5,726    |        
|                                     | Deferred revenue(1)                                                                                                                                               |                                                        |        | 10,790       |        |  |        | 16,069   |        
|                                     | Deferred gain on joint venture                                                                                                                                    |                                                        |        | 6,226        |        |  |        |         |        
|                                     | Borrowings under line of credit                                                                                                                                   |                                                        |        | 11,000       |        |  |        | 11,000   |        
|                                     | Capital lease obligations                                                                                                                                         |                                                        |        | 572          |        |  |        | 892      |        
|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|                                     |                                                                                                                                                                   | Total current liabilities                              |        |              | 42,573 |  |        |          | 62,327  | 
|Other liabilities                    |                                                                                                                                                                   |                                                        | 326    |              |        |  | 1,797  |         
|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|                                     |                                                                                                                                                                   | Total liabilities                                      |        |              | 42,899 |  |        |          | 64,124  | 
|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|Commitments and contingencies        |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|Stockholders equity:                |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|                                     | Convertible preferred stock, $.001 par value; 5,000,000 shares
authorized; no shares issued or outstanding                                                        |                                                        |        |             |        |  |        |         |        
|                                     | Common stock, $.001 par value; 150,000,000 shares authorized;
41,418,334 and 39,482,015 shares issued and outstanding at
December 31, 2002 and 2001, respectively |                                                        |        | 725,366      |        |  |        | 722,310  |        
|                                     | Notes receivable from stockholders                                                                                                                                |                                                        |        |             |        |  |        | (57      | )      
|                                     | Deferred stock-based compensation                                                                                                                                 |                                                        |        | (7           | )      |  |        | (98      | )      
|                                     | Accumulated deficit                                                                                                                                               |                                                        |        | (696,735     | )      |  |        | (675,432 | )      
|                                     | Accumulated other comprehensive income                                                                                                                            |                                                        |        | 653          |        |  |        | 491      |        
|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|                                     |                                                                                                                                                                   | Total stockholders equity                             |        |              | 29,277 |  |        |          | 47,214  | 
|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |         
|                                     |                                                                                                                                                                   | Total liabilities and stockholders equity             |        | $            | 72,176 |  |        | $        | 111,338 | 
|                                     |                                                                                                                                                                   |                                                        |        |              |        |  |        |         



|(1) |  | Includes amounts from related parties of $7,265 and $14,302 at December
31, 2002 and 2001, respectively
|--- |  | -------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                           |                                                      |                          |            |                         |        |      |            |         |         |   |            |        |         | 
|------------------------------------------------------------------------------------------ | ---------------------------------------------------- | ------------------------ | ---------- | ----------------------- | ------ | ---- | ---------- | ------- | ------- | - | ---------- | ------ | ------- | 
|                                                                                           |                                                      |                          |            | Year Ended December 31,
|                                                                                           |                                                      |                          |            |                        
|(in thousands, except share and per share data)                                            |                                                      | 2002                     |            | 2001                    |        | 2000
|                                                                                           |                                                      |                          |            |                         |        |     
|Revenues:                                                                                  |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|                                                                                           | Web Properties                                       |                          | $          | 58,763                  |        |      | $          | 32,154  |         |   | $          | 58,397 |        
|                                                                                           | Jeeves Solutions(1)                                  |                          |            | 15,373                  |        |      |            | 34,397  |         |   |            | 37,303 |        
|                                                                                           |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|                                                                                           |                                                      | Total revenues           |            |                         | 74,136 |      |            |         | 66,551  |   |            |        | 95,700  | 
|Cost of revenues:                                                                          |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|                                                                                           | Web Properties                                       |                          |            | 16,281                  |        |      |            | 14,648  |         |   |            | 19,166 |        
|                                                                                           | Jeeves Solutions                                     |                          |            | 6,089                   |        |      |            | 13,025  |         |   |            | 20,103 |        
|                                                                                           |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|                                                                                           |                                                      | Total cost of revenues   |            |                         | 22,370 |      |            |         | 27,673  |   |            |        | 39,269  | 
|                                                                                           |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|Gross profit                                                                               |                                                      |                          | 51,766     |                         |        |      | 38,878     |         |         |   | 56,431     |       
|Operating expenses:                                                                        |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|                                                                                           | Product development                                  |                          |            | 13,168                  |        |      |            | 20,206  |         |   |            | 24,502 |        
|                                                                                           | Sales and marketing                                  |                          |            | 35,742                  |        |      |            | 41,548  |         |   |            | 81,641 |        
|                                                                                           | General and administrative                           |                          |            | 21,086                  |        |      |            | 21,980  |         |   |            | 29,598 |        
|                                                                                           | Stock-based compensation                             |                          |            | 90                      |        |      |            | 706     |         |   |            | 2,996  |        
|                                                                                           | Amortization of goodwill and other intangible assets |                          |            |                        |        |      |            | 22,855  |         |   |            | 82,624 |        
|                                                                                           | Write-off of in-process technology                   |                          |            |                        |        |      |            |        |         |   |            | 11,652 |        
|                                                                                           | Impairment of long-lived assets                      |                          |            | 2,593                   |        |      |            | 355,291 |         |   |            |       |        
|                                                                                           | Restructuring costs                                  |                          |            | 2,470                   |        |      |            | 18,127  |         |   |            | 13,466 |        
|                                                                                           |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|                                                                                           |                                                      | Total operating expenses |            |                         | 75,149 |      |            |         | 480,713 |   |            |        | 246,479 | 
|                                                                                           |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|Operating loss                                                                             |                                                      |                          | (23,383    | )                       |        |      | (441,835   | )       |         |   | (190,048   | )     
|Gain on dissolution of joint venture                                                       |                                                      |                          |           |                         |        |      | 13,356     |         |         |   |           |       
|Interest and other income, net                                                             |                                                      |                          | 2,080      |                         |        |      | 3,221      |         |         |   | 2,252      |       
|                                                                                           |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|Net loss before income tax provision                                                       |                                                      |                          | (21,303    | )                       |        |      | (425,258   | )       |         |   | (187,796   | )     
|Income tax provision                                                                       |                                                      |                          |           |                         |        |      |           |         |         |   | 1,810      |       
|                                                                                           |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|Net loss                                                                                   |                                                      | $                        | (21,303    | )                       |        | $    | (425,258   | )       |         | $ | (189,606   | )     
|                                                                                           |                                                      |                          |            |                         |        |      |            |         |         |   |            |       
|Basic and diluted net loss per share                                                       |                                                      | $                        | (0.52      | )                       |        | $    | (11.48     | )       |         | $ | (5.51      | )     
|Weighted average shares outstanding used in computing
basic and diluted net loss per share |                                                      |                          | 40,698,137 |                         |        |      | 37,032,933 |         |         |   | 34,399,200 |       
|(1) Revenues from related parties                                                          |                                                      | $                        | 6,189      |                         |        | $    | 18,991     |         |         | $ | 12,308     |       

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|                              |                                                                              |        |              |           |             |             |          |              |   |               |        |               |       |               |        |       |  |   |          |          |   |   |             |     |  |   |         |          |   |   |          |          |  
|----------------------------- | ---------------------------------------------------------------------------- | ------ | ------------ | --------- | ----------- | ----------- | -------- | ------------ | - | ------------- | ------ | ------------- | ----- | ------------- | ------ | ----- |  | - | -------- | -------- | - | - | ----------- | --- |  | - | ------- | -------- | - | - | -------- | -------- | -
|                              |                                                                              |        |              |           |             |             |          |              |   |               |        |               |       |               |        |       |  |   |          |          |   |   | Accumulated |     |  |   |         |          |   |   |         
|                              |                                                                              |        | Common Stock |           | Shareholder |             | Deferred |              |   |               |        |               | Other |               | Total  |       |  |   |         
|(in thousands,                |                                                                              |        |              | Notes     |             | Stock-based |          | Accumulated  |   | Comprehensive |        | Stockholders' |       | Comprehensive
|except share data)            |                                                                              | Shares |              | Amount    |             | Receivable  |          | Compensation |   | Deficit       |        | Income (loss) |       | Equity        |        | Loss 
|                              |                                                                              |        |              |           |             |             |          |              |   |               |        |               |       |               |        |      
|Balances at
December 31, 1999 |                                                                              |        | 28,472,883   |           |             | $           | 107,636  |              |   | $             | (400   | )             |       | $             | (5,175 | )     |  | $ | (60,568  | )        |   | $ | (42         | )   |  | $ | 41,451  |          |   |   |          |         
|                              | Issuance of
common stock
under Employee
Stock Purchase
Plan                  |        |              | 232,685   |             |             |          | 2,809        |   |               |        |              |       |               |        |      |  |   |          |         |   |   |             |    |  |   |         | 2,809    |   |   |          |          |  
|                              | Issuance of
common stock
upon exercise of
stock options
and warrants         |        |              | 1,391,735 |             |             |          | 4,582        |   |               |        | (1,988        | )     |               |        |      |  |   |          |         |   |   |             |    |  |   |         | 2,594    |   |   |          |          |  
|                              | Issuance of
common stock in
connection with
business
combinations            |        |              | 4,770,774 |             |             |          | 484,619      |   |               |        |              |       |               |        |      |  |   |          |         |   |   |             |    |  |   |         | 484,619  |   |   |          |          |  
|                              | Issuance of
common stock in
secondary public
offering, net of
issuance costs |        |              | 1,715,000 |             |             |          | 122,472      |   |               |        |              |       |               |        |      |  |   |          |         |   |   |             |    |  |   |         | 122,472  |   |   |          |          |  
|                              | Repurchase of
common stock
options early
exercised                           |        |              | (313,894  | )           |             |          | (632         | ) |               |        |              |       |               |        |      |  |   |          |         |   |   |             |    |  |   |         | (632     | ) |   |          |          |  
|                              | Return of shares
held in escrow
from Net Effect
acquisition                  |        |              | (23,039   | )           |             |          | (2,000       | ) |               |        |              |       |               |        |      |  |   |          |         |   |   |             |    |  |   |         | (2,000   | ) |   |          |          |  
|                              | Reduction of
deferred
stock-based
compensation
related to
terminations       |        |              |          |             |             |          | (2,692       | ) |               |        |              |       |               |        | 2,692 |  |   |          |         |   |   |             |    |  |   |         |         |   |   |          |          |  
|                              | Amortization of
deferred
stock-based
compensation                            |        |              |          |             |             |          |             |   |               |        |              |       |               |        | 1,772 |  |   |          |         |   |   |             |    |  |   |         | 1,772    |   |   |          |          |  
|                              | Payments on
shareholder
notes receivable                                     |        |              |          |             |             |          |             |   |               |        | 167           |       |               |        |      |  |   |          |         |   |   |             |    |  |   |         | 167      |   |   |          |          |  
|                              | Adjustments
related to
shareholder                                           |        |              |           |             |             |          |              |   |               |        |               |       |               |        |       |  |   |          |          |   |   |             |     |  |   |         |          |   |   |          |          |  
|                              | notes receivable                                                             |        |              |          |             |             |          | 898          |   |               |        | 1,047         |       |               |        |      |  |   |          |         |   |   |             |    |  |   |         | 1,945    |   |   |          |          |  
|Comprehensive loss:           |                                                                              |        |              |           |             |             |          |              |   |               |        |               |       |               |        |       |  |   |          |          |   |   |             |     |  |   |         |          |   |   |          |         
|                              | Unrealized
losses on
marketable
securities                                   |        |              |          |             |             |          |             |   |               |        |              |       |               |        |      |  |   |          |         |   |   |             | 177 |  |   |         | 177      |   |   | $        | 177      |  
|                              | Net loss                                                                     |        |              |          |             |             |          |             |   |               |        |               |       |               |        |      |  |   |          | (189,606 | ) |   |             |    |  |   |         | (189,606 | ) |   |          | (189,606 | )
|                              |                                                                              |        |              |           |             |             |          |              |   |               |        |               |       |               |        |       |  |   |          |          |   |   |             |     |  |   |         |          |   |   |          |         
|Comprehensive loss            |                                                                              |        |              |           |             |             |          |              |   |               |        |               |       |               |        |       |  |   |          |          |   |   |             |     |  |   |         |          |   | $ | (189,429 | )       
|                              |                                                                              |        |              |           |             |             |          |              |   |               |        |               |       |               |        |       |  |   |          |          |   |   |             |     |  |   |         |          |   |   |          |         
|Balances at
December 31, 2000 |                                                                              |        | 36,246,144   |           |             | $           | 717,692  |              |   | $             | (1,174 | )             |       | $             | (711   | )     |  | $ | (250,174 | )        |   | $ | 135         |     |  | $ | 465,768 |          |   |   |          |         
|                              | Issuance of
common stock
under Employee
Stock Purchase
Plan                  |        |              | 477,335   |             |             |          | 800          |   |               |        |              |       |               |        |      |  |   |          |         |   |   |             |    |  |   |         | 800      |   |   |          |          |  
|                              | Issuance of
common stock
upon exercise of
stock options
and warrants         |        |              | 919,216   |             |             |          | 618          |   |               |        |              |       |               |        |      |  |   |          |         |   |   |             |    |  |   |         | 618      |   |   |          |          |  

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|                              |                                                                      |        |              |           |             |             |          |              |   |               |     |               |       |               |       |      |   |   |          |          |   |   |             |     |  |   |        |          |   |   |          |          |  
|----------------------------- | -------------------------------------------------------------------- | ------ | ------------ | --------- | ----------- | ----------- | -------- | ------------ | - | ------------- | --- | ------------- | ----- | ------------- | ----- | ---- | - | - | -------- | -------- | - | - | ----------- | --- |  | - | ------ | -------- | - | - | -------- | -------- | -
|                              |                                                                      |        |              |           |             |             |          |              |   |               |     |               |       |               |       |      |   |   |          |          |   |   | Accumulated |     |  |   |        |          |   |   |         
|                              |                                                                      |        | Common Stock |           | Shareholder |             | Deferred |              |   |               |     |               | Other |               | Total |      |   |   |         
|(in thousands,                |                                                                      |        |              | Notes     |             | Stock-based |          | Accumulated  |   | Comprehensive |     | Stockholders' |       | Comprehensive
|except share data)            |                                                                      | Shares |              | Amount    |             | Receivable  |          | Compensation |   | Deficit       |     | Income (loss) |       | Equity        |       | Loss
|                              |                                                                      |        |              |           |             |             |          |              |   |               |     |               |       |               |       |     
|                              | Issuance of
common stock in
connection with
business
combinations    |        |              | 2,085,271 |             |             |          | 1,877        |   |               |     |              |       |               |       |     |   |   |          |         |   |   |             |    |  |   |        | 1,877    |   |   |          |          |  
|                              | Repurchase of
common stock                                           |        |              | (245,951  | )           |             |          | (247         | ) |               |     |              |       |               |       |     |   |   |          |         |   |   |             |    |  |   |        | (247     | ) |   |          |          |  
|                              | Issuance of
common stock
warrants in
exchange for
licenses           |        |              |          |             |             |          | 184          |   |               |     |              |       |               |       |     |   |   |          |         |   |   |             |    |  |   |        | 184      |   |   |          |          |  
|                              | Compensation
charge related
to grants of
common stock
options        |        |              |          |             |             |          | 1,386        |   |               |     |              |       |               |       | (93  | ) |   |          |         |   |   |             |    |  |   |        | 1,293    |   |   |          |          |  
|                              | Amortization of
deferred
stock-based
compensation                    |        |              |          |             |             |          |             |   |               |     |              |       |               |       | 706  |   |   |          |         |   |   |             |    |  |   |        | 706      |   |   |          |          |  
|                              | Adjustments
related to
shareholder
notes receivable                  |        |              |          |             |             |          |             |   |               |     | 1,117         |       |               |       |     |   |   |          |         |   |   |             |    |  |   |        | 1,117    |   |   |          |          |  
|Comprehensive loss:           |                                                                      |        |              |           |             |             |          |              |   |               |     |               |       |               |       |      |   |   |          |          |   |   |             |     |  |   |        |          |   |   |          |         
|                              | Unrealized
losses on
marketable
securities                           |        |              |          |             |             |          |             |   |               |     |              |       |               |       |     |   |   |          |         |   |   |             | 356 |  |   |        | 356      |   |   | $        | 356      |  
|                              | Net loss                                                             |        |              |          |             |             |          |             |   |               |     |              |       |               |       |     |   |   |          | (425,258 | ) |   |             |     |  |   |        | (425,258 | ) |   |          | (425,258 | )
|                              |                                                                      |        |              |           |             |             |          |              |   |               |     |               |       |               |       |      |   |   |          |          |   |   |             |     |  |   |        |          |   |   |          |         
|Comprehensive loss            |                                                                      |        |              |           |             |             |          |              |   |               |     |               |       |               |       |      |   |   |          |          |   |   |             |     |  |   |        |          |   | $ | (424,902 | )       
|                              |                                                                      |        |              |           |             |             |          |              |   |               |     |               |       |               |       |      |   |   |          |          |   |   |             |     |  |   |        |          |   |   |          |         
|Balances at
December 31, 2001 |                                                                      |        | 39,482,015   |           |             | $           | 722,310  |              |   | $             | (57 | )             |       | $             | (98   | )    |   | $ | (675,432 | )        |   | $ | 491         |     |  | $ | 47,214 |          |   |   |          |         
|                              | Issuance of
common stock
under Employee
Stock Purchase
Plan          |        |              | 433,540   |             |             |          | 488          |   |               |     |              |       |               |       |     |   |   |          |         |   |   |             |    |  |   |        | 488      |   |   |          |          |  
|                              | Issuance of
common stock
upon exercise of
stock options
and warrants |        |              | 1,004,292 |             |             |          | 1,124        |   |               |     |              |       |               |       |     |   |   |          |         |   |   |             |    |  |   |        | 1,124    |   |   |          |          |  
|                              | Issuance of
common stock in
connection with
business
combinations    |        |              | 774,792   |             |             |          | 1,250        |   |               |     |              |       |               |       |     |   |   |          |         |   |   |             |    |  |   |        | 1,250    |   |   |          |          |  
|                              | Repurchase of
common stock                                           |        |              | (224,742  | )           |             |          | (243         | ) |               |     |              |       |               |       |     |   |   |          |         |   |   |             |    |  |   |        | (243     | ) |   |          |          |  
|                              | Compensation
charge related
to grants of
restricted
common stock     |        |              | 14,168    |             |             |          | 501          |   |               |     |              |       |               |       |     |   |   |          |         |   |   |             |    |  |   |        | 501      |   |   |          |          |  
|                              | Amortization of
deferred
stock-based
compensation                    |        |              |          |             |             |          |             |   |               |     |              |       |               |       | 91   |   |   |          |         |   |   |             |    |  |   |        | 91       |   |   |          |          |  

