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| |          
| | ---------
| | FORM 10-K



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| |                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | United
    States                                                                                                                                                                                                                                                                                                                                                                             
| | Securities and Exchange
    Commission                                                                                                                                                                                                                                                                                                                                                        
| | Washington, D.C. 20549                                                                                                                                                                                                                                                                                                                                                                        
|
| | For Annual and
    Transition Reports Pursuant to                                                                                                                                                                                                                                                                                                                                             
| | Section 13 or
    15(d) of the Securities Exchange Act of 1934                                                                                                                                                                                                                                                                                                                                
| | (Mark One)                                                                                                                                                                                                                                                                                                                                                                                    
| | xAnnual
    report pursuant to section 13 or 15(d) of the Securities
    Exchange Act of 1934                                                                                                                                                                                                                                                                                                 
| | For the fiscal year ended December 31,
    2003                                                                                                                                                                                                                                                                                                                                               
|
| | oTransition
    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 LOGO                                                                                                                                                                                                                                                                                                                                                                               
|
| | Ask Jeeves,
    Inc.                                                                                                                                                                                                                                                                                                                                                                          
| | (Exact name of registrant as specified in its
    charter)                                                                                                                                                                                                                                                                                                                                    
|
| | Delaware                                                                                                                                                                                                                                                                                                                                                                                      
| | (State or Other Jurisdiction of Incorporation)                                                                                                                                                                                                                                                                                                                                                
| | 5858 Horton Street, Suite 350                                                                                                                                                                                                                                                                                                                                                                 
| | Emeryville, CA 94608                                                                                                                                                                                                                                                                                                                                                                          
| | (Address of principal executive offices) (Zip
    Code)                                                                                                                                                                                                                                                                                                                                       
|
| | 94-3334199                                                                                                                                                                                                                                                                                                                                                                                    
| | (I.R.S. Employer Identification Number)                                                                                                                                                                                                                                                                                                                                                       
|
| | (510) 985-7400                                                                                                                                                                                                                                                                                                                                                                                
| | (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
    o

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.
o

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

On February 25, 2004, Ask Jeeves had
47,026,621 shares of Common Stock outstanding and an
approximate aggregate public market value of approximately
$692,065,344 million (based on 33,958,064 shares of
Common Stock held by non-affiliates and a closing price of
$20.38 per share of Common Stock on the Nasdaq National
Market). On June 30, 2003, which was the final business day
of Ask Jeeves most recently completed second fiscal
quarter, Ask Jeeves had 44,080,861 shares of Common Stock
outstanding and its public market value was approximately
$548,708,351 million (based on 40,198,414 shares of
Common Stock then held by non-affiliates and a closing price
that day of $13.65 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.)



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | DOCUMENTS INCORPORATED
    BY REFERENCE                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
|
| | Portions of Ask Jeeves definitive Proxy
    Statement to be filed with the Securities and Exchange
    Commission (the Commission) pursuant to
    Regulation 14A in connection with the 2004 Annual Meeting
    of Stockholders are incorporated by reference into Part III
    of this report. Certain exhibits previously filed by Ask Jeeves
    with the Commission are incorporated by reference into
    Part IV of this report, as listed in the
    Exhibit Index.
|
|
| | The Exhibit Index begins on page 81 of
    this Annual Report.                                                                                                                                                                                                                                                                                                                                                                                                                



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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                                          
|                                  | 18. QUARTERLY FINANCIAL DATA (UNAUDITED)                                                     
|                                  | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|                                  | ITEM 9A. CONTROLS AND PROCEDURES                                                             
|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. PRINCIPAL ACCOUNTING FEES AND SERVICES                                              
|                                  | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|Signatures and Powers of Attorney
|Exhibit Index                    
|Exhibit 3.2.2                    
|Exhibit 14.1                     
|Exhibit 23.1                     
|Exhibit 31.1                     
|Exhibit 31.2                     
|Exhibit 32.1                     



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##### Table of Contents





| |                      
| | ---------------------
| | TABLE OF
    CONTENTS

|                                                                                                      |  |  |    | 
|----------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I                                                                                                |  |  |    | 
|                                                                                                     
|Item 1. Business                                                                                      |  |  | 3  | 
|Item 2. Properties                                                                                    |  |  | 16 | 
|Item 3. Legal Proceedings                                                                             |  |  | 16 | 
|Item 4. Submission of Matters to a Vote of
    Security holders                                       |  |  | 17 | 
|PART II                                                                                               |  |  |    | 
|                                                                                                     
|Item 5. Market for Registrants Common
    Equity and Related Stockholder Matters                     |  |  | 18 | 
|Item 6. Selected Consolidated Financial Data                                                          |  |  | 19 | 
|Item 7. Managements Discussion and
    Analysis of Financial Condition and
    Results of Operations |  |  | 19 | 
|Item 7A. Quantitative and Qualitative
    Disclosures About Market Risk                               |  |  | 48 | 
|Item 8. Financial Statements and Supplementary
    Data                                               |  |  | 49 | 
|Item 9. Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure      |  |  | 77 | 
|Item 9A. Controls and Procedures                                                                      |  |  | 77 | 
|PART III                                                                                              |  |  |    | 
|                                                                                                     
|Item 10. Directors and Executive Officers of
    the Registrant                                       |  |  | 77 | 
|Item 11. Executive Compensation                                                                       |  |  | 77 | 
|Item 12. Security Ownership of Certain
    Beneficial Owners and Management                           |  |  | 77 | 
|Item 13. Certain Relationships and Related
    Transactions                                           |  |  | 77 | 
|Item 14. Principal Accounting Fees and
    Services                                                   |  |  | 78 | 
|PART IV                                                                                               |  |  |    | 
|                                                                                                     
|Item 15. Exhibits, Financial Statement
    Schedules, and Reports on Form 8-K                         |  |  | 78 | 
|Signatures and Powers of Attorney                                                                     |  |  | 79 | 
|Exhibit Index                                                                                         |  |  | 81 | 
|                                                                                                     



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PRELIMINARY NOTE
REGARDING OUR TRADEMARKS

Our registered trademarks in the U.S. include Ask
Jeeves®; the Ask! button design;
Ask.com®; the Jeeves design (a stylized
depiction of our butler logo); Teoma®; and the
Teoma design (a stylized depiction of the Teoma word
trademark) and Search with Authority® (a phrase
we use on the Teoma.comWeb 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, and
Spain. This annual report contains trademarks and trade names of
third parties.

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. 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 differences 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





Ask Jeeves
Overview

We offer advanced Internet search technology to
the public through advertiser-supported sites on the World Wide
Web (which is known as the Web). We seek to attract Web traffic
by creating a distinctive search experience that users will find
more intuitive and satisfying than other search alternatives. On
our flagship Web sites, Ask.comin the U.S. and
Ask.co.ukin the U.K., users submit their search
requests, and our proprietary algorithmic search technology,
Teoma, delivers a results list of Web pages likely to contain
relevant and authoritative answers. The results page also
displays advertiser-sponsored links to related products and
services known as paid listings.

We operate four proprietary Web sites dedicated
to search: Ask.com, Ask.co.uk, Teoma.comand
AJKids.com. We also deliver, or syndicate, our search
technology and advertising products to approximately 41
third-party Web sites as of December 31, 2003, including
portals, infomediaries, and content and destination Web sites.
We provide search results and/or advertising for those Web sites
to display in response to their users search queries. We
refer to these third-party Web sites as our syndication network.

Our focus is on increasing our Web traffic (i.e.,
the number of search queries on our proprietary Web sites) by
attracting more users and getting them to use our search
services more frequently. We generate advertising revenue every
time users click on the paid listings, or as a result of graphic
advertising and other advertising products we deliver in
response to their queries. In this way, we monetize a portion of
our Web traffic. We also earn revenue by licensing our search
technology to our Japanese joint venture and to some of the
sites in our syndication network.

Recent Events

Increased Web Traffic and
Monetization

In the fourth quarter of 2003, our proprietary
sites attracted an audience of 29.9 million unique users,
who queried approximately 7.5 million Web pages in the
aggregate per day.

Traffic, as measured by queries on our
proprietary sites, increased 38% in 2003 compared to 2002. Our
increase in queries outpaced the search market as a whole, for
which queries increased by 10% between the same periods,
according to Forrester Research. We monetized 15% of queries on
Ask.comin the fourth quarter of 2003, up from 13% in the
fourth quarter of 2002. Our increase in queries was caused by
increases in both unique users and user frequency, each of which
increased by approximately 20% in 2003 compared to 2002. In the
fourth quarter of 2003, user frequency on Ask.comaveraged 3.2 visits per month. We attribute our market share
gains to the improvements we made to our user experience, the
improvements we made to our Teoma search technology, and to our
marketing campaign. Our market shares according to research data
from ComScore Networks, represented 3.1% (as of November 2003)
of U.S. searches.






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Improvements to our User Experience and Teoma
Search Technology

In 2003 we made a number of improvements to the
search experience we deliver to users in an effort to enhance
their satisfaction and thereby increase our traffic. These
improvements include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Smart Search.Beginning in April of 2003 we began to introduce a set of
    intuitive search tools to the Ask.comresults page known
    as Smart Search. These tools are designed to help users find
    their target information more efficiently and effectively. For
    particular types of queries such as stocks and weather the Smart
    Search tools provide the information the user seeks directly on
    the results page rather than providing links to sites that
    contain the information. For example, if a user enters
    weather in New York, NY, the top of the results page
    displays a box containing the current weather conditions in New
    York and links to sites with more detailed New York weather
    information. Similarly, a search for stock quote of
    ASKJ results in a reply containing share price information
    and a daily price chart. These direct answers are
    also available for flight delay forecasts, snow conditions at
    ski resorts, zip code lookup and weights and measures
    conversions. Some of these direct answers contain data provided
    by third parties (such as weather and stock information) while
    others are generated by our Knowledge Base database. In
    addition, Smart Search presents users with a list of
    related search suggestions. For example, a search
    for Soprano might bring up Smart Search community
    links for Three Sopranos (the operatic trio),
    Marie-Adele McArther (a renowned soprano) and
    The Sopranos (a popular television series). Finally,
    our Smart Search results page also includes a link to advanced
    search tools. These tools enable users to easily formulate
    more-precise queries using specific search parameters and
    logical connectors, such as exact phrase, page location,
    geographic region, domain, date posted, and other filters.
|
| |  | Smart Product
    Search.In October of 2003 we added
    Smart Product SearchTM to Ask.com. This
    feature allows users to narrow their search results to include
    only products and services, and enables them to further refine
    their shopping queries based on where they are in their purchase
    decision. Similar to many of our other Smart Search features,
    Product Search delivers its results directly on the main results
    page, rather than requiring a user to click on a separate tab to
    get the information. Following our introduction of Smart Product
    Search, shopping related queries on Ask.com increased
    significantly compared to the year ago period. We currently
    receives the highest proportion of shopping category
    searches among the top five search engines and portals,
    according to a Fall 2003 report from @Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Improved Teoma Search
    Technology.Our proprietary Teoma
    search technology utilizes a different approach to ranking
    results from other search engines. We rank a site based on
    whether the other sites in the index linking to it are
    themselves respected within the pertinent subject-matter
    community on the Web. For example, we would rank a baseball site
    based on how many links it receives from other Web sites
    specifically geared toward baseball aficionados, placing less
    emphasis on links from general sports or portal Web sites.
    Teomas sophisticated approach tends to increase the
    authority of our search results, therefore it also increases the
    complexity of the indexing process and, as pages are added to
    our search index, the complexity increases exponentially. In
    2003 we made improvements to our Teoma technology that enabled
    us to increase the scale of our search index by 500%, from
    250 million to 1.5 billion Web pages, or URLs. A
    larger search index generally results in our being able to
    deliver more-relevant and authoritative results and thereby
    increases the likelihood that our users will find what they are
    searching for.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Ask Jeeves Tool Bar.In December of 2003 we launched version 3.0 of the Ask Jeeves
    toolbar, which may be downloaded free of charge and appears as a
    useful toolbar in the users Internet                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                




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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | browser, allowing him or her to submit a query to
    Ask.comfrom anywhere on the Internet. The toolbar
    includes a pop-up blocker and incorporates some of our Smart
    Search functionality such as buttons for weather and stocks.                                                                                                                                                                                                                                                                                                                                   
|
| |  | Cleaner Site
    Experiences.In late 2002 we removed
    all banner ads from Ask.comand we extended that decision
    to Ask.co.ukin 2003, removing untargeted banner ads. We
    believe that these types of ads clutter the screen and that by
    removing most of them from our two most popular sites, we
    ultimately gain more from increased customer satisfaction with
    the sites (and thus increased traffic) than we lose in direct
    advertising revenue. Additionally, we improved the loading speed
    of our results for dial-up users in April 2003.

Marketing Campaign

During 2003, we marketed Ask.comto the
consumer through a variety of print, radio, online and out
of home advertising media in a few test markets. These
marketing campaigns helped drive users to Ask.com. Based
on these insights, we will increase our investment in marketing
during 2004. Additionally, we marketed Ask.co.ukthrough
television, print, radio and online to U.K. consumers.

Ask Jeeves selects Google as its U.K. paid
placement provider

In July 2002, we entered into an agreement with
Google, Inc. to participate in its sponsored links program in
the U.S., and our participation began in September 2002. Under
this agreement, Google sells paid placements to tens of
thousands of advertisers and we display their paid placements on
our U.S. Web properties. In the second quarter of 2003, our
U.K. subsidiary entered into an agreement with a Google
subsidiary to display Googles paid placements on our
U.K. Web site, replacing a previous paid placement
provider. Like in the U.S. market, Googles sponsored
links on Ask.co.ukcomplement our own suite of
advertising products. In exchange for making our Web traffic
available to Googles advertisers, we share in the revenue
generated from those advertisers.

For the year ended December 31, 2003, our
paid listings revenues from Google comprised 55% of our total
revenues, and 65% of total revenues for the fourth quarter of
2003. Our U.S. agreement with Google expires in September 2005
(but allows for termination for convenience by either party
during September or October of 2004) and our U.K. agreement with
Google is scheduled to expire in May 2005.

Organizational Changes

The following significant changes have occurred
to our management and corporate organization since
January 1, 2003:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sale of our Jeeves Solutions division to
    Kanisa, Inc.In 2003 we decided to
    focus our efforts on growing our core Web search business (which
    we previously referred to as our Web Properties division) and to
    sell our Jeeves Solutions division, which licensed our search
    technology to corporate customers for use on their internet and
    intranet sites. On July 1, 2003, we completed the sale of
    certain assets used in our Jeeves Solutions division to Kanisa,
    Inc. pursuant to an Asset Purchase Agreement dated May 28,
    2003, by and between us and Kanisa. The sold assets included,
    among other things, tangible personal property, intellectual
    property, and customer and other business contracts. In
    exchange, we received $3.4 million in cash at the closing
    and a promissory note for up to $750,000, which is payable one
    year from the date of closing. As of December 31, 2003, the
    amount payable under the note is expected to be $731,000,
    subject to certain upward or downward adjustments, but in no
    event shall the amount exceed $750,000. The proceeds, if any,
    from the promissory note will be recorded as additional gain on
    the






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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | transaction upon receipt. In the third quarter of
    2003, we recorded a gain of approximately $2.5 million, net
    of estimated income taxes of $109,000, representing the excess
    of the purchase consideration received at closing over the book
    value of the assets sold, as well as the remaining amount of
    deferred license fees applicable to Jeeves Solutions. We now
    maintain only one operating division and no longer report our
    results on a segmented basis. For the year ended
    December 31, 2003 (and comparable prior periods) we have
    reported our Jeeves Solutions results as discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Management
    Succession.Effective January 1,
    2004, the board promoted Steven Berkowitz to be our chief
    executive officer (CEO) and elected him to the seventh seat
    on our Board of Directors, which had been vacant since the
    April 25, 2003 resignation of Roger Strauch. Also on
    January 1, 2004, the Board promoted our prior CEO, A.
    George (Skip) Battle to be the executive chairman of our Board
    of Directors, replacing the founder of Ask Jeeves, Garrett
    Gruener, who had served as our chairman since 2000.
    Mr. Gruener will remain on our Board as a director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Foreign Operations.During 2003 we restructured several elements of our European
    operations. Notably, as part of this effort, we formed wholly
    owned subsidiaries in Ireland and the Netherlands. Ask Jeeves
    created these entities to position itself to take advantage of
    growth opportunities within the international marketplace.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Sale of Convertible Subordinated
    Notes.In June 2003, we issued
    $115.0 million aggregate principal amount of zero coupon
    convertible subordinated notes, due June 1, 2008. The notes
    were sold at face value and our net proceeds were
    $111.7 million, net of costs of issuance of
    $3.3 million, which have been recorded as other assets and
    are being amortized to the Consolidated Statements of Operations
    over the contractual term of the note. The notes are convertible
    by the holders into shares of our common stock at any time at an
    initial conversion price of $16.90 per share subject to certain
    adjustments. This is equivalent to a conversion rate of
    approximately 59.1716 shares per $1,000 principal amount of
    notes. Upon conversion, we have the right subject to certain
    conditions to deliver cash (or a combination of cash and shares)
    in lieu of shares of our common stock. The notes are
    subordinated in right of payment to all existing and future
    senior indebtedness, as defined in the indenture. The holders of
    the notes may require us to repurchase all or a portion of the
    notes, subject to specified exceptions, upon the occurrence of a
    change in control. We may choose to pay the repurchase price in
    cash, shares of our common stock, shares of the surviving
    corporation or a combination thereof. We may not redeem the
    notes prior to the maturity date.

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.

The Internet is expected to continue its growth
in 2004, with the number of active Internet users in the U.S.
projected to increase eight percent to 185 million users.
Correspondingly, the U.S. online advertising industry is
forecasted by Forrester to grow to $8.5 billion. By 2005,
the U.S. online advertising is expected to become a
$10.2 billion industry.

According to Forrester Research, of all digital
advertising alternatives, search will see the largest growth in
2004. More than 60% of the companies Forrester surveyed said
that their spending on paid listings, contextual search listings
and site optimization will increase more than 60%.

The projections above are from studies conducted
by market research firms not affiliated with our company and are
forward-looking statements, as described in the introductory
cautionary note.




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Our Proprietary Web
Sites

We operate the following four proprietary Web
sites, each of which is discussed below.



| |   |           
| | - | ----------
| |  | Ask.com   
|
| |  | Ask.co.uk 
|
| |  | Teoma.com 
|
| |  | Ajkids.com

Ask.com

Ask.comprovides an
experience designed to enable users to search the Web
intuitively and enjoyably. Users may submit their search
requests as standard queries or as natural-language questions.
Our technologies parse users questions for keywords to
determine likely topics of interest. Using Teomas highly
advanced, subject-specific popularity algorithm, we seek to
analyze the relationships among Web sites devoted to precisely
those topics to determine which are likely to be the most
authoritative and relevant. Ask.comthen presents the
user with a new Web page, generally containing the following:



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | Automatically generated hyperlinks to third-party
    Web sites, with the most relevant and authoritative Web sites
    listed first;
|
| |  | Suggested queries on related topics and Smart
    Search answers if applicable (as described above under
    Recent Events); and   
|
| |  | Paid placement listings and other advertising
    from our advertisers.                                                              

Ask.co.uk

Like its U.S. counterpart, Ask.co.ukuses Teoma technology to deliver authoritative and relevant
results in response to key word queries or natural language
questions. Ask.co.ukprovides users with the options of
viewing a global results list or one limited to the United
Kingdom. In response to searches on popular topics, Ask.co.ukalso presents results using its knowledgebase technology.

Ask.co.ukcurrently
has the second highest brand awareness of all Web sites in the
United Kingdom, after AOL (according to RSL Capibus, June 2003).
According to NOP World (Sept 2003), Ask.co.ukis
used by one in four Web users in the U.K. and Ask Jeeves remains
the seventh most popular digital brand in the U.K.

We launched Ask.co.ukin February 2000, as
a joint venture with two British companies, and acquired full
ownership of the venture in February 2002.

Teoma.com

Teoma.comprovides
users 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 present the user with a choice of folders containing
    results in the categories of Video Games Reviews,
    Home PC Games, Classic Video Games






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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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.

AJkids.com

Modeled on Ask.com, AJKids.comis a
child-friendly version of the Ask.comsite 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 that focuses on learning and
edutainment, AJkids.comuses natural-language
search technology, which allows children to ask questions like
Why is the sky blue? or Whats it like to
live in outer space? in a conversational manner.
AJkids.comcombines our knowledge base and our filtering
technology, allowing us to provide relevant and
content-appropriate answers to children.

Sources of
Revenue

We generate revenue from advertising and
licensing, each as described below. During the recently
completed fourth quarter, 96% of our total revenue came from
advertising (including paid placements, branded advertisements,
and paid inclusion) while 4% came from licensing, as follows:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | Paid placement generated 76% of our fourth
    quarter revenues in 2003;     
|
| |  | Branded advertising generated 18% of our fourth
    quarter revenues in 2003;
|
| |  | Paid inclusion generated 2% of our fourth quarter
    revenues in 2003; and  
|
| |  | Licensing generated 4% of our fourth quarter
    revenues in 2003.           

Advertising

We make our Web sites available without charge to
users and generate revenue primarily by displaying advertising.
We display advertising on our proprietary sites and deliver
advertisements to third-party Web sites in our syndication
network. Some of these advertisements are sold by our direct
sales force (branded advertising) while others are
supplied to us by our paid listings provider, which currently is
Google, Inc.

We believe the combination of our broad user base
and our suite of keyword-targeted advertising products enables
us to offer advertisers an effective means of targeting precise
audiences, while at the same time supplying our users with
advertising content they are likely to find useful. Most of our
ads are displayed in response to key words in the users
query. We (or our providers) sell keywords to advertisers, which
means that we agree to display their ads every time users
include any of those keywords in their queries. This technique
allows an advertiser to deliver its message at the moment when
our users are most likely to be interested in itwhen they
are searching for information related to the advertisers
products or services. For example, a flower company can reach
potential customers by paying us to display its message on the
Ask.comresults page in response to a query containing
the keyword Mothers Day. Unlike traditional
Web advertisements, which users often find intrusive and
annoying, keyword-targeted ads are often welcomed by the user,
and thus are more effective for advertisers.




