|            |  | United States
Securities and Exchange CommissionWashington, D.C. 20549                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|/x/         |  | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  | For the fiscal Year ended December 31, 2000 or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|/ /         |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |  | For the transition period from  to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |  | Commission File No. 000-26521                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|FORM 10-K/A |  | LOGO                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  | Ask Jeeves, Inc.(Exact name of registrant as specified in its charter)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |  | Delaware(State or other jurisdiction of incorporation or organization)
5858 Horton Street, Suite 350,
Emeryville, CA 94608
(Address of principal executive offices and zip code)                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |  | 94-3334199
(I.R.S. Employer Identification No.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |  | Registrant's telephone number, including area code: (510) 985-7400                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |  | Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /                                                                                                                                                                                                                                   
|            |  | Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /                                                                                                                                                                                                                                                                  
|            |  | The approximate aggregate market value of voting stock held by non-affiliates of the Registrant, based upon the last sale price of the Common Stock on February 28, 2001 as reported by Nasdaq National Market was approximately $62,575,325. Shares
of Common Stock held by each officer and director and by each person who owns 5% or more outstanding Common Stock of the Registrant have been excluded from this computation in that such persons may be deemed to be affiliates. Determination of
affiliate status for this purpose is not a determination of affiliate status for any other purpose.
|            |  | As of February 28, 2001, the Registrant had 3 6,406,403 shares of Common Stock outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of Ask Jeeves' Definitive Proxy Statement to be filed with the Security and Exchange Commission (the "Commission") pursuant to Regulation 14A in
connection with the 2001 Annual Meeting of Stockholders ("Annual Meeting") are incorporated herein by reference into Part III of this report.

Certain Exhibits filed with Ask Jeeves' Registration Statement on Form S-1, No. 333-77539; Current Report on Form 8-K, filed with the
Commission on November 18, 1999; Current Report on Form 8-K, filed with the commission on February 14, 2000; Registration Statement on Form S-1, No. 333-95691;
Registration Statement on Form S-1, No. 333-30494 and Quarterly Report filed on Form 10-Q, filed with the commission on November 14, 2000 are incorporated by reference into
Part IV of this report.

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ASK JEEVES, INC.  2000 ANNUAL REPORT ON FORM 10-K

CONTENTS

|PART I                                                                                        |  | PAGE
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                             
|Item 1. Business                                                                              |  | 3   
|Item 2. Properties                                                                            |  | 35  
|Item 3. Legal Proceedings                                                                     |  | 36  
|Item 4. Submission of Matters to a Vote of Security Holders                                   |  | 36  
|PART II                                                                                       |  |     
|                                                                                             
|Item 5. Market for Registrant's Common Equity and Related Shareholder Matters                 |  | 37  
|Item 6. Selected Consolidated Financial Data                                                  |  | 38  
|Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 40  
|Item 7A. Quantitative and Qualitative Disclosures about Market Risk                           |  | 49  
|Item 8. Financial Statements and Supplementary Data                                           |  | 49  
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 77  
|PART III                                                                                      |  |     
|                                                                                             
|Item 10. Directors and Executive Officers of the Registrant                                   |  | 78  
|Item 11. Executive Compensation                                                               |  | 78  
|Item 12. Security Ownership of Certain Beneficial Owners and Management                       |  | 78  
|Item 13. Certain Relationships and Related Transactions                                       |  | 78  
|PART IV                                                                                       |  |     
|                                                                                             
|Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     |  | 79  
|SIGNATURES                                                                                    |  | 82  
|                                                                                             

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PART I

ITEM 1. BUSINESS

In addition to historical information, the following discussion of the Company's business contains forward-looking statements within the meaning of federal
securities laws. These forward-looking statements involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a
result of many factors, including but not limited to, those discussed in the sections in this Annual Report on Form 10-K entitled "Competition", "Proprietary Rights", "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions
only as of the date hereof. Ask Jeeves, Inc. (the "Company" or "Ask Jeeves") undertakes no obligation to revise or publicly release the results of any revision to these forward-looking
statements. Readers should carefully review the risk factors described in this document as well as in other documents the Company files from time to time with the Securities and Exchange Commission,
including the Quarterly Reports on Form 10-Q to be filed by the Company in fiscal year 2001.

Overview

Headquartered in Emeryville, California, Ask Jeeves is a leading provider of natural language question answering technologies and services. Our proprietary
technology combined with human intelligence creates an interaction centered on understanding users' specific needs and interests and connecting them to the most relevant information, products and
services. Specifically, our technology allows users to ask a question in plain English (or other language) and receive a response pointing to relevant Internet destinations. We believe that by
providing an intuitive way to access information on the World Wide Web ("Web"), we make online navigation a more satisfying experience for consumers. We also believe that our natural language approach
enables companies to better acquire and retain valuable customers.

We
deliver our natural language question answering technologies and services through our own Web sites at Ask.com, AJKids.com and DirectHit.com. The first natural language question
answer site on the Web, Ask Jeeves at Ask.com has emerged as a frequent top twenty Web property in terms of traffic
and advertising. As of December of 2000, our combined Web Properties attracted an audience of 11.9 million unique monthly users who viewed an average of approximately 13.1 million Web pages per
day on Ask Jeeves branded online properties. Because of our audience, Ask Jeeves Web Properties provide a highly targeted medium for advertisers to reach online users. The Company also syndicates
services to portals, infomediaries, and content and destination sites to help companies increase e-commerce and advertising revenue.

Through
our Business Solutions Group, the Company develops and maintains customized automated search, natural language question answering and intelligent advisor services on numerous
corporate Web sites. For the year ended December 2000, 67 business enterprises had adopted Ask Jeeves natural language navigation and business intelligence technology for their Web sites. Among these
companies are AT&T Broadband, Compaq, DaimlerChrysler, Dell, E*Trade, First Union Bank, Nike, Office Depot and Verizon Wireless. As of December 2000, renewal rates for our Business Solutions customers
were above 90 percent.

Although
fiscal year 2000 ushered in a challenging new business environment, we adapted to new market dynamics by introducing changes across our organization that we believe make Ask
Jeeves a stronger company and optimize long-term shareholder value. In 2000, we refined our core product offerings and sales strategies; implemented a more rigorous financial planning and management

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performance program; and along with our joint venture partners, began to expand the Jeeves brand into some of the most attractive Internet markets outside the United States.

Ask
Jeeves ended fiscal year 2000 with revenues of approximately $96 million, a 334 percent increase over fiscal 1999. While the economic slowdown stalled the Company's growth in the
fourth quarter, we ended the year 2000 with $105 million in cash, short-term and long-term investments.

In
December 2000, in an effort to streamline operations, increase revenues, reduce costs and bring staffing in line with current and anticipated requirements, we announced an internal
realignment of our business organization. As a result of our business realignment, A. George (Skip) Battle, a member of our Board of Directors, has been appointed Chief Executive Officer. We believe
that the realigned Company, comprised of two business units, now each with separate profit and loss accountability, will be better positioned to serve customers and target promising new market
opportunities.

Ask Jeeves Web Properties

Through our Web Properties Group, we provide targeting services designed to help companies build brand awareness, drive qualified prospects to corporate Web
sites and increase transactions. We accomplish this through a combination of advertising, sponsorship, listing and shopping services available through Ask.com, AJKids.com, DirectHit.com and our
syndication services. The benefits to companies that use our targeting services include the following:



Ask
Jeeves at www.ask.com, is the flagship web property for our Internet media network. Ask.com provides consumers with an easy-to-use, human-like interface to the Web to assist them
with finding relevant answers to their questions. When a user enters a question, Ask.com parses the question for word meaning and grammar and displays a selection of relevant dialogue questions.
Question templates range from "Where can I get customized road directions?" and "Where can I compare on-line prices for books?" to "How can I install a modem?" and "Is it raining in Paris?".

Jeeves,
the well known butler character featured on Ask.com, serves as a trusted assistant for our users, providing them with help and guidance when they visit the Web site. In
December 2000, Ask.com processed approximately 3.7 million queries a day compared to approximately 2.6 million questions in December 1999. The number of unique users grew from 5.3 million users in
December of 1999 to more than 11.9 million in December 2000. In 2000, our patented popularity-based search technology became a standard feature on the site, drawing from the preferences of millions of
Internet users to deliver the most relevant search results. To further assist Ask.com users to find the information they need, we introduced Answer Point, a community forum that enables people to get
answers from other Ask.com users.

Modeled
on Ask.com, Ask Jeeves for Kids at AJkids.com is a child oriented version of the Ask.com site that enables children to find answers to frequently asked questions on all kinds
of topics from
baseball to earthquakes. Examples of question templates are "Why is the sky blue?" and "Where can I play video games?".

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DirectHit.com, is a Web site powered by our popularity search engine which determines the relevancy ranking of online content by anonymously compiling information collected from the
searching activity of millions of Internet users to deliver more relevant results in response to user queries.

Advertising and Targeting Capabilities

Ask Jeeves Web Properties have designed a suite of integrated advertising and targeting products for Ask Jeeves at ask.com designed to give our clients with a
powerful tool to drive traffic to their Web sites, increase sales and build brands. These products are as follows:



Revenue Generation

In general, the Company makes its Web properties available without charge to users, and generates revenue primarily through the sale of advertisements,
promotions, sponsorships, listing and shopping services. We believe our natural language question answering technologies and services provide a non-intrusive way for companies to target and acquire
customers. Companies can target Ask.com,
AJKids.com and DirectHit.com users through banner advertising, text links, sponsorships and electronic commerce referrals.

The
majority of advertising on Ask Jeeves Web properties is sold through the Company's internal advertising sales force. Approximately 447 customers advertised on Ask Jeeves Web
Properties during 2000.

We
also syndicate our proprietary Jeeves Search services to companies seeking to provide consumers with a broad and relevant set of answers across the Internet. The syndication of
Jeeves Search enables us to extend the reach of our natural language question answering technologies and services. Companies that syndicate our services pay us a licensing fee. We had 50 syndication
customers during the year 2000.

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Ask Jeeves Business Solutions

Ask Jeeves has developed and deployed natural language question answering technologies and services for corporate web sites that provide real-time access to
information, products and services. By connecting users to answers through a suite of services that includes automated search, natural language question answering and intelligent advisor technology,
we believe our Business Solutions allow our corporate customers to create an intuitive interaction with their customers. Moreover, we believe that by providing a more intuitive, relevant and flexible
way to access online information, companies will be able to maximize conversion and retention rates, lower support costs and improve access to customer data. In addition, through our analysis and
reporting tool that captures user questions, we believe that we can provide critical insight into the specific needs, interests and preferences of users to help companies make customer-driven business
decisions. Our natural language question answering technologies and services for corporate customers includes Jeeves Search, Jeeves Answers, Jeeves Advisor, and Jeeves Insight, which we deliver
through our Business Solutions Group. In 2000, client companies such as Ford, Radio Shack, Dell and Arthur Andersen used our natural language technologies and services.