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|                              |                                                     |        |              |         |             |             |          |              |   |               |   |               |       |               |       |      |  |   |          |         |   |   |             |      |   |   |        |         |   |   |         |         |  
|----------------------------- | --------------------------------------------------- | ------ | ------------ | ------- | ----------- | ----------- | -------- | ------------ | - | ------------- | - | ------------- | ----- | ------------- | ----- | ---- |  | - | -------- | ------- | - | - | ----------- | ---- | - | - | ------ | ------- | - | - | ------- | ------- | -
|                              |                                                     |        |              |         |             |             |          |              |   |               |   |               |       |               |       |      |  |   |          |         |   |   | Accumulated |      |   |   |        |         |   |   |        
|                              |                                                     |        | Common Stock |         | Shareholder |             | Deferred |              |   |               |   |               | Other |               | Total |      |  |   |         
|(in thousands,                |                                                     |        |              | Notes   |             | Stock-based |          | Accumulated  |   | Comprehensive |   | Stockholders' |       | Comprehensive
|except share data)            |                                                     | Shares |              | Amount  |             | Receivable  |          | Compensation |   | Deficit       |   | Income (loss) |       | Equity        |       | Loss
|                              |                                                     |        |              |         |             |             |          |              |   |               |   |               |       |               |       |     
|                              | Adjustments
related to
shareholder
notes receivable |        |              | (65,731 | )           |             |          | (64          | ) |               |   | 57            |       |               |       |     |  |   |          |        |   |   |             |     |   |   |        | (7      | ) |   |         |         |  
|Comprehensive loss:           |                                                     |        |              |         |             |             |          |              |   |               |   |               |       |               |       |      |  |   |          |         |   |   |             |      |   |   |        |         |   |   |         |        
|                              | Unrealized
losses on
marketable
securities          |        |              |        |             |             |          |             |   |               |   |              |       |               |       |     |  |   |          |        |   |   |             | (430 | ) |   |        | (430    | ) |   | $       | (430    | )
|                              | Foreign currency
translation
adjustment             |        |              |        |             |             |          |             |   |               |   |              |       |               |       |     |  |   |          |        |   |   |             | 592  |   |   |        | 592     |   |   |         | 592     |  
|                              |                                                     |        |              |         |             |             |          |              |   |               |   |               |       |               |       |      |  |   |          |         |   |   |             |      |   |   |        |         |   |   |         |        
|                              | Net loss                                            |        |              |        |             |             |          |             |   |               |   |              |       |               |       |     |  |   |          | (21,303 | ) |   |             |      |   |   |        | (21,303 | ) |   |         | (21,303 | )
|                              |                                                     |        |              |         |             |             |          |              |   |               |   |               |       |               |       |      |  |   |          |         |   |   |             |      |   |   |        |         |   |   |         |        
|Comprehensive loss            |                                                     |        |              |         |             |             |          |              |   |               |   |               |       |               |       |      |  |   |          |         |   |   |             |      |   |   |        |         |   | $ | (21,141 | )      
|                              |                                                     |        |              |         |             |             |          |              |   |               |   |               |       |               |       |      |  |   |          |         |   |   |             |      |   |   |        |         |   |   |         |        
|Balances at
December 31, 2002 |                                                     |        | 41,418,334   |         |             | $           | 725,366  |              |   | $             |  |               |       | $             | (7    | )    |  | $ | (696,735 | )       |   | $ | 653         |      |   | $ | 29,277 |         |   |   |         |        
|                              |                                                     |        |              |         |             |             |          |              |   |               |   |               |       |               |       |      |  |   |          |         |   |   |             |      |   |   |        |         |   |   |         |        

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                            |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |   |        |         |  
|--------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | ----------------------------------------- | ---- | ----------------------- | ------- | -------- | - | ------- | ------- | -------- | - | ------ | ------- | -
|                                                                            |  |                                                                                           |                                           |      | Year Ended December 31,
|                                                                            |  |                                                                                           |                                           |      |                        
|(in thousands)                                                              |  | 2002                                                                                      |                                           | 2001 |                         | 2000   
|                                                                            |  |                                                                                           |                                           |      |                         |        
|Operating Activities                                                        |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Net loss                                                                    |  | $                                                                                         | (21,303                                   | )    |                         | $       | (425,258 | ) |         | $       | (189,606 | )
|Adjustments to reconcile net loss to net cash used in operating
activities: |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|                                                                            |  | Depreciation and amortization                                                             |                                           |      | 8,736                   |         |          |   | 9,410   |         |          |   | 5,577  |        
|                                                                            |  | Loss on disposal of assets                                                                |                                           |      | 3                       |         |          |   | 314     |         |          |   | 3      |        
|                                                                            |  | Issuance of common stock to consultants                                                   |                                           |      |                        |         |          |   | 142     |         |          |   |       |        
|                                                                            |  | Compensation
charge related to grants of restricted common stock and common stock options |                                           |      | 501                     |         |          |   | 896     |         |          |   |       |        
|                                                                            |  | Amortization of stock-based compensation                                                  |                                           |      | 91                      |         |          |   | 706     |         |          |   | 2,996  |        
|                                                                            |  | Amortization of goodwill and intangible assets                                            |                                           |      | 2,183                   |         |          |   | 29,433  |         |          |   | 88,066 |        
|                                                                            |  | Non-cash restructuring charges                                                            |                                           |      | 1,140                   |         |          |   | 966     |         |          |   | 12,411 |        
|                                                                            |  | Write-off of in-process technology                                                        |                                           |      |                        |         |          |   |        |         |          |   | 11,652 |        
|                                                                            |  | Non-cash charge for impairment of long lived assets                                       |                                           |      | 2,593                   |         |          |   | 355,291 |         |          |   | 4,254  |        
|                                                                            |  | Non-cash charge for adjustments to shareholder notes receivable                           |                                           |      | (64)                    |         |          |   | 1,352   |         |          |   | 1,945  |        
|                                                                            |  | Changes in operating assets and liabilities:                                              |                                           |      |                         |         |          |   |         |         |          |   |        |        
|                                                                            |  |                                                                                           | Accounts receivable                       |      |                         | (1,072  | )        |   |         | 14,330  |          |   |        | (13,273 | )
|                                                                            |  |                                                                                           | Prepaid expenses and other assets         |      |                         | 275     |          |   |         | 4,986   |          |   |        | 555     |  
|                                                                            |  |                                                                                           | Accounts payable                          |      |                         | (3,908  | )        |   |         | (1,758  | )        |   |        | (1,678  | )
|                                                                            |  |                                                                                           | Accrued compensation and related expenses |      |                         | (1,383  | )        |   |         | (2,404  | )        |   |        | 1,653   |  
|                                                                            |  |                                                                                           | Accrued marketing expenses                |      |                         | (1,141  | )        |   |         | (1,631  | )        |   |        | (1,031  | )
|                                                                            |  |                                                                                           | Accrued merger costs                      |      |                         | 213     |          |   |         | (29     | )        |   |        | (15,902 | )
|                                                                            |  |                                                                                           | Accrued restructuring costs               |      |                         | (17,661 | )        |   |         | 9,297   |          |   |        |        |  
|                                                                            |  |                                                                                           | Other accrued liabilities                 |      |                         | (2,848  | )        |   |         | (4,403  | )        |   |        | 5,054   |  
|                                                                            |  |                                                                                           | Deferred revenue                          |      |                         | (5,279  | )        |   |         | (17,342 | )        |   |        | 25,680  |  
|                                                                            |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Net cash used in operating activities                                       |  |                                                                                           | (38,924                                   | )    |                         |         | (25,702  | ) |         |         | (61,644  | )
|                                                                            |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Investing Activities                                                        |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Purchases of property and equipment                                         |  |                                                                                           | (5,287                                    | )    |                         |         | (7,174   | ) |         |         | (14,660  | )
|Purchases of restricted marketable securities                               |  |                                                                                           |                                          |      |                         |         | (11,000  | ) |         |         |         |  
|Purchases of marketable securities                                          |  |                                                                                           | (2,622                                    | )    |                         |         |         |   |         |         | (71,804  | )
|Redemption of non-marketable securities                                     |  |                                                                                           | 450                                       |      |                         |         |         |   |         |         |         |  
|Redemption of restricted marketable securities                              |  |                                                                                           | 13,741                                    |      |                         |         | 3,280    |   |         |         |         |  
|Redemption of marketable securities                                         |  |                                                                                           | 15,101                                    |      |                         |         | 28,258   |   |         |         | 35,138   |  
|Acquisitions of developed technology                                        |  |                                                                                           |                                          |      |                         |         | (5,650   | ) |         |         |         |  
|Business combinations, net of cash acquired                                 |  |                                                                                           | 10,904                                    |      |                         |         | (1,579   | ) |         |         | 12,646   |  
|                                                                            |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Net cash provided by (used in) investing activities                         |  |                                                                                           | 32,287                                    |      |                         |         | 6,135    |   |         |         | (38,680  | )
|                                                                            |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Financing Activities                                                        |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Issuance of common stock                                                    |  |                                                                                           | 1,612                                     |      |                         |         | 1,418    |   |         |         | 129,869  |  
|Repurchase of common stock                                                  |  |                                                                                           | (243                                      | )    |                         |         | (247     | ) |         |         | (2,632   | )
|Issuance of notes receivable to stockholders                                |  |                                                                                           |                                          |      |                         |         | (200     | ) |         |         | (2,238   | )
|Repayment of notes receivable from stockholders                             |  |                                                                                           | 57                                        |      |                         |         | 162      |   |         |         | 167      |  
|Borrowings under line of credit                                             |  |                                                                                           |                                          |      |                         |         | 11,000   |   |         |         |         |  
|Repayment of capital lease obligations                                      |  |                                                                                           | (893                                      | )    |                         |         | (886     | ) |         |         | (817     | )
|                                                                            |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Net cash provided by financing activities                                   |  |                                                                                           | 533                                       |      |                         |         | 11,247   |   |         |         | 124,349  |  
|                                                                            |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Effect of exchange rate changes on cash and cash equivalents                |  |                                                                                           | 592                                       |      |                         |         |         |   |         |         |         |  
|                                                                            |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Increase (decrease) in cash and cash equivalents                            |  |                                                                                           | (5,512                                    | )    |                         |         | (8,320   | ) |         |         | 24,025   |  
|Cash
and cash equivalents at beginning of year                              |  |                                                                                           | 33,125                                    |      |                         |         | 41,445   |   |         |         | 17,420   |  
|                                                                            |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  
|Cash
and cash equivalents at end of year                                    |  | $                                                                                         | 27,613                                    |      |                         | $       | 33,125   |   |         | $       | 41,445   |  
|                                                                            |  |                                                                                           |                                           |      |                         |         |          |   |         |         |          |  

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|                                                                      |                                               |  |   |       |  |  |   |       |  |  |   |         |  |  | 
|--------------------------------------------------------------------- | --------------------------------------------- |  | - | ----- |  |  | - | ----- |  |  | - | ------- |  |  | 
|Supplemental disclosure of noncash investing and
financing activities |                                               |  |   |       |  |  |   |       |  |  |   |        
|                                                                      | Common stock issued for business combinations |  | $ | 1,250 |  |  | $ | 2,225 |  |  | $ | 484,619 | 
|                                                                      | Common stock warrants issued for licenses     |  | $ |      |  |  | $ | 184   |  |  | $ |        | 
|Supplemental disclosure of cash flow information                      |                                               |  |   |       |  |  |   |       |  |  |   |        
|                                                                      | Interest paid                                 |  | $ | 478   |  |  | $ | 630   |  |  | $ | 464     | 
|                                                                      | Income taxes paid                             |  | $ |      |  |  | $ |      |  |  | $ | 1,810   | 

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Ask Jeeves, Inc. (Ask Jeeves or the Company) is a leading provider of
search and self-service technologies. Our proprietary natural-language
capabilities combined with patented search technology create an interaction
centered on understanding users specific needs and interests and connecting
them to the most relevant information, products and services. The Company
delivers its natural language question answering technologies and services
through its own Web sites at Ask.com, Ask.co.uk, Teoma.com, and AJKids.com.
Through the Companys Web Properties Division, Ask Jeeves provides innovative,
targeted and effective tools for reaching a broad base of highly valuable
customers. The Company also syndicates services to portals, infomediaries, and
content and destination sites to help companies increase e-commerce and
advertising revenue. Through its Jeeves Solutions Division, the Company offers
software and services that allow corporations to establish connected self
service solutions that supplement the activities of call center, contact
centers and marketing departments. The Company was incorporated in California
in June 1996 and reincorporated in Delaware in June 1999.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Investments in the Ask Jeeves Japan
joint venture in which the Company has significant influence but does not have
a controlling interest are accounted for under the equity method and
investments in which the Company does not have the ability to exert significant
influence are accounted for at cost. All significant intercompany transactions
and balances have been eliminated upon consolidation.

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all cash and highly liquid investments purchased with an
original maturity of less than three months at the date of purchase to be cash
equivalents. Highly liquid investments included in cash and cash equivalents
include commercial paper and short-term U.S., state and government securities.
Cash and cash equivalents are recorded at cost, which approximates fair value.
Substantially all of the Companys cash and cash equivalents are held in the
custody of two major domestic financial institutions.

Marketable Securities

The Companys marketable securities are primarily comprised of certificates of
deposit, U.S., state and municipal government securities and corporate debt
securities. Marketable securities are primarily held in the custody of two
major financial institutions. The specific identification method is used to
determine the cost of securities disposed. At December 31, 2002 and 2001,
substantially all the Companys marketable securities were classified as
available-for-sale. Available-for-sale securities are carried at fair value
with unrealized gains and losses on these securities included as a separate
component of accumulated other comprehensive income (loss).

The Company performs periodic reviews
of its investments for impairment. The Companys investments
in privately held companies are considered impaired when a review of operations
and other indicators of impairment indicate that the carrying value of the
investment is not likely to be recoverable. Such indicators include limited
liquidity and limited prospects of receiving additional financing. Impaired
investments in privately held companies are written down to estimated fair
value, which is the amount the Company believes is recoverable from
its investment, by a
reduction of other investments and a corresponding amount recorded as
impairment write-downs in its consolidated statements of operations. Impairment
write-downs create a new carrying value for investments and the
Company does not record
subsequent increases in fair value in excess of the new carrying value.

Allowances for Doubtful Accounts

The Company makes judgments as to its ability to collect outstanding
receivables and provides allowances for the portion of receivables when
collection becomes doubtful. Provisions are made based upon a specific review
of all significant outstanding invoices. For those invoices not specifically
reviewed, provisions are provided at differing rates, based upon the age of the
receivable. In determining these percentages, the Company has analyzed its
historical collection experience and current economic trends.

The Company also records a provision for returns and revenue adjustments in the
same period as the related revenues are recorded. These estimates are based on
historical analysis of credit memo data and other known factors.

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Concentrations, Credit Risk and Credit Risk Evaluations

Concentrations

The Company relies on third-party advertising services, provided by one
supplier, to deliver advertisements to its users. The Company is dependent on
the ability of its supplier to deliver the advertisements as contracted for and
on favorable pricing terms. The inability of the supplier to do so could have a
material impact on the consolidated results of operations of the Company. The
Company believes that its relationship with its supplier is satisfactory.

During the year ended
December 31, 2002, one provider accounted for 13.3% of
total revenues. No customer accounted for more than 10% of total revenues for
the years ended December 31, 2001 and 2000.

Credit Risk

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, short and long-term
marketable securities and trade accounts receivable. Cash and cash equivalents
consist principally of demand deposit and money market accounts, commercial
paper and U.S., state and municipal government debt securities with strong
credit ratings. Marketable securities consist primarily of debt securities of
domestic municipalities and corporations with strong credit ratings. Cash and
cash equivalents and securities are held with two major domestic financial
institutions with high credit standing. The Company has not experienced any
significant losses on its cash and cash equivalents or marketable securities.
The Company conducts business with companies in various industries primarily in
the United States. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. Allowances are maintained
for potential credit issues, and are adjusted periodically to reflect
managements expectations of future losses.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets, typically
two to five years. Leasehold improvements are amortized over the shorter of the
useful life or the remaining lease term.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net
tangible and identified intangible assets acquired in business combinations
accounted for under the purchase accounting method. Other identifiable
intangible assets were purchased by the Company, primarily in connection with
business combinations. Goodwill and other

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intangible assets are presented net of related accumulated amortization and
impairment charges and are being amortized over the estimated economic lives of
the assets, generally three to five years. Subsequent to
December 31,
2001 goodwill and indefinite-lived intangibles are accounted for
under a non-amortization approach and are evaluated at least annually for
impairment.

The Company records impairment losses on goodwill and other intangible assets
when events and circumstances indicate that such assets might be impaired and
the estimated fair value of the asset is less than its recorded amount.
Conditions that would necessitate an impairment assessment include material
adverse changes in operations, significant adverse differences in actual
results in comparison with initial valuation forecasts prepared at the time of
acquisition, a decision to abandon acquired products, services or technologies,
or other significant adverse changes that would indicate the carrying amount of
the recorded asset might not be recoverable.