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We offer the following three categories of
advertising opportunities:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Paid Placement.We
    offer advertisers a variety of paid placement opportunities. Our
    proprietary paid listings consist of Premier
    ListingsTM in the U.S. and Answer LinkTM
    in the U.K. Premier ListingTM advertising displays
    text-based links to advertisers Web sites in a response to
    keywords used in the users query and appear as
    featured sponsored results on Ask.com. Answer
    LinkTM, which is only available on Ask.co.uk,
    allows sites that have been identified as having high-quality,
    in-depth content to pay for the opportunity to appear as an
    identified sponsored answer in response to a users query
    on Ask.co.uks reply page. These companies do not
    select keywords as relevance is achieved by operation of our
    editorially controlled knowledge base. Additional paid
    placements are sourced from our participation in Google,
    Inc.s sponsored links program. Google sells
    paid placements to tens of thousands of advertisers and we
    display their paid placements on Ask.comand Ask.co.ukin response to keywords selected by the advertisers. The
    sponsored links supplied by Google appear under the heading
    sponsored results on Ask.com. We also
    syndicate both our proprietary paid listings and Googles
    sponsored links, together with our search results, to
    third-party Web sites in our syndication network. In exchange
    for making this Web traffic available to Googles
    advertisers, we share in the revenue generated from those
    advertisers. Generally, paid placements are priced on a cost per
    click (CPC) basis.
|
| |  | Branded
    Advertisements.We offer advertisers
    branded advertising in a variety of formats both on our
    proprietary sites and on our syndication network. Branded
    ResponseTM, our flagship graphic advertising product
    is available primarily on our proprietary sites. 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
    keywords, 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 tool 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 the pages
    of some of our syndication partners). Generally, branded
    advertisements are priced on a cost per thousand impression
    (CPM) basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Paid Inclusion.We
    offer Web site designers the opportunity to ensure that their
    Web pages are included in our search index. We offer two paid
    inclusion programs: Site Submit for businesses with 1000 URLs or
    less and Index Express for large content and commerce providers
    that are interested in controlling how often their pages are
    updated in our index. Paid Inclusion is currently the only way
    to guarantee that a particular site will be included in our
    search index; it does not, however, guarantee placement on our
    results page.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

We also license our technologies to third-parties
in our syndication network for use on their own Web sites.
During 2003, such licensees included Excite, HotBot and
InfoSpace, among other Web publishers, portals and
infomediaries. Syndication network licensees pay us a licensing
fee or share advertising revenue from their search result pages
with us. Our licensed technologies include:



| |   |                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Teoma Search
    Technology.Teomas technology
    filters search results using our Subject-Specific Popularity
    approach described above.                                                                                                                                                                                                         
|
| |  | 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.






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Licensing

We earn license revenue from a technology license
with our Japanese joint venture. The revenue is recognized
ratably over the estimated service period applicable to this
arrangement. The license revenue will terminate after the second
quarter of 2004.

Sales and
Marketing

In 2003, we focused on increasing our traffic by
improving the search experience we deliver to users, and we will
continue to do so in 2004. We believe that improving the
relevance of our search results is one of the best, long-term
methods of increasing user frequency and attracting new unique
users, thereby increasing total user queries and thus revenues.

Sales

In 2003, we sold advertising on our Web
properties through our internal advertising sales force, which
targets the top 250-400 advertisers in the United States.
Strategic relationships with our third-party paid placement
provider Google, enabled us to cast a wider net and bring in
smaller advertisers as well.

As of December 2003, our U.S. sales organization,
which includes direct sales, consisted of 14 individuals
with offices primarily in California and New York. As of
December 2003, the Ask Jeeves U.K. sales organization,
which includes client sales and agency sales, consisted of
10 people who were located in our U.K. office.

Marketing

We invested in our brand early in our
companys history and established a strong brand with a
loyal user base. During 2003, we generated 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 also actively positioned ourselves
as a pure search engine operating squarely in the search engine
market. We spread these messages through online, print, radio
and outdoor advertising, targeted guerilla
marketing, and strategic public relations. These tactics,
combined with positive word of mouth, encouraged new users to
try our Web sites, and we believe persuaded many prior users to
try our Web sites again. Based on the strong growth in Web
traffic we experienced concurrently with our new marketing
campaigns in 2003, we plan to increase our marketing investment
in 2004.

International
Operations

Currently, our international operations include:



| |   |                       
| | - | ----------------------
| |  | Ask Jeeves U.K.;      
|
| |  | Ask Jeeves Europe; and
|
| |  | Ask Jeeves Japan.     

Ask Jeeves U.K.

Ask Jeeves U.K. 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. Prior to February 2002, when we acquired
full ownership of Ask Jeeves U.K., Ask Jeeves owned a
50 percent interest in this joint venture. Ask Jeeves U.K.
serves as the sales and marketing arm of Ask Jeeves Europe.




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Ask Jeeves Europe

Ask Jeeves Europe was established in Ireland
during the third quarter of 2003 to host and operate our
European Web site. In this capacity, Ask Jeeves Europe will
provide Internet search services to our customers within the
United Kingdom, Ireland and other member states of the European
Community.

Ask Jeeves Japan

Ask Jeeves Japan, is a joint venture between us
and Trans Cosmos Inc. USA a subsidiary of a Japanese customer
service and information technology support provider. The joint
venture was established in August 2000 to market a Japanese
language version of our earlier search software product Answers,
launch a Japanese language version of Ask.comand to
create Japan-specific content for the Japanese Ask.comWeb site.

As of December 31, 2003, we own
approximately 47 percent of the voting securities of this
joint venture. We have granted to the joint venture an exclusive
license to our current and future products and services in Japan
and for the Japanese-speaking market.

Additional Information

Additional information required by this item can
be found in Note 15, Business Segment and Geographic
Information, of the Notes to our Consolidated Financial
Statements, in Item 8 of this Annual Report.

Technology and
Operations

Our proprietary software technology includes the
following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Teoma Search Technology.Utilizing an approach known as
    Subject-Specific Popularity, our Teoma search technology goes
    beyond traditional page ranking methods to estimate a Web
    sites authority. 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. First, Teoma categorizes the sites in its search
    index into naturally occurring communities, or groups of sites
    that are related to the query topic. Next, Teoma employs a
    technique we call Subject-Specific Popularity to determine which
    of those relevant pages is likely to be the most authoritative
    on a users query topic. Subject-Specific Popularity
    analyzes the relationships between sites within a community,
    ranking each site based on the number of same-subject pages that
    reference it, among hundreds of other criteria. Teomas
    approach is analogous to seeking the best answer by asking
    experts within a specific subject community about which site
    they believe is the best resource for that subject. To our
    knowledge, 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. Teoma powers the search results
    on Ask.com, Ask.co.ukand Teoma.com. We
    also syndicate Teoma technology to our distribution partners.
|
| |  | Natural Language
    Processing.Using Natural Language
    Processing, we are able to better understand the context of what
    our users are asking and return more relevant search results,
    direct answers and related queries. Some applications of Natural
    Language Processing include related search terms and editorially
    selected answers on Ask.com.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              






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Scalability and Operations

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

The servers hosting our four proprietary Web
sites are located at Metromedia Fiber Network in California and
England, Worldcom in Massachusetts, Cable & Wireless
Communications in England, and Esat Telecommunications Ltd., in
Ireland. 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 all of our user traffic.

Our natural-language processing 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 install our QPE and knowledge base on additional servers.

Our Popularity Technology distribution and
processing servers are arrays of Intel-based server systems
running the Linux operating system and Apache Web Server
Software. The software is written as C++ FastCGI modules for
highest scalability and real-time performance. To scale as user
traffic or data sources increase, we install additional
distribution and processing servers, as needed.

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 search sites, and consequently, result
in less traffic to our Web sites and fewer monetized queries.

In our efforts to attract search engine users, we
compete against destinations and portals such as:



| |   |                             
| | - | ----------------------------
| |  | Time Warner Inc.;           
|
| |  | Google, Inc.;               
|
| |  | The Microsoft Network (MSN);
|
| |  | Yahoo! Inc; and             
|
| |  | Other smaller companies.    

We also compete with search technology providers
such as:



| |   |                
| | - | ---------------
| |  | Google, Inc.;  
|
| |  | Yahoo! Inc; and
|
| |  | Looksmart.     




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Our financial success depends upon our ability to
attract Web traffic to our Web properties and to monetize that
traffic. We believe that our ability to compete effectively with
other search engines for Web traffic depends on:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the relevance and authority of our search results;                                                                                                                                            
|
| |  | the ease of use of our Smart Search, the quality
    of our knowledge-base content, and other online features;                                                                                
|
| |  | the pace with which we introduce new search
    techniques (and the marketing skill with which we announce such
    innovations and persuade new and returning users to utilize
    them); and
|
| |  | the speed with which we match others
    innovations.                                                                                                                                        

We believe our proprietary Web sites compete
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,
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.

See the Risk Factors discussion in
Item 7 of this Annual Report for a further discussion of
certain risks related to competition.

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 seven United States patents
and have twelve patent applications pending with the United
States Patent and Trademark Office for various aspects of our
natural-language search, database search and Web-wide search
technologies, which power our proprietary Web sites. We
generally seek 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 you 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. We similarly face the risk that any patents
issued to us might 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.






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We have been issued registered trademarks in the
U.S. covering certain goods or services associated with:



| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | Ask Jeeves;                                                         
|
| |  | the Ask! button design;                                             
|
| |  | Ask.com;                                                            
|
| |  | the Jeeves design, a stylized
    depiction of our butler logo;     
|
| |  | Teoma;                                                              
|
| |  | Teoma design; and                                                   
|
| |  | Search with Authority, a phrase we
    use on the Teoma.comWeb 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, and Spain. 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, and Teoma, 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 CAN-SPAM Act of 2003 is intended to regulate spam
and create criminal penalties for unmarked sexually-oriented
material and emails containing fraudulent headers. The USA
Patriot Act is intended to give the government greater ability
to conduct surveillance on the Internet by allowing it to
intercept communications regarding terrorism and computer fraud
and abuse. 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, the Childrens
Online Privacy Protection Act, and the Prosecutorial Remedies




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and Other Tools to End Exploitation of Children
Today Act of 2003, 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 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 of
December 31, 2003, we had 306 employees. No employees are
represented under collective bargaining agreements. We consider
our relations with our employees to be good.

See the Risk Factors discussion in
Item 7 of this Annual Report 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. Corporate information can be located by
clicking on the about link in the lower left-hand
corner. 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






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site, as allowed by SEC rules. These disclosures
may include amendments to and waivers of our Code of Ethics,
which appears as an exhibit to this Annual Report.


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.govthat 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 corporate headquarters are currently located
in a leased facility in Emeryville, California. We also lease
facilities for sales, research and development and other support
functions in various locations in the United States. We have
also operations in the London, England and Dublin, Ireland.

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.






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. On
June 24, 2003, a special committee of our board of
directors approved the settlement of this action, subject to
certain conditions including that a sufficient number of the
defendants participate in the settlement, and on July 9,
2003, the Individual Defendants approved the settlement of this
action. It is anticipated that the settlement will be submitted
to the Court for approval in the near future.

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




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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. On
October 31, 2002, the Court dismissed the lawsuit, with
prejudice. The plaintiffs appealed and the case was consolidated
with similar derivative actions. On June 19, 2003, the
plaintiffs stipulated to a dismissal of the appeal.


On January 27, 2004, a lawsuit was filed in
the United States District Court for the Southern District of
New York captioned American Blind and Wallpaper, Inc. v. Google,
Inc., et al., in which Ask Jeeves, Inc., America Online, Inc.,
Netscape Communications Corporation, Compuserve Interactive
Services, Inc., and Earthlink, Inc. were also named as
defendants. On February 27, 2004, the Company was served
with an Amended Complaint in the matter. The Complaint alleges
trademark infringement, false representation, and dilution under
the Lanham, Act and other claims arising from defendants
alleged unlawful use of plaintiffs trademarks.
Plaintiffs claims are based on the allegations that
defendants sell keywords identical to plaintiffs marks to
various third parties and by manipulating search results,
consumers are unwittingly diverted to competitors products
and services. The plaintiff seeks injunctive relief and an
unspecified amount of damages. The Company has tendered this
suit to Google for indemnification pursuant to the terms of the
Advertising Services Agreement, dated July 17, 2002,
between Ask Jeeves and Google.

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 2003.






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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
|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                       |  | $    | 7.48  |     |  | $ | 2.42  | 
|Second Quarter                      |  | $    | 14.80 |     |  | $ | 6.83  | 
|Third Quarter                       |  | $    | 22.75 |     |  | $ | 12.81 | 
|Fourth Quarter                      |  | $    | 22.18 |     |  | $ | 15.91 | 
|2004                                |  |      |       |     |  |   |       | 
|First Quarter (through February 25) |  | $    | 24.88 |     |  | $ | 18.37 | 
|                                   

As of February 25, 2004, the number of
holders of record of our common stock was 818. To date, we have
not paid any dividends on our common stock and we do not
currently intend to pay dividends in the foreseeable future.

In 2003, we did not sell any equity securities
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 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,
2003 and the consolidated balance sheet data as of
December 31, 2003 and 2002, are derived from and qualified
by reference to our audited consolidated financial statements
included in this annual report. The consolidated operating
information set forth below for the years ended
December 31, 2000 and 1999, and the consolidated balance
sheet data as of December 31, 2001, 2000, and 1999 are
derived from and qualified by reference to our audited
consolidated financial statements that are not included in this
annual report. Our historical results are not necessarily
indicative of results for any future period.

|                                                    |  |                         |         |      |  |      |         |      |  |      |          |   |  |   |          |   |  |   |         |  
|--------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | -------- | - |  | - | -------- | - |  | - | ------- | -
|                                                    |  |                        
|(in thousands, except share and                     |  | Year Ended December 31,
|per share information)                              |  | 2003                    |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                   
|                                                   
|Consolidated Statements
    of
    Operations Data: |  |                         |         |      |  |      |         |      |  |      |          |   |  |   |          |   |  |   |         |  
|Revenues                                            |  | $                       | 107,292 |      |  | $    | 65,048  |      |  | $    | 51,569   |   |  | $ | 71,799   |   |  | $ | 14,682  |  
|Income (loss) from continuing operations            |  |                         | 24,785  |      |  |      | (10,856 | )    |  |      | (409,764 | ) |  |   | (166,462 | ) |  |   | (30,249 | )
|Earnings per ShareBasic:                           |  |                         |         |      |  |      |         |      |  |      |          |   |  |   |          |   |  |   |         |  
|Income (loss) from continuing operations            |  | $                       | 0.56    |      |  | $    | (0.27   | )    |  | $    | (11.06   | ) |  | $ | (4.84    | ) |  | $ | (1.51   | )
|Earnings per ShareDiluted:                         |  |                         |         |      |  |      |         |      |  |      |          |   |  |   |          |   |  |   |         |  
|Income (loss) from continuing operations            |  | $                       | 0.45    |      |  | $    | (0.27   | )    |  | $    | (11.06   | ) |  | $ | (4.84    | ) |  | $ | (1.51   | )
|                                                   
|Revenues from related parties                       |  | $                       | 4,525   |      |  | $    | 6,189   |      |  | $    | 18,991   |   |  | $ | 12,308   |   |  | $ | 118     |  
|                                                   

|                                                 |  |              |         |      |  |      |        |      |  |      |         |  |  |   |         |  |  |   |        | 
|------------------------------------------------ |  | ------------ | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------ | 
|                                                 |  |             
|                                                 |  | December 31,
|(in thousands)                                   |  | 2003         |         | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                
|                                                
|Consolidated Balance
    Sheet Data:             |  |              |         |      |  |      |        |      |  |      |         |  |  |   |         |  |  |   |        | 
|Cash, cash equivalents and marketable securities |  | $            | 180,648 |      |  | $    | 33,440 |      |  | $    | 51,796  |  |  | $ | 87,836  |  |  | $ | 51,530 | 
|Restricted cash and marketable securities        |  | $            |        |      |  | $    | 11,000 |      |  | $    | 24,806  |  |  | $ | 17,130  |  |  | $ |       | 
|Total assets                                     |  | $            | 212,255 |      |  | $    | 72,176 |      |  | $    | 111,338 |  |  | $ | 537,867 |  |  | $ | 75,764 | 
|Long-term obligations                            |  | $            | 115,000 |      |  | $    |       |      |  | $    | 573     |  |  | $ | 1,465   |  |  | $ | 2,351  | 
|Total liabilities                                |  | $            | 139,047 |      |  | $    | 42,899 |      |  | $    | 64,124  |  |  | $ | 72,099  |  |  | $ | 34,313 | 
|Total stockholders equity                       |  | $            | 73,208  |      |  | $    | 29,277 |      |  | $    | 47,214  |  |  | $ | 465,768 |  |  | $ | 41,451 | 
|                                                






|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|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.

Executive
Overview

Ask Jeeves offers advanced Internet search
technology to the public through advertiser-supported sites on
the World Wide Web (which is known as the Web). We seek to
attract Web traffic by creating a distinctive search experience
that users will find more intuitive and satisfying than other
search alternatives. On our flagship Web sites, Ask.comin the U.S. and Ask.co.ukin the U.K., users submit






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their search requests, and our algorithmic search
technology, Teoma, delivers a list of Web pages likely to
contain relevant and authoritative answers. The results page
also displays advertiser-sponsored links known as paid listings
to related products and services.


We operate four proprietary Web sites dedicated
to search: Ask.com, Ask.co.uk, Teoma.comand AJKids.com. We also deliver, or syndicate, our
search technology and advertising products to approximately
41 third-party Web sites as of December 31, 2003,
including portals, infomediaries, and content and destination
Web sites. We provide search results and/or advertising for
those Web sites to display in response to their users
search queries. We refer to these third-party Web sites as our
syndication network.

Our focus is on increasing our Web traffic (i.e.,
of the number of search queries on our proprietary Web sites) by
attracting more users and getting them to use our search
services more frequently. We generate advertising revenue every
time users click on the paid listings, or as a result of graphic
advertising and other advertising products we deliver in
response to their queries. In this way, we monetize a portion of
our Web traffic. We also earn revenue by licensing our search
technology to our Japanese joint venture and to some of the
sites in our syndication network.

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.     

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 cases which require managements judgment in
selecting among available alternatives but none of the
alternatives would 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-Continuing Operations

We 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




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revenue at the time it is
earned, such revenue is deferred until cash has been received.
Revenues are generated from four general sources:




| |   |                                                                 
| | - | ----------------------------------------------------------------
| |  | sales of premier listings and other paid
    placement products;
|
| |  | sales of branded advertising products;                          
|
| |  | sales of paid inclusion products; and                           
|
| |  | licensing of our search technologies.                           

Our premier listings and other paid placement
products are textual, or Web links, that are designed to connect
users interested in a particular product or service with an
advertiser offering that product or service at the exact moment
users need the information, much like a Yellow Pages listing.
With these products, advertisers pay only for performance, so
these revenues are generated when a user clicks on the link to
the advertisers Web site on a cost per click, or
CPC, basis. We recognize CPC revenue on a
revenue-sharing basis if the paid placement was procured from
our third-party provider.

Our branded advertising ranges from highly
targeted graphic units, which we offer as our Branded Response
product, to traditional advertising units such as banners,
towers and interstitials, which appear primarily on our
syndicated sites. Branded advertising is generally sold on a
cost per impression, or CPM, basis with the revenue
derived from such arrangements recognized during the period that
the service is provided, provided that no significant
obligations remain outstanding from us to the advertiser at the
end of the period. Our obligations typically include a
guaranteed 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 impression
levels are achieved.

Our paid inclusion products provide an
opportunity for Web sites to ensure that they are included in
our search index. We recognize paid inclusion revenue in two
ways. First, on a per URL basis, in which the
revenues are collected in advance and recognized over the
appropriate service period, which is typically one year; and
second on a CPC basis, in which the revenue is recognized when
the click is delivered.

License payments received from our Japanese joint
venture were initially recorded as deferred revenue and are
recognized as revenues on a straight-line basis over a four-year
period. The license revenue will terminate after the second
quarter of 2004.

Our syndication services include the sale of
advertising and paid placement products, and the licensing of
our search technology to third-party Web sites. Syndication
license fees primarily arise from revenue-sharing arrangements,
fixed fee arrangements or fee-per-use arrangements, and revenues
are recognized as the service is delivered. We allocate our
syndication revenues among our four revenue categories, paid
placement, branded advertising, paid inclusion, and license
fees, as applicable, when reporting our results. Revenues from
revenue-sharing arrangements are recorded gross, including
amounts paid to syndication partners, in accordance with
Emerging Issues Task Force Issue No. 99-19, because we act
as the primary obligor in the arrangement, perform a significant
portion of the service, have latitude in establishing pricing
and bear credit risk.

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






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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 adversely impacted.


We also record a provision for 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 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 be impacted.

Legal Contingencies

We are currently involved 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 14 of Notes to
Condensed Consolidated Financial Statements for a description of
our material legal proceedings.

Income Taxes

We use significant judgment in determining our
consolidated income tax provision. Uncertainties may arise with
respect to the tax treatment of certain transactions, transfer
pricing arrangements among related entities, and segregation of
foreign and domestic income and expense. Although we believe our
estimates are reasonable, we cannot be certain that the final
tax outcome of these matters will not be different than that
which is reflected in our historical income tax provisions and
accruals. Such differences could have a material effect on our
income tax provision in the period in which such determination
is made.

Due to uncertainty surrounding when or if we will
realize the benefits of our deferred tax assets (primarily from
our net operating loss carryforwards), we have recorded a 100%
valuation allowance on such amounts. Any decrease in the
valuation allowance could materially reduce our income tax
provision in the period in which such determination is made.

We provide for United States income taxes on the
earnings of our foreign subsidiaries unless they are considered
indefinitely invested outside the United States. At
December 31, 2003, the cumulative earnings upon which
United States income taxes have not been provided are
approximately $17.3 million. The income tax that would
arise if these items were repatriated is approximately
$6.9 million, some or all of which may be reduced by NOLs
or foreign tax credits.




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Results of
Operations

On May 28, 2003, we entered into an
agreement to sell certain assets used in our Jeeves Solutions
division to Kanisa Inc. (Kanisa). The sale of these
assets closed on July 1, 2003, at which time we ceased
offering Jeeves Solutions products and services to corporate
customers. Accordingly, the results of operations presented
below are on a continuing operations basis, and the results of
the Jeeves solutions division are discussed in the section
entitled Discontinued Operations.

Revenues

|                       |  |            |         |        |  |      |      |        |  |      |        |  |  |  |      |   |  |   |        | 
|---------------------- |  | ---------- | ------- | ------ |  | ---- | ---- | ------ |  | ---- | ------ |  |  |  | ---- | - |  | - | ------ | 
|                       |  |           
|                       |  | Year Ended
|(dollars in thousands) |  | 2003       |         | Change |  | 2002 |      | Change |  | 2001
|                      
|                      
|                       |  | $          | 107,292 |        |  |      | 64.9 | %      |  | $    | 65,048 |  |  |  | 26.1 | % |  | $ | 51,569 | 
|                      

Total revenues for 2003 grew 64.9% as compared
with 2002. Generally, revenues were favorably affected by
increased usage of our Web sites, which we refer to as our Web
traffic, which increased in both the U.S. and U.K. In
particular, queries on our proprietary sites exhibited strong
growth, increasing 35% over 2002. Contributing to the growth in
queries, average user site visit frequency per month on
Ask.comincreased throughout the year, to 3.2 in the
fourth quarter of 2003 as compared with 2.7 in the same period
of 2002.

We believe the increase in frequency and growth
in queries are a reflection of our focus during 2003 on
improving our search technology and creating a differentiated
site experience. During 2003, we continued to invest in Teoma,
our search technology, increasing the size of the index that is
used to search for results from 250 million sites to
1.5 billion sites. We also made enhancements to the site,
including the introduction of what we call Smart Search
features. Smart Search includes such features as weather, stock
and products. We believe that Smart Search helps users find
information more quickly and intuitively by delivering results
directly, rather than requiring the user to click on a separate
tab or link to get them. We believe that these investments in
site and technology combine to establish our sites as a
differentiated alternative for searching the web.

Our revenues are related to our Internet search
services and to our syndication of Web search services to third
party Web sites. Our revenues consist of four main categories:
(1) sales of paid placement products; (2) sales of
branded advertising products; (3) paid inclusion products;
and (4) licensing.