Unleashing the Potential Of the Internet

The Internet has established itself as a mass-market communications medium, enabling users to obtain and share information and interact and conduct business.
However, as the importance of the Internet for individuals and businesses has drawn users at an unprecedented pace, competitive pressures in online markets has increased. The abundance of information
available on the Internet and the difficulty in accessing this information means that consumers are often frustrated in their attempts to locate the
information, products and services they desire. Companies therefore have a difficult time identifying qualified prospects and introducing them to their products and services.

Moreover,
once users arrive at a corporate Web site, companies often face difficulties in providing a level of service that effectively answers questions, provides education about
relevant products and services and provides a high level of support. Thus, to maintain or increase market share, many businesses are focusing on the quality of Web-based service as a key competitive
differentiator. Whether asking about product features, checking the status of an order or receiving help with a loan application, online customers have traditional service needs, and they want to be
assured that these needs will be met before conducting a transaction. We believe that in the increasingly competitive electronic commerce environment, companies that fail to address these consumer
service needs will lose sales to competitors located a mouse click away.

To
address these concerns, companies are implementing new methods of conducting business online. They are focusing on increasing online conversion rates by providing timely,
personalized service to guide users through the process of finding answers and receiving help. In addition, companies are looking for methods to increase customer satisfaction with their products and
services to create repeat buyers. The emergence of online vertical markets and more informed consumers has required businesses to adopt solutions that are focused on the particular needs of their
industry. We believe that to unleash the potential of the Internet, companies must develop Web sites that fulfill a variety of needs, including:



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The Ask Jeeves Solution

Our natural language technologies and services are designed to help companies improve customer acquisition, increase conversion of browsers to purchasers and
reduce expensive support costs such as phone calls to call centers. We believe that our natural language technologies and services make interaction with the Internet more intuitive, less frustrating
and significantly more productive and help companies provide a high quality, human-like online experience for their customers.

Products and Services

The Ask Jeeves natural language question answering technologies and services include the following:



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Corporate Customer Benefits

We believe the benefits to companies that use our conversion services include the following:



The Business Solutions Strategy

In 2000, our hosted Business Solutions products and services continued to attract customers and generate high percentage of renewals and expansions. We added
popularity-based automated search, intelligent advisor and other technologies to our core natural language question answering technology to provide consumers with improved access to information,
products and services from corporate Web sites. In 2001, we intend to continue to refine and target our services and capabilities through technologies that will improve the ease, relevance and
performance of our service to users and to provide a more intuitive interaction between a company and its customers.



8

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Geographic Properties (Ask Jeeves International)

We believe there is a significant market opportunity for the international expansion of our natural language question answering technologies and services. We
intend to increase international awareness of our brand through new business ventures, the use of local management and employees and the implementation of language and geographic specific deployments
of our services. We have pursued a strategy of content aggregation with third parties and currently plan to roll out a broad range of our products and services for these markets.

Our
wholly owned subsidiary, Ask Jeeves International, Inc., ("AJI"), was formed for the purpose of marketing our natural language question answering technologies and services
outside of the United States. To date, AJI has entered into joint venture arrangements with local partners to provide our services in the United Kingdom, Japan, and to the worldwide Spanish-speaking
market. In January 2001, AJI formed Ask Jeeves Australia, a wholly owned subsidiary of AJI, to provide a localized version of our technologies and services for the Australian market.

Ask Jeeves UK

In December 1999, we launched Ask Jeeves UK, as a joint venture with two British media companies, Carlton Communications and Granada Media Group to market our
natural language question and answering technologies and services to Great Britain and the Republic of Ireland. As of December 2000, the Ask Jeeves UK Web site was already the seventh most popular UK
Web property with 2.8 million unique users and 128 million impressions per month. Ask Jeeves owns a 50 percent interest in this joint venture.

Ask Jeeves En Espanol

Ask Jeeves en Espanol, a joint venture with the Spanish language media company Univision, launched Pregunta.com, a Spanish-language version of Ask.com, in
March of 2001 to target Spanish speakers worldwide. Ask Jeeves owns a 50 percent interest in this joint venture.

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Ask Jeeves Japan

Ask Jeeves Japan, a joint venture with Trans Cosmos, Inc., a Japanese customer service and information technology support provider, was established to
market Business Solutions to the Japanese marketplace and to launch a Japanese language version of Ask.com. Ask Jeeves owns a 50 percent interest in this joint venture.

Ask Jeeves Australia

Ask Jeeves Australia at Ask.com.au. is a localized Australian version of the Ask.com Web site that was launched in January 2001. The Company owns 100% of this
entity.

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

Sales and Marketing

Sales Strategy

Our Web Properties Group sells advertising, sponsorship, key word and shopping listings and syndication services. We sell primarily through a direct sales
organization and target our sales to companies seeking to efficiently target and acquire customers online. As of March 28, 2001 Web Properties direct sales force consisted of 20 people with offices in
California and New York.

Our
Business Solutions Group sells our services, including Jeeves Search, Jeeves Answers, Jeeves Advisor, and Jeeves Insight, for deployment on corporate Web sites. We target
companies seeking to increase conversion and retention rates through a direct sales force that is complemented by our account management team. Our account management team maintains close relationships
with our corporate customers to identify and serve their ongoing needs, enabling our sales professionals to focus on new business opportunities. We believe this approach leads to a higher level of
satisfaction for our corporate customers and increased cross-selling and up-selling opportunities. We have recently established strategic relationships with Vignette Corporation, Lionbridge
Technologies Inc., and Immersent, Inc, technology consulting providers. These relationships provide us opportunities to extend our reach by marketing and selling our services to their existing network
of customers. As of March 28, 2001, our Business Solutions direct sales force consisted of 20 people with offices in various locations.

Marketing

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

Customers

Our Business Solutions Group had 67 total customers during the year ended December 31, 2000, including customers in our targeted vertical markets of
technology, financial services, telecommunications, e-tailing and healthcare. Representative Business Solutions customers as of December 31, 2000 include Hewlett Packard, Compaq, Network Solutions,
E*Trade, Arthur Andersen, TD Waterhouse, Ford Motor Co., Datek, and Iomega.

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Our Web Properties Group had 497 customers for the year ended December 31, 2000. The following list is representative of our advertising and sponsorship, e-commerce and syndication
customers as March 21, 2001

|Advertising        |  | E-Commerce       |  | Syndication
|------------------ |  | ---------------- |  | -----------
|
|Aria               |  | Amazon           |  | AT&T       
|Britannica         |  | Barnes and Noble |  | Go2Net     
|ebay               |  | Buy.com          |  | Hot Bot    
|Homestore          |  | My Simon         |  | iWon       
|MSN Money  Central

For
the year ended December 31, 2000, no customer accounted for more than 10% of our total revenues. $37 million, or approximately 40% of our total revenues, was generated through our
Business Solutions Group. These revenues include approximately $24.7 million derived from licensing our products and services to corporate customers and $12.3 million of intellectual property
licensing revenues derived from licensing our products and services to our joint venture partners. In 2001, we expect that revenues associated with the Business Solutions Group will be heavily
dependent on our joint ventures and on a limited number of customers.

Technology and Operations

Ask Jeeves has developed and acquired proprietary technology to create intuitive natural language technologies and services aimed at creating a unique user
experience that emphasizes ease of use, relevance, precision and ability to learn. The goal of our Company's services is to combine the strengths of automated natural language parsing software and
popularity-based search technology with editorially selected online content and text-based live-help to give Web users easy access to the information they seek. Our infrastructure also provides
companies an efficient and effective means to target prospective customers, convert browsers into shoppers, retain existing customers and provide customer data. Our core technology was developed by
Ask Jeeves and forms the basis for our natural language question answering services.

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Jeeves Answers

Jeeves Answers, our question answering technology, matches a user's question to a short list of dialogue questions and directs the user to corresponding
answers on the Internet. To do this, we focus on four main areas: the question processing engine, the knowledge base creation and maintenance process, data tracking and analysis, and the editorial
process.

The
Question Processing Engine, or QPE, is the engine that drives our question answering service. The QPE uses our natural-language processing software to parse, or identify the
linguistically significant terms in, each user question. The QPE analyzes a user's question syntactically and semantically and reorganizes it into a structure that can be matched to our "question
templates." For example, if a user asks "Who is the king of Siam?" the service can correctly tell that this is equivalent to "Who is the head of state of Thailand?" a question template that is stored
in the knowledge base. The matching question templates are then displayed for the user as dialogue questions. When the user picks a dialogue question, the QPE then extracts an "answer template" from
the knowledge base that contains the information necessary to link the user directly to a destination on the Internet or a page on a corporate Web site. The answer links have been editorially
selected for relevance, accuracy and credibility. A meta-search function, which generates links to answers from several leading search engines, is included with every response to supplement answer
templates available or to provide answers when there are no matching question templates.

Our
knowledge base is a collection of question templates and answer templates. The knowledge base is created and maintained using a set of internally-developed proprietary tools that
allow human content editors to make editorial judgments about what questions should be included and which Web pages, databases or other sources of information on the Internet provide the best answer
to a particular question. In addition, these tools enable editors to automatically map sites for answers and content, making the integration of new content into a knowledge base more efficient. The
tools also help content editors maintain the knowledge base for accuracy and quality by frequently checking links from the knowledge base to the Web to ensure that the links are functioning and that
the content is still relevant to the question.

We
track analyze, store, and report all queries asked of our natural language question answering technologies and services for corporate customers, whether from the Web Properties
Group or the Business Solutions Group. In the process of responding to user questions, the QPE logs all questions and the selected dialogue questions to a "user log." We analyze this information to
determine patterns in the usage of our Web Properties and Syndication Services and our Business Solutions. This data helps editors determine what questions should be answered and also enables our
corporate customers to identify content gaps on their Web sites.

Our
editorial process is designed to take advantage of the cognitive ability of individuals to understand the questions people ask and to determine the quality of the Web sites
containing the answers. Our editors focus on conforming the knowledge base to the questions most frequently asked by our users or our corporate customers. As editors build up a base of questions,
answers, terms and phrases in a specific area of knowledge and interest, the human effort required to add to the knowledge base diminishes.