Computer Software for Internal Use

The Company capitalizes certain costs related to software developed or obtained
for internal use once certain criteria have been met. To date, these amounts
have not been significant.

Software Development Costs

Development costs related to software incorporated in the Companys products
incurred subsequent to the establishment of technological feasibility are
capitalized and amortized over the estimated lives of the related products.
Technological feasibility is established upon completion of a working model. To
date, costs incurred subsequent to the establishment of technological
feasibility have not been significant, and all software development costs have
been charged to product development expense in the accompanying consolidated
statements of operations.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets might not be
recoverable. The Company does not perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company measures
fair value based on quoted market prices or based on discounted estimates of
future cash flows. Long-lived assets to be disposed of are carried at fair
value less costs to sell.

Revenue

The Company generally recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. If the Company has doubt about the collectibility
of revenue at the time it is earned, such revenue is deferred until cash has
been received. The Companys revenue streams are derived from different
sources in its two business units.

Web Properties

Revenues associated with the Companys Web Properties division are generated
from four general sources: (1) sales of branded advertising products; (2) sales
of premier listings and other paid placement products; (3) syndication of
services offered on its websites to other companies sites; and (4) sales of
paid inclusion products.

The Companys branded advertising ranges from traditional advertising units
such as banners, towers and interstitials to highly targeted graphic units
through its branded response service. Branded advertising is generally sold on
a cost per impression basis with the revenue derived from such arrangements
recognized during the period that the service is provided, provided that no
significant obligations remain at the end of the period. Such obligations
typically include the guarantee of a minimum number of impressions or times
that an advertisement appears in pages viewed by users of our online
properties. To the extent the minimum guaranteed impressions are not delivered,
the Company defers recognition of the corresponding revenue until the remaining
guaranteed impressions levels are achieved.

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The Companys premier listings and other paid placement products are text
messages that are designed to connect users interested in a particular product
or service with an advertiser offering that product or service. With these
products, advertisers pay only for performance, thus these revenues are
generated when a user clicks on the answer that links to a merchants Web site
on a cost per click, or CPC basis. Alternatively, the Company may recognize
revenue on a revenue-sharing basis when the paid placement service is offered
through one of its affiliates.

The Companys syndication services range from the sale of promotional material
on behalf of partners to the syndication of its Web-wide search technology to
portals, infomediaries, and content and destination websites. Syndication fees
primarily consist of revenue-sharing arrangements, fixed or fee-per-use
arrangements, and revenues are recognized as the service is delivered. Revenues
from revenue-sharing arrangements are recorded net of amounts paid to
syndication partners, except when the Company acts as the primary obligor in
the arrangement and bear risk with respect to the inventory of promotional
space and credit risk, in accordance with Emerging Issues Task Force Issue No.
99-19, which expense is recognized as a cost of sale and revenue is recorded on
a gross basis.

The Companys paid inclusion products provide an opportunity for Web sites to
ensure that they are included in the Companys search index. Paid inclusion
products are generally priced on a per URL basis to have the URL included in
the Companys database and periodically refreshed over a set period of time,
which is typically one year. Revenues are collected in advance and recognized
over the appropriate service period.

Jeeves Solutions

Revenues from the Companys Jeeves Solutions division are derived from two
sources: (1) software license revenues; and (2) services revenue. Software
license revenues are generated from companies licensing the rights to use the
Companys natural language and customer intelligence technologies for use on
their corporate Web sites. Services revenue is generated from sales of
maintenance agreements, consulting services and training services associated
with the Companys licensed software.

The Company recognizes software license revenues in accordance with AICPA
Statement of Position 97-2, Software Revenue Recognition or SOP 97-2, as
amended by Statement of Position 98-9. SOP 97-2 provides specific industry
guidance and stipulates that revenue recognized from software arrangements is
to be allocated to each element of the arrangement based on the relative fair
value of the elements. Under SOP 97-2, the determination of fair value is based
on the objective evidence that is specific to the vendor. The Company utilizes
the residual method under which revenue is allocated to the undelivered element,
based on vendor specific evidence of fair value and the residual amounts of
revenue are allocated to the delivered element.
The Company recognizes license revenues at the end of the core implementation
period if implementation services are included in the original license
arrangement and are considered to be essential to the functionality of the
software. As a result, even where the Company has a signed license agreement
for the purchase of its software and has delivered the software, license
revenue recognition depends on whether the Company has begun core
implementation. For license agreements under which the Company has no
implementation responsibility, or where implementation is not considered to be
essential to the functionality of the software, the Company recognizes revenue
upon delivery of the software. Examples of situations under which the Company
has no implementation responsibility include additional license sales to
existing customers or customers who elect to use internal or third party
resources to implement the software. In software license arrangements where a
service element is critical to the functionality of the software, license,
implementation and service fees are recognized ratably over the life of the
arrangement, commencing upon service implementation. License payments from the
Companys joint venture is recorded as deferred revenue and are being
recognized as revenues on a straight-line basis over a four year period.

The Company generally provides consulting and training services on a time and
materials basis. It provides maintenance and support services under renewable,
term maintenance agreements, which it prices as a percentage of its license
fees. Maintenance and support fee revenue is recognized ratably over the
contractual term, which is generally twelve months and commences from the
implementation of service or delivery of product. Amounts invoiced prior to
service implementation are recorded as deferred revenue, with recognition
commencing upon service implementation.

Stock-Based Compensation

The Company accounts for employee stock options using the intrinsic value
method and makes the required pro forma disclosures as if the fair value method
had been used. Compensation expense based on the difference, if any,
on the measurement date (generally the date of grant), between the estimated
fair value of the Companys stock and the

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exercise price of options to purchase that stock is amortized over the vesting
period of the related option using the graded vesting method.

Pro Forma Disclosures of the Effect of Stock-Based Compensation

Pro forma information regarding the results of operations and net loss per
share is determined as if the Company had accounted for its employee stock
options using the fair value method. The fair value of each option granted is
estimated on the date of grant using the Black Scholes valuation model. The
risk-free interest rate was 5.0% for each of the years 2002, 2001 and 2000. The
expected life of options granted in the years ended December 31, 2002, 2001 and
2000, was 10 years, 9 years and 10 years, respectively. No dividend and a
volatility factor of 1.2, 1.6 and 1.6 for 2002, 2001, and 2000, respectively,
were used.

The Company has elected to use the intrinsic value method in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting requires the use of option valuation models that were not developed
for use in valuing employee stock options. Under the intrinsic value method,
when the exercise price of the Companys employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

The option valuation models were developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions, including the expected life of the option. Because the Companys
employee stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions can
materially affect the fair value of the estimate, in managements opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.

Had compensation cost for the Companys stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the Black Scholes valuation model, the Companys net loss and
basic and diluted net loss per share would have been increased to the pro forma
amounts indicated below (in thousands, except per share amounts):

|                                                                                                                |  |                         |         |      |  |      |          |   |  |   |          |  
|--------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                                                                                |  | Year Ended December 31,
|                                                                                                                |  |                        
|                                                                                                                |  | 2002                    |         | 2001 |  | 2000
|                                                                                                                |  |                         |         |      |  |     
|Net loss, as reported                                                                                           |  | $                       | (21,303 | )    |  | $    | (425,258 | ) |  | $ | (189,606 | )
|Deduct:
Total stock-based employee compensation expense determined under fair
value based method for all awards |  |                         | (1,859  | )    |  |      | (2,807   | ) |  |   | (34,548  | )
|Net loss, pro forma                                                                                             |  | $                       | (23,162 | )    |  | $    | (428,065 | ) |  | $ | (224,154 | )
|Basic and diluted net loss per share, as reported                                                               |  | $                       | (0.52   | )    |  | $    | (11.48   | ) |  | $ | (5.51    | )
|Basic and diluted net loss per share, pro forma                                                                 |  | $                       | (0.57   | )    |  | $    | (11.56   | ) |  | $ | (6.52    | )

The weighted-average grant-date fair value of options granted was $1.37, $1.19
and $23.02 for grants made during years ended December 31, 2002, 2001 and 2000,
respectively.

The pro forma impact of options on the net loss for the years ended December
31, 2002, 2001 and 2000, is not representative of the effects on net income
(loss) for future years, as future years will include the effects of additional
years of stock option grants.

Advertising Costs

The Company expenses the costs of advertising as incurred. Advertising expense
for the years ended December 31, 2002, 2001 and 2000 was $1,522,000, $2,796,000, and $20,255,000, respectively.

Income Taxes

The Company uses the liability method to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The Company
currently has substantial net operating loss carryforwards. The Company has
recorded a 100% valuation allowance against net deferred tax assets due to
uncertainty of their ultimate realization.

Foreign Currency Translation

The functional currency of the Companys international subsidiary is the local
currency. The financial statements of this subsidiary are translated to United
States dollars using year-end rates of exchange for assets and liabilities, and
average rates of exchange for the year of 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 are included in the
consolidated statements of operations. The Company did not incur significant
net gains or losses resulting from foreign exchange transactions during the
periods presented.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. Potentially
dilutive securities have been excluded from the computation, as their effect is
antidilutive. If the Company had reported net income, diluted net income per
share would reflect the potential dilution of securities by adding other common
stock equivalents, including stock options, warrants and convertible preferred
stock, in the weighted average number of common shares outstanding for a
period, if dilutive.

Recent Accounting Pronouncements

In July 2001, the FASB issued Statements of Financial Accounting Standards No.
141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 eliminates the pooling-of-interests
method of accounting for business combinations except for qualifying business
combinations that were initiated prior to July 1, 2001. SFAS 141 further
clarifies the criteria to recognize intangible assets separately from goodwill.
The requirements of SFAS 141 are effective for any business combination
accounted for by the purchase method that is completed after September 30,
2001. Under SFAS 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives (but with no maximum life). The amortization provisions of
Statement 142 apply to goodwill and intangible assets acquired after June 30,
2001. SFAS 142 will have no affect on the Companys financial
statements. Had the provisions of SFAS 142 been in
effect during the year ended December 31, 2001, the Companys
results would not have been materially impacted from those reported. Had the provisions of SFAS 142 been in
effect during the year ended December 31, 2000, adjusted
net loss would have been $(106,982,000) and adjusted net loss per
share would have been $(3.11).

During August 2001, the Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 is
effective for fiscal years beginning after December 15, 2001 and supercedes
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30

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relating to the disposal of a segment of business. The adoption of SFAS 144 did
not have a material impact on the Companys consolidated financial position,
results of operations or cash flows.

In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit and Disposal Activities. This statement supercedes the accounting for exit
and disposal activities under Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity. Commitment to a plan to exit an activity or dispose of
long-lived assets will no longer be sufficient to record a one-time charge for
most anticipated costs. Instead, SFAS 146 requires exit or disposal costs be
recorded when they are incurred and can be measured at fair value. SFAS 146
further requires that the recorded liability be adjusted for changes in
estimated cash flows. The provisions of SFAS 146 are effective prospectively
for exit or disposal activities initiated after December 31, 2002. Previously
issued financial statements cannot be restated for the effect of the provisions
of SFAS 146 and liabilities previously recorded under EITF Issue No. 94-3 are
grandfathered. The Company does not believe SFAS 146 will have a material
impact on their consolidated financial statements.

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The Company is currently
evaluating the effect that the adoption of EITF Issue No. 00-21 will have on
its results of operations and financial condition

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 also requires
that disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more prominently
and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the
pro forma effect in interim financial statements. The transition and annual
disclosure requirements of SFAS No. 148 are effective for the Companys fiscal
year 2003. The interim disclosure requirements are effective for the first
quarter of the Companys fiscal year 2003. The Company does not expect SFAS No.
148 to have a material impact on their consolidated financial statements.

In January 2003 the Financial Accounting Standards Board issued FASB
Interpretation 146 Consolidation of Variable Interest Entities. The
interpretation defines variable interest entities as those in which equity
investment at risk is not sufficient to permit the entity to finance its
activities with out additional subordinated financial support from other
parties, or entities in which equity investors lack certain essential
characteristics of a controlling financial interest. The primary beneficiary
of a variable interest entity is the party that absorbs a majority of the
entitys expected losses, receives a majority of its expected residual returns,
or both, as a result of holding variable interests, which are the ownership,
contractual, or other pecuniary interests in an entity. The primary
beneficiary is required to consolidate the financial position and results of
operations of the variable interest entity. The interpretation applies
immediately to interests in variable interest entities acquired after January
31,2003 and for the first fiscal year or interim period beginning after June
15, 2003 for interests previously acquired in such entities. The Company
believes that adoption of this statement will not have a material effect on its
consolidated financial statements.

Reclassifications

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

2.     BUSINESS COMBINATIONS

Acquisition of Teoma Technologies, Inc.

In September 2001, the Company acquired Teoma Technologies, Inc, (Teoma) a
developer of next generation search technologies. The purpose of the
acquisition was to enhance the Companys strategy of providing intuitive
relevant technologies and services. Teomas technology divides the Web into
natural communities and analyzes topic-specific Web content to generate
relevant and authoritative search results.

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The acquisition was accounted for as a purchase business combination. The
purchase cost consisted of cash of $1.7 million, 2.1 million shares of common
stock with a fair value of $1.9 million, 415,000 assumed stock options with a
fair value of $183,000, the assumption of liabilities of $488,000 and
transaction expenses of $187,000. The purchase cost was allocated to equipment
and other assets ($1.6 million) and developed technology ($2.8 million). The
purchased technology is being amortized into Web Properties cost of revenues
over a period of three years.

The acquisition of Teoma was recorded as a purchase and accordingly, the
consolidated financial statements include the operating results of Teoma from
the date of acquisition, which occurred in September 2001. The financial
results of Teoma prior to the period of acquisition are not material to the
consolidated financial statements of the Company.

Acquisition of Direct Hit Technologies, Inc.

In February 2000, the Company acquired Direct Hit Technologies, Inc. (Direct
Hit), a provider of search and navigation services on the Internet. The
purchase consideration consisted of 4,752,000 shares of common stock with a
fair value of $456.0 million, 332,000 shares to be issued upon the exercise of
outstanding Direct Hit options assumed as part of the merger with a fair value
of $25.8 million, liabilities assumed of $10.2 million and $11.2 million in
acquisition costs.

The purchase consideration of the acquired assets and assumed liabilities of
Direct Hit were allocated based on fair values as follows (in thousands):

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|Tangible assets                 |  | $ | 16,890  | 
|Equipment                       |  |   | 2,455   | 
|Purchased in-process technology |  |   | 10,259  | 
|Purchased technology            |  |   | 19,789  | 
|Acquired workforce              |  |   | 797     | 
|Goodwill                        |  |   | 453,140 | 
|                                |  |   |         | 
|Total purchase consideration    |  | $ | 503,330 | 

The acquisition of Direct Hit was recorded as a purchase and accordingly, the
consolidated financial statements include the operating results of Direct Hit
from the date of acquisition, which occurred in February 2000. During the
first quarter of 2001, the Company determined that long-lived assets initially
recorded in connection with the acquisition of Direct Hit were impaired. As
such, all acquired assets were written down to zero during the year.

Purchased in-process technology.The amounts allocated to purchased in-process
technology were determined through established valuation techniques in the high
technology Internet industry with the assistance of an independent valuation
expert and were expensed upon acquisition because technological feasibility had
not been established and no future alternative uses existed. The values
assigned to purchased in-process technology were determined by identifying the
on-going research projects for which technological feasibility had not been
achieved and assessing the state of completion of the research and development
effort. The state of completion was determined by estimating the costs and time
incurred to date relative to those costs and time to be incurred to develop the
purchased in-process technology into commercially viable products, estimating
the resulting net cash flows only from the percentage of research and
development efforts complete at the date of acquisition, and discounting the
net cash flows back to their present value using a 25% discount rate. The
discount rate included a factor that took into account the uncertainty
surrounding the successful development of the purchased in-process technology
projects.

Purchased technology.To determine the values of purchased technology, the
expected future cash flows of the existing developed technologies were
discounted taking into account the characteristics and applications of the
product, the size of existing markets, growth rates of existing and future
markets as well as an evaluation of past and anticipated product lifecycles.

Acquired workforce.To determine the values of the acquired workforce,
employees were identified who would require significant cost to replace and
train. Then each employees partially burdened cost (salary, benefits,
facilities), the cost to

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train the employee, and the recruiting costs (locating, interviewing, and
hiring) were estimated. These costs were then aggregated and tax-affected to
estimate the value of the assembled workforce.

Amounts allocated to purchased technology, goodwill and other intangible assets
are being amortized on a straight-line basis over periods of three to five
years.

Joint Ventures

Ask Jeeves UK

Ask Jeeves UK was formed in 1999 as a joint venture with two British media
companies, Carlton Communications and Granada Media Group. The venture
marketed our search technologies and services to Great Britain and the Republic
of Ireland. At December 31, 2001, Ask Jeeves owned a 50 percent interest in
this joint venture.

In February 2002, the Company acquired the entire
outstanding equity interests in Ask Jeeves UK. The Company acquired full
ownership of Ask Jeeves UK to enhance the synergies that exist between the U.S.
and U.K. operations. The purchase consideration consisted of cash of
$1.2 million and 774,792 shares of Ask Jeeves common stock with a fair value of
$1.3 million. The assets recorded in the transaction consisted
of cash of $7.7 million and accounts receivables of
$2.2 million and the assumption of liabilities of
$750,000 and transaction expenses of approximately $450,000. The terms of the
agreement include an obligation for Ask Jeeves to pay to its former
partners fifty percent of the net proceeds of any qualifying sale or
offering of shares of Ask Jeeves UK through March 2003. As of December 31, 2002,
the Company has recorded a deferred gain of $6.2 million
representing the fair value of net assets recorded by the Company in
excess of consideration paid. The gain will be recognized as other
income when the contingent payment obligation to the former partners expires in March
2003. Additionally, in the three months ended March 31, 2002 the Company recorded a
gain of $974,000 representing the remaining balance of deferred
license fees paid to the Company by the venture.