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Syndication revenues are
included within each of the above categories, as applicable. The
table below presents revenues for each category, split between
the U.S. and Europe.


|                       |        |                           |   |        |         |      |  |        |       |      |   |        |        |  |  |       |       |    |   |        |        | 
|---------------------- | ------ | ------------------------- | - | ------ | ------- | ---- |  | ------ | ----- | ---- | - | ------ | ------ |  |  | ----- | ----- | -- | - | ------ | ------ | 
|                       |        |                          
|                       |        | Year Ended               
|(dollars in thousands) |        | 2003                      |   | Change |         | 2002 |  | Change |       | 2001
|                      
|                      
|Paid Placement:        |        |                           |   |        |         |      |  |        |       |      |   |        |        |  |  |       |       |    |   |       
|                       | U.S.   |                           | $ | 52,273 |         |      |  | 121.8  | %     |      | $ | 23,570 |        |  |  | 139.1 | %     |    | $ | 9,858  |       
|                       | Europe |                           |   | 24,791 |         |      |  | 171.1  | %     |      |   | 9,144  |        |  |  |      |       |    |   |       |       
|                      
|                       |        | Total Paid Placement      |   |        | 77,064  |      |  |        | 135.6 | %    |   |        | 32,714 |  |  |       | 231.9 | %  |   |        | 9,858  | 
|                      
|Branded Advertising:   |        |                           |   |        |         |      |  |        |       |      |   |        |        |  |  |       |       |    |   |       
|                       | U.S.   |                           |   | 15,633 |         |      |  | (12.5  | %)    |      |   | 17,875 |        |  |  | (19.8 | %)    |    |   | 22,296 |       
|                       | Europe |                           |   | 7,732  |         |      |  | 5.2    | %     |      |   | 7,349  |        |  |  |      |       |    |   |       |       
|                      
|                       |        | Total Branded Advertising |   |        | 23,365  |      |  |        | (7.4  | %)   |   |        | 25,224 |  |  |       | 13.1  | %  |   |        | 22,296 | 
|                      
|Paid Inclusion:        |        |                           |   |        |         |      |  |        |       |      |   |        |        |  |  |       |       |    |   |       
|                       | U.S.   |                           |   | 2,113  |         |      |  | 156.1  | %     |      |   | 825    |        |  |  |      |       |    |   |       |       
|                       | Europe |                           |   | 225    |         |      |  |       |       |      |   |       |        |  |  |      |       |    |   |       |       
|                      
|                       |        | Total Paid Inclusion      |   |        | 2,338   |      |  |        | 183.4 | %    |   |        | 825    |  |  |       |      |    |   |        |       | 
|                      
|Licensing:             |        |                           |   |        |         |      |  |        |       |      |   |        |        |  |  |       |       |    |   |       
|                       | U.S.   |                           |   |       |         |      |  | (100.0 | %)    |      |   | 141    |        |  |  | (96.1 | %)    |    |   | 3,598  |       
|                       | Europe |                           |   |       |         |      |  | (100.0 | %)    |      |   | 1,597  |        |  |  | (85.8 | %)    |    |   | 11,275 |       
|                       | Japan  |                           |   | 4,525  |         |      |  | (0.5   | %)    |      |   | 4,547  |        |  |  | 0.1   | %     |    |   | 4,542  |       
|                      
|                       |        | Total Licensing           |   |        | 4,525   |      |  |        | (28.0 | %)   |   |        | 6,285  |  |  |       | (67.6 | %) |   |        | 19,415 | 
|                      
|                       |        | Total Revenues            |   | $      | 107,292 |      |  |        | 64.9  | %    |   | $      | 65,048 |  |  |       | 26.1  | %  |   | $      | 51,569 | 
|                      
|Total:                 |        |                           |   |        |         |      |  |        |       |      |   |        |        |  |  |       |       |    |   |       
|                       | U.S.   |                           | $ | 70,019 |         |      |  | 65.1   | %     |      | $ | 42,411 |        |  |  | 18.6  | %     |    | $ | 35,752 |       
|                       | Europe |                           |   | 32,748 |         |      |  | 81.0   | %     |      |   | 18,090 |        |  |  | 60.4  | %     |    |   | 11,275 |       
|                       | Japan  |                           |   | 4,525  |         |      |  | (0.5   | %)    |      |   | 4,547  |        |  |  | 0.1   | %     |    |   | 4,542  |       
|                      
|                       |        | Total Revenues            |   | $      | 107,292 |      |  |        | 64.9  | %    |   | $      | 65,048 |  |  |       | 26.1  | %  |   | $      | 51,569 | 
|                      

Paid placement revenues increased in 2003
significantly from those in 2002 primarily due to overall
increases in traffic to our Web sites, and increases in
advertisers entering the paid placement marketplace.
Additionally, in 2003 as compared with 2002, we benefited from
improved revenue sharing terms from our principal paid placement
provider.

Total branded advertising revenues decreased in
2003 from those in 2002. A slight increase in U.K. branded
advertising revenue was offset by a decline in U.S. branded
advertising revenue. U.S. revenue decreased in 2003 as we
removed interstitial advertising and all banner advertising on
Ask.comduring the fourth quarter of 2002, as part of our
efforts to improve the user experience. However our Branded
Response product continued to experience strong growth both in
volume and pricing, with Branded Response revenues increasing
77.5% in 2003 as compared with 2002.

We earn license revenue from a technology license
with our Japanese joint venture. The revenue is recognized
ratably over the estimated service period applicable to this
arrangement. The license revenue will terminate after the second
quarter of 2004.

Our paid inclusion product continued its steady
growth trend, matching the overall growth of the Company, and
contributed approximately two percent of our revenues.

Throughout 2002, we began making investments in
technology, 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




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acquisition of full ownership over our former
joint venture in the U.K., to produce overall revenue growth as
compared with 2001.


Paid placement revenues increased in 2002 from
those in 2001 as we had improvement in both unit volumes and
unit pricing. Additionally, we benefited from improved revenue
sharing terms from one of our paid placement partners. 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. 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.

For 2004, we intend to seek revenue growth by
increasing traffic to our Web sites, 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
results and, thereby, increasing user satisfaction. During 2003,
we made improvements to the site to make it cleaner, faster and
easier to use. Further, we plan to increase our marketing
efforts to users, which we initiated during 2003. We expect to
add more features during 2004, which we believe will improve the
site experience. We believe that these steps, combined with
improvements to the user experience, will lead to growth in
traffic of our Web sites.

Gross Margin

|                       |              |            |        |        |   |      |      |        |  |      |        |      |   |  |      |   |  |   |        |      |  
|---------------------- | ------------ | ---------- | ------ | ------ | - | ---- | ---- | ------ |  | ---- | ------ | ---- | - |  | ---- | - |  | - | ------ | ---- | -
|                       |              |           
|                       |              | Year Ended
|(dollars in thousands) |              | 2003       |        | Change |   | 2002 |      | Change |  | 2001
|                      
|                      
|Gross Profit           |              | $          | 85,375 |        |   |      | 86.6 | %      |  | $    | 45,746 |      |   |  | 47.5 | % |  | $ | 31,023 |     
|                       | Gross Margin |            |        | 79.6   | % |      |      |        |  |      |        | 70.3 | % |  |      |   |  |   |        | 60.2 | %
|                      

Cost of revenues consists primarily of costs
related to traffic acquisition for our syndicated sites and the
delivery of our search results. Costs to acquire traffic for our
syndicated sites include revenue-based payments and similar
arrangements with third-parties who direct traffic to those
sites. Costs related to delivering our search results include
depreciation of Web site equipment, hosting and ad server
management, salaries and related personnel costs and
amortization charges related to technology acquired in some of
our business combinations.

Gross margin increased in 2003 due to the
increase in revenue, which grew faster than costs. On a dollar
basis, cost of revenues increased $2.6 million to
$21.9 million in 2003 as compared with 2002, 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.

For 2002 as compared with 2001, gross margin
increased due to both an increase in revenues and a decrease in
cost of revenues. Cost of revenues decreased $1.2 million
to $19.3 million in 2002 as compared with 2001, reflecting
decreased compensation-related costs and facilities charges
relating to our restructuring activities partially offset by
increased traffic acquisition costs associated with the higher
levels of traffic.






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Operating
Expenses

|                                                         |                              |            |        |        |   |      |      |        |  |      |        |      |   |  |        |    |  |   |        |      |  
|-------------------------------------------------------- | ---------------------------- | ---------- | ------ | ------ | - | ---- | ---- | ------ |  | ---- | ------ | ---- | - |  | ------ | -- |  | - | ------ | ---- | -
|                                                         |                              |           
|                                                         |                              | Year Ended
|(dollars in thousands)                                   |                              | 2003       |        | Change |   | 2002 |      | Change |  | 2001
|                                                        
|                                                        
|Product development                                      |                              | $          | 14,768 |        |   |      | 11.0 | %      |  | $    | 13,301 |      |   |  | (9.2   | %) |  | $ | 14,655 |     
|                                                         | Percentage of total revenues |            |        | 13.8   | % |      |      |        |  |      |        | 20.4 | % |  |        |    |  |   |        | 28.4 | %
|Sales and marketing                                      |                              | $          | 31,902 |        |   |      | 22.8 | %      |  | $    | 25,973 |      |   |  | (12.9  | %) |  | $ | 29,812 |     
|                                                         | Percentage of total revenues |            |        | 29.7   | % |      |      |        |  |      |        | 39.9 | % |  |        |    |  |   |        | 57.8 | %
|General and administrative                               |                              | $          | 19,025 |        |   |      | 25.5 | %      |  | $    | 15,163 |      |   |  | (13.6  | %) |  | $ | 17,554 |     
|                                                         | Percentage of total revenues |            |        | 17.7   | % |      |      |        |  |      |        | 23.3 | % |  |        |    |  |   |        | 34.0 | %
|Amortization of goodwill and other intangible
    assets |                              | $          |       |        |   |      |     |        |  | $    |       |      |   |  | (100.0 | %) |  | $ | 22,823 |     
|                                                         | Percentage of total revenues |            |        |       |   |      |      |        |  |      |        |     |   |  |        |    |  |   |        | 44.3 | %
|                                                        

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.

Product development expenses increased on a
dollar basis in 2003 as compared with 2002 due to
compensation-related expenses increases as we grew our research
and development team in order to expand our Teoma technology and
add new features on our Web sites. Higher compensation-related
expenses were partially offset by a reduction in the use of
consultants for product development activities.

Decreased 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 a
reduction in the number of product development initiatives that
were not essential to delivering future financial results.

We focused on the following strategic areas for
2003:



| |   |                          
| | - | -------------------------
| |  | Grow and Optimize Revenue



| |   |                                                                 
| | - | ----------------------------------------------------------------
| | o | Improving the perceived relevance of revenue
    products       
|
| | o | Enhancing operational efficiency via technology
    improvements



| |   |                        
| | - | -----------------------
| |  | Deliver Smarter Results



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| | o | Enhancing navigation and usability features                                                       
|
| | o | Growing portfolio of Smart Answer functionality                                                   
|
| | o | Driving site performance improvements                                                             
|
| | o | Expanding index to deliver improved coverage                                                      
|
| | o | Introducing industry leading index update cycles                                                  
|
| | o | Expanding algorithmic search capabilities                                                         
|
| | o | Improving query understanding through application
    of national language processing technologies

During 2004, we expect to continue to invest in
product development. We plan to make product enhancements such
as additional Smart Search features and other changes to the
site that we believe will yield higher traffic volumes over
time. As a result, we expect product development costs to
increase on a dollar basis in 2004 compared to 2003.




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Sales and Marketing Expenses

Sales and marketing expenses consist primarily of
advertising, promotional and public relations expenditures, as
well as salaries, commissions and related personnel expenses of
our sales force.

On a dollar basis, sales and marketing spending
increased for 2003 compared to 2002. In 2003 we launched several
marketing campaigns including print ads, radio spots, and online
and out of home advertising. These marketing campaigns were
focused on promoting both branding and traffic generation.
Further, as revenue grew in 2003 compared to 2002, we saw an
increase in sales commissions and other incentive compensation.

The decrease in sales and marketing expenses in
2002 compared with 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.

We anticipate increasing our investment in sales
and marketing for 2004 as we continue to drive users to our site
and promote our brand.

General and Administrative Expenses

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

On a dollar basis, general and administrative
expenses increased in 2003 compared to 2002 due to several
factors. First, we increased the use of consultants in 2003
particularly in the area of personnel development. Also, general
and administrative salaries and incentive compensation increased
as we expanded headcount to manage the growing business and
rewarded employees for the companys performance.

Relative to 2001, expenses were lower in 2002
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.

In 2004 we anticipate general and administrative
expenses to continue to decrease as a percentage of revenue, but
increase on a dollar basis.

Amortization of Goodwill and Other Intangible
Assets

We recorded no amortization of goodwill and other
intangible assets in operating expense for the year ended
December 31, 2003 or 2002. During 2001, we recorded an
impairment loss of $355.2 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 2003 and 2002.

|                                |  |            |     |        |  |      |        |        |  |      |       |  |  |  |       |    |  |   |         | 
|------------------------------- |  | ---------- | --- | ------ |  | ---- | ------ | ------ |  | ---- | ----- |  |  |  | ----- | -- |  | - | ------- | 
|                                |  |           
|                                |  | Year Ended
|(dollars in thousands)          |  | 2003       |     | Change |  | 2002 |        | Change |  | 2001
|                               
|                               
|Impairment of long-lived assets |  | $          | 702 |        |  |      | (72.9  | %)     |  | $    | 2,592 |  |  |  | (99.3 | %) |  | $ | 355,183 | 
|Restructuring costs             |  | $          |    |        |  |      | (100.0 | %)     |  | $    | 1,653 |  |  |  | (90.5 | %) |  | $ | 17,337  | 
|                               






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Impairment of Long-lived Assets

During 2003 and 2002, we wrote off computer
equipment, software, and furniture and fixtures that we disposed
of or were no longer in use, resulting in charges of $702,000
and $2.2 million, respectively. Additionally, during 2002,
we recorded impairment charges totaling $252,000 primarily
related to acquired intangible assets of 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. 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. 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.

Restructuring Costs

During 2002, we implemented restructuring actions
to better align our cost structure with our current and
anticipated levels of business activities. Those actions
resulted in restructuring charges related to workforce
reductions. There were no similar charges during 2003.

During the year ended December 31, 2001, we
reported charges of approximately $17.3 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, costs relating to
termination of marketing agreements, and an asset write-off
related to the termination of the Evergreen subsidiary.

|                                                          |  |            |       |        |  |      |       |        |  |      |       |  |  |  |       |    |  |   |        | 
|--------------------------------------------------------- |  | ---------- | ----- | ------ |  | ---- | ----- | ------ |  | ---- | ----- |  |  |  | ----- | -- |  | - | ------ | 
|                                                          |  |           
|                                                          |  | Year Ended
|(dollars in thousands)                                    |  | 2003       |       | Change |  | 2002 |       | Change |  | 2001
|                                                         
|                                                         
|Gain on acquisition and dissolution of joint
    ventures |  | $          | 6,356 |        |  |      | 552.6 | %      |  | $    | 974   |  |  |  | (92.7 | %) |  | $ | 13,356 | 
|Interest and other income, net                            |  | $          | 1,342 |        |  |      | 21.3  | %      |  | $    | 1,106 |  |  |  | (65.7 | %) |  | $ | 3,221  | 
|                                                         

Gain on Acquisition and Dissolution of Joint
Ventures

During 2003, we recognized a gain of
$6.1 million representing the fair value of net assets we
recorded in excess of the consideration paid upon the
acquisition of the remaining outstanding equity interests in our
joint venture, Ask Jeeves U.K. This amount had been deferred due
to a contingent payment obligation in our agreement with our
former partners. Further, we recognized a gain of $232,000
relating to the final dissolution of the accounts of Ask Jeeves
en Espanol (our Spanish language joint venture with Univision
Communications, Inc.), following the wind-up of operations.

During 2002, we recognized a gain of $974,000
representing the remaining balance of deferred license fees paid
to us by Ask Jeeves U.K., for a licensing arrangement that was
terminated when we acquired the entity. The gain was recognized
as other income.

In October 2001, we dissolved Ask Jeeves en
Espanol. 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.




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Interest and Other Income, Net

Interest income relates primarily to interest
earned on fixed income securities and correlates with the
average balance of those investments and prevailing interest
rates. Interest expense arises primarily from interest accruing
on outstanding borrowings under our line of credit and under our
capital lease.

Interest income was $1.3 million for the
year ended December 31, 2003, $1.5 million for the
year ended December 31, 2002 and $4.2 million for the
year ended December 31, 2001. The decrease in interest
income in 2003 over 2002 is due to the amortization of our
capitalized issuance costs related to the convertible
subordinated notes we sold in 2003, which are netted against
interest income. Amortization of these costs totaled $407,000
for 2003. Without including this amortization, interest income
in 2003 increased $188,000 from 2002 as our average balance of
funds held in interest-earning investments increased. Net
proceeds from the sale of the convertible subordinated notes are
being held in marketable securities. The decrease in interest
income in 2002 over 2001 relates to decreases in both average
balances and prevailing interest rates during the year.

Interest expense was $165,000 for the year ended
December 31, 2003, $478,000 for the year ended
December 31, 2002, and $630,000 for the year ended
December 31, 2001. During 2003 we repaid the outstanding
borrowings under our line of credit, and paid off the remaining
obligation under our capital lease. As a result, interest
expense decreased. The decrease from 2001 to 2002 relates to a
decrease in amounts outstanding under our capital leases.

During 2003 we recognized $300,000 in other
income relating to professional services provided to our
Japanese joint venture.

Loss from Discontinued Operations

On July 1, 2003, we completed the sale of
certain assets used in our Jeeves Solutions business to Kanisa,
Inc. pursuant to an Asset Purchase Agreement dated May 28,
2003, by and between us and Kanisa. Accordingly, the results of
operations relating to this division have been reclassified in
our Statements of Operations as a discontinued operation.

During 2003, we recorded a gain of
$2.5 million representing the excess of the purchase
consideration received at closing over the book value of the
assets sold, as well as the remaining amount of deferred license
fees applicable to Jeeves Solutions. In exchange for the sale of
such assets, we received $3.4 million in cash at the
closing and a promissory note for up to $750,000 which is
payable, subject to certain set-off provisions, one year from
the date of closing. The amount payable under the note is
currently expected to be approximately $731,000, and is subject
to certain upward or downward adjustments, but in no event shall
the amount payable under the note exceed $750,000. The proceeds,
if any, from the promissory note will be recorded as additional
gain on the transaction upon receipt.

Total revenues related to the discontinued
operations were $4.2 million, $9.1 million and
$15.0 million for the years ended December 31, 2003,
2002, and 2001, respectively. The assets and liabilities of
Jeeves Solutions as of December 31, 2002 have been
classified as assets and liabilities of discontinued operations
in the Consolidated Balance Sheets and the results of operations
have been reclassified as loss from discontinued operations in
the Consolidated Statement of Operations for all dates and
periods presented.

We recorded a loss on discontinued operations of
$1.2 million during 2003. Operating expenses decreased
$11.6 million from 2002, primarily from our cost cutting
efforts. Further, revenues in 2003 were $4.2 million
compared to $9.1 million in 2002. As a result of the sale
of the division on July 1,






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2003, we only recorded six months of revenue
compared to the twelve months of revenue we recorded in 2002.


During 2002, we recorded a loss on discontinued
operations of $10.4 million, as compared with a loss in
2001 of $15.5 million. The decrease in loss results from
our cost cutting efforts as we worked to align the spending
levels for the division with expected operational needs. The
decrease in spending was partially offset by a decrease in
revenue, as noted above.

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 attract and retain advertisers and
    our ability to link our partners to potential customers;                     
|
| |  | the number of queries on our Web sites;                                                                                            
|
| |  | our ability to effectively manage our advertising
    inventory;                                                                   
|
| |  | rate changes for advertising on our Web sites;                                                                                     
|
| |  | marketing expenses and technology infrastructure
    costs as well as other costs that we may incur as we expand our
    operation;
|
| |  | 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 Internet advertising continues the transition
from an emerging to a more developed market, seasonal and
cyclical patterns may develop in our industry that may also
affect our revenues. Similar to traditional media, this may
result in our advertising sales being lower during the summer
vacation period. Additionally, the seasonality of traffic on our
proprietary sites corresponds with overall Internet usage. This
may result in lower usage during holidays and the summer
vacation period, as less people use the Internet. Seasonality in
the retail industry and in Internet service usage is likely to
cause quarterly fluctuations in our results of operations and
could harm our business.




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Liquidity and Capital
Resources

|                                                                  |                            |                    |          |      |   |   |         |      |  
|----------------------------------------------------------------- | -------------------------- | ------------------ | -------- | ---- | - | - | ------- | ---- | -
|                                                                  |                            |                   
|                                                                  |                            | December 31, or   
|                                                                  |                            | for the year ended
|                                                                  |                            | December 31,      
|(dollars in thousands)                                            |                            | 2003               |          | 2002
|                                                                  |                            |                    |          |     
|                                                                 
|                                                                 
|Unrestricted cash, cash equivalents and
    marketable securities |                            | $                  | 180,648  |      |   | $ | 33,440  |     
|Restricted cash, cash equivalents and marketable
    securities   |                            | $                  |         |      |   | $ | 11,000  |     
|Total cash, cash equivalents and marketable
    securities        |                            | $                  | 180,648  |      |   | $ | 44,440  |     
|                                                                  | Percentage of total assets |                    |          | 85.1 | % |   |         | 61.6 | %
|Current ratio*                                                    |                            |                    | 10.7     |      |   |   | 2.20    |     
|Days sales outstanding                                            |                            |                    | 41       |      |   |   | 43      |     
|Cash provided by (used in) operating activities                   |                            | $                  | 28,282   |      |   | $ | (38,924 | )   
|Cash provided by (used in) investing activities                   |                            | $                  | (135,050 | )    |   | $ | 32,287  |     
|Cash provided by financing activities                             |                            | $                  | 113,509  |      |   | $ | 533     |     
|                                                                 



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

As of December 31, 2003, we had
$180.6 million in cash and cash equivalents, and marketable
securities, an increase of $136.2 million compared to the
fiscal 2002 year end. Of this amount, $36.7 million
was categorized as cash and cash equivalents at
December 31, 2003. 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. Our primary
source of cash is receipts from revenue. In 2003, we also
generated $111.7 million from the issuance of convertible
subordinated notes. Another source of cash is proceeds from the
exercise of employee stock options. The primary uses of cash are
payroll (salaries, bonuses and benefits), general operating
expenses (marketing and facilities) and capital expenditures.

Net cash provided by operating activities of
$28.3 million for the year ended 2003 resulted primarily
from income from continuing operations of $24.8 million
adjusted for non-cash items including gain from sale of
discontinued operations and loss from discontinued operations of
$2.5 million and $1.2 million, respectively,
depreciation and amortization of $7.1 million, the
recognition of a previously deferred gain from our acquisition
of the remaining equity interests of Ask Jeeves U.K. in
2002 of $6.1 million and changes in working capital.

Net cash used in investing activities of
$135.1 million resulted primarily from the net purchase of
marketable securities of $138.1 million as well as capital
expenditures of $7.9 million. Partially offsetting these
investments was proceeds from the redemption of restricted
marketable securities of $11.0 million.

Net cash provided by financing activities of
$113.5 million resulted from our issuance of convertible
subordinated notes of $111.7 million as well as our
issuance of common stock of $13.3 million, primarily from
the exercise of stock options. Partially offsetting these
inflows was our repayment of $11.0 million of borrowings
under our line of credit.

We have a revolving line of credit with a bank in
the amount of $15.0 million. The line of credit expires on
July 1, 2005. Borrowings under the line of credit bear
interest at LIBOR plus 0.4%. All borrowings and letters of
credit are collateralized by an equal amount of our marketable
securities. The line of credit agreement contains various
covenants. As of December 31, 2003, no borrowings were
outstanding. Standby letters of credit of approximately $104,000
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.