Jeeves Search

Jeeves Search, our popularity-based search technology and proprietary software is designed to serve as the foundation for a variety of scalable information
organization and aggregation applications. The core of Jeeves Search is its Popularity Engine, which leverages a database of more than one billion search records and employs proprietary algorithms
that rank the site selections of Internet users. The Popularity Engine can be readily deployed to work with various data, such as multi-media content and corporate Web site-specific data. It
anonymously monitors the activity of millions of Internet users on a

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daily basis to systematically organize large volumes of information according to user demand. The technology operates to create a data file of relevancy records identifying the information, products
or services that users found useful in satisfying their requests for information. Our systems process these relevancy records and use our proprietary mathematical algorithms to rank the information,
products or services according to user demand. These rankings are then incorporated into the Popularity Engine and utilized in responding to the requests of subsequent users. The Popularity Engine's
modularity simplifies deployment as either a stand-alone solution or as a complement to existing technology.

Jeeves Advisor

Jeeves Advisor, our decision support service, asks users questions to establish their needs and preferences and provides them with a personalized list of
recommendations, selected product features and side-by-side comparisons. It employs advice logic to interpret user answers in terms of importance, which it uses in rating products to create a short
list of recommendations. It also uses this information to generate personalized lists of pros and cons for each alternative, identifying concisely the information most useful in helping the user
choose among the alternatives. The Jeeves Advisor technology is based on a synthesis of multi-attribute decision analysis and knowledge based expert systems.

Jeeves Insight

Jeeves Insight captures Internet-wide and site specific information about users' questions, language and selections to gain insight into their needs and
interests. This insight can be used for more focused targeting, better customer service, and improved customer acquisition, conversion and retention. Companies can use this information to tailor Web
site content, direct product development and refine marketing and sales efforts.

Scalability and Operations

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

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

The
servers hosting Ask Jeeves and some of our customers' Web sites are located at Exodus GlobalCenter in Palo Alto, California, AboveNet Communications in San Jose, California,

Allegiance
Telecom in Boston, Massachusetts, Exodus Communications in Waltham, Massachusetts, Santa Clara, California, and London, England. Additionally, some of our corporate
customer Web sites are co-located with our customers' servers at other facilities. The hosting centers provide routing and communication lines with a variety of major Internet backbone providers, as
well as continuous monitoring and communications support. They also provide their own power generators and multiple, redundant backup systems. We maintain significant server over-capacity at each site
so that if one hosting facility fails, the other site can service our entire user traffic.

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Competition

Web Properties Group

We face direct competition from companies that provide Internet-wide search directory, and network services. For example, we compete with search engines,
including AltaVista Company, Excite@Home Corporation, Google Inc., and Inktomi Corporation for the traffic generated by Internet users seeking links to third-party content to address their online
information needs. We also compete with directory services, such as Goto.com, Inc., LookSmart, Ltd. and Yahoo! Inc., because they provide alternative ways for users to obtain the desired
information. An increasing number of these search and directory companies are syndicating services to corporations, presenting additional competition for syndication services we acquired from Direct
Hit, Inc. in January 2000.

Business Solutions Group

Our Business Solutions Group competes with a number of companies that are addressing the same market need to improve automated or online customer service for
corporate clients. While various companies are addressing this problem through a range of solutions, we believe no company competes directly with our approach of combining automated technology with
human intelligence to deliver customer service for company Web sites. The companies that provide automated online customer products and services against which we compete can be categorized as follows:

|                                
|--------------------------------
|Search                          
|                                
|Customer
Relationship
Management
|                                

Our
ability to compete depends on many factors, many of which are outside of our control. These factors include: the quality of content, the ease of use of online services and the
timing and market acceptance of new and enhanced online services. We believe we compete favorably with respect to each of these factors.

Many
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 than we can to the development and promotion of their services. Many of these competitors offer
a wider range of services than we do. These services may attract users to our competitors' sites and, consequently, result in less traffic to our site. These competitors may also engage in more
extensive research and

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development, adopt more aggressive pricing policies and make more attractive offers to existing and potential employees, partners, advertisers and electronic commerce partners. Our competitors may
develop products and services that are equal or superior to ours or that achieve greater market acceptance. 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.

Proprietary Rights

We seek to protect our intellectual property rights, but our actions may be inadequate to protect our patents, trademarks or other proprietary rights. We have
one patent application on file with the United States Patent and Trademark Office for our "Grammar Template Query System". Additionally, as a result of our acquisition of Direct Hit, Inc., we
received an assignment of one United States patent issued to Gary Culliss, the founder of Direct Hit, and three U.S. patent applications, covering aspects of our automated popularity based search
technology. We have obtained registered trademark status for "Ask Jeeves" in the United States, Australia, France, Germany, Tunisia and Norway. We have obtained registered trademark status for the
"Ask!" button design in the United States, France, and Germany. We have obtained registered trademark status for the butler design, a stylized depiction of our butler character, in the United States,
Australia, Germany, Mexico, and Norway. We have obtained registered trademark status for "Direct Hit" and "Popularity Search Engine" in the United States. We have also applied for registered trademark
status for "Ask.com," "Ask Jeeves for Kids," and our logos and service marks in several variations in the United States and various foreign countries. 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" and "Ask.com," through media advertising campaigns, 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.

In
July 1999, IP Learn LLC filed a complaint against the Company in the United States District Court for the Northern District of California. The complaint alleged that aspects of the
Company's technology infringed three patents alleged to be held by the plaintiff. The Company reached a settlement with plaintiff in this lawsuit in February 2001, and an Order of Dismissal with
Prejudice was entered by the Court on February 20, 2001.

On
December 16, 1999, Patrick H. Winston and Boris Katz filed a complaint against us in the United States District Court for the District of Massachusetts (Patrick H. Winston and
Boris Katz v. Ask Jeeves, Inc., Case No. 99GV12584 MLW), alleging infringement by us of United States Patent Nos. 5,309,359 and 5,404,295 that are alleged to be held by the plaintiffs. The
complaint seeks injunctive relief and unspecified damages, including attorneys' fees. We filed an answer to the complaint and a counterclaim for declaratory relief on January 28, 2000. The answer
denies the allegations made in the complaint and seeks a dismissal of the complaint, invalidation of the asserted patents and an award to us of our costs, including attorneys' fees. The parties are in
the discovery process in this litigation. We intend to vigorously defend against the allegations asserted in this complaint and we believe we have meritorious defenses to the claims. The results of
any litigation matter are inherently uncertain. In the event of an adverse result in this lawsuit, or in any other litigation with third parties that could arise in the future with respect to
intellectual property rights relevant to our products or services, we could be required to pay substantial damages, including treble damages if we are held to have willfully infringed, to cease the
use of infringing products or services, to expend significant resources to develop non-infringing technology or to attempt to obtain licenses to the infringing technology on commercially reasonable
terms. In addition, litigation frequently involves substantial expenditures and can require

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significant management attention, even if we ultimately prevail. Accordingly, we cannot assure you that this lawsuit will not seriously harm our business.

Third
parties may assert infringement claims against us. 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.

Strategic Relationships

We have established strategic relationships with Vignette Corporation, Lionbridge Technologies, Inc., and Immersent, Inc. These relationships
provide us opportunities to extend our reach by marketing and selling our services to their existing network of customers.

We
have also entered into a strategic relationship with Nuance Communications, Inc., a provider of voice recognition technology, to jointly develop a voice enabled interface
for use on our Web sites.

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Executive Officers of the Company

|Name                    |  | Age |  | Position                                         
|----------------------- |  | --- |  | -------------------------------------------------
|                       
|A. George (Skip) Battle |  | 57  |  | Chief Executive Officer and Director             
|Steven J. Sordello      |  | 32  |  | Chief Financial Officer                          
|Adam Klein              |  | 49  |  | President and Interim President of Web Properties
|Christine M. Davis      |  | 42  |  | Vice President and Corporate Controller          
|Cynthia Pevehouse       |  | 43  |  | General Counsel and Secretary                    
|George S. Lichter       |  | 48  |  | President of Ask Jeeves International            
|Claudio Pinkus          |  | 44  |  | President of Ask Jeeves Business Solutions       
|                       

A. George
(Skip) Battle was appointed Chief Executive Officer in December 2000. Mr. Battle has served as a director of Ask Jeeves since August 1998 and currently serves
on the compensation committee. Mr. Battle retired from Andersen Consulting in June 1995. Mr. Battle joined the firm in 1968, became a partner in 1978 and held a series of management
positions in the firm including Worldwide Managing Partner Market Development and a member of the firm's Executive Committee, Global Management Council and Partner Income Committee. Mr. Battle
is a member of the Boards of Directors of
PeopleSoft, Inc., Barra Inc. and Fair, Isaac and Company, Incorporated as well as a director of Masters Select Equity Fund and Masters Select International Fund, registered investment
companies.

Adam
Klein joined Ask Jeeves as President in July, 2000. From 1998 to 2000, Mr. Klein served numerous early stage Internet companies, including GetConnected.com, Nearlife Inc.
and Bidders Edge.com, as board member and advisor. From 1996 to 1998, Mr. Klein was the executive vice president and president of global marketing at Hasbro Inc. Prior thereto, Mr. Klein
was the President of Klein & Co., a consulting firm specializing in managing strategic change.

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

Cynthia
Pevehouse has served as General Counsel & Secretary of Ask Jeeves since January 2000. From 1997 to 2000, Ms. Pevehouse served as legal counsel at Compaq Computer
Corp. From 1996 to 1997, she was legal counsel to Canon USA, Inc. Prior thereto, Ms. Pevehouse was in private practice in Seattle, Washington; Portland, Oregon; and Osaka, Japan.
Ms. Pevehouse holds a J.D. from Willamette University and an LL.M. in Asian Law from the University of Washington.

Christine
M. Davis has served as Controller of Ask Jeeves since January 1999 and was promoted to Vice President and Corporate Controller in November 1999. From January 1999 until
April 1999, Ms. Davis also served as Acting Chief Financial Officer of the Company. From December 1997 to January 1999, she served as Corporate Controller of TIBCO Software, Inc., a
software company. From April 1987 to December 1997, Ms. Davis served as Corporate Controller, Assistant Secretary and Treasurer of TCSI Corporation, a telecommunications software company.

George
S. Lichter has served as President of Ask Jeeves International since May 1999. From January 1997 to May 1999, Mr. Lichter served as Senior Vice President, Business
Development of Havas Interactive/Cendant Software. From 1994 to 1997, Mr. Lichter served as Vice President New Business Development of Knowledge Adventure, an educational software company. From
1993 to 1994, Mr. Lichter was employed as an attorney at the law firm of Rosenfeld, Meyer & Susman.

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Claudio Pinkus has served as President of Ask Jeeves Business Solutions since December 2000. From June 1999 to December 2000, Mr. Pinkus served as chief operating officer of
Ask Jeeves International.
Prior thereto, Mr. Pinkus served as CEO of Bowne Global Solutions from November 1996 through June of 1999. Prior thereto, Mr. Pinkus founded IDOC, Inc. where he served as CEO from
1985 until November of 1996.