The acquisition was accounted for as a purchase
business combination and accordingly, the consolidated financial
statements include the operating results of Ask Jeeves UK from the
date of acquisition. Previously, the Company accounted for its
investment in the joint venture under the equity method of accounting.
The Company had recorded no value for its interest in the joint
venture for accounting purposes. Therefore, the Company had not
previously recognized any portion of the net losses of the joint
venture. The unaudited pro forma information presented in the table
below represents the combined revenue, net loss, and net loss per
share of the Company as if the acquisition had taken place on
January 1, 2001.

|                                                                                           |  |                             |            |      |  |   |            |  
|------------------------------------------------------------------------------------------ |  | --------------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                                           |  | For Year Ended December 31,
|                                                                                           |  |                            
|(in thousands, except share and per share amounts)                                         |  | 2002                        |            | 2001
|                                                                                           |  |                             |            |     
|Revenues                                                                                   |  | $                           | 74,206     |      |  | $ | 68,132     |  
|Net loss                                                                                   |  | $                           | (22,394    | )    |  | $ | (439,363   | )
|Net loss per share basic and diluted                                                       |  | $                           | (0.55      | )    |  | $ | (11.62     | )
|Weighted average shares outstanding used in
computing basic and diluted net loss per share |  |                             | 40,698,137 |      |  |   | 37,807,725 |  

Ask Jeeves en Espanol

In August 2000, Ask Jeeves entered into a Spanish language joint venture,
partnering with Univision Communications, Inc. to create Ask Jeeves en Espanol,
Inc. The Company subsequently dissolved the joint venture in October 2001. In
connection with the dissolution, the Company received cash of approximately
$7.5 million and reacquired the rights and licenses originally assigned to the
venture. The Company recorded a gain of approximately $13.4 million in the
three months ended December 31, 2001, representing the remaining balance of
deferred license fees paid to the Company by the venture as well as the value
of cash received by the Company. The Company had previously carried its
investment in the venture at a carrying value of zero.

Ask Jeeves Japan

Ask Jeeves Japan, a joint venture with Trans Cosmos Inc. USA Pacific Holdings
Company III, a subsidiary of a Japanese customer service and information
technology support provider, was established to launch a Japanese language
version of Ask.com, create Japanese specific content for the Japanese Ask.com
Web site, and to market Jeeves Solutions products and services to the Japanese
marketplace. The Company owns approximately 47 percent of the voting securities
of this joint venture. In connection with the establishment of Ask Jeeves
Japan, Ask Jeeves granted the joint venture an exclusive license to
the Companys current
and future products and services in Japan and for the Japanese-speaking market.

The Company has entered into various agreements with these joint ventures for
the license and support of its technology within the United Kingdom, Japan and
to the Spanish speaking market. In connection with these agreements, the
Company received cash payments, all of which were funded by the Companys joint
venture partners, that have been recorded as deferred revenues and are being
recognized as revenues on a straight-line basis over three to four year

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periods. For the years ended December 31, 2002, 2001 and 2000, the Company
recorded revenues of $6,189,000, $18,991,000 and $12,308,000, respectively,
relating to these license arrangements.

3.     MARKETABLE SECURITIES

At December 31, 2002 and 2001, all of the Companys marketable securities were
classified as available-for-sale. Management determines the appropriate
classification of marketable securities at the time of purchase and
re-evaluates such designation at the end of each period. Marketable securities
are carried at fair value, based on quoted market prices. For the years ended
December 31, 2002 and 2001, gross realized gains were $160,000 and $229,000,
respectively.

The following tables summarize the Companys marketable securities (in
thousands):

|                                    |                                           |       |        |           |  |            |    |            |  |                |    |   |  |   |        |        |        | 
|----------------------------------- | ----------------------------------------- | ----- | ------ | --------- |  | ---------- | -- | ---------- |  | -------------- | -- | - |  | - | ------ | ------ | ------ | 
|                                    |                                           |       |        |           |  |            |    | Gross      |  | Gross          |    |   |  |  
|                                    |                                           |       |        | Amortized |  | Unrealized |    | Unrealized |  | Estimated Fair
|December 31, 2002                   |                                           | Cost  |        | Gains     |  | Losses     |    | Value     
|                                    |                                           |       |        |           |  |            |    |           
|Certificates of Deposit             |                                           | $     | 65     |           |  | $          |   |            |  | $              |   |   |  | $ | 65     |       
|US Government notes                 |                                           |       | 12,200 |           |  |            | 35 |            |  |                |   |   |  |   | 12,235 |       
|Corporate notes                     |                                           |       | 1,600  |           |  |            | 1  |            |  |                |   |   |  |   | 1,601  |       
|Asset-backed securities             |                                           |       | 2,901  |           |  |            | 26 |            |  |                | (1 | ) |  |   | 2,926  |       
|                                    |                                           |       |        |           |  |            |    |            |  |                |    |   |  |   |        |       
|Total available for sale securities |                                           | $     | 16,766 |           |  | $          | 62 |            |  | $              | (1 | ) |  | $ | 16,827 |       
|                                    |                                           |       |        |           |  |            |    |            |  |                |    |   |  |   |        |       
|Classified as:                      |                                           |       |        |           |  |            |    |            |  |                |    |   |  |   |        |       
|                                    | Marketable securities                     |       |        |           |  |            |    |            |  |                |    |   |  |   | $      | 5,762  |       
|                                    | Restricted cash and marketable securities |       |        |           |  |            |    |            |  |                |    |   |  |   |        | 11,065 |       
|                                    |                                           |       |        |           |  |            |    |            |  |                |    |   |  |   |        |       
|                                    |                                           | Total |        |           |  |            |    |            |  |                |    |   |  |   |        | $      | 16,827 | 
|                                    |                                           |       |        |           |  |            |    |            |  |                |    |   |  |   |        |       

|                                    |                                           |       |        |           |  |            |     |            |  |                |     |   |  |   |        |        |        | 
|----------------------------------- | ----------------------------------------- | ----- | ------ | --------- |  | ---------- | --- | ---------- |  | -------------- | --- | - |  | - | ------ | ------ | ------ | 
|                                    |                                           |       |        |           |  |            |     | Gross      |  | Gross          |     |   |  |  
|                                    |                                           |       |        | Amortized |  | Unrealized |     | Unrealized |  | Estimated Fair
|December 31, 2001                   |                                           | Cost  |        | Gains     |  | Losses     |     | Value     
|                                    |                                           |       |        |           |  |            |     |           
|Commercial paper                    |                                           | $     | 2,106  |           |  | $          |    |            |  | $              |    |   |  | $ | 2,106  |       
|Municipal bonds                     |                                           |       | 450    |           |  |            |    |            |  |                |    |   |  |   | 450    |       
|US Government notes                 |                                           |       | 18,041 |           |  |            | 223 |            |  |                |    |   |  |   | 18,264 |       
|Corporate notes                     |                                           |       | 12,785 |           |  |            | 130 |            |  |                |    |   |  |   | 12,915 |       
|Asset-backed securities             |                                           |       | 9,604  |           |  |            | 152 |            |  |                | (14 | ) |  |   | 9,742  |       
|                                    |                                           |       |        |           |  |            |     |            |  |                |     |   |  |   |        |       
|Total available for sale securities |                                           | $     | 42,986 |           |  | $          | 505 |            |  | $              | (14 | ) |  | $ | 43,477 |       
|                                    |                                           |       |        |           |  |            |     |            |  |                |     |   |  |   |        |       
|Classified as:                      |                                           |       |        |           |  |            |     |            |  |                |     |   |  |   |        |       
|                                    | Marketable securities                     |       |        |           |  |            |     |            |  |                |     |   |  |   | $      | 18,671 |       
|                                    | Restricted cash and marketable securities |       |        |           |  |            |     |            |  |                |     |   |  |   |        | 15,489 |       
|                                    | Restricted marketable securities          |       |        |           |  |            |     |            |  |                |     |   |  |   |        | 9,317  |       
|                                    |                                           |       |        |           |  |            |     |            |  |                |     |   |  |   |        |       
|                                    |                                           | Total |        |           |  |            |     |            |  |                |     |   |  |   |        | $      | 43,477 | 
|                                    |                                           |       |        |           |  |            |     |            |  |                |     |   |  |   |        |       

The amortized cost and estimated fair value of marketable securities in debt
securities at December 31, 2002, by effective maturity, were as follows (in
thousands):

|                                     |  |                |        |       |  |                |        | 
|------------------------------------ |  | -------------- | ------ | ----- |  | -------------- | ------ | 
|                                     |  |                |        |       |  | Estimated Fair
|                                     |  | Amortized Cost |        | Value
|                                     |  |                |        |      
|Due in 1 year or less                |  | $              | 10,641 |       |  | $              | 10,687 | 
|Due in 1-2 years                     |  |                | 6,125  |       |  |                | 6,140  | 
|                                     |  |                |        |       |  |                |        | 
|Total investments in debt securities |  | $              | 16,766 |       |  | $              | 16,827 | 
|                                     |  |                |        |       |  |                |        | 

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Restrictions on marketable securities include $11.1 million collateralizing
borrowings and outstanding letters of credit. See Note 7.

4.     PROPERTY AND EQUIPMENT

Property and equipment consists of the
following (in thousands):

|                                               |  |              |         |      |  |   |         |  
|---------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2002         |         | 2001
|                                               |  |              |         |     
|Computer equipment and related software        |  | $            | 25,574  |      |  | $ | 27,320  |  
|Furniture and fixtures                         |  |              | 3,395   |      |  |   | 3,469   |  
|Leasehold improvements                         |  |              | 2,391   |      |  |   | 1,945   |  
|                                               |  |              |         |      |  |   |         |  
|Total                                          |  |              | 31,360  |      |  |   | 32,734  |  
|Less accumulated depreciation and amortization |  |              | (20,054 | )    |  |   | (15,636 | )
|                                               |  |              |         |      |  |   |         |  
|Property and equipment, net                    |  | $            | 11,306  |      |  | $ | 17,098  |  
|                                               |  |              |         |      |  |   |         |  

Depreciation expense for the years
ended December 31, 2002, 2001, and 2000 was $8,736,000,
$9,410,000 and $5,685,000, respectively.

Cost related to assets under capital lease obligations was $3,499,000 at
December 31, 2001 and 2000. During March of 2002, the Company disposed of the
remaining assets under capital lease obligations, as they were no longer in
use. The net book value of the disposed assets was $393,000. Accumulated
amortization related to assets under capital lease obligations at December 31,
2001 and 2000 was $2,939,000 and $1,723,000, respectively.
Amortization of assets under capital lease obligations is included in
depreciation expense.

5.     INTANGIBLE ASSETS

Intangible assets consist of the
following (in thousands):

|                             |                              |      |              |       |  |   |          |       | 
|---------------------------- | ---------------------------- | ---- | ------------ | ----- |  | - | -------- | ----- | 
|                             |                              |      | December 31,
|                             |                              |      |             
|                             |                              | 2002 |              | 2001 
|                             |                              |      |              |      
|Goodwill, net of adjustments |                              | $    |             |       |  | $ | 447,002  |      
|Accumulated amortization     |                              |      |             |       |  |   | (105,174 | )    
|Restructuring charge         |                              |      |             |       |  |   | (100     | )    
|Impairment adjustments       |                              |      |             |       |  |   | (341,728 | )    
|                             |                              |      |              |       |  |   |          |      
|                             | Goodwill, net                |      |              |      |  |   |          |      | 
|Other intangibles            |                              |      | 9,765        |       |  |   | 42,540   |      
|Accumulated amortization     |                              |      | (6,565       | )     |  |   | (23,593  | )    
|Impairment adjustments       |                              |      | (252         | )     |  |   | (13,563  | )    
|                             |                              |      |              |       |  |   |          |      
|                             | Other intangible assets, net |      |              | 2,948 |  |   |          | 5,384 | 
|Total intangible assets, net |                              | $    | 2,948        |       |  | $ | 5,384    |      
|                             |                              |      |              |       |  |   |          |      

Amortization expense for the years
ended December 31, 2002, 2001, and 2000 was $2,183,000,
$29,433,000, and $87,297,000, respectively.

During 2002, the Company recorded an impairment charge of $252,000 related to the
intangible assets of E-tours, as the Company discontinued offering this service.

During 2001, the Company identified
indicators of possible impairment of its long-lived
assets, consisting principally of goodwill and other acquired intangible
assets. These indicators included the acquisition of Teoma Technologies, Inc
leading to potential obsolescence of previously acquired technology, continued
deterioration in the business climate for Internet advertising, significant
declines in the market values of the Companys competitors in the Internet advertising
industry and changes in its 2001 operating and cash flow forecasts.

With the assistance of independent valuation experts, the Company performed asset
impairment tests at the enterprise level, the lowest level for which there are
identifiable cash flows related to its acquired intangible assets and goodwill.
The tests were performed by comparing the expected undiscounted cash flows for
a four-year period, plus a terminal value for future cash flows, to the
carrying amount of the long-lived assets resulting from purchase business
combinations. Based

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on the results of these tests, the
Company determined that the long-lived assets
initially recorded in connection with its business combinations were impaired.
With the assistance of independent valuation experts, the
Company determined the fair
value of the impaired long-lived assets. Fair value was determined using the
discounted cash flow method. A write-down of long-lived assets totaling $355.3
million, allocated to acquired goodwill and other intangible assets, was
recorded during 2001 reflecting the amount by which the carrying amount of the
assets exceed their respective fair values.

6.     LEASE COMMITMENTS

The Company has entered into operating and capital leases for certain office
space and equipment that contain renewal options. Capital lease obligations
for equipment represent the present value of future lease payments under the
agreements. The Company has options to purchase the leased assets at the end
of the lease terms.

In February 2002, the Company reached agreement on the settlement of a 10-year
lease obligation for office space not needed as a result of restructuring of
its operations. The terms of the agreement included the one-time payment of
$16 million. The entire amount of the settlement was included in the Companys
restructuring charges in the year ending December 31, 2001. As a result of the
settlement of the lease obligation, the Company terminated a standby letter of
credit pledged as security on the lease in the amount of $13.7 million.

The future minimum lease payments under all non-cancelable leases with terms in
excess of one year are as follows (in thousands):

|                                        |  |                |     |                  |  |   |        | 
|--------------------------------------- |  | -------------- | --- | ---------------- |  | - | ------ | 
|Years ending December 31:               |  | Capital Leases |     | Operating Leases
|                                        |  |                |     |                 
|2003                                    |  | $              | 589 |                  |  | $ | 4,115  | 
|2004                                    |  |                |    |                  |  |   | 3,817  | 
|2005                                    |  |                |    |                  |  |   | 1,574  | 
|2006                                    |  |                |    |                  |  |   | 751    | 
|2007                                    |  |                |    |                  |  |   | 751    | 
|Thereafter                              |  |                |    |                  |  |   | 1,691  | 
|                                        |  |                |     |                  |  |   |        | 
|Total minimum lease payments            |  | $              | 589 |                  |  | $ | 12,699 | 
|Less interest                           |  |                | (17 | )                |  |   |        | 
|                                        |  |                |     |                  |  |   |        | 
|Present value of minimum lease payments |  | $              | 572 |                  |  |   |        | 

Rent expense was $2,868,000, $3,955,000, and $4,315,000 for the years ended
December 31, 2002, 2001 and 2000, respectively. Sublease rental
income for the years ended December 31, 2002, 2001 and 2000 was
$573,000, $381,000 and $225,000, respectively. Aggregate future
minimum rentals to be received under non-cancelable subleases as of
December 31, 2002 are $856,000.

7.     LINE OF CREDIT

The Company has a revolving line of credit with a bank in the amount of $15
million. The line of credit expires on July 1, 2003, unless extended.
Borrowings under the line of credit bear fixed rate interest from the date of
borrowing at LIBOR plus 0.5% (2.6% at December 31, 2002). All borrowings are
collateralized by the Companys marketable securities. Borrowings under the
line are subject to various covenants. As of December 31, 2002, $11.0 million
was outstanding under the line of credit. Additionally, standby letters of
credit of approximately $65,000, which are being maintained as security for
performance under various obligations, were issued and outstanding under the
line of credit.

8.     INCOME TAXES

There has been no provision for U.S. federal or state income taxes for any
period as the Company has incurred operating losses in all periods.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Companys deferred tax assets are as follows (in thousands):

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|                                           |  |              |   |         |   |   |         |  
|------------------------------------------ |  | ------------ | - | ------- | - | - | ------- | -
|                                           |  | December 31,
|                                           |  |             
|                                           |  | 2002         |   | 2001   
|                                           |  |              |   |        
|Deferred Tax Assets:                       |  |              |   |         |   |   |         |  
|Net operating loss carryforwards           |  |              | $ | 78,936  |   | $ | 55,756  |  
|Capitalized research and development costs |  |              |   | 2,641   |   |   | 2,446   |  
|Accrued expenses                           |  |              |   | 3,556   |   |   | 10,342  |  
|Deferred revenue                           |  |              |   | 4,316   |   |   | 10,180  |  
|Other                                      |  |              |   | 2,470   |   |   | 2,148   |  
|                                           |  |              |   |         |   |   |         |  
|Deferred tax assets                        |  |              |   | 91,919  |   |   | 80,872  |  
|Valuation allowance                        |  |              |   | (90,693 | ) |   | (79,872 | )
|                                           |  |              |   |         |   |   |         |  
|Total deferred tax assets                  |  |              | $ | 1,226   |   | $ | 1,000   |  
|Deferred Tax Liabilities:                  |  |              |   |         |   |   |         |  
|Other                                      |  |              | $ | (1,226  | ) | $ | (1,000  | )
|Total deferred tax liabilities             |  |              | $ | (1,226  | ) | $ | (1,000  | )
|Net deferred tax assets                    |  |              | $ |        |   | $ |        |  

A valuation allowance has been established and, accordingly, no benefit has
been recognized for the Companys net operating losses and other deferred tax
assets. The net valuation allowance increased by
$10.8 million and $22.6 million
during the years ended December 31, 2002 and 2001, respectively. The Company
believes that, based on a number of factors, the available objective evidence
creates sufficient uncertainty regarding the realizability of the deferred tax
assets such that a full valuation allowance has been recorded. These factors
include the Companys net losses in recent years and deficit in stockholders
equity. The Company will continue to assess the realizability of the deferred
tax assets based on actual and forecasted operating results.