In June 2003, we issued $115.0 million
aggregate principal amount of zero coupon convertible
subordinated notes, due June 1, 2008. The notes were sold
at face value and our net proceeds were






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$111.7 million, net
of costs of issuance of $3.3 million. We issued the notes
for general corporate purposes, including potential future
acquisitions. The notes are convertible by the holders into
shares of our common stock at any time at an initial conversion
price of $16.90 per share subject to certain adjustments. This
is equivalent to a conversion rate of approximately 59.1716
shares per $1,000 principal amount of notes. Upon conversion, we
have the right, subject to certain conditions, to deliver cash
(or a combination of cash and shares) in lieu of shares of its
common stock. The notes are subordinated in right of payment to
all existing and future senior indebtedness, as defined in the
indenture. The holders of the notes may require us to repurchase
all or a portion of the notes, subject to specified exceptions,
upon the occurrence of a change in control. We may choose to pay
the repurchase price in cash, shares of its common stock, shares
of the surviving corporation or a combination thereof. We may
not redeem the notes prior to the maturity date.


Our existing cash and marketable securities
balances may decline during 2004 in the event of a weakening in
our business or changes in our planned cash outlays. However,
based upon our current business plan and revenue prospects, we
anticipate that our existing 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.
Cash from operations could be affected by various risks and
uncertainties, including, but not limited to the risks detailed
in the section Risk Factors. Additionally, cash and
marketable securities balances may be used to fund strategic
acquisitions of other companies, products or technologies that
are complimentary to our business.

On an ongoing basis, we will need to generate
sufficient cash flow from operations to meet our anticipated
needs for working capital and capital expenditures, and
repayment of our convertible notes if not converted into stock,
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, 2003, our only
unconsolidated subsidiary is Ask Jeeves Japan, which generally
provides Ask Jeeves services within a defined geographic
region. We do 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.




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Contractual
Obligations, Contingent Liabilities and Commitments

The following table summarizes our contractual
obligations at December 31, 2003, and the effect such
obligations are expected to have on our liquidity and cash flows
in future periods:

|                                |       |       |         |           |  |           |       |           |  |            |       |       |  |   |         |         |  |   |     |      | 
|------------------------------- | ----- | ----- | ------- | --------- |  | --------- | ----- | --------- |  | ---------- | ----- | ----- |  | - | ------- | ------- |  | - | --- | ---- | 
|                                |       |       |         | Less than |  |           |       |           |  |           
|(in thousands)                  |       | Total |         | 1 year    |  | 1-3 years |       | 4-5 years |  | Thereafter
|                               
|                               
|Convertible subordinated notes* |       | $     | 115,000 |           |  | $         |      |           |  | $          |      |       |  | $ | 115,000 |         |  | $ |    |     
|Non-cancelable operating leases |       |       | 8,752   |           |  |           | 3,924 |           |  |            | 2,371 |       |  |   | 1,518   |         |  |   | 939 |     
|                               
|                                | Total |       | $       | 123,752   |  |           | $     | 3,924     |  |            | $     | 2,371 |  |   | $       | 116,518 |  |   |     | $939 | 
|                               



|  |                                                                                                                                                                                                                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The notes are convertible at any time prior to
    maturity into shares of our common stock at a conversion price
    of $16.90 per share, subject to certain adjustments. In the
    event of such conversion, we will have the right to deliver cash
    (or a combination of cash and shares of common stock) in lieu of
    shares of our common stock.

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 January 2003 the Financial Accounting
Standards Board issued FASB Interpretation 46,
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. In December 2003,
the Financial Accounting Standards Board, issued revisions to
FASB Interpretation 46, resulting in multiple effective dates
based on the characteristics as well as the creation dates of
the variable interest entities, however with no effective date
later than our first quarter of 2004. We do not believe that the
adoption of FASB Interpretation 46 will have a material
effect on our consolidated financial statements.

In December 2004, the Securities and Exchange
Commission issued Staff Accounting Bulleting No. 104
Revenue Recognition (SAB 104), which updates and
summarizes the Commissions views on the application of generally
accepted accounting principles to revenue recognition in
financial statements. We believe that our revenue recognition
policies conform to the requirements of SAB 104.






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RISK FACTORS


Included below are 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.

Although we first became profitable in the fourth
quarter of 2002, and were profitable during 2003, as of
December 31, 2003 we had an accumulated deficit of
$670.7 million. We cannot assure 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 sales while continuing to control
our expenses. During the period 2000-2002, we took steps to
control costs, including business realignment and a reduction in
our workforce. These measures reduced our operating costs in
earlier periods 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 substantially 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 attract Web traffic
or control costs, our annual net losses could resume, in which
case we would eventually need to obtain additional financing or
cease operations.

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

In July 2002, we entered into an agreement with
Google, Inc., to participate in its sponsored links program, and
our participation began in September 2002. Under this agreement,
Google sells paid placements to tens of thousands of advertisers
and we display their paid placements on our U.S. Web
properties. We also syndicate Googles paid placements,
together with our search results, to third-party Web sites in
our syndication network. In exchange for making our Web traffic
available to Googles advertisers, we share in the revenue
generated from those advertisers. In the second quarter of 2003,
the Ask Jeeves UK Partnership, our U.K. subsidiary, entered
into an agreement with a Google subsidiary to display
Googles paid placements on our U.K. Web site,
replacing a previous paid placement provider. For the year ended
December 31, 2003, our combined paid listings revenues from
Google comprised 55% of our revenues from continuing operations,
and 65% of revenues from continuing operations for the fourth
quarter of 2003. Our U.S. agreement with Google is
scheduled to terminate in September 2005 (but allows for
termination for convenience by either party during September or
October of 2004), and our U.K. agreement with Google is
scheduled to terminate in May 2005.

If our contracts with Google are not renewed, or
if Google fails to perform under these contracts or if they are
terminated for any other reason, we would need to find another
suitable paid placement provider or otherwise replace the lost
revenues. Although alternate paid placement providers (such as
Yahoo! Inc. and Espotting Media/FindWhat.com) are currently
available in the market, the paid placement market is
consolidating, (for example, Espotting Media is merging with
FindWhat.com), and we face the risk that we might be unable to
negotiate equally advantageous terms with such providers.
Further, if Googles performance under these contracts
unexpectedly deteriorates or our ability to generate traffic for
paid placements decreases, 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,




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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. In addition, technological changes could impact the
success of particular business models. This uncertainty makes it
difficult to project our long-term advertising rates and
revenues. A decrease in advertising or further cuts in
advertising rates would reduce our total revenue.


We rely on DoubleClick
for third-party advertising delivery.

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.

Both the U.S. and Europe DoubleClick, Inc.
agreements will expire on February 27, 2007.

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

We will be successful only if a critical mass of
Internet users adopt our search technologies and services as a
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 chat
rooms and e-mail, rather than browsing through Web sites. Our
search technologies, including our Teoma technology, are novel.
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 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 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.






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

We compete in markets that are intensely
competitive and rapidly changing. Many of our competitors are
bringing new search technologies to market, allocating extensive
resources to product development and marketing and expanding
their search offerings. We compete with search destinations,
portals, and search technology providers.



| |   |                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Search Destinations and Portals.In our efforts to attract search
    engine users, we compete against search destinations and portals
    such as Google, Inc., Yahoo! Inc., America Online (AOL) and
    Microsoft Network (MSN), and other smaller companies.
|
| |  | Search Technology Providers.We also compete with search technology
    providers such as Google, Inc., Yahoo! Inc., and other smaller
    companies.                                                                                                           

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 resources than we do. Moreover,
vertical integration appears to be increasing in the Internet
search and advertising industry. For example, in 2003, Yahoo!
acquired Inktomi and other search technology providers, and
Overture Inc., a provider of search services, paid placements
and related advertising. Vertically integrated search providers,
like Yahoo! Inc. and Google, Inc., might have greater resources
and functionality, and might be able to inhibit our access to
advertisers or end users.

We face the risk that operating system companies,
ISPs or broadband providers may block or inhibit our ability to
connect with our end users. If our competitors successfully
divert search users away from our Web sites, we might lose
market share.

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,
or our Web site traffic. 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
develop new products and new product enhancements rapidly and
successfully, as well as to integrate acquired technologies, we
might be unable to maintain user satisfaction.

In the highly competitive, consolidating, and
rapidly changing Internet search environment, our future success
depends in large part on our ability to develop or acquire and
introduce new search technology that meets the needs of our
users more rapidly than our competitors, several of which are
larger and may have significantly greater resources available
for such investment in technology. For example, in 2001 we
acquired Teoma Technologies, Inc. and in 2002 we acquired
technology from Octopus Software, Inc. If we are unable to
rapidly and successfully develop, acquire, or integrate new
technology into the search services we offer, we might lose
market share to our faster competitors and never recoup our
development or acquisition costs.




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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 and
technologies since our initial public offering, including Teoma
Technologies, Inc. in September 2001 and full ownership of Ask
Jeeves UK Partnership 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.
In addition, we may spend significant management time and costs
in dealing with acquisitions that do not come to fruition.
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;                                                                         
|
| |  | 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 integrate our acquired
companies successfully or to create new or enhanced services, we
might not achieve the anticipated benefits from our
acquisitions. If we fail to achieve the anticipated benefits
from the acquisitions, we might incur increased expenses and
experience a shortfall in our anticipated revenues and we might
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 past 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 manage our current operations
better. 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
operations expose us to additional risks and additional
international expansion efforts might lose money.

The Company operates a separate Web site, located
in Dublin, Ireland, that provides Internet search services to
its customers in the United Kingdom, Ireland and elsewhere in
Europe. In addition, we hold






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a 47% interest in Ask Jeeves Japan, a joint
venture selling our Answers software product, as well as seeking
to launch a Japanese language search site with Japan-specific
content. As part of our corporate restructuring in 2001, we
terminated our participation in projects seeking to launch
versions of our search sites for Spanish speaking and Australian
users. Any further expansion into international markets would
require substantial management attention and financial
resources. Establishing foreign operations is a significant
investment that might not produce desired returns.


Like our current foreign operations, any future
expansion efforts would be subject to risks associated with
international operations, including:



| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of business cycles and downturns in
    economies outside the United States;                                                                                                                                                                                        
|
| |  | longer payment cycles and greater difficulty in
    accounts receivable collections;                                                                                                                                                                                           
|
| |  | time and resources required to comply with
    foreign regulatory requirements;                                                                                                                                                                                                
|
| |  | unexpected changes in regulatory requirements;                                                                                                                                                                                                                                 
|
| |  | difficulties and costs of staffing and managing
    foreign operations;                                                                                                                                                                                                        
|
| |  | potential tax liabilities if our transfer-pricing
    practices are successfully challenged by the tax authorities of
    the nations in which we operate;                                                                                                                     
|
| |  | 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;                                                                                                                                                                         
|
| |  | 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.                                                                                                                                                                                                    

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 link
users directly to a page within a third-party Web site that
contains a response to a users query. 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. We do not believe that any such claim
would have legal merit, but 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.




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Risks Related to
Operating in our Industry

The operating
performance of 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,
Cable & Wireless Communications in England, and Esat
Telecommunications Ltd., in Dublin, Ireland. 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. These
Web site interruptions have lasted 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 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 backup 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 insurance policies might 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 less effective than traditional media
at promoting their products or services and may further reduce
or eliminate their 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.






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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 might be insufficient to cover losses that 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 might 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 business might
suffer if any of our key executives discontinues employment with
us.

Our future success depends to a large extent on
the services of our key managerial employees. Although we have
signed offer letters with our executives, we have not entered
into formal employment agreements with them and we do not
maintain key person life insurance. If we are unable to retain
our executive officers or key management personnel or attract
additional qualified management in the future, our business
might be materially harmed.




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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 with skills in search technology is intense. 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 highly-skilled employees, our
business will be harmed.

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 search
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 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
might be affected by the application to Internet commerce of
existing laws governing issues such as property ownership,
copyrights, encryption and






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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.


Several recent federal laws could have an impact
on our business. The Digital Millennium Copyright Act is
intended, in part, to limit the liability of eligible 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. Such legislation may impose significant
additional costs on our business or subject us to additional
liabilities.

Due to the nature of the Web, it is possible that
the governments of other states and foreign countries might
attempt to regulate Web transmissions or prosecute us for
violations of their laws. We might unintentionally violate such
laws, such laws might be modified and new laws might be enacted
in the future. Any such developments (or developments stemming
from enactment or modification of other laws) could increase the
costs of regulatory compliance for us or force us to change our
business practices.

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, patents, 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, recent
military action in Iraq, 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
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 our key data centers, our business could be harmed.




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Risks Related to
Accounting Matters

If requirements
relating to accounting treatment for employee stock options are
changed, we might decide to change our compensation practices,
which might increase our cash compensation expense.

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 standards-setting
authorities are adopted, we may be required to treat the value
of the stock options granted to employees as compensation
expense. Such a change would likely have a negative effect on
our earnings. In response to a requirement to expense the value
of stock options, we might 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. An increase in
employee wages and salaries would decrease our cash available
for marketing, product development and other uses.

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, and
the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 104, Revenue
Recognition, or SAB 104, 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 EITF 00-21 and SAB 104.

The accounting profession continues to discuss
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.

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 might
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 might 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 might experience dilution of
their ownership interest, and the newly issued securities might
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.






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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;                                                                                          
|
| |  | changes in financial estimates by securities
    analysts;                                                                                              
|
| |  | changes in research coverage by securities
    analysts;                                                                                                
|
| |  | conditions or trends in the Internet services
    industry;                                                                                             
|
| |  | 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 1, 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, our actual results might 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 sold by directors or officers
and shares issued upon the exercise of outstanding options or 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.




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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 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 is allowed.                                                                                                                                                                                                                 

These provisions may have the effect of delaying
or preventing a change of control. In addition, certain material
agreements contain change in control provisions that may
discourage or delay attempts to acquire us.

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






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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.

Offer letters and severance benefit letter
agreements 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.

Risks Related to our
Subordinated Convertible Notes

Our stock price has
been volatile historically and may continue to fluctuate widely
regardless of our actual operating performance. Significant
volatility in the price of our common stock will likely cause
the price of the notes to fluctuate significantly, which may
make it difficult for holders to resell the notes or the shares
of our common stock issuable upon conversion of the notes when
desired or at attractive prices.

Because the notes are convertible into shares of
our common stock, volatility or depressed prices for our common
stock could have a similar effect on the trading price of the
notes. Holders who receive common stock upon conversion also
will be subject to the risk of volatility and depressed prices
of our common stock. In addition, the existence of the notes may
encourage short selling in our common stock by market
participants because the conversion of the notes could depress
the price of our common stock, and the short selling could also
put downward pressure on the market price of our common stock.

The notes are
subordinated and there are no financial covenants in the
indenture. Therefore, we may be unable to repay our obligations
under the notes.

The notes are unsecured and subordinated in right
of payment in full to all of our existing and future senior
debt. Because the notes are subordinated to our senior debt, in
the event of (1) our liquidation or insolvency, (2) a
payment default on our designated senior debt, (3) a
covenant default on our designated senior debt (as defined in
Description of Notes Subordination of Notes in
the resale prospectus), or (4) acceleration of the notes
due to an event of default, we will make payments on the notes
only after our senior debt has been paid in full. After paying
our senior debt in full, we might not have sufficient assets
remaining to pay any or all amounts due on the notes.

Our subsidiaries are separate legal entities and
have no obligation to make any payments on the notes or make any
funds available for payment on the notes, whether by dividends,
loans or other payments. The payment of dividends and the making
of loans and advances to us by our subsidiaries may be subject
to statutory or contractual restrictions and are dependent upon
the earnings of our subsidiaries. Our subsidiaries have not
guaranteed the payment of the notes. Our right to receive assets
of any of our subsidiaries upon their liquidation or
reorganization, and a noteholders right to participate in
these assets, will be effectively subordinated to the claims of
that subsidiarys creditors. Consequently, the notes are
effectively subordinated to all liabilities, including trade
payables, of any of our subsidiaries and any subsidiaries that
we may in the future acquire or establish, except to the extent
that we are recognized as a creditor of such subsidiary, in
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subordinate to any security interests in the
assets of such subsidiary and any debt of such subsidiary senior
to that held by us.


As of December 31, 2003, (i) we had
$8.8 million of senior debt outstanding consisting
primarily of operating leases, and (ii) our subsidiaries
had no outstanding indebtedness and approximately
$5.8 million of other liabilities, including trade
payables, but excluding intercompany liabilities, to which the
notes are effectively subordinated. Neither we nor our
subsidiaries are prohibited or limited from incurring debt or
acting as guarantors of debt for others in whom we or our
subsidiaries may have an interest under the indenture. Our
ability to pay our obligations on the notes could be adversely
affected by our or our subsidiaries incurrence of
additional indebtedness or other liabilities. We and our
subsidiaries may from time to time incur additional indebtedness
and other liabilities, including senior debt. See
Description of Notes Subordination of Notes in
the resale prospectus.

We significantly
increased our leverage as a result of the sale of the
notes.

In connection with the sale of the notes, we
incurred $115 million of indebtedness, which substantially
increased our principal payment obligations. The degree to which
we are leveraged could materially and adversely affect our
ability to obtain financing for working capital, acquisitions or
other purposes and could make us more vulnerable to industry
downturns and competitive pressures.

We do not expect a
public market for the notes to develop.

There currently is no organized trading market
for the notes in as much as they are not listed on any exchange
and there can be no assurance as to (1) the liquidity of
any market for the notes that may develop; (2) the ability
of the holders to sell their notes; or (3) the prices at
which holders of the notes would be able to sell their notes. If
markets were to exist, the notes could trade at prices higher or
lower than their initial purchase prices depending on many
factors. If an active market for the notes fails to develop or
be sustained, the trading price of the notes could decline
significantly. We do not intend to apply for listing of the
notes on any securities exchange or for quotation on The Nasdaq
National Market.

We might not have the
ability to repurchase the notes in cash if a holder exercises
its repurchase right upon the occurrence of a change in
control.

Holders of the notes have the right to require us
to redeem the notes upon the occurrence of a change in control
prior to maturity as described under the heading
Description of Notes Purchase of Notes at Your
Option Upon a Change in Control in the resale prospectus.
We might not have sufficient funds to make the required
repurchase in cash at such time or the ability to arrange
necessary financing on acceptable terms. In addition, our
ability to repurchase the notes in cash might be limited by law
or the terms of other agreements relating to our indebtedness
outstanding at the time. We have the ability under the terms of
the notes to pay the repurchase price in shares of our common
stock, regardless of whether we have cash available, but doing
so might be highly dilutive.






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|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Interest Rate Sensitivity

We are exposed to interest rate, market and
credit risk and related change in the market values of our
investment portfolio. Our investment portfolio consists
primarily of high credit quality US, state and municipal
government, corporate, asset-backed, and agency 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 variables 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, 2003, the
effects of changes in interest rates on the fair market value of
our marketable investment securities and our earnings were not
material. 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.

We do not use derivative financial instruments in
our investment portfolio to manage interest rate risk. We place
our investments in instruments that meet high credit quality
standards, as specified in our investment policy guidelines,
which limits the amount of credit exposure to any one issue,
issuer or type of instrument.

Foreign Currency Exchange Risk

The majority of our revenue, expense and capital
purchasing activities are transacted in U.S. dollars.
However, since a significant portion of our operations occurs
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.
However, in order to limit such exposure some contracts of our
international operations are denominated in U.S. dollars
and certain cash balances are maintained in U.S. dollars.
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, transfer pricing risks, other regulations and
restrictions and foreign exchange rate volatility, particularly
the exchange rate between the British pound and the
U.S. dollar. Changes in these or other factors could harm
our business, operating results and financial condition.




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|        |                                                
|------- | -----------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS
    AND SUPPLEMENTARY DATA




INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS


|                                                      |  |      |    | 
|----------------------------------------------------- |  | ---- | -- | 
|                                                      |  | Page
|                                                     
|                                                     
|Report of Ernst & Young LLP, Independent
    Auditors |  |      | 50 | 
|Consolidated Balance Sheets                           |  |      | 51 | 
|Consolidated Statements of Operations                 |  |      | 52 | 
|Consolidated Statements of Stockholders
    Equity   |  |      | 53 | 
|Consolidated Statements of Cash Flows                 |  |      | 54 | 
|Notes to Consolidated Financial Statements            |  |      | 55 | 
|                                                     






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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, 2003
and 2002, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2003. 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, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2003, 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 23, 2004,


except for the fourth paragraph of Note 14,


as to which the date is


February 27, 2004





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CONSOLIDATED BALANCE
SHEETS


|                                                |                                                                                                                                                                           |                                                            |         |          |         |  |        |          |        | 
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------- | -------- | ------- |  | ------ | -------- | ------ | 
|                                                |                                                                                                                                                                           |                                                           
|                                                |                                                                                                                                                                           | December 31,                                              
|(in thousands, except share and per share data) |                                                                                                                                                                           | 2003                                                       |         | 2002    
|                                               
|                                               
|Assets                                          |                                                                                                                                                                           |                                                            |         |          |         |  |        |         
|Current assets:                                 |                                                                                                                                                                           |                                                            |         |          |         |  |        |         
|                                                | Cash and cash equivalents                                                                                                                                                 |                                                            | $       | 36,673   |         |  | $      | 27,613   |       
|                                                | Marketable securities                                                                                                                                                     |                                                            |         | 143,975  |         |  |        | 5,827    |       
|                                                | Restricted cash and marketable securities                                                                                                                                 |                                                            |         |         |         |  |        | 11,000   |       
|                                               
|                                                |                                                                                                                                                                           | Total cash, cash equivalents and marketable
    securities |         |          | 180,648 |  |        |          | 44,440 | 
|                                                | Accounts receivable, net of allowance for
    doubtful accounts of $1,437 and $1,593 at December 31, 2003
    and 2002, respectively                                      |                                                            |         | 12,062   |         |  |        | 7,600    |       
|                                                | Prepaid expenses and other current assets                                                                                                                                 |                                                            |         | 3,299    |         |  |        | 2,272    |       
|                                                | Assets of discontinued operations                                                                                                                                         |                                                            |         |         |         |  |        | 2,699    |       
|                                               
|                                                |                                                                                                                                                                           | Total current assets                                       |         |          | 196,009 |  |        |          | 57,011 | 
|Property and equipment, net                     |                                                                                                                                                                           |                                                            | 10,933  |          |         |  | 10,922 |         
|Intangible assets, net                          |                                                                                                                                                                           |                                                            | 831     |          |         |  | 2,948  |         
|Other assets                                    |                                                                                                                                                                           |                                                            | 4,482   |          |         |  | 1,295  |         
|                                               
|                                                |                                                                                                                                                                           | Total assets                                               |         | $        | 212,255 |  |        | $        | 72,176 | 
|                                               
|Liabilities and
    Stockholders Equity        |                                                                                                                                                                           |                                                            |         |          |         |  |        |         
|Current liabilities:                            |                                                                                                                                                                           |                                                            |         |          |         |  |        |         
|                                                | Accounts payable                                                                                                                                                          |                                                            | $       | 1,825    |         |  | $      | 1,515    |       
|                                                | Accrued compensation and related expenses                                                                                                                                 |                                                            |         | 5,137    |         |  |        | 3,598    |       
|                                                | Accrued marketing expenses                                                                                                                                                |                                                            |         | 1,272    |         |  |        | 163      |       
|                                                | Accrued restructuring costs                                                                                                                                               |                                                            |         | 1,167    |         |  |        | 1,892    |       
|                                                | Other accrued liabilities                                                                                                                                                 |                                                            |         | 8,953    |         |  |        | 6,531    |       
|                                                | Deferred revenue(1)                                                                                                                                                       |                                                            |         | 5,367    |         |  |        | 8,633    |       
|                                                | Deferred gain on joint venture                                                                                                                                            |                                                            |         |         |         |  |        | 6,226    |       
|                                                | Borrowings under line of credit                                                                                                                                           |                                                            |         |         |         |  |        | 11,000   |       
|                                                | Liabilities of discontinued operations                                                                                                                                    |                                                            |         |         |         |  |        | 3,015    |       
|                                               
|                                                |                                                                                                                                                                           | Total current liabilities                                  |         |          | 23,721  |  |        |          | 42,573 | 
|Convertible subordinated notes                  |                                                                                                                                                                           |                                                            | 115,000 |          |         |  |       |         
|Other liabilities                               |                                                                                                                                                                           |                                                            | 326     |          |         |  | 326    |         
|                                               
|                                                |                                                                                                                                                                           | Total liabilities                                          |         |          | 139,047 |  |        |          | 42,899 | 
|                                               
|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; 46,616,445 and 41,418,334 shares issued and
    outstanding at December 31, 2003 and 2002, respectively |                                                            |         | 740,845  |         |  |        | 725,366  |       
|                                                | Deferred stock compensation                                                                                                                                               |                                                            |         |         |         |  |        | (7       | )     
|                                                | Accumulated deficit                                                                                                                                                       |                                                            |         | (670,686 | )       |  |        | (696,735 | )     
|                                                | Accumulated other comprehensive income                                                                                                                                    |                                                            |         | 3,049    |         |  |        | 653      |       
|                                               
|                                                |                                                                                                                                                                           | Total stockholders equity                                 |         |          | 73,208  |  |        |          | 29,277 | 
|                                               
|                                                |                                                                                                                                                                           | Total liabilities and stockholders equity                 |         | $        | 212,255 |  |        | $        | 72,176 | 
|                                               



|    |                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------
|(1) | Includes amounts from related parties of $2,740
    and $7,265 at December 31, 2003 and 2002, respectively

See accompanying notes to consolidated financial
statements.