Employees

Ask Jeeves' future success is substantially dependent on the performance of its senior management and key technical personnel, and its continuing ability to
attract and retain highly qualified technical and managerial personnel. As part of our business realignment, in December 2000 we implemented a workforce reduction of approximately 152 employees,
representing approximately 20 percent of our staff. As of December 31, 2000, the Company had 565 employees. We have never had a work stoppage, and no employees are represented under collective
bargaining agreements. We consider our relations with our employees to be good.

See
the "Risk Factors" section below for a further discussion of certain risks related to our employees.

Regulation of the Internet

There are currently few laws or regulations specifically addressed to the Internet. The application of existing laws and regulations to Ask Jeeves relating to
issues such as user privacy, defamation, pricing, advertising, taxation, gambling, sweepstakes, promotions, content regulation, quality of products and services, and intellectual property ownership
and infringement can be unclear. In addition, we will also be subject to new laws and regulations directly applicable to our activities. Any existing or new legislation applicable to us could expose
us to substantial liability, including significant expenses necessary to comply with such laws and regulations, and dampen the growth in use of the internet. Several federal laws could have an impact
on our business. The Digital Millennium Copyright Act is intended to reduce the liability of online service providers for listing or linking to third-party Web sites that include materials that
infringe copyrights or other rights of others. The Children's Online Protection Act and the Children's Online Privacy Protection Act are intended to restrict the distribution of certain materials
deemed harmful to children and impose additional restrictions on the ability of online services to collect user information from minors. In addition, the Protection of Children From Sexual Predators
Act of 1998 requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances. 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. 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 have a material adverse effect on our business, operating results and financial condition. We may be subject
to legal liability for our online services. We host 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 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 have
been threatened against us for 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.

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RISK FACTORS

Our Business is Extremely Difficult to Evaluate Because Our Operating History is Limited.

We were incorporated in June 1996 and launched Ask Jeeves at Ask.com, our flagship public Web site, in April 1997. Because the market and industry conditions
affecting Internet companies are constantly changing, we may need to evolve our business model to adapt to prevailing conditions.

Any
investment in our company must be considered in light of the problems frequently encountered by companies in new and rapidly evolving markets. To address the risks we face, we
must, among other things:



We
cannot be certain that our business strategy will be successful or that we will successfully address these risks.

We have a History of Net Financial Reporting Losses and Expect to Continue to Incur Financial Reporting Net Losses.

We incurred net financial reporting losses of $6,806,000 in 1998, $52,929,000 in 1999 and $189,606,000 in 2000, as determined under generally accepted
accounting principles ("GAAP"). As of December 31, 2000, we had an accumulated deficit of approximately $250.2 million. We expect to have negative cash flows and net financial reporting losses in the
future. The size of these net financial reporting losses will depend, in part, on the rate of growth of our revenues from our advertisers, corporate customers and electronic commerce merchants and on
our ability to manage our expenses. It is critical to our success that we continue to expend financial and management resources to develop our brand loyalty through marketing and promotion and the
enhancement of our natural language question answer technologies and other services. In December 2000, we announced steps to narrow our financial reporting losses, including a realignment of our
business and a reduction in our workforce. Although these steps are intended to reduce our financial reporting losses in the future, we cannot guarantee that these steps will achieve the intended
reduction in financial reporting losses or allow us to achieve profitability.

As
our expenses and other financial reporting charges are likely to continue to exceed our revenues in the foreseeable future, we will need to generate significant additional revenues
to achieve financial reporting profitability. Moreover, given the rapid and unexpectedly sharp deterioration of the general business climate in recent months, we cannot predict whether we will be able
to generate these significant additional revenues or when, if ever, we will achieve positive cash flows or financial reporting profitability. Even if we do achieve positive cash flows or financial
reporting profitability, we may not be able to maintain or increase our positive cash flows or financial reporting profitability on a quarterly or annual basis. If we do not achieve or sustain
positive cash flows in the future, then we will eventually be unable to continue our operations.

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Our Recent Business Realignment may not Result in the Anticipated Results.

In fourth quarter of 2000, we completed a realignment of our business organization in an effort to streamline operations, increase revenues, reduce costs and
bring staffing in line with our current and anticipated requirements. Through the realignment, our two independent business units, Business Solutions and Web Properties, were given independent gross
profit and loss accountability. Our Business Solutions business focuses on licensing our technologies to corporate clients and our Web Properties business focuses on sales of our targeting solutions
on our Web sites. In addition, as part of our business realignment, we implemented a workforce reduction of approximately 152 employees, representing approximately 20% of our staff.

Although
we believe that our business realignment will assist us in streamlining operations, increasing revenues, reducing expenses and thereby achieving profitability, we cannot
assure you that we will achieve these intended results. In addition, our business realignment and workforce reduction may prompt employees whom we wish to retain to leave the Company. If we are not
successful in increasing revenues and decreasing costs, we may never achieve profitability.

Our Natural Language Question Answer Technologies and Services are Novel and Unproven.

We will be successful only if Internet users adopt our natural-language services and popularity-based searches as a primary method of navigating the Internet.
Internet users have a variety of other search techniques, such as directory searches, available to them to navigate the Internet. Users can also rely on methods, such as call centers, chat rooms and
e-mail, rather than difficult-to-navigate corporate Web sites, to obtain information on products and services. It is difficult to predict the extent and rate of user adoption of our natural language
question answer technologies and services. Visitors to our natural language question answer services may try our Web sites and then revert to other search techniques to navigate the Internet or choose
new search techniques. It is uncertain whether widespread acceptance of our natural-language services and popularity based searches will occur.

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.

In December 1999, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or SAB
101, which explains how the SEC staff believes existing revenue recognition rules should be applied or analogized to for transactions not addressed by existing rules. Ask Jeeves believes that
it is currently in compliance with SAB 101.

Future
changes in the interpretation of SAB 101 or any other revenue recognition principles could lead to unanticipated changes in Ask Jeeves' revenue accounting practices, which
could cause Ask Jeeves to recognize lower revenues or delay revenue recognition. As a result, Ask Jeeves may need to change its
business practices in order to continue to recognize a substantial portion of its license revenues. These changes may extend sales cycles, increase administrative costs and otherwise adversely affect
our business.

Events or Changes in Circumstances May Result in Impairment of Our Goodwill

The Company has recorded significant amounts of goodwill and other intangible assets on its consolidated financial statements. These assets will continue to be
subject to evaluation for impairment when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If a determination is made that the assets are
impaired, it could result in a significant reduction in the carrying value of such assets and a material adverse effect upon the Company's consolidated financial position or results of operations.

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Our Methods of Generating Revenue are Relatively New and Largely Untested.

Internet Advertising.For the year ended December 31, 2000, run-of-site advertising revenues from our Web
Properties accounted for $29.5 million, or 32%, of our total revenues. We expect that revenues from advertising will continue to represent a significant portion of our total revenues for the
foreseeable future. Our advertising revenues decreased in the latter part of 2000 and may continue to decrease due to the prevailing conditions in the online advertising market and downward pressure
on advertising rates industry-wide.

We
compete with traditional media such as television, radio and print, as well as online advertisers and high-traffic Web sites, for a share of advertisers' total advertising
expenditures. We have experienced, and may continue to experience, downward pressure on advertising prices in the industry due to the increasing amount of advertising inventory becoming available on
the Internet. As the Internet evolves, advertisers may find Internet advertising to be a less effective means of promoting their products or services relative to traditional advertising media and may
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.

Currently,
there are a variety of pricing models for selling advertising on the Internet, including models based on the number of impressions delivered, the number of click-throughs
by users, the duration over which the advertisement is displayed or the number of keywords to which the advertisement is linked.
It is difficult to predict which pricing model, if any, will emerge as the industry standard. This uncertainty makes it difficult to project our future advertising rates and revenues that we may
generate from advertising. A decrease in advertising sold or advertising rates could adversely affect our operating results.

In
addition, our ability to earn advertising revenues depends on the number of advertising impressions per search and the number of click-throughs. We believe category searches
generally result in a greater number of advertising impressions per search and a higher number of click-throughs than keyword searches. Accordingly, if we are unable to implement category-based search
broadly across our network of affiliates, or if users decide to use keyword searches more frequently than category searches, our advertising revenues could decline.

In
addition, our advertising revenues will depend on our ability to achieve, measure and demonstrate to advertisers the breadth of the traffic base using our search service and the
value of our targeted advertising. 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
or if we are unsuccessful in increasing our advertising revenues.

We
rely on a third-party advertising service, provided by DoubleClick, Inc. and L90, Inc. to deliver advertisements to our users. If DoubleClick or L90 fails to deliver
the advertisements as contracted for, due to reliability or performance problems, or if advertisements cannot be targeted as promised to advertisers, our revenues may decrease.

Licensing.As of December 31, 2000, we had provided question answering technologies and services to almost 70 companies worldwide. For
the year-ended December 31, 2000, $37.7 million, or approximately 40% of our revenues, were generated from licensing our services to corporate customers and to our joint ventures through our Business
Solutions Group. Business Solutions revenues include intellectual property licensing revenues of approximately $12.3 million from our joint ventures. If, in the

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future, Ask Jeeves is unable to generate sufficient licensing revenue from our corporate customers and/or our joint ventures, our results of operations could be substantially impaired.

Renewals.We depend on our existing customer base for additional future revenue from services and licenses of other products. If our
customers fail to renew their maintenance agreements, our revenue could decrease. The maintenance agreements are generally renewable annually at the option of the customers and there are no mandatory
payment obligations or obligations to license additional software. Therefore, current customers may not necessarily generate significant maintenance revenue in
future periods. In addition, customers or joint venture partners may not necessary purchase additional products or services. Our services revenue and maintenance revenue also depend upon the use of
these services by our installed customer base. Any downturn in software license revenue could result in lower service revenues in future quarters.

Electronic Commerce.In addition, a portion of our revenue is derived from the facilitation of electronic commerce transactions. The
market for Internet products and services continues to develop and is rapidly changing. Therefore, the success of our business depends upon the adoption of the Internet as a medium for commerce by a
broad base of customers. If this market fails to develop or develops more slowly than expected, or if our electronic commerce services do not achieve market acceptance, our business may suffer.

Many of our Advertisers are Emerging Internet Companies that Represent Credit Risks.

We expect to continue to derive a significant portion of our revenues from the sale of advertising to Internet companies. Many of these companies have limited
operating histories and are operating at a loss. Moreover, many of these companies have limited cash reserves and limited access to additional capital. We have in some cases experienced difficulties
collecting outstanding accounts receivable and we may continue to have these difficulties in the future. Under our revenue recognition policy, we do not recognize revenue if collectibility is not
reasonably assured. These difficulties may increase as a result of a recent downturn in economic activity and reductions in funding for Internet companies from public capital markets and private
venture capital and equity sources. If any significant part of our customer base experiences commercial difficulties or is unable or unwilling to pay our advertising fees for any reason, our business
will suffer.