The tax benefits associated with employee stock options provide a deferred
benefit of $10.0 million as of December 31, 2002. The deferred tax benefit
associated with the employee stock options will be credited to common stock
when realized.

At December 31, 2002, the Company
had net operating loss carryforwards (NOLS) for
federal income tax purposes of approximately $211.0 million, which expire in the
years 2012 through 2022. The Company also had net operating loss carryforwards
for state income tax purposes of approximately $83.0 million that expire in the
years 2004 through 2013. California has suspended the use of NOLS for
tax years 2002 and 2003.

Utilization of the Companys net operating loss carryforwards may be subject to
a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code and similar state provisions. Such an
annual limitation could result in the expiration of the net operating loss
carryforwards before utilization.

9.  STOCKHOLDERS
EQUITY

Stockholder Rights Plan

In April 2001, the Company adopted a stockholder rights plan and declared a
dividend distribution of one right for each outstanding share of common stock
to stockholders of record as of May 7, 2001. Each right entitles the holder to
purchase one unit consisting of one one-thousandth of a share of our Series A
Junior Participating Preferred Stock for $20 per unit. Under certain
circumstances, if a person or group acquires 15% or more of the
Companys outstanding
common stock, holders of the rights (other than the person or group triggering
their exercise) will be able to purchase, in exchange for the $20 exercise
price, shares of the Companys common stock or of any company into
which Ask Jeeves is merged
having a value of $40. The rights expire on May 7, 2011 unless extended by the
Companys board of directors.

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Shares Reserved for Future Issuance

At December 31, 2002, the Company has reserved shares of common stock for
future issuance as follows:

|                                  |       |  |            |            | 
|--------------------------------- | ----- |  | ---------- | ---------- | 
|Stock options outstanding         |       |  | 10,501,534 |           
|Stock options available for grant |       |  | 7,255,233  |           
|Employee stock purchase plan      |       |  | 200,083    |           
|                                  |       |  |            |           
|                                  | Total |  |            | 17,956,850 | 

1996 Equity Incentive Plan

Under the Companys 1996 Equity Incentive Plan (1996 Plan), as amended,
5,973,372 shares of common stock are reserved for the issuance of incentive
stock options (ISOs) or non-statutory stock options (NSOs) to employees,
officers, directors, and consultants. The ISOs may be granted at a price per
share not less than the fair market value on the date of the grant. The NSOs
may be granted at a price per share not less than 85% of the fair market value
at the date of grant. Options granted under the 1996 Plan are exercisable over
a maximum term of ten years from the date of grant and generally vest over
periods of up to four years. Options granted under the 1996 plan contain an
accelerated vesting feature based upon a change in control of the Company.

1999 Equity Incentive Plan

In April 1999, the Company adopted the 1999 Equity Incentive Plan (the 1999
Plan). The Company has reserved a total of 9,312,756 shares of common stock
for the issuance under the 1999 Plan, which provides for the grant of ISOs to
employees, and of ISOs, NSOs and rights to acquire restricted stock to
employees, directors, and consultants of the Company and its
affiliates. The plan provides that the shares reserved for issuance
shall be increased annually by the lesser of seven percent of the
total number of shares of common stock outstanding, three million
shares, or such smaller number of shares as determined by the Board.

1999 Employee Stock Purchase Plan

In May 1999, the Company adopted, as amended, the 1999 Employee Stock Purchase
Plan. The Company has reserved a total of 1,342,978 shares of common stock for
issuance under the plan. Eligible employees may purchase common stock at 85% of
the lesser of the fair market value of the Companys common stock on the first
day of their entry into the applicable two-year offering period or the last day
of the applicable six-month purchase period. The plan provides that
the shares reserved for issuance shall be increased annually by the
lesser of one percent of the total number of shares of common stock
outstanding, 400,000 shares, or such smaller number of shares as
determined by the Board. At December 31, 2002, 200,083
shares were available for grant under the plan.

1999 Non-Qualified Equity Incentive Plan

In October 1999, the Company adopted the 1999 Non-Qualified Equity Incentive
Plan. The Company has reserved a total of 7,700,000 shares of common stock
authorized for issuance under the 1999 Non-Qualified Equity Incentive Plan,
which provides for the grant of non-statutory stock options, rights to purchase
restricted stock and stock bonuses to employees, members of the Board of
Directors, and consultants of the Company and its affiliates.

A summary of stock option activity for all stock plans of the Company is set
forth below:

|                                            |                                                                 |  |                     |            |           |   |                  |       | 
|------------------------------------------- | --------------------------------------------------------------- |  | ------------------- | ---------- | --------- | - | ---------------- | ----- | 
|                                            |                                                                 |  | Options Outstanding
|                                            |                                                                 |  |                    
|                                            |                                                                 |  |                     |            |           |   | Weighted-average
|                                            |                                                                 |  |                     |            |           |   | Exercise Price  
|                                            |                                                                 |  | Shares              |            | Per Share
|                                            |                                                                 |  |                     |            |          
|Outstanding at December 31, 1999            |                                                                 |  | 6,502,700           |            |           | $ | 20.74            |      
|                                            | Options
assumed at acquisition of Direct Hit Technologies, Inc. |  |                     | 331,596    |           |   |                  | 9.25  | 
|                                            | Granted                                                         |  |                     | 6,321,660  |           |   |                  | 24.49 | 
|                                            | Canceled                                                        |  |                     | (2,498,547 | )         |   |                  | 37.23 | 
|                                            | Exercised                                                       |  |                     | (1,366,201 | )         |   |                  | 3.29  | 
|                                            |                                                                 |  |                     |            |           |   |                  |      
|Outstanding at December 31, 2000            |                                                                 |  | 9,291,208           |            |           | $ | 21.43            |      
|                                            | Granted                                                         |  |                     | 6,992,805  |           |   |                  | 1.23  | 
|                                            | Canceled                                                        |  |                     | (5,314,080 | )         |   |                  | 19.12 | 
|                                            | Exercised                                                       |  |                     | (919,216   | )         |   |                  | 0.60  | 
|                                            |                                                                 |  |                     |            |           |   |                  |      
|Outstanding at December 31, 2001            |                                                                 |  | 10,050,717          |            |           | $ | 10.60            |      
|                                            | Granted                                                         |  |                     | 5,155,340  |           |   |                  | 1.42  | 
|                                            | Canceled                                                        |  |                     | (3,242,434 | )         |   |                  | 13.04 | 
|                                            | Exercised                                                       |  |                     | (1,462,089 | )         |   |                  | 1.09  | 
|                                            |                                                                 |  |                     |            |           |   |                  |      
|Outstanding at December 31, 2002            |                                                                 |  | 10,501,534          |            |           | $ | 6.72             |      
|                                            |                                                                 |  |                     |            |           |   |                  |      
|Vested and exercisable at December 31, 2002 |                                                                 |  | 5,000,320           |            |           | $ | 10.52            |      
|                                            |                                                                 |  |                     |            |           |   |                  |      

The weighted-average remaining contractual life of options outstanding at
December 31, 2002 and 2001 was 8.5 years and 8.4 years, respectively.

During the year ended
December 31, 2002, 460,462 shares of restricted stock were
granted under the plans. As of December 31, 2002, restricted
share grants of 185,529 and 260,765 remained unvested, and vest at the
earlier of the employee's termination or April 1, 2003 and
October 1, 2003, respectively.

The following table summarizes the status of stock options outstanding at
December 31, 2002:

|                |   |             |                       |                     |           |           |      |                  |      |                     |      |   |        |  |           |                  |           |   |       |   |        |  | 
|--------------- | - | ----------- | --------------------- | ------------------- | --------- | --------- | ---- | ---------------- | ---- | ------------------- | ---- | - | ------ |  | --------- | ---------------- | --------- | - | ----- | - | ------ |  | 
|                |   |             |                       | Options Outstanding |           |           |      |                  |      | Options Exercisable
|                |   |             |                       |                     |           |           |      | Weighted Average |      | Weighted Average    |      |   |        |  |           | Weighted Average
|Range of        |   | Number      | Remaining Contractual | Exercise Price      |           | Number    |      | Exercise Price  
|Exercise Prices |   | Outstanding |                       | Life (in Years)     |           | per Share |      | Exercisable      |      | per Share          
|$0.00           | - | 0.68        |                       |                     | 372,134   |           |      |                  | 7.70 |                     |      | $ | 0.64   |  |           |                  | 331,636   |   |       | $ | 0.64   | 
|0.73            | - | 0.88        |                       |                     | 2,113,329 |           |      |                  | 8.21 |                     |      |   | 0.87   |  |           |                  | 1,235,242 |   |       |   | 0.87   | 
|0.90            | - | 1.10        |                       |                     | 1,123,325 |           |      |                  | 9.11 |                     |      |   | 1.01   |  |           |                  | 398,130   |   |       |   | 1.03   | 
|1.11            | - | 1.15        |                       |                     | 289,983   |           |      |                  | 9.65 |                     |      |   | 1.15   |  |           |                  | 6,416     |   |       |   | 1.12   | 
|1.16            | - | 1.21        |                       |                     | 1,913,637 |           |      |                  | 9.32 |                     |      |   | 1.21   |  |           |                  | 260,063   |   |       |   | 1.21   | 
|1.22            | - | 1.77        |                       |                     | 1,220,553 |           |      |                  | 8.77 |                     |      |   | 1.58   |  |           |                  | 471,891   |   |       |   | 1.64   | 
|1.83            | - | 2.78        |                       |                     | 1,171,800 |           |      |                  | 8.71 |                     |      |   | 2.35   |  |           |                  | 530,184   |   |       |   | 2.32   | 
|2.82            | - | 18.50       |                       |                     | 1,772,197 |           |      |                  | 7.45 |                     |      |   | 14.20  |  |           |                  | 1,359,298 |   |       |   | 15.67  | 
|18.56           | - | 125.86      |                       |                     | 523,076   |           |      |                  | 7.04 |                     |      |   | 66.22  |  |           |                  | 406,367   |   |       |   | 66.78  | 
|138.00          | - | 138.00      |                       |                     | 1,500     |           |      |                  | 7.01 |                     |      |   | 138.00 |  |           |                  | 1,093     |   |       |   | 138.00 | 
|                |   |             |                       |                     |           |           |      |                  |      |                     |      |   |        |  |           |                  |           |   |       |  
|Total           |   |             | 10,501,534            |                     |           |           | 8.46 |                  |      | $                   | 6.72 |   |        |  | 5,000,320 |                  |           | $ | 10.52 |  
|                |   |             |                       |                     |           |           |      |                  |      |                     |      |   |        |  |           |                  |           |   |       |  

The following table shows the amount
of stock-based compensation that would have been classified under the
following categories had stock-based compensation been separately
stated on the consolidated statements of operations:

|                           |  |      |                         |      |  |      |     |  |  |   |       | 
|-------------------------- |  | ---- | ----------------------- | ---- |  | ---- | --- |  |  | - | ----- | 
|                           |  |      | Year
Ended December 31,
|(in
thousands)             |  | 2002 |                         | 2001 |  | 2000
|                           |  |      |                         |      |  |     
|Cost
of revenues:          |  |      |                         |      |  |      |     |  |  |   |       | 
|Web
Properties             |  | $    | 5                       |      |  | $    | 21  |  |  | $ | 45    | 
|Jeeves
Solutions           |  |      | 5                       |      |  |      | 21  |  |  |   | 46    | 
|Product
development        |  |      | 15                      |      |  |      | 413 |  |  |   | 704   | 
|Sales
and marketing        |  |      | 41                      |      |  |      | 158 |  |  |   | 335   | 
|General
and administrative |  |      | 24                      |      |  |      | 93  |  |  |   | 1,866 | 
|                           |  |      |                         |      |  |      |     |  |  |   |       | 
|Total                      |  | $    | 90                      |      |  | $    | 706 |  |  | $ | 2,996 | 
|                           |  |      |                         |      |  |      |     |  |  |   |       | 

10. RESTRUCTURING AND ASSET IMPAIRMENT

In December 2000, the Companys Board of Directors approved a realignment of
the business organization in an effort to streamline operations, increase
revenues, reduce costs and bring staffing in line with our current and
anticipated requirements. As part of the restructuring program, the Company
implemented a reduction in force of approximately 152 positions. The reductions
came from all areas of the Company and, as of December 31, 2000, all of the
affected employees had been notified and the majority of these terminations
were completed. As part of the restructuring, the Company determined that the
operations of the Evergreen Project, Inc, which was acquired in January 2000,
no longer fit the Companys strategic objectives and were terminated. The
Company incurred a charge of approximately $13.5 million in the fourth quarter
of the year ended December 31, 2000 relating to the restructuring. This charge
included $2.2 million related to costs associated with employee terminations,
which included severance pay and medical and other benefits plus legal and
accounting costs. The charge also included approximately $8.0 million in
estimated facility exit costs and $3.3 million in non-cash asset write-downs.
The facility exit costs were associated with the consolidations of various
facilities in California and Missouri. Non-cash asset write-downs related to
the termination of the Evergreen operation of approximately $3.1 million of
goodwill and $200,000 of equipment. In the year ended December 31, 2001, the
Company reported charges of approximately $11.8 million, which included
approximately $11.3 million related to facility consolidations in California,
as a result of unsuccessful attempts to sublease in a rapidly deteriorating
market which led to the Companys decision to terminate a significant lease
obligation for a termination fee. In addition, the charge included additional
severance pay and medical and other benefits of approximately $400,000 and an
asset write-off related to the termination of the Evergreen operation of
approximately $100,000. The Company completed the restructuring program during
the fourth quarter of the year ended December 31, 2001.

In April 2001, the Company implemented an additional restructuring program,
approved by its Board of Directors, which included a reduction in force of
approximately 73 employees. The reductions came from all areas of the Company
and, as of April 30, 2001, all of the affected employees had been notified and
the majority of these terminations were completed. In the year ended December
31, 2001, the Company reported charges of $2.7 million, which included
approximately $1.7 million related to costs associated with employee
terminations, which included severance pay and medical and other benefits plus
accounting and legal costs; approximately $500,000 related to the termination
of a marketing agreement; and $500,000 in estimated facility exit costs
associated with the consolidation of facilities in New York. The Company
completed this restructuring program and such costs were included in the fourth
quarter of the year ended December 31, 2001.

In September 2001, the Companys Board of Directors approved a further
restructuring program aimed at streamlining its underlying cost structure to
better position the Company for growth and improved operating results. As part
of the restructuring program, the Company implemented a reduction in force of
approximately 43 positions over the third and fourth quarters of the year ended
December 31, 2001. The reductions came from all areas of the Company and, as of
December 31, 2001, the employees had been notified and the majority of these
terminations were completed. In the year ended December 31, 2001, the Company
incurred a charge of approximately $3.6 million, which included a charge of (1)
approximately $2.0 million in estimated facility exit costs associated with the
consolidation of facilities in Emeryville, California, (2) $800,000 related to
costs associated with employee terminations, which included severance pay and
medical and other benefits plus accounting and legal costs, and (3) termination
of a marketing agreement of approximately $800,000. The Company completed this
restructuring program and such costs were included in the fourth quarter of the
year ended December 31, 2001.

In the year ended December 31,
2002, the Company incurred additional restructuring
charges of approximately $2.5 million relating to workforce reductions and
facilities exit costs. During the second and third quarters, the
Company implemented
workforce reductions totaling approximately 102 positions and resulting in
charges of $1.4 million for severance pay

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and medical and other benefits.
Additionally, in the fourth quarter, the Company
revised its assumptions relating to its ability to sublease vacated facilities,
resulting in facilities exit charges totaling $1.1 million.