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##### Table of Contents





CONSOLIDATED STATEMENTS
OF OPERATIONS


|                                                                                              |                                                           |                          |            |        |        |      |            |         |        |   |            |         |         | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------ | ---------- | ------ | ------ | ---- | ---------- | ------- | ------ | - | ---------- | ------- | ------- | 
|                                                                                              |                                                           |                         
|                                                                                              |                                                           | Year Ended December 31, 
|(in thousands, except share and per share data)                                               |                                                           | 2003                     |            | 2002   |        | 2001
|                                                                                             
|                                                                                             
|Revenues                                                                                      |                                                           | $                        | 107,292    |        |        | $    | 65,048     |         |        | $ | 51,569     |        
|Cost of revenues                                                                              |                                                           |                          | 21,917     |        |        |      | 19,302     |         |        |   | 20,546     |        
|                                                                                             
|Gross profit                                                                                  |                                                           |                          | 85,375     |        |        |      | 45,746     |         |        |   | 31,023     |        
|Operating expenses:                                                                           |                                                           |                          |            |        |        |      |            |         |        |   |            |        
|                                                                                              | Product development                                       |                          |            | 14,768 |        |      |            | 13,301  |        |   |            | 14,655  |        
|                                                                                              | Sales and marketing                                       |                          |            | 31,902 |        |      |            | 25,973  |        |   |            | 29,812  |        
|                                                                                              | General and administrative                                |                          |            | 19,025 |        |      |            | 15,163  |        |   |            | 17,554  |        
|                                                                                              | Amortization of goodwill and other intangible
    assets  |                          |            |       |        |      |            |        |        |   |            | 22,823  |        
|                                                                                              | Impairment of long-lived assets                           |                          |            | 702    |        |      |            | 2,592   |        |   |            | 355,183 |        
|                                                                                              | Restructuring costs                                       |                          |            |       |        |      |            | 1,653   |        |   |            | 17,337  |        
|                                                                                             
|                                                                                              |                                                           | Total operating expenses |            |        | 66,397 |      |            |         | 58,682 |   |            |         | 457,364 | 
|                                                                                             
|Operating income (loss)                                                                       |                                                           |                          | 18,978     |        |        |      | (12,936    | )       |        |   | (426,341   | )      
|Gain on acquisition and dissolution of joint
    ventures                                     |                                                           |                          | 6,356      |        |        |      | 974        |         |        |   | 13,356     |        
|Interest and other income, net                                                                |                                                           |                          | 1,342      |        |        |      | 1,106      |         |        |   | 3,221      |        
|                                                                                             
|Income (loss) before income tax provision                                                     |                                                           |                          | 26,676     |        |        |      | (10,856    | )       |        |   | (409,764   | )      
|Income tax provision                                                                          |                                                           |                          | 1,891      |        |        |      |           |         |        |   |           |        
|                                                                                             
|Income (loss) from continuing operations                                                      |                                                           |                          | 24,785     |        |        |      | (10,856    | )       |        |   | (409,764   | )      
|Discontinued operations:                                                                      |                                                           |                          |            |        |        |      |            |         |        |   |            |        
|                                                                                              | Loss from discontinued operations                         |                          |            | (1,218 | )      |      |            | (10,447 | )      |   |            | (15,494 | )      
|                                                                                              | Gain on sale of discontinued operations, net of
    taxes |                          |            | 2,482  |        |      |            |        |        |   |            |        |        
|                                                                                             
|Income (loss) from discontinued operations                                                    |                                                           |                          | 1,264      |        |        |      | (10,447    | )       |        |   | (15,494    | )      
|                                                                                             
|Net income (loss)                                                                             |                                                           | $                        | 26,049     |        |        | $    | (21,303    | )       |        | $ | (425,258   | )      
|                                                                                             
|Earnings per Share Basic:                                                                    |                                                           |                          |            |        |        |      |            |         |        |   |            |        
|                                                                                              | Income (loss) from continuing operations                  |                          | $          | 0.56   |        |      | $          | (0.27   | )      |   | $          | (11.06  | )      
|                                                                                              | Income (loss) from discontinued operations                |                          | $          | 0.03   |        |      | $          | (0.25   | )      |   | $          | (0.42   | )      
|                                                                                             
|                                                                                              | Net income (loss) per share                               |                          | $          | 0.59   |        |      | $          | (0.52   | )      |   | $          | (11.48  | )      
|                                                                                             
|Weighted average shares outstanding used in
    computing basic net income (loss) per share   |                                                           |                          | 44,233,461 |        |        |      | 40,698,137 |         |        |   | 37,032,933 |        
|                                                                                             
|Earnings per Share Diluted:                                                                  |                                                           |                          |            |        |        |      |            |         |        |   |            |        
|                                                                                              | Income (loss) from continuing operations                  |                          | $          | 0.45   |        |      | $          | (0.27   | )      |   | $          | (11.06  | )      
|                                                                                              | Income (loss) from discontinued operations                |                          | $          | 0.03   |        |      | $          | (0.25   | )      |   | $          | (0.42   | )      
|                                                                                             
|                                                                                              | Net income (loss) per share                               |                          | $          | 0.48   |        |      | $          | (0.52   | )      |   | $          | (11.48  | )      
|                                                                                             
|Weighted average shares outstanding used in
    computing diluted net income (loss) per share |                                                           |                          | 54,773,229 |        |        |      | 40,698,137 |         |        |   | 37,032,933 |        
|                                                                                             
|Revenues from related parties                                                                 |                                                           | $                        | 4,525      |        |        | $    | 6,189      |         |        | $ | 18,991     |        
|                                                                                             

See accompanying notes to consolidated financial
statements.




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##### Table of Contents



CONSOLIDATED STATEMENTS
OF STOCKHOLDERS EQUITY


|                                |                                                                          |              |            |             |   |            |         |              |   |               |        |               |  |               |      |               |   |   |          |          |   |   |       |       |   |   |         |          |   |   |          |          |  
|------------------------------- | ------------------------------------------------------------------------ | ------------ | ---------- | ----------- | - | ---------- | ------- | ------------ | - | ------------- | ------ | ------------- |  | ------------- | ---- | ------------- | - | - | -------- | -------- | - | - | ----- | ----- | - | - | ------- | -------- | - | - | -------- | -------- | -
|                                |                                                                          |              |            |             |   |            |         |              |   |               |        | Accumulated   |  |               |      |              
|                                |                                                                          |              |            | Shareholder |   | Deferred   |         |              |   | Other         |        | Total         |  |              
|                                |                                                                          | Common Stock |            | Notes       |   | Stock      |         | Accumulated  |   | Comprehensive |        | Stockholders |  | Comprehensive
|in thousands, except share data |                                                                          | Shares       |            | Amount      |   | Receivable |         | Compensation |   | Deficit       |        | Income        |  | Equity        |      | Income (Loss)
|                               
|                               
|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      |   |   |          |          |  
|                                | 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
    license            |              |            |            |   |            |         | 184          |   |               |        |               |  |               |      |              |   |   |          |         |   |   |       |      |   |   |         | 184      |   |   |          |          |  
|                                | Compensation charge related to grants of common
    stock options        |              |            |            |   |            |         | 1,386        |   |               |        |               |  |               |      | (93           | ) |   |          |         |   |   |       |      |   |   |         | 1,293    |   |   |          |          |  
|                                | Amortization of deferred stock compensation                              |              |            |            |   |            |         |             |   |               |        |               |  |               |      | 706           |   |   |          |         |   |   |       |      |   |   |         | 706      |   |   |          |          |  
|                                | Adjustments related to shareholder notes
    receivable                  |              |            |            |   |            |         |              |   |               |        | 1,117         |  |               |      |              |   |   |          |         |   |   |       |      |   |   |         | 1,117    |   |   |          |          |  
|Comprehensive loss:             |                                                                          |              |            |             |   |            |         |              |   |               |        |               |  |               |      |               |   |   |          |          |   |   |       |       |   |   |         |          |   |   |          |         
|                                | Unrealized gains 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     | ) |   |          |          |  
|                                | Issuance of restricted common stock                                      |              |            | 14,168      |   |            |         | 501          |   |               |        |              |  |               |      |              |   |   |          |         |   |   |       |      |   |   |         | 501      |   |   |          |          |  
|                                | Amortization of deferred stock compensation                              |              |            |            |   |            |         |             |   |               |        |              |  |               |      | 91            |   |   |          |         |   |   |       |      |   |   |         | 91       |   |   |          |          |  
|                                | Adjustment 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  |          |   |   |          |         
|                                | Issuance of common stock under Employee Stock
    Purchase Plan          |              |            | 230,040     |   |            |         | 630          |   |               |        |               |  |               |      |              |   |   |          |         |   |   |       |      |   |   |         | 630      |   |   |          |          |  
|                                | Issuance of common stock upon exercise of stock
    options and warrants |              |            | 4,201,145   |   |            |         | 12,707       |   |               |        |               |  |               |      |              |   |   |          |         |   |   |       |      |   |   |         | 12,707   |   |   |          |          |  
|                                | Issuance of restricted common stock                                      |              |            | 766,926     |   |            |         | 967          |   |               |        |               |  |               |      |              |   |   |          |         |   |   |       |      |   |   |         | 967      |   |   |          |          |  
|                                | Income tax benefit from stock option exercises                           |              |            |            |   |            |         | 1,175        |   |               |        |               |  |               |      |              |   |   |          |         |   |   |       |      |   |   |         | 1,175    |   |   |          |          |  
|                                | Amortization of deferred stock compensation                              |              |            |            |   |            |         |             |   |               |        |               |  |               |      | 7             |   |   |          |         |   |   |       |      |   |   |         | 7        |   |   |          |          |  
|Comprehensive loss:             |                                                                          |              |            |             |   |            |         |              |   |               |        |               |  |               |      |               |   |   |          |          |   |   |       |       |   |   |         |          |   |   |          |         
|                                | Unrealized gains on marketable securities                                |              |            |            |   |            |         |             |   |               |        |               |  |               |      |              |   |   |          |         |   |   |       | 77    |   |   |         | 77       |   |   |          | 77       |  
|                                | Foreign currency translation adjustment                                  |              |            |            |   |            |         |             |   |               |        |               |  |               |      |              |   |   |          |         |   |   |       | 2,319 |   |   |         | 2,319    |   |   |          | 2,319    |  
|                                | Net income                                                               |              |            |            |   |            |         |             |   |               |        |               |  |               |      |              |   |   |          | 26,049   |   |   |       |      |   |   |         | 26,049   |   |   |          | 26,049   |  
|                               
|Comprehensive income            |                                                                          |              |            |             |   |            |         |              |   |               |        |               |  |               |      |               |   |   |          |          |   |   |       |       |   |   |         |          |   | $ | 28,445   |         
|                               
|Balances at December 31, 2003   |                                                                          |              | 46,616,445 |             |   | $          | 740,845 |              |   | $             |       |               |  | $             |     |               |   | $ | (670,686 | )        |   | $ | 3,049 |       |   | $ | 73,208  |          |   |   |          |         
|                               

See accompanying notes to consolidated financial
statements.







53




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##### Table of Contents





CONSOLIDATED STATEMENTS
OF CASH FLOWS


|                                                                                                                                    |                                               |                                                                     |                                           |      |        |        |         |       |         |         |          |       |         |         |  
|----------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------------- | ----------------------------------------- | ---- | ------ | ------ | ------- | ----- | ------- | ------- | -------- | ----- | ------- | ------- | -
|                                                                                                                                    |                                               |                                                                    
|                                                                                                                                    |                                               | Year Ended December 31,                                            
|(in thousands)                                                                                                                      |                                               | 2003                                                                |                                           | 2002 |        | 2001  
|                                                                                                                                   
|                                                                                                                                   
|Operating
    activities                                                                                                            |                                               |                                                                     |                                           |      |        |        |         |       |         |         |          |      
|Income (loss) from continuing operations                                                                                            |                                               | $                                                                   | 24,785                                    |      |        | $      | (10,856 | )     |         |         | (409,764 | )    
|Adjustment to reconcile income (loss) from
    continuing operations to net cash provided by (used in) in
    operating activities: |                                               |                                                                     |                                           |      |        |        |         |       |         |         |          |      
|                                                                                                                                    |                                               | Loss from discontinued operations                                   |                                           |      | (1,218 | )      |         |       | (10,447 | )       |          |       | (15,494 | )      
|                                                                                                                                    |                                               | Gain from sale of discontinued operations                           |                                           |      | 2,482  |        |         |       |        |         |          |       |        |        
|                                                                                                                                    |                                               | Depreciation and amortization                                       |                                           |      | 7,122  |        |         |       | 8,736   |         |          |       | 9,410   |        
|                                                                                                                                    |                                               | Loss on disposal of assets                                          |                                           |      | 321    |        |         |       | 3       |         |          |       | 314     |        
|                                                                                                                                    |                                               | Issuance of common stock to consultants                             |                                           |      |       |        |         |       |        |         |          |       | 142     |        
|                                                                                                                                    |                                               | Stock compensation                                                  |                                           |      | 39     |        |         |       | 592     |         |          |       | 1,602   |        
|                                                                                                                                    |                                               | Amortization of goodwill and other assets                           |                                           |      | 2,523  |        |         |       | 2,183   |         |          |       | 29,433  |        
|                                                                                                                                    |                                               | Non-cash restructuring charge                                       |                                           |      |       |        |         |       | 1,140   |         |          |       | 966     |        
|                                                                                                                                    |                                               | Non-cash charge for impairment of long-lived
    assets             |                                           |      | 702    |        |         |       | 2,593   |         |          |       | 355,291 |        
|                                                                                                                                    |                                               | Non-cash charge for adjustments to shareholder
    notes receivable |                                           |      |       |        |         |       | (64     | )       |          |       | 1,352   |        
|                                                                                                                                    |                                               | Gain on acquisition of joint venture                                |                                           |      | (6,124 | )      |         |       | (974    | )       |          |       |        |        
|                                                                                                                                    |                                               | Income tax benefit from stock option exercises                      |                                           |      | 1,175  |        |         |       |        |         |          |       |        |        
|                                                                                                                                    |                                               | Changes in operating assets and liabilities:                        |                                           |      |        |        |         |       |         |         |          |       |         |        
|                                                                                                                                    |                                               |                                                                     | Accounts receivable                       |      |        | (2,508 | )       |       |         | (1,072  | )        |       |         | 14,330  |  
|                                                                                                                                    |                                               |                                                                     | Prepaid expenses and other assets         |      |        | (757   | )       |       |         | 275     |          |       |         | 4,986   |  
|                                                                                                                                    |                                               |                                                                     | Accounts payable                          |      |        | 299    |         |       |         | (3,908  | )        |       |         | (1,758  | )
|                                                                                                                                    |                                               |                                                                     | Accrued compensation and related expenses |      |        | 1,769  |         |       |         | (1,383  | )        |       |         | (2,404  | )
|                                                                                                                                    |                                               |                                                                     | Accrued marketing expenses                |      |        | 912    |         |       |         | (1,141  | )        |       |         | (1,631  | )
|                                                                                                                                    |                                               |                                                                     | Accrued merger costs                      |      |        |       |         |       |         | 213     |          |       |         | (29     | )
|                                                                                                                                    |                                               |                                                                     | Accrued restructuring costs               |      |        | (741   | )       |       |         | (17,661 | )        |       |         | 9,297   |  
|                                                                                                                                    |                                               |                                                                     | Other accrued liabilities                 |      |        | 2,924  |         |       |         | (2,848  | )        |       |         | (4,403  | )
|                                                                                                                                    |                                               |                                                                     | Deferred revenue                          |      |        | (5,423 | )       |       |         | (4,305  | )        |       |         | (17,342 | )
|                                                                                                                                   
|Net cash provided by (used in) operating
    activities                                                                             |                                               |                                                                     | 28,282                                    |      |        |        | (38,924 | )     |         |         | (25,702  | )    
|                                                                                                                                   
|Investing
    activities                                                                                                            |                                               |                                                                     |                                           |      |        |        |         |       |         |         |          |      
|Purchases of property and equipment                                                                                                 |                                               |                                                                     | (7,875                                    | )    |        |        | (5,287  | )     |         |         | (7,174   | )    
|Purchases of restricted marketable securities                                                                                       |                                               |                                                                     | (39                                       | )    |        |        |        |       |         |         | (11,000  | )    
|Purchases of marketable securities                                                                                                  |                                               |                                                                     | (138,136                                  | )    |        |        | (2,622  | )     |         |         |         |      
|Redemption of non-marketable securities                                                                                             |                                               |                                                                     |                                          |      |        |        | 450     |       |         |         |         |      
|Redemption of restricted marketable securities                                                                                      |                                               |                                                                     | 11,000                                    |      |        |        | 13,741  |       |         |         | 3,280    |      
|Redemption of marketable securities                                                                                                 |                                               |                                                                     |                                          |      |        |        | 15,101  |       |         |         | 28,258   |      
|Acquisitions of developed technology                                                                                                |                                               |                                                                     |                                          |      |        |        |        |       |         |         | (5,650   | )    
|Business combinations, net of cash acquired                                                                                         |                                               |                                                                     |                                          |      |        |        | 10,904  |       |         |         | (1,579   | )    
|                                                                                                                                   
|Net cash provided by (used in) investing
    activities                                                                             |                                               |                                                                     | (135,050                                  | )    |        |        | 32,287  |       |         |         | 6,135    |      
|                                                                                                                                   
|Financing
    activities                                                                                                            |                                               |                                                                     |                                           |      |        |        |         |       |         |         |          |      
|Issuance of common stock                                                                                                            |                                               |                                                                     | 13,337                                    |      |        |        | 1,612   |       |         |         | 1,418    |      
|Repurchase of common stock                                                                                                          |                                               |                                                                     |                                          |      |        |        | (243    | )     |         |         | (247     | )    
|Issuance of convertible subordinated notes, net                                                                                     |                                               |                                                                     | 111,744                                   |      |        |        |        |       |         |         |         |      
|Issuance of notes receivable to stockholders                                                                                        |                                               |                                                                     |                                          |      |        |        |        |       |         |         | (200     | )    
|Repayment of notes receivable to stockholders                                                                                       |                                               |                                                                     |                                          |      |        |        | 57      |       |         |         | 162      |      
|Borrowings under line of credit                                                                                                     |                                               |                                                                     |                                          |      |        |        |        |       |         |         | 11,000   |      
|Repayment of borrowings under line of credit                                                                                        |                                               |                                                                     | (11,000                                   | )    |        |        |        |       |         |         |         |      
|Repayment of capital lease obligations                                                                                              |                                               |                                                                     | (572                                      | )    |        |        | (893    | )     |         |         | (886     | )    
|                                                                                                                                   
|Net cash provided by financing activities                                                                                           |                                               |                                                                     | 113,509                                   |      |        |        | 533     |       |         |         | 11,247   |      
|                                                                                                                                   
|Effect of exchange rate changes on cash and cash
    equivalents                                                                    |                                               |                                                                     | 2,319                                     |      |        |        | 592     |       |         |         |         |      
|Increase (decrease) in cash and cash equivalents                                                                                    |                                               |                                                                     | 9,060                                     |      |        |        | (5,512  | )     |         |         | (8,320   | )    
|Cash and cash equivalents at beginning of year                                                                                      |                                               |                                                                     | 27,613                                    |      |        |        | 33,125  |       |         |         | 41,445   |      
|Cash and cash equivalents at end of year                                                                                            |                                               | $                                                                   | 36,673                                    |      |        | $      | 27,613  |       |         | $       | 33,125   |      
|                                                                                                                                   
|Supplemental disclosure
    of non-cash investing and financing activities                                                          |                                               |                                                                     |                                           |      |        |        |         |       |         |         |          |      
|                                                                                                                                    | Common stock issued for business combinations |                                                                     | $                                         |     |        |        | $       | 1,250 |         |         | $        | 2,225 |        
|                                                                                                                                    | Common stock warrants issued for licenses     |                                                                     | $                                         |     |        |        | $       |      |         |         | $        | 184   |        
|                                                                                                                                    | Interest paid                                 |                                                                     | $                                         | 165  |        |        | $       | 478   |         |         | $        | 630   |        
|                                                                                                                                   

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 provider of Web-based search
technologies. The Company creates a search experience focused on
understanding users specific needs and interests and
connecting them to the most relevant information, products and
services.

Until July 1, 2003, the Company operated
through two divisions, Web Properties and Jeeves Solutions. On
July 1, 2003, the Company sold certain assets used in the
Jeeves Solutions business to Kanisa Inc. (Kanisa),
at which time the Company ceased offering Jeeves Solutions
software and services to corporate customers as described in
Note 17 (Discontinued Operations). Jeeves Solutions
core software application, JeevesOne, allowed corporate
customers to add its intuitive search engine to their corporate
Internet or intranet sites. With the purchase of additional
modules, JeevesOne allowed users to search and access a variety
of linked enterprise systems and legacy databases.

The Company operates four proprietary Web sites
dedicated to search; Ask.com, Ask.co.uk, Teoma.comandAJKids.com. The Company also delivers, or syndicates, its
search technology and advertising products to third-party Web
sites, including portals, infomediaries, and content and
destination Web sites. The company provides search results
and/or advertising for those Web sites to display in response to
their users search queries. The company refers to these
third-party Web sites as its syndication network.