Our Past and Future Acquisitions May Be Difficult to Integrate, Disrupt Our Business, Dilute Stockholder Value or Divert Management Attention.

We have acquired a number of companies and 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. We may encounter problems with the
assimilation of acquired businesses, products or technologies including:



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If
we are unable to successfully integrate our acquired companies or to create new or enhanced services, we may not achieve the anticipated benefits from our acquisitions. If we fail
to achieve the anticipated benefits from the acquisitions, we may incur increased expenses and experience a shortfall in our anticipated revenues and we may not obtain a satisfactory return on our
investment. Also, as the value of our common stock has declined, we may need to use cash as all or part of the consideration for the acquisition of businesses, products, or technologies. If we use
cash in such a manner, our cash utilization rate will increase and in turn, our results of operations may be seriously harmed. Lastly, if a significant number of employees fail to remain employed with
us, we may experience difficulties in achieving the expected benefits of the acquisitions.

Our Growth Will Depend on Our Ability to Develop Our Brand.

We believe that increased brand recognition and a favorable consumer perception of the Ask Jeeves brand are essential to our future success. Accordingly, we
intend to continue pursuing an aggressive brand-enhancement strategy, which will include mass market and multimedia advertising, promotional programs and public relations activities. These
expenditures may not result in a sufficient increase in revenues to cover such advertising and promotional expenses. In addition, even if brand recognition increases, the number of new users may not
increase. Further, even if the number of new users
increases, the amount of traffic on our Web sites and the number of corporate customers may not increase sufficiently to justify the expenditures.

To Manage Our Growth, We Need to Improve Our Systems, Controls and Procedures.

We have experienced and may continue to experience rapid growth, which has placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. As a result of our recent realignment of our business, we must continue to improve our operational and financial systems and managerial controls and procedures,
train and manage our workforce with reduced human resources. We cannot be assured that our systems, procedures or controls will be adequate to support our operations or that we will be able to manage
any growth effectively. If we do not manage growth effectively, our business would be seriously harmed.

More Individuals are Utilizing Non-PC Devices to Access the Internet and We May Not Be Successful in Developing a Version of Our Service that Will Gain Widespread Adoption by
Users of Such Devices.

In the coming years, the number of individuals who access the Internet through devices other than a personal computer such as personal digital assistants,
cellular telephones and television and television set-top devices is expected to increase dramatically. Our services are designed for rich, graphical environments such as those available on personal
and laptop computers. The lower resolution, functionality and memory associated with alternative devices may make the use of our services through such devices difficult and we may be unsuccessful in
our efforts to modify our online properties to provide a compelling service for users of alternative devices.

As
we have limited experience to date in operating versions of our service developed or optimized for users of alternative devices, it is difficult to predict the problems we may
encounter in doing so and we may need to devote significant resources to the creation, support and maintenance of such versions. If we are unable to attract and retain a substantial number of
alternative device users to our online services, we will fail to capture a sufficient share of an increasingly important portion of the market for online services. Further, as a significant portion of
our revenues are derived through the sale of banner

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and other advertising optimized for a personal computer screen, we may not be successful at developing a viable strategy for deriving substantial revenues from online properties that are directed at
the users of alternative devices. Any failure to develop revenue-generating online properties that are adopted by a significant number of handheld device users could severely hurt our business.

We May Not Be Able to Effectively Compete Against Our Current and Potential Competitors.

Web Properties Group.We face direct competition from companies that provide Internet search and directory
services. For example, our Web Properties group competes with search engines, including AltaVista Company, Excite@Home Corporation, Google Inc., Northern Light, Infoseek Corporation, and Inktomi
Corporation, for the traffic generated by Internet users seeking links to third-party content to address their online information needs. Our Web Properties group also competes with directory services,
such as Goto.com, Inc. LookSmart, Ltd., and Yahoo! Inc., because they provide alternative ways for users to obtain the desired information.

Business Solutions Group.We compete with a number of companies that are addressing the same need to improve automated or online
customer service for corporate customers. For example, our Business Solutions Group competes with companies that provide shopping advisors, such as Active Research Inc.; automated e-mail response and
live interaction, such as Kana Communications, Inc.; search technology, such as Inktomi Corporation; and customer relationship management, such as Siebel Systems, Inc.

Our
ability to compete depends on many factors, many of which are outside of our control. These factors include: the quality of content, the ease of use of online services, the timing
and market acceptance of new and enhanced online services and sales and marketing efforts by our competitors and by us.

Many
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 than we can to the development and promotion of their services. Many of these competitors offer
a wider range of services than we do. These services may attract users to our competitors' sites and, consequently, result in a decrease in traffic to our site. These competitors may also engage in
more extensive research and development, adopt more aggressive pricing policies and make more attractive offers to existing and potential corporate customers, advertisers, syndicators and electronic
commerce merchants. Our competitors may develop products and services that are equal to, or superior to, our products and services, or achieve greater market acceptance. 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.

Our Geographic Properties May Not Be Successful

Our wholly owned subsidiary, Ask Jeeves International, Inc., or AJI, was formed for the purpose of marketing our natural language question answering
technologies and services outside of the United States. To date, AJI has entered into joint ventures to provide our services in the United Kingdom, Japan, and to the Spanish-speaking market worldwide.
AJI has also formed a subsidiary in Australia to
provide a localized version of our services for the Australian market. This expansion into international markets requires substantial management attention and financial resources. We cannot be certain
that our investment in AJI and in establishing operations in other countries will produce the desired levels of revenue. In addition, AJI and its investment properties are subject to other inherent
risks and problems, including:



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

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Our Operating Results are Volatile and Difficult to Predict.

You should not rely on our results of operations during any particular quarter as an indication of our future results for a full year or any other quarter. Our
quarterly revenues and operating results have varied significantly in the past and may vary significantly in the future due to a number of factors, including:



We
have experienced seasonality in user traffic to our Websites, including lower traffic during the year-end holiday season and a slower rate of growth during the summer months. Given
our limited operating history, user traffic on our Web sites is extremely difficult to forecast accurately. Moreover, obtaining new corporate customers depends on many factors that we are not able to
control, such as the allocation of budgetary resources by potential customers. The average sales cycle for obtaining new corporate customers has averaged four months. Therefore, it is difficult to
predict the number of corporate customers that we will have in the future. We may be unable to adjust spending to compensate for an unexpected shortfall in our revenues. As a result, if we experience
an unexpected shortfall in revenues, or if our revenues do not grow faster than the increase in these expenses, we could experience significant variations in the operating results from quarter to
quarter.

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.
For example, during 2000, the closing price our common stock ranged from $2.44 to $138. Our stock price may be subject to wide fluctuations in response to a variety of factors, including: o actual or
anticipated variations in quarterly operating results and announcements of technological innovations;

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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 materially adversely affect 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. This type of litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources.

Lastly,
the continuing listing requirements of the Nasdaq National Market require that our common stock must maintain a minimum trading price. If the trading price of our common stock
fails to satisfy the minimum trading price over certain periods enumerated under the Nasdaq rules, our common stock may be subject to delisting from the Nasdaq National Market. If our common stock is
delisted from the Nasdaq National Market, the trading market for our common stock will be limited and thus, the ability of our stockholders to buy and sell our common stock may be adversely affected.

If We Fail to Meet the Expectations of the Public Market Analysts and Investors, the Market Price of Our Common Stock May Decrease Significantly.

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

Failure to Add or Retain Corporate Customers May Have an Adverse Effect On Our Revenues.

In the coming year we expect that revenues associated with corporate customers will be comprised primarily of corporations with large, difficult-to-navigate
Web sites. If we do not complete sales to a sufficient number of customers, our future revenues will be adversely affected.

Most
of our corporate customer contracts have a term of one year following the implementation of our services. As a result, if we are unable to offer value to our customers during the
term of these contracts, or if our customers choose a competitor's service over our service, or if our customers decide to use their own proprietary technology to develop services similar to ours,
those customers may not renew their contracts. If we do not obtain a sufficient number of contract renewals or if such renewal contracts are obtained on terms less favorable than the original
contract, our business could be adversely affected.

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Implementing Our Services for Our Corporate Customers is Labor Intensive.

Because the implementation of our services is labor intensive, it is difficult to predict the length of the development cycle. Factors that affect the length
of the development cycle include the overall size and complexity of the Web site, the interaction with the customer and the dynamic nature of the content. Generally, it takes three to four months to
launch a customized version of our services. The long development cycle makes it difficult to predict the delivery time to the customer, realize our revenue goals and manage our internal hiring needs
to meet new projects. In addition, in order to meet increased demand by corporate customers, we may have to hire additional people and train them in advance of orders. When we outsource development of
custom knowledge bases, we will have little control over the speed and quality of the development. Any decline in the speed or quality of the implementation of our services could seriously harm our
business.

We Depend on Third Party Content.

Our Web sites are designed to directly link users to a page within a third-party Web site that contains the answer to a question asked. However, when
our Web sites attempt to direct the user to a page within the Web site, some companies have automatically redirected users to their home page. If companies prevent us from directly linking our
users to a page within a third-party Web site, and if there are no comparable alternative Web sites to which we can direct our users, the utility and attractiveness of our services to consumers
may be reduced. If this occurs, traffic on our Web sites could significantly decrease, which would seriously harm our business.

Visitors
to our Web sites use the sites to obtain direct access to the information, products and services they need through the display of a third-party Web page containing the
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 and useful information to
the user, the utility of our service to the user will be reduced, which could seriously harm our business.

We May Be Liable for Our Links to Third-Party Web Sites.

We could be exposed to claims for liability with respect to the selection of third-party Web sites that may be accessible through our Web sites. These claims
might include, among others, that by linking to Web sites operated by third parties, we may be liable for copyright or trademark infringement or other unauthorized actions by these third-party Web
sites. Other claims may be based on errors or false or misleading information provided on our Web sites, including information deemed to constitute professional advice such as legal, medical,
financial or investment advice. Other claims may be based on our links to sexually explicit Web sites and our provision of sexually explicit advertisements when this content is displayed. While no
such claims are pending and we do not believe that any such claim would have legal merit, our business could be seriously harmed due to the cost of investigating and defending these claims, even to
the extent these claims do not result in liability. 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.

We Face Risks Related to Expanding Into Relatively New Services and Business Areas.

To increase our revenues, we will need to refine our business model by promoting new or complementary products and by targeting our products and services to
meet the needs of different customers. The evolution of our electronic commerce services may strain our management, financial and operational resources. Our development of new product and service
offerings may not be timely or may not generate sufficient revenues to offset their cost. If this occurs, our business, operating results and financial condition will be seriously harmed.

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Our Future Success Depends on Our Ability to Attract, Retain Key Management and Skilled Technical Employees.