The following table sets forth the restructuring activity during the years
ended December 31, 2002, 2001 and 2000 (in thousands).

|                                |  |               |        |               |  |      |       |            |  |              |         |   |  |   |   |               |  |   |       | 
|------------------------------- |  | ------------- | ------ | ------------- |  | ---- | ----- | ---------- |  | ------------ | ------- | - |  | - | - | ------------- |  | - | ----- | 
|                                |  | Restructuring |        |               |  |      |       |            |  |              |         |   |  |   |   | Restructuring
|                                |  | Accrued       |        |               |  |      |       |            |  |              |         |   |  |   |   | Accrued      
|2002 Charged to restructuring   |  | Costs at      |        |               |  |      |       |            |  |              |         |   |  |   |   | Costs at     
|expense:                        |  | January 1,    |        | Restructuring |  | Cash |       | Asset      |  | December 31,
|                                |  | 2002          |        | Charges       |  | Paid |       | Write-offs |  | 2002        
|                                |  |               |        |               |  |      |       |            |  |             
|Facility exit costs             |  | $             | 18,119 |               |  | $    | 1,098 |            |  | $            | (17,334 | ) |  | $ |  |               |  | $ | 1,883 | 
|Asset write-downs               |  |               |       |               |  |      |      |            |  |              |        |   |  |   |  |               |  |   |      | 
|Marketing contract
terminations |  |               |       |               |  |      |      |            |  |              |        |   |  |   |  |               |  |   |      | 
|Severance and
professional fees |  |               | 310    |               |  |      | 1,372 |            |  |              | (1,658  | ) |  |   |  |               |  |   | 24    | 
|                                |  |               |        |               |  |      |       |            |  |              |         |   |  |   |   |               |  |   |       | 
|Total                           |  | $             | 18,429 |               |  | $    | 2,470 |            |  | $            | (18,992 | ) |  | $ |  |               |  | $ | 1,907 | 
|                                |  |               |        |               |  |      |       |            |  |              |         |   |  |   |   |               |  |   |       | 

|                                |  |               |       |               |  |      |        |            |  |              |        |               |  |   |      |          |  |   |        | 
|------------------------------- |  | ------------- | ----- | ------------- |  | ---- | ------ | ---------- |  | ------------ | ------ | ------------- |  | - | ---- | -------- |  | - | ------ | 
|                                |  | Restructuring |       |               |  |      |        |            |  |              |        | Restructuring
|                                |  | Accrued       |       |               |  |      |        |            |  |              |        |               |  |   |      | Accrued 
|2001 Charged to restructuring   |  | Costs at      |       |               |  |      |        |            |  |              |        |               |  |   |      | Costs at
|expense:                        |  | January 1,    |       | Restructuring |  | Cash |        | Asset      |  | December 31,
|                                |  | 2001          |       | Charges       |  | Paid |        | Write-offs |  | 2001        
|                                |  |               |       |               |  |      |        |            |  |             
|Facility exit costs             |  | $             | 7,984 |               |  | $    | 13,802 |            |  | $            | (3,319 | )             |  | $ | (348 | )        |  | $ | 18,119 | 
|Asset write-downs               |  |               |      |               |  |      | 100    |            |  |              |       |               |  |   | (100 | )        |  |   |       | 
|Marketing contract
terminations |  |               |      |               |  |      | 1,318  |            |  |              | (1,318 | )             |  |   |     |          |  |   |       | 
|Severance and
professional fees |  |               | 1,148 |               |  |      | 2,907  |            |  |              | (3,745 | )             |  |   |     |          |  |   | 310    | 
|                                |  |               |       |               |  |      |        |            |  |              |        |               |  |   |      |          |  |   |        | 
|Total                           |  | $             | 9,132 |               |  | $    | 18,127 |            |  | $            | (8,382 | )             |  | $ | (448 | )        |  | $ | 18,429 | 
|                                |  |               |       |               |  |      |        |            |  |              |        |               |  |   |      |          |  |   |        | 

|                                |  |               |   |               |  |      |        |            |  |              |        |               |  |   |        |          |  |   |       | 
|------------------------------- |  | ------------- | - | ------------- |  | ---- | ------ | ---------- |  | ------------ | ------ | ------------- |  | - | ------ | -------- |  | - | ----- | 
|                                |  | Restructuring |   |               |  |      |        |            |  |              |        | Restructuring
|                                |  | Accrued       |   |               |  |      |        |            |  |              |        |               |  |   |        | Accrued 
|2000 Charged to restructuring   |  | Costs at      |   |               |  |      |        |            |  |              |        |               |  |   |        | Costs at
|expense:                        |  | January 1,    |   | Restructuring |  | Cash |        | Asset      |  | December 31,
|                                |  | 2000          |   | Charges       |  | Paid |        | Write-offs |  | 2000        
|                                |  |               |   |               |  |      |        |            |  |             
|Facility exit costs             |  | $             |  |               |  | $    | 7,984  |            |  | $            |       |               |  | $ |       |          |  | $ | 7,984 | 
|Asset write-downs               |  |               |  |               |  |      | 3,279  |            |  |              |       |               |  |   | (3,279 | )        |  |   |      | 
|Marketing contract
terminations |  |               |  |               |  |      |       |            |  |              |       |               |  |   |       |          |  |   |      | 
|Severance and
professional fees |  |               |  |               |  |      | 2,203  |            |  |              | (1,055 | )             |  |   |       |          |  |   | 1,148 | 
|                                |  |               |   |               |  |      |        |            |  |              |        |               |  |   |        |          |  |   |       | 
|Total                           |  | $             |  |               |  | $    | 13,466 |            |  | $            | (1,055 | )             |  | $ | (3,279 | )        |  | $ | 9,132 | 
|                                |  |               |   |               |  |      |        |            |  |              |        |               |  |   |        |          |  |   |       | 

The Company also recorded write-downs to estimated fair value of non-marketable
investments in privately held companies that were deemed to have had other than
temporary declines in value below their carrying value totaling $264,000, and
$4.3 million for the years ended December 31, 2001 and 2000 respectively.
There were no similar write-downs for the year ending December 31, 2002.

11. EMPLOYEE BENEFIT PLANS

Defined Contribution Plan

Effective January 1, 1999, the Company adopted a defined contribution
retirement plan under Section 401(k) of the Internal Revenue Code, which covers
substantially all employees. Eligible employees may contribute amounts to the
plan, via payroll withholding, subject to certain limitations. The Company does
not match contributions by plan participants.

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12. RELATED PARTY TRANSACTIONS

During the years ended December 31, 2001 and 2000, the Company provided loans
to shareholders, who are also officers, totaling $200,000 and $3,171,000
respectively. The loan made during 2001 was repaid prior to December 31, 2001.
All remaining amounts outstanding were settled in 2002. During the years ended
December 31, 2001 and 2000, a charge to general and administrative expense of
$159,000 and $1,945,000 respectively, was recorded to adjust the carrying value
of the notes to the fair value of the underlying collateral and to reflect
certain other adjustments with respect to such notes. During the year ended
December 31, 2002, in connection with the note settlements the Company recorded
recoveries of amounts previously charged-off totaling approximately $64,000.

13. LEGAL PROCEEDINGS

From time to time, the Company is subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
patents, trademarks, copyrights and other intellectual property rights, and a
variety of claims arising in connection with the services, such as claims
alleging defamation or invasion of privacy.

On October 25, 2001, a putative class action lawsuit captioned Leonard Turroff,
et al. vs Ask Jeeves, Inc., et al. was filed against the Company and
two of the Companys officers and directors (collectively the Individual Defendants) in the United
States District Court for the Southern District of New York. Also named as
defendants were Morgan Stanley & Co., Inc., FleetBoston Robertson Stephens,
Goldman Sachs & Co., U.S. Bancorp Piper Jaffray, and Dain Rauscher, Inc., the
underwriters of the Companys initial public offering. The complaint alleges
violations of Section 11 of the Securities Act of 1933 against all defendants,
and violations of Section 15 of the Securities Act against the Individual
Defendants in connection with the Companys initial public offering (IPO). An
amended complaint was filed on December 6, 2001, which includes the same
allegations in connection with Ask Jeeves secondary offering in March 2000.
The complaints seek unspecified damages on behalf of a purported class of
purchasers of common stock between June 30, 1999 and
December 6, 2000. The Company believes the claims are without
merit and intends to defend the actions vigorously.

In May 2, 2002, a stockholder
derivative lawsuit was filed in the Superior Court of California,
County of Alameda, titled Brenner v. Strauch et al. The lawsuit
purported to be filed on behalf of the Company, asserting claims
against the officers and directors at the time of the Companys
IPO. Also named as defendants were Morgan Stanley & Co.,
Inc., and FleetBoston Robertson Stephens, the underwriters of the
Companys IPO. The complaint alleged breach of fiduciary duty,
negligence, an unjust enrichment of the named officers and directors,
for acquiescing and/or conspiring with the underwriter defendants in
underpricing the IPO. Upon Defendants motion, the lawsuit was
transferred to the U.S. District Court in Northern California. On
October 31, 2002, the Court dismissed the lawsuit, with
prejudice. The plaintiff has appealed and the case has been
consolidated with similar derivative actions. Appellate briefing will
occur from late March to early May 2003.

In managements opinion, resolution of these matters is not expected to have a material adverse
 impact on the Companys results of operation, cash flows or financial position. However, depending on the amount and timing, an unfavorable
 resolution of these matters could materially and adversely affect the Companys future results of operations, cash flows or financial position
in a future period.

14. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

For internal management reporting purposes, the Company is divided into two
business divisions, Web Properties and Jeeves Solutions. Results of operations
for these business divisions, as provided to the Companys Chief Executive
Officer (CEO) who is the Chief Operating Decision Maker, include revenues, cost
of revenues, gross profit (loss) and operating loss information. Prior to
2001, information as to operating expenses and operating loss was not
provided by business segment. Summarized financial information by segment for
2002, 2001 and 2000, as reported to the CEO is as follows (in thousands):

|                                        |  |                |        |                  |  |       |         |       |  |   |        |   |  |   |         |  
|--------------------------------------- |  | -------------- | ------ | ---------------- |  | ----- | ------- | ----- |  | - | ------ | - |  | - | ------- | -
|Year ended:                             |  | Web Properties |        | Jeeves Solutions |  | Other |         | Total
|                                        |  |                |        |                  |  |       |         |      
|December 31, 2002                       |  |                |        |                  |  |       |         |       |  |  
|Revenues                                |  | $              | 58,763 |                  |  | $     | 15,373  |       |  | $ |       |   |  | $ | 74,136  |  
|Cost of revenues                        |  |                | 16,281 |                  |  |       | 6,089   |       |  |   |       |   |  |   | 22,370  |  
|                                        |  |                |        |                  |  |       |         |       |  |   |        |   |  |   |         |  
|Gross profit                            |  | $              | 42,482 |                  |  | $     | 9,284   |       |  | $ |       |   |  | $ | 51,766  |  
|Segment loss from operations            |  | $              | (1,371 | )                |  | $     | (14,675 | )     |  | $ |       |   |  | $ | (16,046 | )
|Unallocated corporate operating expense |  |                |        |                  |  |       |         |       |  |   | (7,337 | ) |  |   | (7,337  | )
|                                        |  |                |        |                  |  |       |         |       |  |   |        |   |  |   |         |  
|Total operating loss                    |  |                |        |                  |  |       |         |       |  |   |        |   |  | $ | (23,383 | )
|                                        |  |                |        |                  |  |       |         |       |  |   |        |   |  |   |         |  

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|                                        |  |                |         |                  |  |       |         |       |  |   |          |   |  |   |          |  
|--------------------------------------- |  | -------------- | ------- | ---------------- |  | ----- | ------- | ----- |  | - | -------- | - |  | - | -------- | -
|Year ended:                             |  | Web Properties |         | Jeeves Solutions |  | Other |         | Total
|                                        |  |                |         |                  |  |       |         |      
|December 31, 2001                       |  |                |         |                  |  |       |         |       |  |  
|Revenues                                |  | $              | 32,154  |                  |  | $     | 34,397  |       |  | $ |         |   |  | $ | 66,551   |  
|Cost of revenues                        |  |                | 14,648  |                  |  |       | 13,025  |       |  |   |         |   |  |   | 27,673   |  
|                                        |  |                |         |                  |  |       |         |       |  |   |          |   |  |   |          |  
|Gross profit                            |  | $              | 17,506  |                  |  | $     | 21,372  |       |  | $ |         |   |  | $ | 38,878   |  
|Segment loss from operations            |  | $              | (26,884 | )                |  | $     | (10,898 | )     |  | $ |         |   |  | $ | (37,782  | )
|Unallocated corporate operating expense |  |                |         |                  |  |       |         |       |  |   | (404,053 | ) |  |   | (404,053 | )
|                                        |  |                |         |                  |  |       |         |       |  |   |          |   |  |   |          |  
|Total operating loss                    |  |                |         |                  |  |       |         |       |  |   |          |   |  | $ | (441,835 | )
|                                        |  |                |         |                  |  |       |         |       |  |   |          |   |  |   |          |  

|                  |  |                |        |                  |  |       |        |       |  |   |   |  |  |   |        | 
|----------------- |  | -------------- | ------ | ---------------- |  | ----- | ------ | ----- |  | - | - |  |  | - | ------ | 
|Year ended:       |  | Web Properties |        | Jeeves Solutions |  | Other |        | Total
|                  |  |                |        |                  |  |       |        |      
|December 31, 2000 |  |                |        |                  |  |       |        |       |  |  
|Revenues          |  | $              | 58,397 |                  |  | $     | 37,303 |       |  | $ |  |  |  | $ | 95,700 | 
|Cost of revenues  |  |                | 19,166 |                  |  |       | 20,103 |       |  |   |  |  |  |   | 39,269 | 
|                  |  |                |        |                  |  |       |        |       |  |   |   |  |  |   |        | 
|Gross profit      |  | $              | 39,231 |                  |  | $     | 17.200 |       |  | $ |  |  |  | $ | 56,431 | 

The Company provides its search technologies internationally directly and
through its joint venture. Attribution of revenues by geographic region is
based on the country in which the customer is domiciled. Geographic information
on revenue is as follows (in thousands):

|                        |                     |       |   |        |        |      |   |        |        |  |   |        |        | 
|----------------------- | ------------------- | ----- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|Year Ended December 31, |                     |       |   | 2002   |        | 2001 |   | 2000  
|                        |                     |       |   |        |        |     
|Revenues:               |                     |       |   |        |        |      |   |        |        |  |   |       
|                        | North America       |       | $ | 51,358 |        |      | $ | 50,311 |        |  | $ | 83,680 |       
|                        | United Kingdom      |       |   | 18,090 |        |      |   | 11,275 |        |  |   | 9,040  |       
|                        | Other international |       |   | 4,688  |        |      |   | 4,965  |        |  |   | 2,980  |       
|                        |                     |       |   |        |        |      |   |        |        |  |   |       
|                        |                     | Total |   | $      | 74,136 |      |   | $      | 66,551 |  |   | $      | 95,700 | 
|                        |                     |       |   |        |        |      |   |        |        |  |   |       

Included in revenue are amounts from
related parties of $6,189,000, $18,991,000 and $12,308,000 for the years ended
December 31, 2002, 2001, and 2000, respectively.

15. NET LOSS PER SHARE

The following table sets forth the computation of net loss per share (in
thousands, except share and per share data):

|                                                         |                                                                                     |   |                         |            |      |   |          |            |   |   |          |            |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------- | - | ----------------------- | ---------- | ---- | - | -------- | ---------- | - | - | -------- | ---------- | -
|                                                         |                                                                                     |   | Year Ended December 31,
|                                                         |                                                                                     |   |                        
|                                                         |                                                                                     |   | 2002                    |            | 2001 |   | 2000    
|                                                         |                                                                                     |   |                         |            |      |   |         
|Basic and diluted net loss per share
Numerator: Net loss |                                                                                     | $ | (21,303                 | )          |      | $ | (425,258 | )          |   | $ | (189,606 | )         
|                                                         | Denominator: Weighted-average
shares common stock outstanding                       |   |                         | 40,745,809 |      |   |          | 37,201,298 |   |   |          | 35,242,370 |  
|                                                         | Less: weighted average shares
common stock subject to repurchase                    |   |                         | (47,672    | )    |   |          | (168,365   | ) |   |          | (843,170   | )
|                                                         | Weighted-average shares used in
calculation of basic and diluted
net loss per share |   |                         | 40,698,137 |      |   |          | 37,032,933 |   |   |          | 34,399,200 |  
|                                                         | Basic and diluted net loss per share                                                |   | $                       | (0.52      | )    |   | $        | (11.48     | ) |   | $        | (5.51      | )

If the Company had reported net income, the calculation of historical diluted
earnings per share would have included an additional 1,480,922, 1,408,338 and
4,812,380 common equivalent shares related to the outstanding stock options and
warrants not included above (determined using the treasury stock method) for
the years ended December 31, 2002, 2001 and 2000, respectively. For the years
ended December 31, 2002, 2001 and 2000, a total of 4,597,853, 6,291,056 and
1,286,697 common equivalent shares related to outstanding stock options and
warrants (determined using the treasury

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##### Table of Contents

stock method) have been excluded from
the calculation of historical diluted earnings per share as their respective
exercise prices were more than the average market value for the respective
periods.

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

|                                    |  |             |        |              |  |                    |        |          |  |   |        |   |  |   |         |  
|----------------------------------- |  | ----------- | ------ | ------------ |  | ------------------ | ------ | -------- |  | - | ------ | - |  | - | ------- | -
|                                    |  |             |        |              |  | Three Months Ended |        |          |  |  
|                                    |  |             |        |              |  |                    |        |          |  |  
|2002 (in thousands)                 |  | December 31 |        | September 30 |  | June 30            |        | March 31
|                                    |  |             |        |              |  |                    |        |         
|Revenue                             |  | $           | 22,682 |              |  | $                  | 17,804 |          |  | $ | 17,573 |   |  | $ | 16,077  |  
|Gross profit                        |  | $           | 17,515 |              |  | $                  | 12,114 |          |  | $ | 11,846 |   |  | $ | 10,291  |  
|Operating income (loss)             |  | $           | 1,708  |              |  | $                  | (4,618 | )        |  | $ | (8,621 | ) |  | $ | (11,852 | )
|Net income (loss)                   |  | $           | 2,005  |              |  | $                  | (4,370 | )        |  | $ | (8,499 | ) |  | $ | (10,439 | )
|Net income (loss) per sharebasic   |  | $           | 0.05   |              |  | $                  | (0.11  | )        |  | $ | (0.21  | ) |  | $ | (0.26   | )
|Net income (loss) per sharediluted |  | $           | 0.05   |              |  | $                  | (0.11  | )        |  | $ | (0.21  | ) |  | $ | (0.26   | )

|                                    |  |             |         |              |  |                    |         |          |  |   |         |   |  |   |          |  
|----------------------------------- |  | ----------- | ------- | ------------ |  | ------------------ | ------- | -------- |  | - | ------- | - |  | - | -------- | -
|                                    |  |             |         |              |  | Three Months Ended |         |          |  |  
|                                    |  |             |         |              |  |                    |         |          |  |  
|2001 (in thousands)                 |  | December 31 |         | September 30 |  | June 30            |         | March 31
|                                    |  |             |         |              |  |                    |         |         
|Revenue                             |  | $           | 15,362  |              |  | $                  | 15,433  |          |  | $ | 16,673  |   |  | $ | 19,083   |  
|Gross profit                        |  | $           | 10,750  |              |  | $                  | 9,482   |          |  | $ | 8,110   |   |  | $ | 10,536   |  
|Operating income (loss)             |  | $           | (12,612 | )            |  | $                  | (27,717 | )        |  | $ | (21,945 | ) |  | $ | (379,561 | )
|Net income (loss)                   |  | $           | 1,354   |              |  | $                  | (27,466 | )        |  | $ | (20,936 | ) |  | $ | (378,210 | )
|Net income (loss) per sharebasic   |  | $           | 0.03    |              |  | $                  | (0.74   | )        |  | $ | (0.58   | ) |  | $ | (10.55   | )
|Net income (loss) per sharediluted |  | $           | 0.03    |              |  | $                  | (0.74   | )        |  | $ | (0.58   | ) |  | $ | (10.55   | )

See Notes 2, 5 and 10 for non-recurring quarterly items.