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 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.






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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 three major financial
institutions.


Marketable
Securities

The Companys marketable securities are
primarily comprised of 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 sold. At December 31, 2003
and 2002, all of 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. 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 an allowance 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 factors.

Concentrations, Credit
Risk and Credit Risk Evaluations

Concentrations

During the years ended December 31, 2003 and
2002, one provider accounted for 55% and 15%, respectively, of
revenues from continuing operations. No customer accounted for
more than 10% of revenues for the years ended December 31,
2001. As a percentage of accounts receivable, one provider
accounted for 39% and 14% of gross accounts receivable as of
December 31, 2003 and 2002, respectively. The
Companys U.S. agreement with this provider is
scheduled to terminate in September 2005 (but allows for
termination for convenience by either party during September or
October of 2004), and the Companys U.K. agreement with
this provider is scheduled to terminate in May 2005.

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. Both the U.S. and Europe agreements
with this provider will expire on February 27, 2007.

Credit Risk

Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily
of cash and cash equivalents, short-term marketable securities,
and trade receivables. Cash and cash equivalents consist
principally of demand deposit and money market accounts, and
commercial paper. Marketable securities consist primarily of
U.S., state and municipal government




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securities and corporate debt securities with
strong credit ratings. Cash and cash equivalents and marketable
securities are held at three major 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 in the United States and United
Kingdom. 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.

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

RevenueContinuing Operations

The Company 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. Revenues are generated from four general sources:



| |   |                                                                 
| | - | ----------------------------------------------------------------
| |  | sales of premier listings and other paid
    placement products;
|
| |  | sales of branded advertising products;                          






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| |   |                                      
| | - | -------------------------------------
| |  | sales of paid inclusion products; and
|
| |  | licensing of search technologies.    

The Companys premier listings and other
paid placement products are textual or Web links, that are
designed to connect users interested in a particular product or
service with an advertiser offering that product or service as
users need the information, much like a Yellow Pages listing.
With these products, advertisers pay only for performance, so
these revenues are generated when a user clicks on the link to
the advertisers Web site on a cost per click, or
CPC, basis. The Company recognizes CPC revenue on a
revenue-sharing basis, as the service is delivered, if the paid
placement was procured from its third-party provider.

The Companys branded advertising ranges
from highly targeted graphic units through its Branded Response
product to traditional advertising units such as banners, towers
and interstitials, which appear primarily on its syndicated
sites. Branded advertising is generally sold on a cost per
impression, or CPM, basis with the revenue derived
from such arrangements recognized during the period that the
service is provided, provided that no significant obligations
remain outstanding from the Company to the advertiser at the end
of the period. The Companys obligations typically include
a guaranteed minimum number of impressions or times
that an advertisement appears in pages viewed by users of its
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.

The Companys paid inclusion products
provide an opportunity for Web sites to ensure that they are
included in the Companys search index. The Company
recognizes paid inclusion revenue in two ways. First, on a
per URL basis, in which the revenues are collected
in advance and recognized over the appropriate service period,
which is typically one year; and second on a CPC basis, in which
the revenue is recognized when the click is delivered.

License payments received from the Companys
Japanese joint venture are recorded as deferred revenue and are
recognized as revenues on a straight-line basis over a four-year
period. The Companys license revenue will terminate after
the second quarter of 2004.

The Companys syndication services include
the sale of advertising and paid placement products, and the
licensing of its search technology to third-party Web sites.
Syndication license fees primarily arise from revenue-sharing
arrangements, fixed fee arrangements or fee-per-use
arrangements, and revenues are recognized as the service is
delivered. The Company allocates its syndication revenues among
its four revenue categories, paid placement, branded
advertising, paid inclusion, and license fees, as applicable,
when reporting its results. Revenues from revenue-sharing
arrangements are recorded gross, including amounts paid to
syndication partners, in accordance with Emerging Issues Task
Force Issue No. 99-19, because the Company acts as the
primary obligor in the arrangement, performs a significant
portion of the service, has latitude in establishing the price
and bears credit risk.

Revenue Discontinued Operations: Jeeves
Solutions

Revenues from the discontinued Jeeves Solutions
operation were derived from two sources: software licenses and
services. Software license revenues were 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 revenues were generated from sales
of maintenance agreements, consulting services and training
services associated with the Companys licensed software.

The Company recognized software license revenues
in accordance with AICPA Statement of Position 97-2,
Software Revenue Recognition or SOP 97-2, as
amended by Statement of




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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 objective evidence that is specific to the
vendor. The Company utilized the residual method under which
revenue is allocated to the undelivered element, based on vendor
specific evidence of fair value, and the residual amount of
revenue is allocated to the delivered element.


The Company recognized license revenues at the
end of the core implementation period if implementation services
were included in the original license arrangement and were
considered to be essential to the functionality of the software.
As a result, even where the Company had a signed license
agreement for the purchase of its software and had delivered the
software, license revenue recognition depended on whether it had
begun core implementation. For license agreements under which
the Company had no implementation responsibility, or where
implementation was not considered to be essential to the
functionality of the software, the Company recognized revenue
upon delivery of the software. Examples of situations under
which the Company had no implementation responsibility included
additional license sales to existing customers or to customers
who elected to use internal or third party resources to
implement the software. In software license arrangements where a
service element was critical to the functionality of the
software, license, implementation and service fees were
recognized ratably over the life of the arrangement, commencing
upon service implementation.

The Company generally provided consulting and
training services on a time and materials basis. It provided
maintenance and support services under renewable, term
maintenance agreements, which it priced as a percentage of its
license fees. Maintenance and support fee revenue was recognized
ratably over the contractual term, which was generally twelve
months and commenced from the implementation of service or
delivery of product. Amounts paid prior to service
implementation were 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
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 income (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 2.9% for 2003 and 5.0%
for each of the years 2002 and 2001. The expected life of
options granted in the years ended December 31, 2003, 2002
and 2001, was 7.6 years 10.0 years, and
9.0 years, respectively. No dividend and a volatility
factor of 1.1, 1.2, and 1.6 for 2003, 2002, and 2001,
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.






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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
income (loss) and basic and diluted net income (loss) per share
would have been increased or decreased to the pro forma amounts
indicated below (in thousands, except per share amounts):

|                                                                                                               |  |                         |        |      |  |      |         |   |  |   |          |  
|-------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                                                                                               |  |                        
|                                                                                                               |  | Year Ended December 31,
|                                                                                                               |  | 2003                    |        | 2002 |  | 2001
|                                                                                                              
|                                                                                                              
|Net income (loss), as reported                                                                                 |  | $                       | 26,049 |      |  | $    | (21,303 | ) |  | $ | (425,258 | )
|Deduct:                                                                                                        |  |                         |        |      |  |      |         |   |  |   |          |  
|Total stock-based employee compensation expense
    determined under fair value based method for stock options |  |                         | (8,300 | )    |  |      | (3,442  | ) |  |   | (26,607  | )
|Total stock-based employee compensation expense
    determined under fair value based method for ESPP          |  |                         | (408   | )    |  |      | (300    | ) |  |   | (455     | )
|                                                                                                              
|Net income (loss), pro forma                                                                                   |  | $                       | 17,341 |      |  | $    | (25,045 | ) |  | $ | (452,320 | )
|                                                                                                              
|Net income (loss) per share:                                                                                   |  |                         |        |      |  |      |         |   |  |   |          |  
|Basic, as reported                                                                                             |  | $                       | 0.59   |      |  | $    | (0.52   | ) |  | $ | (11.48   | )
|Basic, pro forma                                                                                               |  | $                       | 0.39   |      |  | $    | (0.62   | ) |  | $ | (12.21   | )
|Diluted, as reported                                                                                           |  | $                       | 0.48   |      |  | $    | (0.52   | ) |  | $ | (11.48   | )
|Diluted, pro forma                                                                                             |  | $                       | 0.32   |      |  | $    | (0.62   | ) |  | $ | (12.21   | )
|                                                                                                              

The weighted-average grant-date fair value of
options granted was $8.78, $1.37, and $1.19 for grants made
during years ended December 31, 2003, 2002 and 2001,
respectively.

Advertising
Costs

The Company expenses the costs of advertising as
incurred. Advertising expense of continuing operations for the
years ended December 31, 2003, 2002 and 2001 was
$6.3 million, $1.3 million, and $2.6 million,
respectively.

Income Taxes

The Company uses the asset and 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 Ask Jeeves U.K. is the
British pound. The financial statements of this subsidiary are
translated to U. S. dollars using rates of exchange at the
balance sheet date 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




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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.


The functional currency of Ask Jeeves Europe is
the U.S. dollar. Gains and losses resulting from foreign
currency transactions are included in current results of
operations.

Net Income (Loss) Per
Share

Basic net income (loss) per share is
computed by dividing net income (loss) for the period by the
weighted average number of common shares outstanding during the
period. Diluted net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of
common shares outstanding during the period, plus the dilutive
effect of outstanding stock options, warrants, and convertible
subordinated notes. Potentially dilutive securities have been
excluded from the computation of diluted net loss per share, as
their effect is antidilutive.

Recent Accounting
Pronouncements

In January 2003 the Financial Accounting
Standards Board issued FASB Interpretation 46,
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 without 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. In December 2003,
the Financial Accounting Standards Board, issued revisions to
FASB Interpretation 46, resulting in multiple effective dates
based on the characteristics as well as the creation dates of
the variable interest entities, however with no effective date
later than the Companys first quarter of 2004. The Company
does not believe that adoption of this statement will have a
material effect on its consolidated financial statements.

In December 2004, the Securities and Exchange
Commission issued Staff Accounting Bulleting No. 104
Revenue Recognition (SAB 104), which updates and
summarizes the Commissions views on the application of generally
accepted accounting principles to revenue recognition in
financial statements. The Company believes that its revenue
recognition policies conform to the requirements of SAB 104.

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 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.

Joint
Ventures

Ask Jeeves U.K.

In February 2002, the Company acquired the entire
outstanding equity interests in Ask Jeeves U.K. Previously, the
Company held a fifty percent interest in Ask Jeeves U.K., a
joint venture partnership with Carlton Communications PLC and
Granada Media Group Limited, that was formed to market the
Companys search and self-service technologies and services
in the United Kingdom. The Company acquired full ownership of
Ask Jeeves U.K. to enhance the synergies that exist between the
U.S. and U.K. operations.

The acquisition was accounted for as a purchase
business combination and accordingly, the consolidated financial
statements include the operating results of Ask Jeeves U.K. from
the date of acquisition.

During 2003, the Company recognized a gain of
$6.1 million in connection with this transaction. This
amount represents the fair value of net assets the Company
recorded in excess of the consideration paid upon the
acquisition of the remaining outstanding equity interests in its
joint venture which was deferred due to a contingent payment
obligation in the Companys agreement with its former
partners. The gain was recognized as other income when the
contingent payment obligation to the former partners expired in
March 2003.

During 2002, the Company recognized a gain of
$974,000 representing the remaining balance of deferred license
fees paid to it by Ask Jeeves U.K., for a licensing arrangement
that was terminated when the Company acquired the entity. The
gain was recognized as other income.

The acquisition was accounted for as a purchase
business combination and accordingly, the consolidated financial
statements include the operating results of Ask Jeeves U.K. 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




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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                                                                                           |  | $                           | 65,117     |      |  | $ | 53,150     |  
|Loss from continuing
    operations                                                                |  | $                           | (11,947    | )    |  | $ | (423,869   | )
|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
during 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. During 2003, the Company recognized a gain of
$232,000 relating to the final dissolution of the accounts of
Ask Jeeves en Espanol, following the wind up of operations.

Ask Jeeves Japan

Ask Jeeves Japan, a joint venture with Trans
Cosmos Inc. USA, 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.comWeb
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 were recorded as
deferred revenues and to the extent not already realized are
being recognized as revenues on a straight-line basis over three
to four year periods. For the years ended December 31,
2003, 2002 and 2001, the Company recorded revenues of
$4.5 million, $6.2 million, and $19.0 million,
respectively, relating to these license arrangements.

3. MARKETABLE
SECURITIES




At December 31, 2003 and 2002, all of the
Companys marketable securities are 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, 2003 and
2002, gross realized gains were $2,000 and $160,000,
respectively.






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

|                                    |                                                                           |           |         |            |  |            |     |            |  |   |     |   |  |   |         |         |         | 
|----------------------------------- | ------------------------------------------------------------------------- | --------- | ------- | ---------- |  | ---------- | --- | ---------- |  | - | --- | - |  | - | ------- | ------- | ------- | 
|                                    |                                                                           |           |         | Gross      |  | Gross      |     |           
|                                    |                                                                           | Amortized |         | Unrealized |  | Unrealized |     | Estimated 
|December 31, 2003                   |                                                                           | Cost      |         | Gains      |  | Losses     |     | Fair Value
|                                   
|                                   
|Municipal bonds                     |                                                                           | $         | 4,011   |            |  | $          | 3   |            |  | $ |    |   |  | $ | 4,014   |        
|US Government and Agency notes      |                                                                           |           | 119,954 |            |  |            | 120 |            |  |   | (1  | ) |  |   | 120,073 |        
|Corporate notes                     |                                                                           |           | 19,427  |            |  |            | 24  |            |  |   | (10 | ) |  |   | 19,441  |        
|Asset-backed securities             |                                                                           |           | 549     |            |  |            | 2   |            |  |   |    |   |  |   | 551     |        
|                                   
|Total available for sale securities |                                                                           | $         | 143,941 |            |  | $          | 149 |            |  | $ | (11 | ) |  | $ | 144,079 |        
|                                   
|Classified as:                      |                                                                           |           |         |            |  |            |     |            |  |   |     |   |  |   |         |        
|                                    | Short-term marketable securities                                          |           |         |            |  |            |     |            |  |   |     |   |  |   | $       | 143,975 |        
|                                    | Long-term restricted marketable securities
    (included in other assets) |           |         |            |  |            |     |            |  |   |     |   |  |   |         | 104     |        
|                                   
|                                    |                                                                           | Total     |         |            |  |            |     |            |  |   |     |   |  |   |         | $       | 144,079 | 
|                                   

|                                    |                                             |           |        |            |  |            |    |            |  |   |    |   |  |   |        |        |        | 
|----------------------------------- | ------------------------------------------- | --------- | ------ | ---------- |  | ---------- | -- | ---------- |  | - | -- | - |  | - | ------ | ------ | ------ | 
|                                    |                                             |           |        | Gross      |  | Gross      |    |           
|                                    |                                             | Amortized |        | Unrealized |  | Unrealized |    | Estimated 
|December 31, 2002                   |                                             | Cost      |        | Gains      |  | Losses     |    | Fair 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:                      |                                             |           |        |            |  |            |    |            |  |   |    |   |  |   |        |       
|                                    | Short-term marketable securities            |           |        |            |  |            |    |            |  |   |    |   |  |   | $      | 5,827  |       
|                                    | Short-term restricted marketable securities |           |        |            |  |            |    |            |  |   |    |   |  |   |        | 11,000 |       
|                                   
|                                    |                                             | Total     |        |            |  |            |    |            |  |   |    |   |  |   |        | $      | 16,827 | 
|                                   

The amortized cost and fair value of marketable
securities in debt securities at December 31, 2003, by
effective maturity, were as follows (in thousands):

|                                     |  |           |         |            |  |   |         | 
|------------------------------------ |  | --------- | ------- | ---------- |  | - | ------- | 
|                                     |  | Amortized |         |           
|                                     |  | Cost      |         | Fair Value
|                                    
|                                    
|Due in 1 year or less                |  | $         | 76,324  |            |  | $ | 76,358  | 
|Due in 1-2 years                     |  |           | 67,617  |            |  |   | 67,721  | 
|                                    
|Total investments in debt securities |  | $         | 143,941 |            |  | $ | 144,079 | 
|                                    

Restricted marketable securities in the amount of
$104,000, are being maintained as security for performance under
standby letters of credit. See Note 7.

4. PROPERTY AND
EQUIPMENT




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

|                                               |  |              |         |      |  |   |         |  
|---------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                               |  |             
|                                               |  | December 31,
|                                               |  | 2003         |         | 2002
|                                              
|                                              
|Computer equipment and related software        |  | $            | 30,715  |      |  | $ | 23,986  |  
|Furniture and fixtures                         |  |              | 3,408   |      |  |   | 3,395   |  
|Leasehold improvements                         |  |              | 2,509   |      |  |   | 2,391   |  
|                                              
|Total                                          |  |              | 36,632  |      |  |   | 29,772  |  
|Less accumulated depreciation and amortization |  |              | (25,699 | )    |  |   | (18,850 | )
|                                              
|Property and equipment, net                    |  | $            | 10,933  |      |  | $ | 10,922  |  
|                                              




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Depreciation expense from continuing operations
for the years ended December 31, 2003, 2002, and 2001 was
$6.9 million, $8.3 million, and $9.0 million,
respectively.

5. ACQUIRED
TECHNOLOGY




Acquired technology consist of the following (in
thousands):

|                             |  |              |        |      |  |   |        |  
|---------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                             |  |             
|                             |  | December 31,
|                             |  | 2003         |        | 2002
|                            
|                            
|Acquired Technology          |  |              | 9,365  |      |  |   | 9,765  |  
|Accumulated amortization     |  |              | (8,534 | )    |  |   | (6,565 | )
|Impairment adjustments       |  |              |       |      |  |   | (252   | )
|                            
|Total intangible assets, net |  | $            | 831    |      |  | $ | 2,948  |  
|                            

Amortization expense from continuing operations
for the years ended December 31, 2003, 2002, and 2001 was
$2.1 million, $2.2 million, and $29.1 million,
respectively.

6. LEASE
COMMITMENTS




The Company has entered into operating leases for
certain office space and equipment that contain renewal options.

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

|                              |  |   |       | 
|----------------------------- |  | - | ----- | 
|For Years Ending December 31, |  |  
|                             
|                             
|2004                          |  | $ | 3,924 | 
|2005                          |  |   | 1,597 | 
|2006                          |  |   | 774   | 
|2007                          |  |   | 767   | 
|2008                          |  |   | 751   | 
|Thereafter                    |  |   | 939   | 
|                             
|Total minimum lease payments  |  | $ | 8,752 | 
|                             

Rent expense from continuing operations was
$2.8 million, $2.7 million, and $3.7 million, for
the years ended December 31, 2003, 2002 and 2001,
respectively. Sublease rental income for the years ended
December 31, 2003, 2002 and 2001 was $740,000, $573,000,
and $381,000, respectively. Aggregate future minimum rentals to
be received under non-cancelable subleases as of
December 31, 2003 are $228,000.

7. LINE OF
CREDIT




The Company has a revolving line of credit with a
bank in the amount of $15.0 million. The line of credit
expires on July 1, 2005. Borrowings under the line of
credit bear fixed rate interest from the date of borrowing at
LIBOR plus 0.4%. All borrowings and letters of credit under the
credit facility are collateralized by an equal amount of the
Companys marketable securities. Borrowings under the line
are subject to various covenants. As of December 31, 2003,
no borrowings were outstanding under the line of credit. Standby
letters of credit of approximately $104,000, which are being
maintained as security for performance under various
obligations, were issued and outstanding under the credit
facility.






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8. CONVERTIBLE
SUBORDINATED NOTES




In June 2003, the Company issued
$115.0 million aggregate principal amount of zero coupon
convertible subordinated notes, due June 1, 2008. The notes
were sold at face value and the net proceeds to the Company were
$111.7 million, net of costs of issuance of
$3.3 million, which have been recorded as other assets and
are being amortized in the Consolidated Statements of Operations
over the contractual term of the notes. The fair value of the
convertible subordinated notes was $147.8 million at
December 31, 2003, based on recent trading activity.

The notes are convertible by the holders into
shares of the Companys common stock at any time at an
initial conversion price of $16.90 per share subject to
certain adjustments. This is equivalent to a conversion rate of
approximately 59.1716 shares per $1,000 principal amount of
notes. Upon conversion, the Company has the right subject to
certain conditions to deliver cash (or a combination of cash and
shares) in lieu of shares of its common stock.

The notes are subordinated in right of payment to
all existing and future senior indebtedness, as defined in the
indenture. The holders of the notes may require the Company to
repurchase all or a portion of the notes, subject to specified
exceptions, upon the occurrence of a change in control. The
Company may choose to pay the repurchase price in cash, shares
of its common stock, shares of the surviving corporation or a
combination thereof. The Company may not redeem the notes prior
to the maturity date.

9. PROVISION FOR
INCOME TAXES




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

|                                          |                         |                                           |        |        |        |      |         |         |         |   |          |          |          |  
|----------------------------------------- | ----------------------- | ----------------------------------------- | ------ | ------ | ------ | ---- | ------- | ------- | ------- | - | -------- | -------- | -------- | -
|                                          |                         |                                          
|                                          |                         | Year Ended December 31,                  
|                                          |                         | 2003                                      |        | 2002   |        | 2001
|                                         
|                                         
|U.S.                                      |                         | $                                         | 10,759 |        |        | $    | (27,394 | )       |         | $ | (425,258 | )       
|International                             |                         |                                           | 17,290 |        |        |      | 6,091   |         |         |   |         |         
|                                         
|Income (loss) before income tax provision |                         | $                                         | 28,049 |        |        | $    | (21,303 | )       |         | $ | (425,258 | )       
|                                         
|Allocated to:                             |                         |                                           |        |        |        |      |         |         |         |   |          |         
|                                          | Continuing operations   |                                           | $      | 26,676 |        |      | $       | (10,856 | )       |   | $        | (409,764 | )       
|                                          | Discontinued operations |                                           |        | 1,373  |        |      |         | (10,447 | )       |   |          | (15,494  | )       
|                                         
|                                          |                         | Income (loss) before income tax provision |        | $      | 28,049 |      |         | $       | (21,303 | ) |          | $        | (425,258 | )
|                                         

The current income tax provision for the year
ended December 31, 2003 consists of the following (in
thousands):

|              |                         |                      |       |       |       | 
|------------- | ----------------------- | -------------------- | ----- | ----- | ----- | 
|Federal       |                         | $                    | 200   |      
|State         |                         |                      | 50    |      
|Foreign       |                         |                      | 1,750 |      
|             
|              |                         | Income tax provision |       | $     | 2,000 | 
|             
|Allocated to: |                         |                      |       |      
|              | Continuing operations   |                      | $     | 1,891 |      
|              | Discontinued operations |                      |       | 109   |      
|             
|              |                         | Income tax provision |       | $     | 2,000 | 
|             




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The Companys effective rate for income
taxes differs from the United States statutory rate, as
reflected in the following reconciliation:

|                                                                                    |                           |                         |       |      |   |      |       |     |   |  |       |     |  
|----------------------------------------------------------------------------------- | ------------------------- | ----------------------- | ----- | ---- | - | ---- | ----- | --- | - |  | ----- | --- | -
|                                                                                    |                           |                        
|                                                                                    |                           | Year Ended December 31,
|                                                                                    |                           | 2003                    |       | 2002 |   | 2001
|                                                                                   
|                                                                                   
|United States statutory tax rate                                                    |                           |                         | 35.0  | %    |   |      | 35.0  | %   |   |  | 35.0  | %  
|Foreign earnings taxed at rates lower than the
    United States statutory tax rate |                           |                         | (15.3 | )    |   |      |      |     |   |  |      |    
|Net operating losses and loss carryforwards                                         |                           |                         | (12.6 | )    |   |      | (35.0 | )   |   |  | (35.0 | )  
|                                                                                   
|                                                                                    | Effective income tax rate |                         |       | 7.1  | % |      |       | 0.0 | % |  |       | 0.0 | %
|                                                                                   

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. The components of the deferred
income taxes are as follows (in thousands):

|                                           |  |              |          |      |  |   |         |  
|------------------------------------------ |  | ------------ | -------- | ---- |  | - | ------- | -
|                                           |  |             
|                                           |  | Year Ended  
|                                           |  | December 31,
|                                           |  | 2003         |          | 2002
|                                          
|                                          
|Deferred Tax Assets:                       |  |              |          |      |  |   |         |  
|Net operating losses and carryforwards     |  | $            | 92,705   |      |  | $ | 78,936  |  
|Capitalized research and development costs |  |              | 3,174    |      |  |   | 2,641   |  
|Accrued expenses                           |  |              | 4,959    |      |  |   | 3,556   |  
|Deferred revenue                           |  |              | 1,407    |      |  |   | 4,316   |  
|Other                                      |  |              | 2,890    |      |  |   | 2,470   |  
|                                          
|Deferred tax assets                        |  | $            | 105,135  |      |  | $ | 91,919  |  
|Valuation allowance                        |  |              | (105,135 | )    |  |   | (90,693 | )
|                                          
|Total deferred tax assets                  |  | $            |         |      |  | $ | 1,226   |  
|Deferred Tax Liabilities:                  |  |              |          |      |  |   |         |  
|Other                                      |  | $            |         |      |  | $ | (1,226  | )
|Total deferred tax liabilities             |  | $            |         |      |  | $ | (1,226  | )
|                                          
|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
$14.4 million and $10.8 million during the years ended
December 31, 2003 and 2002, 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 cumulative net losses in recent years and
accumulated deficit. The Company will continue to assess the
realizability of the deferred tax assets based on actual and
forecasted operating results.