A. George (Skip) Battle, a member of our Board of Directors, has been appointed Chief Executive Officer. We do not have an employment agreement with
Mr. Battle for any specific term, and the loss of Mr. Battle's services could seriously harm our business.

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

Our Workforce Reduction and Financial Performance May Adversely Affect the Morale and Performance of our Personnel and our Ability to Hire New Personnel.

In connection with our effort to streamline operations, increase revenues, reduce costs and bring our staffing and structure in line with our current and
anticipated requirements, we recently realigned our business organization, which included a reduction in our workforce of approximately 152 employees, or approximately 20 percent of our workforce.
There may be costs associated with the workforce reduction related to severance and other employee-related costs, and our realignment plan may yield unanticipated consequences, such as attrition
beyond our planned reduction in staff. In addition, our common stock has recently declined in value below the exercise price of many options granted to employees pursuant to our stock option plans.
Thus, the intended benefits of the stock option granted to our employees, the creation of performance and retention incentives, may not be realized. In addition, workforce reductions and management
changes create anxiety and uncertainty and may adversely affect employee morale. As a result, we may lose employees whom we would prefer to retain. As a result of these factors, our remaining
personnel may seek employment with larger, more established companies or companies they perceive as having less volatile stock prices.

We Need to Expand Our Sales and Support Organizations.

Competition for highly-qualified sales personnel is intense, and we may not be able to maintain the kind and number of sales personnel we need. Hiring highly
qualified customer service and account
management personnel is very competitive in our industry due to the limited number of people available with the necessary technical skills and understanding of the Internet.

We Will Only Be Able to Execute Our Business Plan if Internet Usage Grows.

Our business would be adversely affected if Internet usage does not continue to grow or grows at significantly lower rates compared to current trends. The
continued growth of the Internet depends on various factors, many of which are outside our control. These factors include:



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The Operating Performance of Our Systems and Servers is Critical to Our Business and Reputation.

Any system failure, including network, software or hardware failure, that causes an interruption in our service or a decrease in responsiveness of Ask Jeeves
could result in reduced user traffic on our Web sites and reduced revenues. We have network and server equipment located at AboveNet, Exodus, Qwest, Alegiance Telecom in various locations in
California and Massachusetts and in London, England. Although we believe that our current back-up methods are adequate, we cannot be assured that the back-up servers will not fail or cause an
interruption in our service.

We
have experienced slower response times and interruptions in service due to malfunctions at our hosting facilities and on the Internet backbone networks, major software upgrades on
our Web sites and undetected software defects. Ask.com, AJ Kids, and DirectHit.com have had partial interruptions for periods ranging from a few minutes to three hours. In addition, our Web sites
could also 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, our
reputation and brand could be permanently harmed. In addition, we could lose advertising revenues during these interruptions and user satisfaction could be negatively impacted if the service is slow
or unavailable.

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

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

Power Outages In California Could Adversely Affect Us.

We have significant operations in the state of California and are dependent on a continuous power supply. California's energy crisis could substantially
disrupt our operations and increase our expenses. California, has recently implemented, and may in the future continue to implement, rolling blackouts throughout the state. Although state lawmakers
are working to minimize the impact, if blackouts interrupt our power supply, we may be temporarily unable to continue operations at our California facilities. Any such interruption in our ability to
continue operation at our facilities could delay the development of our products and services and disrupt communications with our customers or other third parties on which we rely, such as Web hosting
service providers. Future interruptions could damage our reputation and could result in lost revenue, either of which could substantially harm our business and results of operations. Furthermore,
shortages in wholesale electricity supplies have caused power prices to increase. If energy prices continue to increase, our operating expenses will likely increase which could have a negative effect
on our operating results.

Our Security Could Be Breached, Which Could Damage Our Reputation and Deter Customers From Using Our Services.

We must 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

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the security of information stored in and transmitted through our computer systems and network, which could adversely affect our ability to retain or attract customers, damage our reputation and
subject us to litigation. We could be subject to denial of service, vandalism and other attacks on its 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 may fail. Our insurance coverage in certain circumstances may be insufficient to cover issues that
may result from such events.

We May Not Be Able to Adapt Evolving Internet Technologies and Customer Demands.

To be successful, we must adapt to rapidly changing Internet technologies by continually enhancing our products and services and introducing new services to
address our customers' changing needs. We could incur substantial development or acquisition costs if we need to modify our services or infrastructure to adapt to changes affecting providers of
Internet services. Our business could be seriously harmed if we incur significant costs to adapt to these changes. If we cannot adapt to these changes, or do not sufficiently increase the features and
functionality of our products and services, our customers may switch to the product and service offerings of our competitors. Furthermore, our competitors or potential competitors may develop a novel
method of Internet navigation that is equal or superior to those we offer. As a result, demand for our natural language question answering technologies and services may decrease.

We May Face Potential Liability, Loss of Users and Damage to our Reputation for Violation of Privacy Policies.

We have a policy against using personally identifiable information obtained from users of our natural language question answering technologies and 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. If we use this 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.

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Legislation limiting the ability of the states to impose taxes on Internet-based transactions recently has been enacted by the United States Congress. However, this legislation, known
as the Internet Tax Freedom Act, imposes only a three-year moratorium, which commenced October 1, 1998 and ends on October 21, 2001, on state and local taxes on electronic commerce, where such taxes
are discriminatory and Internet access, unless such taxes were generally imposed and actually enforced prior to October 1, 1998. It is possible that the tax moratorium could fail to be renewed prior
to October 21, 2001. Failure 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 e-commerce
marketplace and impair our ability to become profitable.

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

We May Face Potential Electronic Commerce-Related Liabilities and Expenses.

Arrangements with electronic commerce merchants may expose us to legal risks and uncertainties, including potential claims for liabilities to consumers of the
products and services offered by these electronic commerce merchants. Although we carry general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed.

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Some
of the risks that may result from these arrangements with businesses engaged in electronic commerce include:



Even
to the extent that such claims do not result in material liability, investigating and defending such claims could seriously harm our business. For example, investigating and
defending any such claims may require significant financial and human resources, may result in negative publicity for our company and injure our business reputation.

We May Be Unable to Protect Our Intellectual Property Rights and Other Proprietary Rights and We May Be Liable for Infringing Upon the Intellectual Property Rights of Others.

Third parties may assert infringement claims against us. From time to time in the ordinary course of business we have been subject to claims of alleged
infringement of the trademarks and other
intellectual property rights of third parties. Any such claims, if made, and any resulting litigation, should it occur, could subject us to significant liability for damages. In addition, even if we
prevail, litigation could be time-consuming and expensive to defend, and could result in the diversion of our time and attention. Any claims from third parties may also result in limitations on our
ability to use the intellectual property subject to these claims unless we are able to enter into agreements with the third parties making these claims. (See further discussion blow under Item 3,
Legal Proceedings)

We May Not Be Able to Secure Additional Financing to Meet Our Future Capital Needs.

We currently anticipate that our available cash resources will be sufficient to meet our anticipated needs for working capital and capital expenditures for at
least twelve months. If we are unable to generate sufficient cash flows from operations to meet our anticipated needs for working capital and capital expenditures, we will need to raise additional
funds to fund brand promotion, develop new or enhanced services, respond to competitive pressures or make acquisitions. We may be unable to obtain any required additional financing on terms favorable
to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund our expansion, successfully promote our brand, develop or enhance services, respond to competitive
pressures or take advantage of acquisition opportunities, any of which could seriously harm our business. If we raise additional funds through the issuance of equity securities, our stockholders may
experience dilution of their ownership interest, and the newly issued securities may have rights superior to those of the common stock. If we raise additional funds by issuing debt, we may be subject
to limitations on our operations, including limitations on the payment of dividends.

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Future Sales of Stock Could Affect Our Stock Price.

If our stockholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options, in the public market, the
market price of our common stock could fall. In particular, in July 2000, the lockup agreement executed by several of our affiliates elapsed. Such stockholders are eligible to sell all vested shares.
These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

Provisions in Delaware Law and our Charter, Stock Option Agreements and Offer Letters to Executive Officers may Prevent or Delay a Change Of Control.

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



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:



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

Our
certificate of incorporation and bylaws provide that we will indemnify officers and directors against losses that 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.

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In addition, our option agreements under the Amended and Restated 1996 Stock Option Plan provide that if a change in control of Ask Jeeves occurs and the surviving corporation or
acquiring corporation refuses to assume all options granted under the plan, the vesting of each option shall accelerate in full. These option agreements also provide that if a change of control of Ask
Jeeves occurs prior to the first anniversary of the vesting commencement date of an option, then the vesting which would have occurred by such anniversary shall occur. After the first anniversary of
the date of grant, the option agreements provide that the vesting of each option shall accelerate by six months upon a change of control. As of March 30, 2001, there were 1,388,625 shares of common
stock reserved for unvested options granted under this plan. Our 1999 Non-Officer Equity Incentive Plan, as amended and restated ("1999 Plan") provides that if a change of control of Ask Jeeves occurs
and the surviving corporation or acquiring corporation refuses to assume all options issued under the plan, the vesting of each option shall accelerate in full. Certain option agreements under the
1999 Non-Officer Equity Incentive Plan also provide that if a change of control of Ask Jeeves occurs, the vesting of 50% of shares subject to each option shall accelerate. As of March 30, 2001, there
were 1,599,653 shares of common stock reserved for unvested options granted under this plan. Furthermore, offer letters with our executive officers provide for the payment of severance and
acceleration of options upon the termination of these executive officers following a change of control of Ask Jeeves. These provisions in our stock option agreements and offer letters could have the
effect of discouraging potential takeover attempts.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this Annual Report on Form 10-K constitute forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, those listed under "Risk Factors" and elsewhere in this Annual Report on
Form 10-K. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

ITEM 2. PROPERTIES

Our headquarters are currently located in a leased facility in Emeryville, California. The facility consists of approximately 76,000 square feet. Our annual
rent expense under the lease is $2.4 million. The lease expires in 2005.

In
February 2000, the Company entered in an additional lease agreement for facilities in Oakland, California. The lease consists of approximately 60,000 square feet.

In
March 2000, the Company entered in an additional lease agreement for its international operations in Los Angeles, California. The lease consists of approximately 8,000 square feet.
Our annual rent expense under the lease is $211,000. The lease expires in September 2004.

As
part of our acquisition of Direct Hit, Inc. in first quarter 2000, we assumed their lease, which consists of approximately 22,000 square feet. Our annual rent expense under
the lease is approximately $500,000. The lease expires October 2002.

In
April 2000, the Company entered into an additional lease agreement for facilities in Oakland, California. The lease consists of approximately 160,000 square feet. Our annual lease
commitment

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under the lease is $6.5 million. The lease term is ten years and the building is currently under construction with anticipated completion in second quarter 2002.