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

None.




PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instructions
G(3) to Form 10-K, the description of directors of Ask
Jeeves, as well as other information required
by this item is incorporated by reference from the information contained in our
definitive Proxy Statement for our 2003 Annual Meeting of Stockholders to be
filed with the SEC within 120 days of the end of our fiscal year ended December
31, 2002.

The executive officers and certain key employees of Ask Jeeves and their ages
as of March 4, 2002 are as follows:

|                        |  |     |    |          |  |                                                
|----------------------- |  | --- | -- | -------- |  | -----------------------------------------------
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|A. George (Skip) Battle |  |     | 59 |          |  | Chief Executive Officer and Director           
|Steven J. Sordello      |  |     | 33 |          |  | Chief Financial Officer                        
|Scott T. Bauer          |  |     | 33 |          |  | Vice President and Corporate Controller        
|Steven Berkowitz        |  |     | 44 |          |  | President, Web Properties                      
|Adrian Cox              |  |     | 44 |          |  | Chief Executive
Officer, Ask Jeeves UK Division
|Claudio Pinkus          |  |     | 46 |          |  | Chief Strategy Officer                         
|Brett M. Robertson      |  |     | 42 |          |  | General Counsel                                
|Heather J. Staples      |  |     | 31 |          |  | Chief Marketing Officer                        

A. George (Skip) Battle was
appointed Chief Executive Officer in December 2000 and was appointed
interim President of Jeeves Solutions effective July 2002.
Mr. Battle has served as a director of Ask Jeeves since August 1998 and
currently serves on the compensation committee. Mr. Battle retired from
Andersen Consulting in June 1995. Mr. Battle joined the firm in 1968, became a
partner in 1978 and held a series of management positions in the firm including
Worldwide Managing Partner Market Development and a member of the firms
Executive

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Committee, Global Management Council and Partner Income Committee.
Mr. Battle is a member of the Boards of Directors of PeopleSoft, Inc., Barra
Inc. and Fair, Isaac and Company, Incorporated as well as a director of Masters
Select Equity Fund, Masters Select Value and Masters Select International Fund,
registered investment companies.

Steven J. Sordello has served as Chief Financial Officer of Ask Jeeves since
April 2001 and acting Chief Financial Officer from December 2000 to
April 2001. Mr. Sordello joined Ask Jeeves in June of 1999 and served as
Director, Financial Planning and Analysis from June of 1999 until April 2000,
when he was promoted to Vice-President-Financial Planning Analysis. From April
1994 to June 1999, Mr. Sordello served as Senior Director of Financial Planning
for Adobe, Inc., a software company.

Scott Bauer has served as Vice President and Corporate Controller since August
2002. Mr. Bauer joined Ask Jeeves in March 2000 and served as Director of
Treasury and Strategic Transactions. From July 1999 until March 2000, Mr.
Bauer served as a Principal for Barclays Global Investors, an asset management
firm. Prior to Barclays Global Investors, Mr. Bauer served in various
positions, most recently as a manager in the Financial Markets Group, with
Arthur Andersen LLP, a professional services firm, from July 1993 to July 1999.

Steven Berkowitz has served as President of Web Properties since May 2001. From
1999 to 2001, Mr. Berkowitz was President and CEO of Intermap Systems, an
application service provider focused on online consumer healthcare information
systems. From 1994 to 1999, Mr. Berkowitz served as President and Chief
Operating Officer of IDG Books, a publishing company.

Adrian Cox has served as Chief
Executive Officer, Ask Jeeves UK Division since February 2002 when we
acquired full ownership of Ask Jeeves UK and integrated our previous
joint venture into our Web Properties division. Prior to such time,
Adrian served as CEO of the Ask Jeeves UK joint venture since October
2001. Mr. Cox had joined the joint venture in March 2000,
initially serving as Vice President of Marketing until he was
promoted to Senior Vice President Commercial in December 2000. From
February 1994 to February 2000, Mr. Cox served as Divisional
Manager and Marketing Director of St. Ivel Group, a manufacturer of
chilled food items.

Claudio Pinkus has served as Chief
Strategy Officer since July 2002. Prior
to such time, he served as President of Jeeves Solutions from December 2000.
From June 1999 to December 2000, Mr. Pinkus served as Chief Operating Officer
of Ask Jeeves International. Prior thereto, Mr. Pinkus served as CEO of Bowne
Global Solutions, a provider of localization services, from November 1996
through June of 1999. Prior thereto, Mr. Pinkus founded IDOC, Inc., a
localization company, where he served as CEO from 1985 until November of 1996
when it was acquired by Bowne.

Brett M. Robertson has served as General Counsel since December 2002. From June
1999 to May 2001, she served as General Counsel and Vice President of Strategic
Development of Critical Path, Inc., an Internet infrastructure company. From
July 1998 to December 1998, Ms. Robertson served as General Counsel of
Broderbund Software, a consumer software company. From August 1994 to July
1998, Ms. Robertson served as Associate General Counsel of Broderbund Software.

Heather J. Staples has served as Chief Marketing Officer of Ask Jeeves since
November 2002. Ms. Staples joined Ask Jeeves in March 1999 and served as
Vice President of Corporate Communications from March 1999 to August 2001, at which time she was promoted to Vice President of Marketing. From
October 1995 to March 1999, Ms. Staples served as Senior Account Manager for
Copithorne & Bellows, a high-technology public relations firm that has since
been acquired by Porter Novelli.




ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
information set forth in the section entitled Executive Compensation
contained in our definitive Proxy Statement for our 2003 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days of the end of our fiscal year ended December 31, 2002.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Ask Jeeves incorporates by reference the information set forth
under the caption Security Ownership of Certain Beneficial
Owners and Management contained in our definitive Proxy
Statement to be filed for our 2003 Annual Meeting of
Stockholders to be filed with the Securities and Exchange
Commission within 120 days of the end of our fiscal year
ended December 31, 2002.

Securities Authorized for Issuance under Equity Compensation
Plans

The following table presents summary information about our
equity compensation plans, including our five stock option plans
(two of which were assumed through acquisition), our employee
stock purchase plan and any individual stock option arrangements
not arising under any plan. We submitted some of our stock
option plans for stockholder approval (which is required, for
example, in order to provide tax-favored incentive stock
options under the plans), while other plans were adopted
without stockholder approval, as allowed by the rules of the SEC
and the Nasdaq National Market. The table presents the following
data on plans approved by stockholders and plans not so
approved, all as of the close of business on December 31,
2002 (treating all employee stock purchase plan transactions
occurring on such date on an as-settled basis):



| |     |                                                                                             
| | --- | --------------------------------------------------------------------------------------------
| | (a) | the aggregate number of shares of our common stock subject to
    outstanding stock options;
|
| | (b) | the weighted-average exercise price of those outstanding stock
    options; and             
|
| | (c) | the number of shares that remain available for future option
    grants.                    

For additional information regarding our stock option plans and
the accounting effects of our stock-based compensation, please
see Notes 1 and 9 of our Notes to Financial Statements.









Equity Compensation Plan Information

|                                                            |  |                            |            |                   |  |                        |       |  |  |  |           | 
|----------------------------------------------------------- |  | -------------------------- | ---------- | ----------------- |  | ---------------------- | ----- |  |  |  | --------- | 
|                                                            |  | (a)                        |            | (b)               |  | (c)                   
|                                                            |  |                            |            |                   |  |                       
|                                                            |  | Number of                  |            | Weighted-average  |  | Number of common      
|                                                            |  | common shares to           |            | exercise price of |  | shares available for  
|Plan                                                        |  | be issued upon exercise of |            | outstanding       |  | future issuance       
|Category                                                    |  | outstanding options        |            | options           |  | (excluding column (a))
|                                                            |  |                            |            |                   |  |                       
|Equity compensation plans approved by stock
    holders     |  |                            | 4,949,438  |                   |  |                        | $4.03 |  |  |  | 5,988,617 | 
|Equity compensation plans not approved by stock
    holders |  |                            | 5,552,096  |                   |  |                        | $9.11 |  |  |  | 1,466,699 | 
|                                                           
|                                                            |  |                            |            |                   |  |                       
|Totals                                                      |  |                            | 10,501,534 |                   |  |                        | $6.72 |  |  |  | 7,455,316 | 
|                                                            |  |                            |            |                   |  |                        |       |  |  |  |           | 

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
information set forth in the sections entitled Certain Relationships and
Related Transactions and Executive Compensation contained in our definitive
Proxy Statement for our 2003 Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days of the end of our fiscal
year ended December 31, 2002.




ITEM 14. CONTROLS AND PROCEDURES

Disclosure Controls

Within the 90 days preceding the filing of this report, an evaluation was
performed regarding the effectiveness of the design and operation of our
disclosure controls and procedures. The evaluation was conducted under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of the date of the
evaluation. There have been no significant changes in the Companys internal
controls subsequent to December 31, 2002.




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|    |  |  |  |     |  |                                                                                            
|--- |  |  |  | --- |  | -------------------------------------------------------------------------------------------
|(a) |  |  |  | (1) |  | Financial Statements.The following are filed as part of Item 8 of this Report on Form 10-K:



| | Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders Equity
Consolidated Statements of Cash Flow
Notes of Consolidated Financial Statements
Report of Ernst & Young, LLP, Independent Auditors
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Financial Schedules. The financial statement schedule
Schedule II Valuation and Qualifying Accounts is filed as part of
this report and should be read in conjunction with the consolidated
financial statements. All other schedules for which provision is
made in the applicable accounting regulation of the Securities and
Exchange Commission have been omitted because the information
required to be set forth therein is not applicable or is shown in
the Financial Statements or notes thereto.



|(b) |  | Reports On Form 8-K. During the fourth quarter of 2002, we furnished the
following current report on Form 8-K:
|--- |  | --------------------------------------------------------------------------------------------------------------

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Current Report dated November 8, 2002 announcing (under Item
9) that certifications from Ask Jeeves Chief Executive Officer, A.
George (Skip) Battle, and Chief Financial Officer, Steven J.
Sordello, accompanied the filing of our 10-Q for the quarter ended
September 30, 2002 pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. A copy of each certification was included as an Exhibit.



|(c) |  | Exhibits. The exhibits listed on the Exhibit Index (following the
Signatures and Certifications sections of this report) are included, or
incorporated by reference, in this annual report.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES AND POWERS OF ATTORNEY

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, in the City of
Emeryville, State of California, on March 12, 2003.

| |  |                                               
| |  | ----------------------------------------------
| |  | ASK JEEVES, INC.                              
|
| |  |                                               
|
| |  | By:      /s/ A. George Battle                 
|
| |  | A. George (Skip) BattleChief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below each severally constitutes and appoints A. George (Skip) Battle, Scott
Bauer and Brett M. Robertson in any and all capacities, to sign any and all
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that the said
attorney-in-fact, or their substitutes, may lawfully do, or cause to be done by
virtue hereof.

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

|                                                 |  |                                                                        |  |               
|------------------------------------------------ |  | ---------------------------------------------------------------------- |  | --------------
|Signature                                        |  | Title                                                                  |  | Date          
|/s/      A. George BattleA. George (Skip) Battle |  | Chief Executive Officer and Director
(Principal Executive Officer)     |  | March 12, 2003
|                                                
|/s/      Steven J. SordelloSteven J. Sordello    |  | Chief Financial Officer
(Principal Financial Officer)                  |  | March 12, 2003
|                                                
|/s/      Scott T. BauerScott T. Bauer            |  | Vice President and Corporate
Controller (Principal Accounting
Officer) |  | March 12, 2003
|                                                
|/s/      David S. CarlickDavid S. Carlick        |  | Director                                                               |  | March 12, 2003
|                                                
|/s/      Joshua GoldmanJoshua Goldman            |  | Director                                                               |  | March 12, 2003
|                                                
|/s/      Garrett GruenerGarrett Gruener          |  | Director                                                               |  | March 12, 2003
|                                                
|/s/      James KirsnerJames Kirsner              |  | Director                                                               |  | March 12, 2003
|                                                
|/s/      Roger A. StrauchRoger A. Strauch        |  | Director                                                               |  | March 12, 2003
|                                                
|/s/      Geoffrey Y. YangGeoffrey Y. Yang        |  | Director                                                               |  | March 12, 2003

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CERTIFICATION

I, A. George (Skip) Battle, certify that:



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



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



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



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



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 12, 2003

| |  |                                               
| |  | ----------------------------------------------
| |  | /s/      A.
George Battle                     
| |  | A. George (Skip) BattleChief Executive Officer

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CERTIFICATION

I, Steven J. Sordello, certify that:



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



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



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



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



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 12, 2003

| |  |                                          
| |  | -----------------------------------------
| |  | /s/      Steven
J. Sordello              
| |  | Steven J. SordelloChief Financial Officer

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ASK JEEVES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

|                              |                                 |  |            |       |                 |  |            |       |        |  |        |       |            |  |   |       | 
|----------------------------- | ------------------------------- |  | ---------- | ----- | --------------- |  | ---------- | ----- | ------ |  | ------ | ----- | ---------- |  | - | ----- | 
|                              |                                 |  | Balance at |       |                 |  |            |       |        |  |        |       | Balance at
|                              |                                 |  | Beginning  |       | Charge to Costs |  |            |       |        |  | End of
|                              |                                 |  | of Period  |       | and Expenses    |  | Deductions |       | Period
|                              |                                 |  |            |       |                 |  |            |       |       
|Year ended December 31, 2002: |                                 |  |            |       |                 |  |            |       |        |  |        |       |            |  |   |      
|                              | Allowance for doubtful accounts |  | $          | 1,813 |                 |  |            | 491   |        |  |        | 359   |            |  | $ | 1,945 | 
|Year ended December 31, 2001: |                                 |  |            |       |                 |  |            |       |        |  |        |       |            |  |   |      
|                              | Allowance for doubtful accounts |  | $          | 4,627 |                 |  |            | 2,021 |        |  |        | 4,835 |            |  | $ | 1,813 | 
|Year ended December 31, 2000: |                                 |  |            |       |                 |  |            |       |        |  |        |       |            |  |   |      
|                              | Allowance for doubtful accounts |  | $          | 1,168 |                 |  |            | 4,500 |        |  |        | 1,041 |            |  | $ | 4,627 | 

72



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EXHIBIT INDEX

Pursuant to Item 601(a)(2) of Regulation S-K, this exhibit index immediately
precedes the exhibits.

The following exhibits are included, or incorporated by reference, in this
Annual Report on Form 10-K for fiscal year 2002 (and are numbered in accordance
with Item 601 of Regulation S-K).