Net operating loss (NOL) carryforwards resulting
from the exercise of employee stock options provided a deferred
benefit of $25.6 million as of December 31, 2003. Such
deferred tax benefit has been offset by a valuation allowance
and will be credited to stockholders equity when realized.
A tax benefit of approximately $1.2 million, associated
with the exercise of employee stock options, was credited to
stockholders equity in 2003.

At December 31, 2003, the Company had NOLs
for federal income tax purposes of approximately
$251.0 million, which expire in the years 2012 through
2023. The Company also had net operating loss carryforwards for
California state income tax purposes of approximately
$81.1 million that expire in the years 2004 through 2014.
California suspended the use of NOLs for the tax years 2002 and
2003.






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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.

Applicable U.S. income taxes have not been
provided on approximately $17.3 million of undistributed
earnings of foreign subsidiaries as of December 31, 2003
since these earnings are considered indefinitely invested. The
income tax that would arise if these items were repatriated is
approximately $6.9 million, some or all of which may be
reduced by NOLs or foreign tax credits.

10. 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.

Shares Reserved for
Future Issuance

At December 31, 2003, the Company has
reserved shares of common stock for future issuance as follows:

|                                  |       |  |           |            | 
|--------------------------------- | ----- |  | --------- | ---------- | 
|                                 
|Stock options outstanding         |       |  | 7,403,367 |           
|Stock options available for grant |       |  | 6,935,498 |           
|Employee stock purchase plan      |       |  | 370,043   |           
|Convertible subordinated notes    |       |  | 6,804,733 |           
|                                 
|                                  | Total |  |           | 21,513,641 | 
|                                 

1996 Equity Incentive
Plan

Under the Companys 1996 Equity Incentive
Plan (1996 Plan), as amended, 3,641,060 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 12,312,756 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




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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 1,742,978 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 of Directors. At
December 31, 2003, 370,043 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, 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   |                     |            | 4,577,607        |   |   |       | 1.42  | 
|                                            | Canceled  |                     |            | (3,242,434       | ) |   |       | 13.04 | 
|                                            | Exercised |                     |            | (884,356         | ) |   |       | 1.09  | 
|                                           
|Outstanding at December 31, 2002            |           |                     | 10,501,534 |                  |   | $ | 6.72  |      
|                                            | Granted   |                     |            | 2,576,100        |   |   |       | 9.83  | 
|                                            | Canceled  |                     |            | (1,609,584       | ) |   |       | 17.51 | 
|                                            | Exercised |                     |            | (4,064,683       | ) |   |       | 3.13  | 
|                                           
|Outstanding at December 31, 2003            |           |                     | 7,403,367  |                  |   | $ | 7.51  |      
|                                           
|Vested and exercisable at December 31, 2003 |           |                     | 3,041,564  |                  |   | $ | 9.93  |      
|                                           

The weighted-average remaining contractual life
of options outstanding at December 31, 2003 and 2002 was
8.2 and 8.5 years, respectively.

During the year ended December 31, 2003,
766,926 shares of restricted stock were issued under the 1999
Equity Incentive Plan in satisfaction of previously accrued
bonus obligations. As of December 31, 2003, restricted
share grants of 50,000 remained unvested, and vest at the
earlier of the employees qualifying termination or death,
or September 19, 2006. During the year ended
December 31, 2003, the Company incurred stock-based
compensation charges of $32,000 resulting from grants of stock
options.






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The weighted-average grant-date fair value of
restricted stock was $21.67 and $1.66 for awards made during the
years ended December 31, 2003, and 2002, respectively.

The following table summarizes the status of
stock options outstanding at December 31, 2003:

|                |                 |                     |  |                       |           |                  |  |             |      |                  |  |   |        |  |  |  |           |  |  |   |        | 
|--------------- | --------------- | ------------------- |  | --------------------- | --------- | ---------------- |  | ----------- | ---- | ---------------- |  | - | ------ |  |  |  | --------- |  |  | - | ------ | 
|                |                 |                     |  |                      
|                |                 | Options Outstanding |  | Options Exercisable  
|                |                 |                     |  |                      
|                |                 |                     |  | Weighted Average      |           |                  |  |             |      | Weighted Average
|Range of        |                 | Number              |  | Remaining Contractual |           | Weighted Average |  | Number      |      | Exercise Price  
|Exercise Prices |                 | Outstanding         |  | Life (in Years)       |           | Exercise Price   |  | Exercisable |      | per Share       
|               
|               
|$               | 0.00 - 0.88     |                     |  |                       | 808,254   |                  |  |             | 7.09 |                  |  | $ | 0.83   |  |  |  | 531,685   |  |  | $ | 0.81   | 
|                | 0.90 - 1.15     |                     |  |                       | 802,835   |                  |  |             | 8.19 |                  |  |   | 1.03   |  |  |  | 267,462   |  |  |   | 1.02   | 
|                | 1.17 - 1.21     |                     |  |                       | 1,178,326 |                  |  |             | 8.33 |                  |  |   | 1.21   |  |  |  | 332,202   |  |  |   | 1.21   | 
|                | 1.25 - 2.28     |                     |  |                       | 998,424   |                  |  |             | 7.69 |                  |  |   | 1.84   |  |  |  | 636,280   |  |  |   | 1.94   | 
|                | 2.45 - 3.48     |                     |  |                       | 568,659   |                  |  |             | 8.06 |                  |  |   | 2.70   |  |  |  | 256,656   |  |  |   | 2.64   | 
|                | 3.50 - 6.93     |                     |  |                       | 1,539,153 |                  |  |             | 9.17 |                  |  |   | 6.81   |  |  |  | 227,547   |  |  |   | 6.50   | 
|                | 7.14 - 18.50    |                     |  |                       | 839,575   |                  |  |             | 7.34 |                  |  |   | 15.83  |  |  |  | 562,570   |  |  |   | 16.35  | 
|                | 18.54 - 115.75  |                     |  |                       | 613,641   |                  |  |             | 8.72 |                  |  |   | 31.16  |  |  |  | 172,694   |  |  |   | 58.66  | 
|                | 116.38 - 116.38 |                     |  |                       | 53,000    |                  |  |             | 5.92 |                  |  |   | 116.38 |  |  |  | 53,000    |  |  |   | 116.38 | 
|                | 138.00 - 138.00 |                     |  |                       | 1,500     |                  |  |             | 6.01 |                  |  |   | 138.00 |  |  |  | 1,468     |  |  |   | 138.00 | 
|               
|                | Total           |                     |  |                       | 7,403,367 |                  |  |             | 8.15 |                  |  | $ | 7.51   |  |  |  | 3,041,564 |  |  | $ | 9.93   | 
|               



|    |                                                              
|--- | -------------------------------------------------------------
|11. | RESTRUCTURING, ASSET
    IMPAIRMENT AND FACILITY EXIT CHARGES




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 the Companys anticipated
requirements. 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.

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 under this program, 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.

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 reported a charge of
approximately $3.6 million under this program, 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




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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.


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 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.

In the year ended December 31, 2003, the
Company incurred restructuring charges of $466,000 in connection
with the termination of certain employees of the discontinued
Jeeves Solutions division.

The following table sets forth the restructuring
activity during the years ended December 31, 2003, 2002 and
2001 (in thousands).

|                                       |  |               |       |               |  |      |     |            |  |               |        |   |  |   |   |  |  |   |       | 
|-------------------------------------- |  | ------------- | ----- | ------------- |  | ---- | --- | ---------- |  | ------------- | ------ | - |  | - | - |  |  | - | ----- | 
|                                       |  | Restructuring |       |               |  |      |     |            |  | Restructuring
|                                       |  | Accrued       |       |               |  |      |     |            |  | Accrued      
|                                       |  | Costs at      |       |               |  |      |     |            |  | Costs at     
|                                       |  | January 1,    |       | Restructuring |  | Cash |     | Asset      |  | December 31, 
|2003 Charged to restructuring expense: |  | 2003          |       | Charges       |  | Paid |     | Write-offs |  | 2003         
|                                      
|                                      
|Facility exit costs                    |  | $             | 1,883 |               |  | $    |    |            |  | $             | (750   | ) |  | $ |  |  |  | $ | 1,133 | 
|Severance and professional fees        |  |               | 24    |               |  |      | 466 |            |  |               | (456   | ) |  |   |  |  |  |   | 34    | 
|                                      
|Total                                  |  | $             | 1,907 |               |  | $    | 466 |            |  | $             | (1,206 | ) |  | $ |  |  |  | $ | 1,167 | 
|                                      
|Allocated to:                          |  |               |       |               |  |      |     |            |  |               |        |   |  |   |   |  |  |   |       | 
|Continuing operations                  |  | $             | 1,892 |               |  | $    |    |            |  |               |        |   |  |   |   |  |  | $ | 1,167 | 
|Discontinued operations                |  |               | 15    |               |  |      | 466 |            |  |               |        |   |  |   |   |  |  |   |      | 
|                                      
|Total                                  |  | $             | 1,907 |               |  | $    | 466 |            |  |               |        |   |  |   |   |  |  | $ | 1,167 | 
|                                      

|                                       |  |               |        |               |  |           |       |            |  |               |         |   |  |   |   |  |  |   |       | 
|-------------------------------------- |  | ------------- | ------ | ------------- |  | --------- | ----- | ---------- |  | ------------- | ------- | - |  | - | - |  |  | - | ----- | 
|                                       |  | Restructuring |        |               |  |           |       |            |  | Restructuring
|                                       |  | Accrued       |        |               |  |           |       |            |  | Accrued      
|                                       |  | Costs at      |        |               |  |           |       |            |  | Costs at     
|                                       |  | January 1,    |        | Restructuring |  |           |       | Asset      |  | December 31, 
|2002 Charged to restructuring expense: |  | 2002          |        | Charges       |  | Cash Paid |       | Write-offs |  | 2002         
|                                      
|                                      
|Facility exit costs                    |  | $             | 18,119 |               |  | $         | 1,098 |            |  | $             | (17,334 | ) |  | $ |  |  |  | $ | 1,883 | 
|Severance and professional fees        |  |               | 310    |               |  |           | 1,372 |            |  |               | (1,658  | ) |  |   |  |  |  |   | 24    | 
|                                      
|Total                                  |  | $             | 18,429 |               |  | $         | 2,470 |            |  | $             | (18,992 | ) |  | $ |  |  |  | $ | 1,907 | 
|                                      
|Allocated to:                          |  |               |        |               |  |           |       |            |  |               |         |   |  |   |   |  |  |   |       | 
|Continuing operations                  |  | $             | 18,346 |               |  | $         | 1,653 |            |  |               |         |   |  |   |   |  |  | $ | 1,892 | 
|Discontinued operations                |  |               | 83     |               |  |           | 817   |            |  |               |         |   |  |   |   |  |  |   | 15    | 
|                                      
|Total                                  |  | $             | 18,429 |               |  | $         | 2,470 |            |  |               |         |   |  |   |   |  |  | $ | 1,907 | 
|                                      






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|                                       |  |               |       |               |  |           |        |            |  |               |        |   |  |   |      |   |  |   |        | 
|-------------------------------------- |  | ------------- | ----- | ------------- |  | --------- | ------ | ---------- |  | ------------- | ------ | - |  | - | ---- | - |  | - | ------ | 
|                                       |  | Restructuring |       |               |  |           |        |            |  | Restructuring
|                                       |  | Accrued       |       |               |  |           |        |            |  | Accrued      
|                                       |  | Costs at      |       |               |  |           |        |            |  | Costs at     
|                                       |  | January 1,    |       | Restructuring |  |           |        | Asset      |  | December 31, 
|2001 Charged to restructuring expense: |  | 2001          |       | Charges       |  | Cash 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 | 
|                                      
|Allocated to:                          |  |               |       |               |  |           |        |            |  |               |        |   |  |   |      |   |  |   |        | 
|Continuing operations                  |  | $             | 8,951 |               |  | $         | 17,337 |            |  |               |        |   |  |   |      |   |  | $ | 18,346 | 
|Discontinued operations                |  |               | 181   |               |  |           | 790    |            |  |               |        |   |  |   |      |   |  |   | 83     | 
|                                      
|Total                                  |  | $             | 9,132 |               |  | $         | 18,127 |            |  |               |        |   |  |   |      |   |  | $ | 18,429 | 
|                                      

During 2003 and 2002, the Company wrote off
computer equipment, software, and furniture and fixtures that
the Company disposed of or were no longer in use, resulting in
changes of $702,000 and $2.2 million, 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 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 $355.2 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.

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,
for the year ended December 31, 2001. There were no similar
write-downs for the years ending December 31, 2003 or 2002.




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During the third quarter of 2003, the Company
incurred facility exit costs totaling $585,000 related to the
cessation of use of leased premises. The charge was recorded to
the Consolidated Statement of Operations in the following
categories:

|                           |  |   |     | 
|-------------------------- |  | - | --- | 
|                          
|Cost of revenue            |  | $ | 44  | 
|Product development        |  |   | 229 | 
|Sales and marketing        |  |   | 198 | 
|General and administrative |  |   | 114 | 
|                          
|Total                      |  | $ | 585 | 
|                          



|    |                           
|--- | --------------------------
|12. | EMPLOYEE BENEFIT
    PLANS






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.



|    |                               
|--- | ------------------------------
|13. | RELATED PARTY
    TRANSACTIONS




During the years ended December 31, 2001 and
2000, the Company provided loans to shareholders, who were also
officers, totaling $200,000 and $3.2 million respectively.
The loan made during 2001 was repaid prior to December 31,
2001. All remaining amounts outstanding were settled in 2002.
During the year ended December 31, 2001 a charge to general
and administrative expense of $159,000 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. There were no related party transactions
for the year ended December 31, 2003.

Included in revenue are amounts from related
parties of $4.5 million, $6.2 million and
$19.0 million for the years ended December 31, 2003,
2002, and 2001, respectively. During 2003, the Company also
recorded $300,000 in other income related to professional
services provided to its Japanese joint venture.



|    |                      
|--- | ---------------------
|14. | 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






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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. On
June 24, 2003, a special committee of our board of
directors approved the settlement of this action, subject to
certain conditions including that a sufficient number of the
defendants participate in the settlement, and on July 9,
2003, the Individual Defendants approved the settlement of this
action. It is anticipated that the settlement will be submitted
to the Court for approval in the near future.


On 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. On October 31, 2002, the Court
dismissed the lawsuit, with prejudice. The plaintiff appealed
and the case was consolidated with similar derivative actions.
On June 19, 2003, the plaintiffs stipulated to dismissal of
the appeal.

On January 27, 2004, a lawsuit was filed in
the United States District Court for the Southern District of
New York captioned American Blind and Wallpaper, Inc. v.
Google, Inc., et al., in which Ask Jeeves, Inc., America
Online, Inc., Netscape Communications Corporation, Compuserve
Interactive Services, Inc., and Earthlink, Inc. were also named
as defendants. On February 27, 2004, the Company was served
with an Amended Complaint in the matter. The Complaint alleges
trademark infringement, false representation, and dilution under
the Lanham Act and other claims arising from defendants
alleged unlawful use of plaintiffs trademarks.
Plaintiffs claims are based on the allegations that
defendants sell keywords identical to plaintiffs marks to
various third parties and by manipulating search results,
consumers are unwittingly diverted to competitors products
and services. The plaintiff seeks injunctive relief and an
unspecified amount of damages. The Company has tendered this
suit to Google for indemnification pursuant to the terms of the
Advertising Services Agreement, dated July 17, 2002,
between Ask Jeeves and Google.

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.

Indemnifications

While the Company has various guarantees included
in contracts in the normal course of business, primarily in the
form of indemnities, these guarantees do not represent
significant commitments or contingent liabilities. Accordingly,
the Company has not recorded a liability related to
indemnification provisions.



|    |                                                
|--- | -----------------------------------------------
|15. | BUSINESS SEGMENT AND
    GEOGRAPHIC INFORMATION




The Company offers advanced Internet search
technology to the public through advertiser-supported sites on
the World Wide Web.

The Company provides its search technologies and
services internationally both directly and through its joint
venture. Attribution of revenues by geographic region is based
on the country in which the




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customer is domiciled. Geographic information on
revenues of continuing operations is as follows (in thousands):


|                        |        |       |   |        |         |      |   |        |        |  |   |        |        | 
|----------------------- | ------ | ----- | - | ------ | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|Year Ended December 31, |        | 2003  |   | 2002   |         | 2001
|                       
|                       
|Revenues:               |        |       |   |        |         |      |   |        |        |  |   |       
|                        | U.S.   |       | $ | 70,019 |         |      | $ | 42,411 |        |  | $ | 35,752 |       
|                        | Europe |       |   | 32,748 |         |      |   | 18,090 |        |  |   | 11,275 |       
|                        | Japan  |       |   | 4,525  |         |      |   | 4,547  |        |  |   | 4,542  |       
|                       
|                        |        | Total |   | $      | 107,292 |      |   | $      | 65,048 |  |   | $      | 51,569 | 
|                       

16. NET INCOME
(LOSS) PER SHARE




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

|                                              |                                                                                        |                                |   |            |           |      |   |            |       |   |   |            |        |  
|--------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------ | - | ---------- | --------- | ---- | - | ---------- | ----- | - | - | ---------- | ------ | -
|                                              |                                                                                        |                               
|                                              |                                                                                        | Year Ended December 31,       
|                                              |                                                                                        | 2003                           |   | 2002       |           | 2001
|                                             
|                                             
|Basic and diluted net income (loss) per share |                                                                                        |                                |   |            |           |      |   |            |       |   |   |           
|                                              | Numerator: Net income (loss)                                                           |                                | $ | 26,049     |           |      | $ | (21,303    | )     |   | $ | (425,258   | )     
|                                             
|                                              | Denominator: Weighted-average shares common stock
    outstanding                      |                                |   | 44,238,909 |           |      |   | 40,745,809 |       |   |   | 37,201,298 |       
|                                              | Less: weighted average shares common stock
    subject to repurchase                   |                                |   | (5,448     | )         |      |   | (47,672    | )     |   |   | (168,365   | )     
|                                             
|                                              | Weighted-average shares used in calculation of
    basic net income (loss) per share   |                                |   | 44,233,461 |           |      |   | 40,698,137 |       |   |   | 37,032,933 |       
|                                              | Weighted-average effect of dilutive securities:                                        |                                |   |            |           |      |   |            |       |   |   |            |       
|                                              |                                                                                        | Convertible subordinated notes |   |            | 3,868,849 |      |   |            |      |   |   |            |       |  
|                                              |                                                                                        | Employee stock options         |   |            | 6,149,755 |      |   |            |      |   |   |            |       |  
|                                              |                                                                                        | Restricted common stock        |   |            | 481,379   |      |   |            |      |   |   |            |       |  
|                                              |                                                                                        | Warrants                       |   |            | 39,785    |      |   |            |      |   |   |            |       |  
|                                             
|                                              | Weighted-average shares used in calculation of
    diluted net income (loss) per share |                                |   | 54,773,229 |           |      |   | 40,698,137 |       |   |   | 37,032,933 |       
|                                             
|                                              | Net income (loss) per share:                                                           |                                |   |            |           |      |   |            |       |   |   |            |       
|                                              |                                                                                        | Basic                          |   | $          | 0.59      |      |   | $          | (0.52 | ) |   | $          | (11.48 | )
|                                             
|                                              |                                                                                        | Diluted                        |   | $          | 0.48      |      |   | $          | (0.52 | ) |   | $          | (11.48 | )
|                                             

If the Company had reported net income for the
years ended December 31, 2002 and 2001, the calculation of
historical diluted earnings per share would have included an
additional 1,480,922 and 1,408,338 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, 2003, 2002 and 2001, a total
of 1,383,205, 4,597,853 and 6,291,056 common equivalent shares
related to outstanding stock options and warrants (determined
using the treasury 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.

17. DISCONTINUED
OPERATIONS




On May 28, 2003, the Company entered into an
agreement to sell certain assets used in the Jeeves Solutions
division to Kanisa Inc. (Kanisa). The sale of such
assets closed on July 1, 2003 at which time the Company
ceased offering Jeeves Solutions products and services to
corporate customers. The






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assets sold included, among other things,
tangible personal property, intellectual property and customer
and business contracts.


In the third quarter of 2003, the Company
recorded a gain of approximately $2.5 million, net of
estimated income taxes of $109,000, representing the excess of
the purchase consideration received at closing over the book
value of the assets sold, as well as the remaining amount of
deferred license fees applicable to Jeeves Solutions. In
exchange for the sale of such assets, the Company received
$3.4 million in cash at the closing and a promissory note
for up to $750,000, which is payable one year from the date of
closing. The amount payable under the note is currently expected
to be approximately $731,000, subject to certain upward or
downward adjustments, but in no event shall the amount payable
under the note exceed $750,000. The proceeds, if any, from the
promissory note will be recorded as additional gain on the
transaction upon receipt.