We
have also leased smaller facilities in California, and New York, primarily for sales and marketing personnel.

As
part of the Company's business realignment announced in December 2000, the Company closed operations in North Hollywood and Oakland, California, as well as its facility in St.
Louis, Missouri. The cost associated with exiting the facilities was approximately $8 million.

We
believe that as a result of our facility consolidation, our remaining facilities will be adequate to meet our needs for the foreseeable future.

ITEM 3. 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
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. In addition,
from time to time, third parties assert patent infringement claims against the Company in the form of letters, lawsuits and other forms of communication. Currently, the Company is engaged in two
lawsuits regarding patent issues.

In
July 1999, IP Learn LLC filed a complaint against the Company in the United States District Court for the Northern District of California. The complaint, which was amended by the
plaintiff, alleged that aspects of the Company's technology infringed three patents alleged to be held by the plaintiff. The Company settled this lawsuit in February 2001, and an Order of Dismissal
with Prejudice was entered by the Court on February 20, 2001.

On
December 16, 1999, Patrick H. Winston and Boris Katz filed a complaint against us in the United States District Court for the District of Massachusetts (Patrick H. Winston and
Boris Katz v. Ask Jeeves, Inc., Case No. 99GV12584 MLW), alleging infringement by us of United States Patent Nos. 5,309,359 and 5,404,295 that are alleged to be held by the plaintiffs. The
complaint seeks injunctive relief and unspecified damages, including attorneys' fees. We filed an answer to the complaint and a counterclaim for declaratory relief on January 28, 2000. The answer
denies the allegations made in the complaint and seeks a dismissal of the complaint, invalidation of the asserted patents and an award to us of our costs, including attorneys' fees. The parties are in
the discovery process in this litigation.

We
intend to vigorously defend against the allegations asserted in this complaint and we believe we have meritorious defenses to the claims. The results of any litigation matter are
inherently uncertain. In the event of an adverse result in this lawsuit, or in any other litigation with third parties that could arise in the future with respect to intellectual property rights
relevant to our products or services, we could be required to pay substantial damages, including treble damages if we are held to have willfully infringed, to cease the use of infringing products or
services, to expend significant resources to develop non-infringing technology or to attempt to obtain licenses to the infringing technology on commercially reasonable terms. In addition, litigation
frequently involves substantial expenditures and can require significant management attention, even if we ultimately prevail. Accordingly, we cannot assure you that this lawsuit will not seriously
harm our business.

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 2000.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED  SHAREHOLDER 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  
|--------------------------------- |  | - | ------ |  | - | -----
|                                 
|1999                              |  |   |        |  |   |      
|Third Quarter (from July 1, 1999) |  | $ | 77.82  |  | $ | 24.00
|Fourth Quarter                    |  | $ | 190.50 |  | $ | 31.00
|2000                              |  |   |        |  |   |      
|First Quarter                     |  | $ | 139.75 |  | $ | 60.25
|Second Quarter                    |  | $ | 62.00  |  | $ | 16.50
|Third Quarter                     |  | $ | 33.83  |  | $ | 13.75
|Fourth Quarter                    |  | $ | 18.82  |  | $ | 1.82 
|                                 

As
of February 28, 2001, the number of stockholders of record of the Company's common stock was 974. 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.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

|                                                                                           |                                                      |                          | Year Ended December 31, |        |         |            |       
|------------------------------------------------------------------------------------------ | ---------------------------------------------------- | ------------------------ | ----------------------- | ------ | ------- | ---------- | ------
|(in thousands, except share and per share information)                                     |                                                      |                          | 2000                    |        |         | 1999       |       
|                                                                                           |                                                     
|Consolidated Statement of Operations Data:                                                 |                                                      |                          |                         |        |         |            |       
|Revenues:                                                                                  |                                                      |                          |                         |        |         |            |       
|                                                                                           | Web Properties                                       |                          | $                       | 58,397 |         | $          | 14,564
|                                                                                           | Business Solutions (1)                               |                          |                         | 37,303 |         |            | 7,463 
|                                                                                           |                                                     
|                                                                                           |                                                      | Total revenues           |                         |        | 95,700  |            |       
|Cost of revenues:                                                                          |                                                      |                          |                         |        |         |            |       
|                                                                                           | Web Properties                                       |                          |                         | 19,166 |         |            | 6,284 
|                                                                                           | Business Solutions                                   |                          |                         | 20,103 |         |            | 7,800 
|                                                                                           |                                                     
|                                                                                           |                                                      | Total cost of revenues   |                         |        | 39,269  |            |       
|Gross profit (loss)                                                                        |                                                      |                          | 56,431                  |        |         | 7,943      |       
|Operating expenses:                                                                        |                                                      |                          |                         |        |         |            |       
|                                                                                           | Product development                                  |                          |                         | 24,502 |         |            | 8,610 
|                                                                                           | Sales and marketing                                  |                          |                         | 81,641 |         |            | 35,304
|                                                                                           | General and administrative                           |                          |                         | 29,598 |         |            | 8,411 
|                                                                                           | Stock-based compensation                             |                          |                         | 2,996  |         |            | 3,936 
|                                                                                           | Amortization of goodwill and other intangible assets |                          |                         | 82,624 |         |            |      
|                                                                                           | Write-off of in-process technology                   |                          |                         | 11,652 |         |            | 544   
|                                                                                           | Acquisition costs                                    |                          |                         |       |         |            | 6,045 
|                                                                                           | Restructuring costs                                  |                          |                         | 13,466 |         |            |      
|                                                                                           |                                                     
|                                                                                           |                                                      | Total operating expenses |                         |        | 246,479 |            |       
|Operating loss                                                                             |                                                      |                          | (190,048                | )      |         | (54,907    | )     
|Interest income                                                                            |                                                      |                          | 6,973                   |        |         | 2,165      |       
|Interest expense                                                                           |                                                      |                          | (467                    | )      |         | (187       | )     
|Write-down of impaired investments                                                         |                                                      |                          | (4,254                  | )      |         |           |       
|                                                                                           |                                                     
|Net loss before income tax provision                                                       |                                                      |                          | (187,796                | )      |         | (52,929    | )     
|Income tax provision                                                                       |                                                      |                          | 1,810                   |        |         |           |       
|Net loss                                                                                   |                                                      | $                        | (189,606                | )      | $       | (52,929    | )     
|                                                                                           |                                                     
|Basic and diluted net loss per share                                                       |                                                      | $                        | (5.51                   | )      | $       | (2.64      | )     
|                                                                                           |                                                     
|Weighted average shares outstanding used in computing basic and diluted net loss per share |                                                      |                          | 34,399,200              |        |         | 20,046,959 |       
|                                                                                           |                                                     
|                                                                                           |                                                      | $                        | 12,308                  |        | $       | 118        |       

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|                                                                                      |  |   | As of December 31, | 
|------------------------------------------------------------------------------------- |  | - | ------------------ | 
|(in thousands)                                                                        |  |   | 2000               | 
|                                                                                      | 
|Consolidated Balance Sheet Data:                                                      |  |   |                    | 
|Cash and cash equivalents, short-term marketable securities and marketable securities |  | $ | 104,966            | 
|Working capital (deficit)                                                             |  |   | 53,384             | 
|Total assets                                                                          |  |   | 537,867            | 
|Capital lease obligations, less current portion                                       |  |   | 1,465              | 
|Total stockholders' equity (deficit)                                                  |  |   | 465,768            | 
|                                                                                      | 

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

Certain statements contained in this Annual Report, including, without limitation, statements containing the words "believes," "anticipates,"
"estimates," "expects," "projections," and words of similar import, constitute "forward-looking statements." You should not place undue reliance on these forward-looking statements. Our actual results
could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section as well as in Part I of
this Annual Report on Form 10-K under the heading "Risk Factors" and the other documents we file with the Securities and Exchange Commission ("SEC"), including our most recent reports on Form 8-K and
Form 10-Q, and amendments thereto. 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.

Overview

Ask Jeeves is the leading provider of natural language question answering technologies and services. Our proprietary technology combined with human
intelligence creates an interaction centered on understanding users' specific needs and interests and connecting them to the most relevant information, products and services. The Company delivers its
natural language question answering technologies and services through its own Web sites at Ask.com, AJKids.com and DirectHit.com. Through our Web Properties Group, Ask Jeeves provides a highly
targeted medium for advertisers to reach online users. The Company also syndicates services to portals, infomediaries, and content and destination sites to help companies increase e-commerce and
advertising revenue. These services enable companies to convert online shoppers to buyers, reduce support costs, understand customer preferences and improve customer retention.

Through
our Business Solutions Group, the Company develops and maintains customized automated search, natural language question answering, and intelligent advisor services on numerous
corporate Web sites. Because we provide these solutions on an outsourced basis with little involvement from our corporate customers' technical personnel, we believe that these solutions can improve
consumer satisfaction while simultaneously reducing the companies' infrastructure costs.

Revenues
associated with our Web Properties Group include all revenue streams generated from the Web sites we own and operate, as well as from the syndication of services offered on
our sites to other companies' sites. These revenues consist primarily of four components:



The
Company generally recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. A
significant portion of the Company's revenues from its Web Properties Group are derived from the sale of promotional space on the Company's online Internet properties. Promotional space offered ranges
from "run-of-site" banner advertisements and sponsorships to targeting and acquisition service. Targeting and acquisition service products are tailored to deliver a customer's
promotional content to a specific target market in a dynamic, customized environment and which may include the development of branded, integrated websites. Revenue derived from such arrangements is
recognized during the period which the service is provided, provided that no significant obligations remain at the end of the period. Company obligations typically include the guarantee of a minimum
number of "impressions" or times

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that an advertisement appears in pages viewed by users of the Company's 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. Syndication services offered range from the sale of promotional material on behalf of partners to the syndication
of our web-wide search technology to portals, infomediaries, and content and destination sites. Syndication fees primarily consist of revenue-sharing arrangements, fixed or
fee-per-use arrangements, and revenues are recognized as the service is delivered. Revenues from revenue-sharing arrangements are recorded net of amounts paid to syndication
partners, except when the Company acts as the primary obligor in the arrangement and bears risk with respect to the inventory of promotional space and credit risk, in accordance with Emerging Issues
Task Force Issue No. 99-19. Revenues from electronic commerce are generated when a user clicks on the answer that links to an electronic commerce merchant's Web site on a cost per
click, or CPC basis. Electronic commerce transaction fees are derived from short-term electronic commerce merchant contracts, generally over a three-to-six month
period, and are recognized as services are performed.