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |  | Plans of Acquisition, Reorganization, Arrangement, Liquidation
or Succession                                                                                                                                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.1*        |  | Agreement and Plan of Merger, dated June 29, 1999, by and between the
Registrant and AJ Merger Corporation.                                                                                                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.2         |  | Agreement and Plan of Merger and Reorganization, dated as of November 19,
1999, by and among the Registrant, Net Effect Systems, Inc. and Neutral
Acquisition Corp. (previously filed as Exhibit 2.1 to the Registrants
Current Report on Form 8-K, filed November 18, 1999, and incorporated
herein by reference).                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.3         |  | Agreement and Plan of Merger and Reorganization, dated as of January 25,
2000, by and among the Registrant, Direct Hit Technologies, Inc. and
Answer Acquisition Corp. (previously filed as Exhibit 2.1 to the
Registrants Current Report on Form 8-K, filed February 14, 2000, and
incorporated herein by reference).                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.4*        |  | Certificate of Ownership and Merger Merging Net Effects Systems, Inc. and
Direct Hit Technologies, Inc. with and into the Registrant, dated as of
December 28, 2000.                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.5         |  | Agreement and Plan of Merger and Reorganization, dated as of September
10, 2001, by and among the Registrant, Answer Acquisition Corp. No. 2, and
Teoma Technologies, Inc., and solely with respect to Article X, Hawk
Holdings, LLC, as Stockholders Agent, and Chase Manhattan Bank and Trust,
N.A., as Escrow Agent (previously filed as Exhibit 2.1 to the Registrants
Current Report on Form 8-K, filed September 17, 2001, and incorporated
herein by reference).
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |  | Charter Documents                                                                                                                                                                                                                                                                                                                                                                                                                                                        

73



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##### Table of Contents



|            |  |                                                                                                                                                                                                                                                                                                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                 
|3.1.1       |  | Certificate of Incorporation of AJ Merger Corporation (previously filed
as Exhibit 3.1 to the Registrants Form S-1, filed April 30, 1999, and
incorporated herein by reference).                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                 
|3.1.2*      |  | Amended and Restated Certificate of Incorporation of the Registrant,
dated July 6, 1999.                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                 
|3.1.3*      |  | Certificate of Correction of Amended and Restated Certificate of
Incorporation of the Registrant, dated as of April 6, 2001.                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                 
|3.1.4       |  | Certificate of Designation of Series A Junior Participating Preferred
Stock (previously filed as Exhibit 3.1 to the Registrants Current Report
on Form 8-K, filed May 10, 2001, and incorporated herein by reference).                                                                         
|            |  |                                                                                                                                                                                                                                                                                                 
|            |  | Bylaws                                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                 
|3.2         |  | Bylaws of the Registrant (previously filed as Exhibit 3.4 to the
Registrants Form S-1, filed April 30, 1999, and incorporated herein by
reference).                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                 
|            |  | Instruments Defining the Rights of Security Holders                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                 
|4.1         |  | Specimen Certificate for Registrants Common Stock (previously filed as
Exhibit 4.2 to the Registrants Amendment No. 2 to Form S-1, filed June 7,
1999, and incorporated herein by reference).                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                 
|4.2.1       |  | Rights Agreement (commonly called a poison pill plan), dated as of
April 26, 2001, between the Registrant and Fleet National Bank, N.A.
(previously filed as Exhibit 4.1 to the Registrants Current Report on
Form 8-K, filed May 10, 2001, and incorporated herein by reference).           
|            |  |                                                                                                                                                                                                                                                                                                 
|4.2.2       |  | Form of Rights Certificate (filed as Exhibit B to Rights Agreement,
dated as of April 26, 2001, between the Registrant and Fleet National
Bank, N.A., previously filed as Exhibit 4.1 to the Registrants Current
Report on Form 8-K, filed May 10, 2001, and incorporated herein by
reference).
|            |  |                                                                                                                                                                                                                                                                                                 
|            |  | Equity Compensation Plan Documents                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                 
|10.1.1.1   |  | 1996 Equity Incentive Plan (previously filed as Exhibit 10.1 to the
Registrants Form S-1, filed April 30, 1999, and incorporated herein by
reference).                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                 
|10.1.1.2   |  | Form of Option Agreement for the 1996 Equity Incentive Plan
(previously filed as Exhibit 10.2 to the Registrants Form S-1, filed
April 30, 1999, and incorporated herein by reference).                                                                                                        





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##### Table of Contents



|            |  |                                                                                                                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                               
|10.1.2.1   |  | 1999 Equity Incentive Plan, as Amended and Restated through May 25,
2000 (previously filed as Exhibit 99.1 to the Registrants Form S-8, filed
November 15, 2001, and incorporated herein by reference).                                                      
|            |  |                                                                                                                                                                                                                                                               
|10.1.2.2   |  | Form of Stock Option Grant Notice for the 1999 Equity Incentive Plan
(previously filed within Exhibit 10.4.1 to the Registrants Annual Report
on Form 10-K, filed April 2, 2001, and incorporated herein by reference).                                      
|            |  |                                                                                                                                                                                                                                                               
|10.1.2.3   |  | Form of Option Agreement for the 1999 Equity Incentive Plan, as
Amended through May 25, 2000 (previously filed as Exhibit 99.2 to the
Registrants Form S-8, filed November 15, 2001, and incorporated herein by
reference).                                  
|            |  |                                                                                                                                                                                                                                                               
|10.1.3.1   |  | 1999 Non-Qualified Equity Incentive Plan, as Amended through January
10, 2001 (previously filed as Exhibit 99.4 to the Registrants Form S-8,
filed November 15, 2001, and incorporated herein by reference).                                                 
|            |  |                                                                                                                                                                                                                                                               
|10.1.3.2   |  | Form of Option Agreement for the 1999 Non-Qualified Equity Incentive
Plan (previously filed as Exhibit 99.5 to the Registrants Form S-8, filed
November 15, 2001, and incorporated herein by reference).                                                     
|            |  |                                                                                                                                                                                                                                                               
|10.1.4     |  | 1999 Employee Stock Purchase Plan, as amended through May 25, 2000
(previously filed as Exhibit 99.3 to the Registrants Form S-8, filed
November 15, 2001, and incorporated herein by reference).                                                            
|            |  |                                                                                                                                                                                                                                                               
|            |  | Other Compensation-Related Agreements                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                               
|10.2.1.1   |  | Offer letter dated as of January 5, 1999, by and between the
Registrant and Frank A. Vaculin (previously filed as Exhibit 10.18 to the
Registrants Form S-1, filed April 30, 1999, and incorporated herein by
reference).                                    
|            |  |                                                                                                                                                                                                                                                               
|10.2.1.2   |  | Severance terms as of April 30, 2001, by and between the Registrant
and Frank A. Vaculin (previously filed as Exhibit 10.18.1 to the
Registrants Annual Report on Form 10-K, filed February 28, 2002, and
incorporated herein by reference).                 
|            |  |                                                                                                                                                                                                                                                               
|10.2.2.1   |  | Offer letter dated as of May 27, 1999, by and between the Registrant
and George S. Lichter (previously filed as Exhibit 10.29 to the
Registrants Amendment No. 2 to Form S-1, filed June 7, 1999, and
incorporated herein by reference).                     
|            |  |                                                                                                                                                                                                                                                               
|10.2.2.2   |  | Incentive Agreement, entered into as of January 2, 2001, by and
between the Registrant and George Lichter (previously filed as Exhibit
10.46.1 to the Registrants Annual Report on Form 10-K, filed February 28,
2002, and incorporated herein by reference).





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##### Table of Contents



|            |  |                                                                                                                                                                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.2.3   |  | Amendment to Incentive Agreement, dated June 18, 2001, by and between
the Registrant and George Lichter (previously filed as Exhibit 10.46.2 to
the Registrants Annual Report on Form 10-K, filed February 28, 2002, and
incorporated herein by reference).                      
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.2.4   |  | Second Amendment to Incentive Agreement, entered into as of August
30, 2001, by and between the Registrant and George Lichter (previously
filed as Exhibit 10.46.3 to the Registrants Annual Report on Form 10-K,
filed February 28, 2002, and incorporated herein by reference).
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.2.5   |  | Separation Agreement, dated February 6, 2002, made by and between
George Lichter and the Registrant (previously filed as Exhibit 10.46.4 to
the Registrants Annual Report on Form 10-K, filed February 28, 2002, and
incorporated herein by reference).                          
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.3.1   |  | Offer letter dated as of December 8, 2000, by and between the
Registrant and A. George (Skip) Battle (previously filed as Exhibit 10.40
to the Registrants Annual Report on Form 10-K, filed April 2, 2001, and
incorporated herein by reference).                               
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.3.2   |  | Offer letter of New Terms of Employment, dated April 3, 2001, by and
between the Registrant and A. George (Skip) Battle (previously filed as
Exhibit 10.41 to the Registrants Quarterly Report on Form 10-Q, filed
August 14, 2001, and incorporated herein by reference).       
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.3.3*  |  | Severance Benefit Letter Agreement, dated as of November 14, 2002,
by and between the Registrant and A. George (Skip) Battle.                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.4.1   |  | Promissory Note, dated March 15, 2001, by and between the Registrant
and Steven J. Sordello (previously filed as Exhibit 10.43 to the
Registrants Quarterly Report on Form 10-Q, filed August 14, 2001, and
incorporated herein by reference).                                   
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.4.2*  |  | Severance Benefit Letter Agreement, dated as of November 14, 2002,
by and between the Registrant and Steven J. Sordello.                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.5     |  | Severance letter dated March 28, 2001, by and between the Registrant
and Adam Klein (previously filed as Exhibit 10.39.1 to the Registrants
Annual Report on Form 10-K, filed February 28, 2002, and incorporated
herein by reference).                                          
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.6.1   |  | Offer letter dated April 23, 2001, by and between the Registrant and
Steven Berkowitz (previously filed as Exhibit 10.42 to the Registrants
Quarterly Report on Form 10-Q, filed August 14, 2001, and incorporated
herein by reference).                                         
|            |  |                                                                                                                                                                                                                                                                                   
|10.2.6.2*  |  | Severance Benefit Letter Agreement, dated as of November 14, 2002,
by and between the Registrant and Steven Berkowitz.                                                                                                                                                            





---



##### Table of Contents



|            |  |                                                                                                                                                                                                                                                                                    
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                    
|10.2.7.1   |  | Incentive Agreement, entered into as of January 2, 2001, by and
between the Registrant and Claudio Pinkus (previously filed as Exhibit
10.45.1 to the Registrants Annual Report on Form 10-K, filed February 28,
2002, and incorporated herein by reference).                     
|            |  |                                                                                                                                                                                                                                                                                    
|10.2.7.2   |  | Amendment to Incentive Agreement, dated June 18, 2001, by and between
the Registrant and Claudio Pinkus (previously filed as Exhibit 10.45.2 to
the Registrants Annual Report on Form 10-K, filed February 28, 2002, and
incorporated herein by reference).                       
|            |  |                                                                                                                                                                                                                                                                                    
|10.2.7.3   |  | Second Amendment to Incentive Agreement, entered into as of August
29, 2001, by and between the Registrant and Claudio Pinkus (previously
filed as Exhibit 10.45.3 to the Registrants Annual Report on Form 10-K,
filed February 28, 2002, and incorporated herein by reference). 
|            |  |                                                                                                                                                                                                                                                                                    
|10.2.7.4   |  | Third Amendment to Incentive Agreement, entered into as of November
17, 2001, by and between the Registrant and Claudio Pinkus (previously
filed as Exhibit 10.45.4 to the Registrants Annual Report on Form 10-K,
filed February 28, 2002, and incorporated herein by reference).
|            |  |                                                                                                                                                                                                                                                                                    
|10.2.7.5*  |  | Severance Benefit Letter Agreement, dated as of November 14, 2002,
by and between the Registrant and Claudio Pinkus.                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                    
|10.2.8     |  | Form of Indemnity Agreement by and between the Registrant and each of
its directors and executive officers (previously filed as Exhibit 10.27 to
the Registrants Amendment No. 1 to Form S-1, filed May 10, 1999, and
incorporated herein by reference).                          
|            |  |                                                                                                                                                                                                                                                                                    
|10.2.9.1*  |  | Severance Benefit Letter Agreement, dated as of December 3, 2002,
by and between the Registrant and Brett M. Robertson.                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                    
|10.2.10.1* |  | Severance Benefit Letter Agreement, dated as of November 14, 2002,
by and between the Registrant and Heather J. Staples.                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                    
|10.2.11*   |  | Separation Agreement and Mutual Release, dated as of December 23,
2002, by and between the Registrant and Cynthia Pevehouse.                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                    
|            |  | U.S. Leases                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                    
|10.3.1      |  | Office Lease dated as of April 29, 1999, by and between the Registrant
and Emery Station Associates, L.L.C. (previously filed as Exhibit 10.28 to
the Registrants Amendment No. 2 to Form S-1, filed June 7, 1999, and
incorporated herein by reference).                         
|            |  |                                                                                                                                                                                                                                                                                    
|10.3.2      |  | Master Lease Agreement dated as of June 15, 1999, by and between the
Registrant and Comdisco, Inc. (previously filed as Exhibit No. 4 to the
Registrants Amendment No. 4 to Form S-1, filed June 29, 1999, and
incorporated herein by reference).                                 





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##### Table of Contents



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.3.3      |  | Lease Amendment and Termination Agreement, made February 4, 2002, by and
between the Registrant, as Tenant, and Oakland City Center LLC, as
Landlord (previously filed as Exhibit 10.48 to the Registrants Annual
Report on Form 10-K, filed February 28, 2002, and incorporated herein by
reference).                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |  | Ask Jeeves U.K. Documents                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.4.1      |  | Agreement Relating to the Sale and Purchase of the Entire Issued Share
Capital of Carlton & Granada Internet Limited, dated as of February 7,
2002, by and among the Registrant, Carlton Communications PLC, Granada
Media Group Limited, Carlton & Granada Internet Limited, Ask Jeeves
(Jersey) Limited and Ask Jeeves International, Inc. (previously filed as
Exhibit 2.1 to the Registrants Form S-3, filed March 6, 2002, and
incorporated herein by reference).
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.4.2      |  | Further Supplemental Partnership Deed relating to Ask Jeeves UK, dated
February 14, 2002, by and among the Registrant, Carlton Communications
PLC, Granada Media Group Limited, Carlton & Granada Internet Limited, Ask
Jeeves (Jersey) Limited, Ask Jeeves International Inc. and Ask Jeeves UK
(previously filed as Exhibit 10.49 to the Registrants Quarterly Report on
Form 10-Q, filed April 30, 2002, and incorporated herein by reference).                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.4.3      |  | Tax Deed relating to the acquisition of the entire issued share capital
of Carlton & Granada Internet Limited, dated March 6, 2002, by and among
the Registrant, Carlton Communications PLC and Granada Media Group Limited
(previously filed as Exhibit 10.50 to the Registrants Quarterly Report on
Form 10-Q, filed April 30, 2002, and incorporated herein by reference).                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.4.4*     |  | Underlease, dated March 15, 2000, by and between City & General
(West End) Limited and the Ask Jeeves UK Partnership.                                                                                                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |  | Japanese Joint Venture Documents                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.5.1*    |  | Joint Venture Agreement by and between Trans Cosmos Inc. USA Pacific
Holdings Company III, and Ask Jeeves International, Inc., dated as of
August 31, 2000.                                                                                                                                                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.5.2.1*  |  | Distribution and License Agreement by and between Ask Jeeves
International, Inc., Ask Jeeves Japan Co., Ltd., the Registrant,
and Trans Cosmos, Inc., dated as of August 31, 2000.                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.5.2.2*  |  | Amendment No. 1 to the Distribution and License Agreement by and
between Ask Jeeves International, Inc. and Kabushiki Kaisha Ask Jeeves
Japan, dated as of December 1, 2000.                                                                                                                                                                                                                                                                                           





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##### Table of Contents



|            |  |                                                                                                                                                                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                   
|10.5.2.3*  |  | Amendment No. 2 to the Distribution and License Agreement by and
between Ask Jeeves International, Inc. and Kabushiki Kaisha Ask Jeeves
Japan, dated as of January 1, 2002.                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                   
|            |  | Warrants to Purchase Common Stock of the Registrant                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                   
|10.6.1      |  | Warrant to purchase 15,000 shares of Common Stock granted by the
Registrant to Antenna Group Provided, dated as of June 30, 1998
(previously filed as Exhibit 4.3 to the Registrants Amendment No. 1 to
Form S-1, filed May 10, 1999, and incorporated herein by reference).     
|            |  |                                                                                                                                                                                                                                                                                   
|10.6.2      |  | Warrant to purchase 105,000 shares of Common Stock granted by the
Registrant to Boris Katz, dated as of July 26, 2001 (previously filed as
Exhibit 4.7 to the Registrants Annual Report on Form 10-K, filed February
28, 2002, and incorporated herein by reference).            
|            |  |                                                                                                                                                                                                                                                                                   
|10.6.3      |  | Warrant to purchase 70,000 shares of Common Stock granted by the
Registrant to Patrick Winston, dated as of July 26, 2001 (previously filed
as Exhibit 4.8 to the Registrants Annual Report on Form 10-K, filed
February 28, 2002, and incorporated herein by reference).        
|            |  |                                                                                                                                                                                                                                                                                   
|            |  | Registration Rights Agreements                                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                   
|10.7.1      |  | Form of Registration Rights Agreement, between the Registrant and
Stockholders of Net Effect Systems, Inc. (previously filed as Exhibit
10.35 to the Registrants Amendment No. 1 to Form S-1, filed February 23,
2000, and incorporated herein by reference).                    
|            |  |                                                                                                                                                                                                                                                                                   
|10.7.2      |  | Registration Rights Agreement, dated September 10, 2001, by and between
the Registrant and the multiple parties listed therein (previously filed
as Exhibit 10.44 to the Registrants Current Report on Form 8-K, filed
September 17, 2001, and incorporated herein by reference).
|            |  |                                                                                                                                                                                                                                                                                   
|            |  | Miscellaneous                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                   
|10.8.1     |  | Advertising Services Agreement, dated July 17, 2002, by and between the
Registrant and Google, Inc. (previously filed as Exhibit 10.52 to the
Registrants Quarterly Report on Form 10-Q, filed August 14, 2002, and
incorporated herein by reference).                           
|            |  |                                                                                                                                                                                                                                                                                   
|10.8.2*    |  | Amendment Number One to the Advertising Services Agreement, dated
October 23, 2002, by and between the Registrant and Google, Inc.                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                   
|10.9*      |  | Agreement by and between the Registrant and The Wodehouse No. 3 Trust,
dated as of January 1, 2000.                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                   
|10.10.1*   |  | DART Service Agreement for Publishers by and between DoubleClick
Inc. and the Registrant, effective as of March 31, 1999.                                                                                                                                                        





---



##### Table of Contents



|            |  |                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                
|            |  |                                                                                                                                                            
|10.10.2*   |  | Addendum No. 1 to DART Service Agreement for Publishers by and
between DoubleClick Inc. and the Registrant, effective as of October 1,
2000.               
|            |  |                                                                                                                                                            
|10.10.3*   |  | Addendum No. 2 to DART Service Agreement for Publishers by and
between DoubleClick Inc. and the Registrant, effective as of March 30,
2001.                
|            |  |                                                                                                                                                            
|10.10.4*   |  | DFP Extension Addendum No. 3 to DART Service Agreement for Publishers
by and between DoubleClick Inc. and the Registrant, effective as of
November 1, 2002.
|            |  |                                                                                                                                                            
|21.1*       |  | Subsidiaries of the Registrant.                                                                                                                            
|            |  |                                                                                                                                                            
|23.1*       |  | Consent of Ernst & Young LLP, Independent Auditors.                                                                                                        
|            |  |                                                                                                                                                            
|24.1*       |  | Powers of Attorney. (Included in this Annual Report under the caption
Signatures and Powers of Attorney.)                                                
|            |  |                                                                                                                                                            
|99.1*       |  | Certifications under Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                        



---

|* |  | Filed herewith.                                                                                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Denotes a management contract or compensatory plan.                                                                                                          
| 
| |  | Portions of this exhibit were omitted and filed separately with the U.S.
Securities and Exchange Commission pursuant to a request for confidential
treatment.