Total revenues related to the discontinued
operations were $4.2 million, $9.1 million and
$15.0 million for the years ended December 31, 2003,
2002, and 2001, respectively. The assets and liabilities of
Jeeves Solutions have been classified as assets and liabilities
of discontinued operations in the Condensed Consolidated Balance
Sheets and the results of operations have been reclassified as
loss from discontinued operations in the Condensed Consolidated
Statement of Operations for all dates and periods presented.






|    |                                         
|--- | ----------------------------------------
|18. | QUARTERLY FINANCIAL
    DATA (UNAUDITED)




|                                                                  |  |                    |        |              |  |         |        |          |  |   |        |   |  |   |        |  
|----------------------------------------------------------------- |  | ------------------ | ------ | ------------ |  | ------- | ------ | -------- |  | - | ------ | - |  | - | ------ | -
|                                                                  |  |                   
|                                                                  |  | Three Months Ended
|2003 (in thousands)                                               |  | December 31        |        | September 30 |  | June 30 |        | March 31
|                                                                 
|                                                                 
|Revenue                                                           |  | $                  | 31,834 |              |  | $       | 27,176 |          |  | $ | 25,568 |   |  | $ | 22,714 |  
|Gross profit                                                      |  | $                  | 26,176 |              |  | $       | 21,920 |          |  | $ | 20,082 |   |  | $ | 17,197 |  
|Operating income                                                  |  | $                  | 7,786  |              |  | $       | 3,931  |          |  | $ | 4,780  |   |  | $ | 2,481  |  
|Income from continuing operations                                 |  | $                  | 7,638  |              |  | $       | 3,839  |          |  | $ | 4,857  |   |  | $ | 8,451  |  
|Net income                                                        |  | $                  | 7,638  |              |  | $       | 6,321  |          |  | $ | 4,399  |   |  | $ | 7,691  |  
|Income from continuing operations per share
    basic            |  | $                  | 0.16   |              |  | $       | 0.09   |          |  | $ | 0.11   |   |  | $ | 0.20   |  
|Income (loss) from discontinued operations per
    share basic   |  |                    |       |              |  | $       | 0.05   |          |  | $ | (0.01  | ) |  | $ | (0.02  | )
|                                                                 
|Net income per share basic                                       |  | $                  | 0.16   |              |  | $       | 0.14   |          |  | $ | 0.10   |   |  | $ | 0.18   |  
|                                                                 
|Income from continuing operations per share
    diluted          |  | $                  | 0.13   |              |  | $       | 0.07   |          |  | $ | 0.09   |   |  | $ | 0.17   |  
|Income (loss) from discontinued operations per
    share diluted |  |                    |       |              |  | $       | 0.04   |          |  | $ | (0.01  | ) |  | $ | (0.01  | )
|                                                                 
|Net income per share diluted                                     |  | $                  | 0.13   |              |  | $       | 0.11   |          |  | $ | 0.08   |   |  | $ | 0.16   |  
|                                                                 

|                                                                |  |                    |        |              |  |         |        |          |  |   |        |   |  |   |         |  
|--------------------------------------------------------------- |  | ------------------ | ------ | ------------ |  | ------- | ------ | -------- |  | - | ------ | - |  | - | ------- | -
|                                                                |  |                   
|                                                                |  | Three Months Ended
|2002 (in thousands)                                             |  | December 31        |        | September 30 |  | June 30 |        | March 31
|                                                               
|                                                               
|Revenue                                                         |  | $                  | 20,169 |              |  | $       | 15,886 |          |  | $ | 15,381 |   |  | $ | 13,612  |  
|Gross profit                                                    |  | $                  | 15,105 |              |  | $       | 10,778 |          |  | $ | 10,658 |   |  | $ | 9,205   |  
|Operating income (loss)                                         |  | $                  | 2,565  |              |  | $       | (2,484 | )        |  | $ | (5,071 | ) |  | $ | (7,946  | )
|Income (loss) from continuing operations                        |  | $                  | 2,862  |              |  | $       | (2,235 | )        |  | $ | (4,949 | ) |  | $ | (6,534  | )
|Net income (loss)                                               |  | $                  | 2,005  |              |  | $       | (4,370 | )        |  | $ | (8,499 | ) |  | $ | (10,439 | )
|Income (loss) from continuing operations per
    share basic   |  | $                  | 0.07   |              |  | $       | (0.06  | )        |  | $ | (0.12  | ) |  | $ | (0.16   | )
|Loss from discontinued operations per share
    basic          |  | $                  | (0.02  | )            |  | $       | (0.05  | )        |  | $ | (0.09  | ) |  | $ | (0.10   | )
|                                                               
|Net income (loss) per share basic                              |  | $                  | 0.05   |              |  | $       | (0.11  | )        |  | $ | (0.21  | ) |  | $ | (0.26   | )
|                                                               
|Income (loss) from continuing operations per
    share diluted |  | $                  | 0.06   |              |  | $       | (0.06  | )        |  | $ | (0.12  | ) |  | $ | (0.16   | )
|Loss from discontinued operations per share
    diluted        |  | $                  | (0.01  | )            |  | $       | (0.05  | )        |  | $ | (0.09  | ) |  | $ | (0.10   | )
|                                                               
|Net income (loss) per share diluted                            |  | $                  | 0.05   |              |  | $       | (0.11  | )        |  | $ | (0.21  | ) |  | $ | (0.26   | )
|                                                               

See Notes 2, 5 and 11 for a description of
certain quarterly items.




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




None.






|         |                            
|-------- | ---------------------------
|ITEM 9A. | CONTROLS AND
    PROCEDURES




Under the supervision and with the participation
of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e)
under the Securities Exchange Act of 1934, as amended, as of the
end of the period covered by this report, which we refer to as
the Evaluation Date. Based on this evaluation, our principal
executive officer and principal financial officer concluded that
our disclosure controls and procedures were effective as of the
Evaluation Date such that the information relating to Ask
Jeeves, including our consolidated subsidiaries, required to be
disclosed in our SEC reports:



| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | is recorded, processed, summarized and reported
    within the time periods specified in SEC rules and forms, and                                                                                                
|
| |  | is accumulated and communicated to our
    management, including our principal executive officer and
    principal financial officer, as appropriate to allow timely
    decisions regarding required disclosure.

During the year ended December 31, 2003, no
change in our internal control over financial reporting occurred
that, in our judgment, either materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE
    OFFICERS OF THE REGISTRANT




The information required by this item will appear
in the definitive Proxy Statement circulated by our board of
directors in connection with our 2004 Annual Meeting of
Stockholders, which will be filed with the SEC no later than
April 30, 2004, and is hereby incorporated by reference to
that filing.






|         |                           
|-------- | --------------------------
|ITEM 11. | EXECUTIVE
    COMPENSATION




The information required by this item will appear
in the definitive Proxy Statement circulated by our board of
directors in connection with our 2004 Annual Meeting of
Stockholders, which will be filed with the SEC no later than
April 30, 2004, and is hereby incorporated by reference to
that filing.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF
    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT




The information required by this item will appear
in the definitive Proxy Statement circulated by our board of
directors in connection with our 2004 Annual Meeting of
Stockholders, which will be filed with the SEC no later than
April 30, 2004, and is hereby incorporated by reference to
that filing.






|         |                                                   
|-------- | --------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS
    AND RELATED TRANSACTIONS




The information required by this item will appear
in the definitive Proxy Statement circulated by our board of
directors in connection with our 2004 Annual Meeting of
Stockholders, which will be filed with the SEC no later than
April 30, 2004, and is hereby incorporated by reference to
that filing.






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|         |                                           
|-------- | ------------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTING
    FEES AND SERVICES




The information required by this item will appear
in the definitive Proxy Statement circulated by our board of
directors in connection with our 2004 Annual Meeting of
Stockholders, which will be filed with the SEC no later than
April 30, 2004, and is hereby incorporated by reference to
that filing.






|         |                                                                     
|-------- | --------------------------------------------------------------------
|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 Statement
    Schedules.Schedule II
    Valuation and Qualifying Accounts appears below. 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. The financial statement schedule
    below should be read in conjunction with the consolidated
    financial statements.

|                              |                                 |            |   |            |  |            |   |            |  |  |   |       |  |  |   |       | 
|----------------------------- | ------------------------------- | ---------- | - | ---------- |  | ---------- | - | ---------- |  |  | - | ----- |  |  | - | ----- | 
|                              |                                 | Balance at |   | Charges to |  |            |   | Balance at
|                              |                                 | Beginning  |   | Costs and  |  |            |   | End of    
|                              |                                 | of Period  |   | Expenses   |  | Deductions |   | Period    
|                             
|                             
|Year ended December 31, 2003: |                                 |            |   |            |  |            |   |            |  |  |   |       |  |  |   |      
|                              | Allowance for doubtful accounts |            | $ | 1,945      |  |            | $ | 391        |  |  | $ | 899   |  |  | $ | 1,437 | 
|                              | Continuing Operations           |            |   | 1,593      |  |            |   |            |  |  |   |       |  |  |   | 1,437 | 
|                              | Discontinued Operations         |            |   | 352        |  |            |   |            |  |  |   |       |  |  |   |      | 
|Year ended December 31, 2002: |                                 |            |   |            |  |            |   |            |  |  |   |       |  |  |   |      
|                              | Allowance for doubtful accounts |            | $ | 1,813      |  |            | $ | 491        |  |  | $ | 359   |  |  | $ | 1,945 | 
|                              | Continuing Operations           |            |   | 1,032      |  |            |   |            |  |  |   |       |  |  |   | 1,593 | 
|                              | Discontinued Operations         |            |   | 781        |  |            |   |            |  |  |   |       |  |  |   | 352   | 
|Year ended December 31, 2001: |                                 |            |   |            |  |            |   |            |  |  |   |       |  |  |   |      
|                              | Allowance for doubtful accounts |            | $ | 4,627      |  |            | $ | 2,021      |  |  | $ | 4,835 |  |  | $ | 1,813 | 
|                              | Continuing Operations           |            |   | 4,567      |  |            |   |            |  |  |   |       |  |  |   | 1,032 | 
|                              | Discontinued Operations         |            |   | 60         |  |            |   |            |  |  |   |       |  |  |   | 781   | 
|                             



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



|    |                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | October 22, 2003. This report announced
    under Item 12 our third quarter results and furnished our
    earnings release as an exhibit.                                                                                                                                                                                                                                                
|   
|(2) | November 3, 2003. This report announced
    under Item 9 that effective January 1, 2004,
    A. George (Skip) Battle would become the Executive Chairman
    of our Board of Directors, Steven Berkowitz would become our
    Chief Executive Officer and Garrett Gruener, who was then
    Chairman of the Board, would step down as Chairman but remain on
    the board as a director.
|   
|(c) | Exhibits.The
    exhibits listed on the Exhibit Index (following the
    Signatures section 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 1, 2004.



| |                 
| | ----------------
| | ASK JEEVES, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ STEVEN BERKOWITZ

| |                        
| | -----------------------
| |                        
| | Steven Berkowitz       
| | Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below each severally constitutes
and appoints A. George (Skip) Battle, Steven Berkowitz, Scott T.
Bauer and Brett M. Robertson, and each of them acting
individually without the others, 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 and schedules 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 (SKIP) BATTLEA. George (Skip) Battle |  | Executive Chairman of the Board of Directors                               |  | March 1, 2004
|                                                  
|/s/ STEVEN BERKOWITZSteven Berkowitz               |  | Chief Executive Officer and Director (Principal
    Executive Officer)     |  | March 1, 2004
|                                                  
|/s/ STEVEN J. SORDELLOSteven J. Sordello           |  | Chief Financial Officer
    (Principal Financial Officer)                  |  | March 1, 2004
|                                                  
|/s/ SCOTT T. BAUERScott T. Bauer                   |  | Vice President and Corporate Controller
    (Principal Accounting Officer) |  | March 1, 2004
|                                                  
|/s/ DAVID S. CARLICKDavid S. Carlick               |  | Director                                                                   |  | March 1, 2004
|                                                  
|/s/ JOSHUA GOLDMANJoshua Goldman                   |  | Director                                                                   |  | March 1, 2004






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|                                     |  |                                        |  |              
|------------------------------------ |  | -------------------------------------- |  | -------------
|Signature                            |  | Title                                  |  | Date         
|                                    
|                                    
|                                    
|/s/ GARRETT GRUENERGarrett Gruener   |  | Director                               |  | March 1, 2004
|                                    
|/s/ JAMES KIRSNERJames Kirsner       |  | Director, Chair of the Audit Committee |  | March 1, 2004
|                                    
|/s/ GEOFFREY Y. YANGGeoffrey Y. Yang |  | Director                               |  | March 1, 2004




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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 10K (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
    (previously filed as Exhibit 2.1 to the Registrants Annual
    Report on Form 10-K, filed March 12, 2003, and
    incorporated herein by reference).                                                                                                                                                                                                                                 
|            | 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
    (previously filed as Exhibit 2.4 to the Registrants
    Annual Report on Form 10-K, filed March 12, 2003, and
    incorporated herein by reference).                                                                                                                                                                    
|            | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 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 (previously filed as
    Exhibit 3.1.2 to the Registrants Annual Report on
    Form 10-K, filed March 12, 2003, and incorporated
    herein by reference).                                                                                                                                                                                                                                                  
|            | 3.1.3  |             |  | Certificate of Correction of Amended and Restated
    Certificate of Incorporation of the Registrant, dated as of
    April 6, 2001 (previously filed as Exhibit 3.1.3 to
    the Registrants Annual Report on Form 10-K, filed
    March 12, 2003, and incorporated herein by reference).                                                                                                                                                                                                              
|            | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 3.2.1  |             |  | 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).                                                                                                                                                                                                                                                                                                                                             
|            | 3.2.2* |             |  | Certificate of Amendment of Bylaws                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |        |             |  | 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).                                                                                                                                                                                                






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|            |             |             |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | ----------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |             | Description
|           
|           
|            | 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).                                                                              
|            | 4.3.1       |             |  | Indenture (relating to the Zero Coupon
    Subordinated Convertible Notes), dated as of June 4, 2003,
    by and between Ask Jeeves, Inc. and The Bank of New York, as
    Trustee (previously filed as Exhibit 4.3.1 to the
    Registrants Form S-3 registration statement, filed
    September 19, 2003, and incorporated herein by reference).                                               
|            | 4.3.2       |             |  | Form of Zero Coupon Convertible Subordinated Note
    (included within Exhibit 4.3.1).                                                                                                                                                                                                                                                                                                            
|            |             |             |  | 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).                                                                                                                                                                                              
|            | 10.1.2.1.1 |             |  | 1999 Equity Incentive Plan, adopted
    April 16, 1999 and approved by Stockholders on May 21,
    1999 and May 25, 2000 (composite plan document reflecting
    amendments adopted through the date hereof) (previously filed as
    Exhibit 4.1 to the Registrants Form S-8, filed
    May 15, 2003, 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 (previously filed as Exhibit 99.2 to the
    Registrants Form S-8, filed November 15, 2001,
    and incorporated herein by reference).                                                                                                                                                                                           
|            | 10.1.2.4   |             |  | Form of Addendum to Stock Option Agreement
    applicable to certain grants under the 1999 Equity Incentive
    Plan from the Registrant to each of A. George (Skip) Battle,
    Steven Berkowitz, Steven Sordello, Heather Staples and Claudio
    Pinkus (previously filed as exhibit 10.1.2.4 to the
    Registrants Form 10-Q filed August 5, 2003 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).                                                                                                                                                                             
|            | 10.1.3.3   |             |  | 2002 UK Approved Rules for Grants under the 1999
    Non-Qualified Equity Plan (the UK Sub Plan), as
    adopted by the Registrant on January 13, 2003 (previously
    filed as Exhibit 10.1.3.3 to the Registrants
    Form 10-Q, filed May 2, 2003, 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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|            |           |             |  |                                                                                                                                                                                                                                                                                                                                                
|----------- | --------- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 (previously filed as
    Exhibit 10.2.3.3 to the Registrants Annual Report on
    Form 10-K, filed March 12, 2003, and incorporated
    herein by reference).                                            
|            | 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 (previously filed as
    Exhibit 10.2.4.2 to the Registrants Annual Report on
    Form 10-K, filed March 12, 2003, and incorporated
    herein by reference).                                                 
|            | 10.2.4.3 |             |  | Addendum to Stock Option Agreement regarding the
    April 1, 2003 stock option grant under the 1999 Equity
    Incentive Plan from the Registrant to Steven J. Sordello
    (previously filed as Exhibit 10.2.4.3 to the
    Registrants Quarterly Report on Form 10-Q, filed
    August 5, 2003, and incorporated herein by this reference).
|            | 10.2.4.4 |             |  | Restricted Stock Award Agreement under the 1999
    Equity Incentive Plan by and between the Registrant and
    Steven J. Sordello, dated September 30, 2003
    (previously filed as Exhibit 10.2.4.4 to the
    Registrants Quarterly Report on Form 10-Q, filed
    November 4, 2003, and incorporated herein by reference).               
|            | 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 (previously filed as Exhibit 10.2.6.2 to the
    Registrants Annual Report on Form 10-K, filed
    March 12, 2003, and incorporated herein by reference).                                                       
|            | 10.2.6.3 |             |  | Restricted Stock Award Agreement under the 1999
    Equity Incentive Plan by and between the Registrant and Steven
    Berkowitz, dated September 30, 2003 (previously filed as
    Exhibit 10.2.6.3 to the Registrants Quarterly Report
    on Form 10-Q, filed November 4, 2003, and incorporated
    herein by reference).                 
|            | 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).                                                                   






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|            |            |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- | ---------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |            | Description
|           
|           
|            | 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 (previously filed as Exhibit 10.2.7.5 to the
    Registrants Annual Report on Form 10-K, filed
    March 12, 2003, and incorporated herein by reference).                                                                                                                                                                                                                        
|            | 10.2.7.6  |             |  | Severance Agreement by and between the Registrant
    and Claudio Pinkus, dated August 28, 2003 (previously filed
    as Exhibit 10.2.7.6 to the Registrants Quarterly
    Report on Form 10-Q, filed November 4, 2003, and
    incorporated herein by reference).                                                                                                                                                                                                                                           
|            | 10.2.8.1  |             |  | Form of Indemnity Agreement by and between the
    Registrant and each of its then-current 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).                                                                                                                                                                                                                        
|            | 10.2.8.2  |             |  | Form of Indemnification Agreement, dated May
    2003, entered into between the Registrant and each of
    A. George (Skip) Battle, David Carlick, Joshua Goldman,
    Garrett Gruener, James Kirsner, Geoffrey Y. Yang, Scott
    Bauer, Steve Berkowitz, Adrian Cox, John Scott Lomond, Claudio
    Pinkus, Brett Robertson, Steve Sordello and Heather Staples
    (previously filed as Exhibit 10.2.8.2 to the
    Registrants Form 10-Q, filed August 5, 2003 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 (previously filed as
    Exhibit 10.2.9.1 to the Registrants Annual Report on
    Form 10-K, filed March 12, 2003, and incorporated
    herein by reference).                                                                                                                                                                                                                 
|            | 10.2.10.1 |             |  | Severance Benefit Letter Agreement, dated as of
    November 14, 2002, by and between the Registrant and
    Heather J. Staples (previously filed as
    Exhibit 10.2.10.1 to the Registrants Annual Report on
    Form 10-K, filed March 12, 2003, and incorporated
    herein by reference).                                                                                                                                                                                                               
|            | 10.2.11   |             |  | Separation Agreement and Mutual Release, dated as
    of December 23, 2002, by and between the Registrant and
    Cynthia Pevehouse (previously filed as Exhibit 10.2.11 to
    the Registrants Annual Report on Form 10-K, filed
    March 12, 2003, and incorporated herein by reference).                                                                                                                                                                                                                 
|            |            |             |  | 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).                                                                                                                                                                                                                                            
|            | 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).                               




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|            |           |             |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|----------- | --------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |           | Description
|           
|           
|            | 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 (previously filed as Exhibit 10.4.4 to the
    Registrants Annual Report on Form 10-K, filed
    March 12, 2003, and incorporated herein by reference).                                                                                                                 
|            |           |             |  | 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
    (previously filed as Exhibit 10.5.1 to the
    Registrants Annual Report on Form 10-K, filed
    March 12, 2003, and incorporated herein by reference).                                                                       
|            | 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 (previously filed as Exhibit 10.5.2.1 to the
    Registrants Annual Report on Form 10-K, filed
    March 12, 2003, and incorporated herein by reference).                                              
|            | 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 (previously filed as Exhibit 10.5.2.2
    to the Registrants Annual Report on Form 10-K, filed
    March 12, 2003, and incorporated herein by reference).                                                    
|            | 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 (previously filed as Exhibit 10.5.2.3
    to the Registrants Annual Report on Form 10-K, filed
    March 12, 2003, and incorporated herein by reference).                                                     
|            |           |             |  | 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).                                                                                                
|            | 10.7.3    |             |  | Registration Rights Agreement (relating to the
    Zero Coupon Subordinated Convertible Notes), dated as of
    June 4, 2003, by and between Ask Jeeves, Inc. and Credit
    Suisse First Boston LLC, as initial purchaser (previously filed
    as Exhibit 10.7.3 to the Registrants Form S-3
    registration statement, filed September 19, 2003, and
    incorporated herein by reference).      






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|            |          |             |  |                                                                                                                                                                                                                                                                                                                                 
|----------- | -------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |          | Description
|           
|           
|            |          |             |  | 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. (previously filed as
    Exhibit 10.8.2 to the Registrants Annual Report on
    Form 10-K, filed March 12, 2003, and incorporated
    herein by reference).                         
|            | 10.8.3  |             |  | Google Services Agreement, dated May 15,
    2003, by and between Ask Jeeves UK Partnership and Google
    Technology, Inc. (previously filed as Exhibit 10.1 to the
    Registrants Current Report on Form 8-K dated
    May 15, 2003, filed May 29, 2003, and incorporated
    herein by reference).                         
|            | 10.9.1  |             |  | Agreement by and between the Registrant and The
    Wodehouse No. 3 Trust, dated as of January 1, 2000
    (previously filed as Exhibit 10.9 to the Registrants
    Annual Report on Form 10-K, filed March 12, 2003, and
    incorporated herein by reference).                                                               
|            | 10.9.2  |             |  | First Amendment to Agreement by and between the
    Registrant and The Wodehouse No. 3 Trust, dated as of
    May 9, 2003 (previously filed as Exhibit 10.9.2 to the
    Registrants Form 10-Q filed August 5, 2003 and
    incorporated herein by reference).                                                                 
|            | 10.10.1 |             |  | DARTTMService Agreement for
    Publishers by and between DoubleClick Inc. and the Registrant,
    effective as of March 31, 1999 (previously filed as
    Exhibit 10.10.1 to the Registrants Annual Report on
    Form 10-K, filed March 12, 2003, and incorporated
    herein by reference).                                 
|            | 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 (previously filed as
    Exhibit 10.10.2 to the Registrants Annual Report on
    Form 10-K, filed March 12, 2003, and incorporated
    herein by reference).               
|            | 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 (previously filed as
    Exhibit 10.10.3 to the Registrants Annual Report on
    Form 10-K, filed March 12, 2003, and incorporated
    herein by reference).                
|            | 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 (previously
    filed as Exhibit 10.10.4 to the Registrants Annual
    Report on Form 10-K, filed March 12, 2003, and
    incorporated herein by reference).
|            | 10.11    |             |  | Asset Purchase Agreement dated May 28, 2003
    by and between Ask Jeeves, Inc. and Kanisa Inc. (previously
    filed as Exhibit 10.1 to the Registrants Current
    Report on Form 8-K dated May 28, 2003, filed
    May 29, 2003, and incorporated herein by reference).                                                     
|            | 14.1*    |             |  | Code of Ethics                                                                                                                                                                                                                                                                                                                  
|            | 21.1     |             |  | Subsidiaries of the Registrant (previously filed
    as Exhibit 21.1 to the Registrants Annual Report on
    Form 10-K, filed March 12, 2003, and incorporated
    herein by reference).                                                                                                                                       
|            | 23.1*    |             |  | Consent of Ernst & Young LLP,
    Independent Auditors                                                                                                                                                                                                                                                                          
|            | 31.1*    |             |  | Certification of Steven Berkowitz under
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                      
|            | 31.2*    |             |  | Certification of Steven J. Sordello under
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                    
|            | 32.1*    |             |  | Certifications under Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                         



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| |   |                
| | - | ---------------
| | * | 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.




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