Revenues
from our Business Solutions Group include revenue streams that are derived from companies licensing our natural language and customer intelligence technologies for use on
corporate websites and from consulting services associated with implementing a customized natural language question and
answering solution. We recognize consulting services, ongoing support, and licensing fees ratably over the contractual term, generally twelve months, commencing from the implementation of service.
Amounts invoiced prior to service implementation or provision of consulting services are recorded as deferred revenue and recognized ratably over the contractual term, commencing upon service
implementation.

Cost
of revenues for our Web Properties Group consists primarily of salaries and related personnel costs associated with the content development, data analysis, testing and
maintenance of our Web sites. Additionally, cost of revenues includes revenue sharing expenses associated with our distribution relationships. Cost of revenues for our Business Solutions Group
consists primarily of salaries and related personnel costs and other direct costs to provide consulting, and information services to our corporate customers. Cost of revenues for our Web Properties
and Business Solutions Groups also include amortization charges related to certain technology assumed as part of our acquisitions.

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.

Sales
and marketing expenses consist primarily of salaries, commissions and related personnel expenses as well as advertising and promotional expenditures. We have a direct sales
force dedicated to selling our services, which is supplemented by a number of strategic relationships with sales and implementation companies.

General
and administrative expenses consist primarily of salaries and related costs for general corporate functions, recruiting and fees for other professional services as well as
various accounting and legal costs associated with operating our business.

Other
income includes interest income on our cash and investments, partially offset by interest due on our financing obligations.

Stock-based
compensation reflects the amortization of stock compensation charges from employee stock options. Deferred compensation charges arise from the difference between the
exercise price and the deemed fair value of specific stock options granted to our employees and are amortized over the vesting period.

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The Company has recorded goodwill and other intangible assets as a result of various purchase acquisitions made. Amortization of goodwill and intangible assets is amortized ratably
over the estimated economic lives of the respective assets, generally three to five years.

Write-off
of in-process technology relates to costs incurred in connection with our acquisitions.

We
have incurred significant net losses and negative cash flows from operations since our inception, and at December 31, 2000, we had an accumulated deficit of approximately $250.2
million. These losses have been funded primarily through the issuance of preferred and common equity securities, including our initial public offering in July 1999 and follow-on public offering in
March 2000.

We
believe that we will incur negative cash flows from operations in the future. Although we are targeting positive cash flows from operations by the third quarter of 2000, because of
the rapid and unexpectedly sharp deterioration of the general business climate in recent months, we cannot predict when we will achieve either positive cash flows from operations or financial
reporting profitability in the future.

There
was no provision for federal or state income taxes for any period since inception due to our operating losses. During the year ended December 31, 2000, the Company recorded a
foreign income tax provision of $1.8 million related to taxes withheld from customer payments and remitted to foreign taxing jurisdictions on the Company's behalf. At December 31, 2000, the Company
had net operating loss carryforwards for federal income tax purposes of approximately $117.0 million, which expire in the years 2012 through 2020. The Company also had net operating loss carryforwards
for state income tax purposes of approximately $37.0 million expiring in the year 2004. Utilization of our net operating loss carryforwards may be subject to a substantial annual limitation due to
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. A valuation allowance has been established and, accordingly, no benefit has been recognized for our net operating losses and other deferred tax assets. The net valuation allowance
increased by $38.6 million during the year ended December 31, 2000. We believe 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 our history of net losses since inception and expected near-term future losses.
We will continue to assess the realizability of the deferred tax assets based on actual and forecasted operating results.

Annual Results of Operations

Years Ended December 31, 2000 and December 31, 1999

Revenues

Revenues
were $95.7 million for the year ended December 31, 2000, and $22.0 million for the year ended December 31, 1999. Web Properties revenues were
$58.4 million or 61% of total revenues for the year ended December 31, 2000 and $14.6 million or 66% of total revenues for the year ended December 31, 1999. These revenues
consisted of $29.5 million in advertising revenues for the year ended December 31, 2000, and $12.5 million for the year ended December 31, 1999. Revenues from targeting and
acquisition services were $15.5 million for the year ended December 31, 2000 and $504,000 for the year ended December 31, 1999. Syndication revenues were $5.1 million and
$500,000 for the years ended December 31, 2000 and 1999, respectively. Electronic commerce revenues were $8.3 million for the year ended December 31, 2000 and $1.1 million
for the year ended December 31, 1999. The increase in revenues is due primarily to the substantial increases in inventory available for sale to advertisers due to the increases in unique users
and page views in 2000 as compared with 1999. As of December 31, 2000, our combined Web Properties attracted an audience of 11.9 million unique

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monthly users who viewed an average of approximately 13.1 million web pages per day on Ask Jeeves branded online properties, compared to 5.1 million unique users as of
December 31, 1999.

Business
Solutions revenues were $37.3 million or 39% of total revenues for the year ended December 31, 2000, and $7.5 million or 34% of total revenues for the
year ended December 31, 1999. These revenues consisted of licensing fee revenues of $24.7 million and $4.0 million for the years ended December 31, 2000 and 1999,
respectively. Consulting services were $12.6 million and $3.5 million for the years ended December 31, 2000 and 1999, respectively. The increase in revenues is due to an increase
in the number of commercial customers using our Business Solutions technology and a substantial increase in revenue recognized from the license of technology to our joint ventures.

We
expect the challenging advertising and IT markets to continue into the near future, resulting in moderately flat total revenues for the first half of 2001. Beginning in the second
half of the year, we expect revenues will begin to show more consistent year-over-year growth, driven by new product introductions as well as an improvement in advertising and
IT spending.

Cost of Revenues

Cost of revenues for Web Properties was $19.2 million for the year ended December 31, 2000 and $6.3 million for the year ended December 31, 1999. The
increase in cost of revenues is attributed primarily to the increased level of personnel and related personnel costs associated with developing, maintaining, analyzing and testing of Ask.com to
support the growth in traffic and the resulting revenues. Cost of revenues for Business Solutions was $20.1 million for the year ended December 31, 2000 and $7.8 million for the year ended December
31, 1999. The increase in cost of revenues is attributed to personnel and related personnel costs associated with providing consulting, information and maintenance services to our increased customer
base. Cost of revenues also includes amortization charges related to assets acquired from acquisitions the Company made in 1999 and 2000.

Product Development Expenses

Product development expenses were $24.5 million for the year ended December 31, 2000, and $8.6 million for the year ended December 31, 1999. The
increase in expenses resulted from the hiring of additional personnel and related personnel costs, consultant fees, expenses related to the design, development, testing and enhancement of our
technology and services. We are focusing on key, strategic areas of product development to support our business plan and have therefore reduced the number of product development initiatives that are
not essential to delivering future financial results.

Sales and Marketing Expenses

Sales and marketing expenses were $81.6 million for the year ended December 31, 2000, and $35.3 million for the year ended December 31, 1999. The
increase in expenses are attributed to advertising expenses related to our branding campaign, the hiring of additional direct sales and marketing personnel and sales commissions associated with the
increase in revenues. We intend to continue to pursue a brand-enhancement strategy, which will include mass market and multimedia advertising, promotional programs and public relations activities.

General and Administrative Expenses

General and administrative expenses were $29.6 million for the year ended December 31, 2000, and $8.4 million for the year ended December 31, 1999. The
increase in expenses is attributed to an increase in the number of general and administrative personnel, recruiting costs associated with filling key executive positions and investments in
infrastructure as well as increased accounting and legal costs incurred in connection with business activities.

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Stock-based Compensation

For the years ended December 31, 2000 and 1999, we recorded $3.0 and $3.9 million, respectively, in amortization of deferred stock-based compensation in
connection with the grant of stock options to employees and consultants. The decrease in amortization is due to our graded vesting method of amortization resulting in larger deferred compensation
charges being incurred in earlier periods. For the year ended December 31, 2000, stock-based compensation also reflected a charge of $1.2 million to reduce the carrying value of certain shareholder
notes to the fair value of the underlying collateral.

Amortization of Goodwill and Other Intangible Assets

For the year ended December 31, 2000, we recorded $82.6 million in amortization of goodwill and other intangible assets, compared with no amortization for the
year ended December 31, 1999. The increase is due to various acquisitions that took place in the fourth quarter of 1999 and the first quarter of 2000.

In-Process Technology

For the year ended December 31, 2000, we wrote off in-process technology of $11.7 million in connection with the acquisition of certain technology from
Evergreen and Direct Hit. For the year ended December 31, 1999, we recorded in-process technology write-offs of $544,000 in connection with the acquisition of certain technology and computer
equipment.

Restructuring Costs

In response to new challenges in the business environment, in December 2000, the Company's Board of Directors approved a 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 152 positions. The reductions came from all areas of the Company and, as of December 31, 2000, the majority of these terminations were completed. As part of the restructuring, the
Company determined that the operations of the Evergreen Project, Inc, which was acquired in January 2000, no longer fit the Company's strategic objectives and were terminated.

The
Company incurred a charge of approximately $13.5 million relating to the restructuring. This charge included $2.2 million related to severance and other employee costs associated
with the elimination of 152 positions and accounting and legal costs. Costs associated with employee termination included severance pay and medical and other benefits. All of the affected employees
had been notified as of December 31, 2000.

The
charge also included approximately $8.0 million in estimated facility exit costs and $3.3 million in non-cash asset write-downs. The facility exit costs are associated with the
consolidation of various facilities in California and Missouri. Asset write-downs related to the termination of the Evergreen operation included approximately $3.1 million of goodwill and $200,000 of
equipment.

As
a result of the restructuring program, the Company's annual expense base was reduced by approximately $53.0 million as compared with previous expectations. The majority of the cost
savings are expected to be realized as a result of lower headcount, reduced facility costs and terminated marketing programs. Over time, these cost savings are expected to be partially offset by
increased operating expenses to support future revenue growth.

While
we believe that our business realignment will assist us in streamlining operations, increasing revenues, reducing expenses and thereby achieving profitability, we cannot assure
you that we will achieve these anticipated results. We may in the future be required to take additional actions, including further changes to the business organization, in order to realign the
business with anticipated

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requirements. If we are not successful in realigning our business to increase revenues and decrease costs, we may never achieve profitability.

Interest Income and Interest Expense

Interest income was $7.0 million for the year ended December 31, 2000, and $2.2 million for the year ended December 31, 1999. The increase in interest income
is attributed to the interest on proceeds from our equity financings. Interest expense was $467,000 for the year ended December 31, 2000, and $187,000 for the year ended December 31, 1999. The
increase in interest expense is attributable to the interest charges incurred on additional capital lease obligations.

Write-down of Impaired Investments

In the fourth quarter of 2000, we recorded write-downs of nonmarketable investments in privately held companies that we deemed to have had other than temporary
declines in value below their carrying value totaling $4.3 million. There were no similar write-downs for the year ending December 31, 1999.

Years Ended December 31, 1999 and December 31, 1998

Revenues

Revenues were $22.0 million for the year ended December 31, 1999 and $800,000 for the year ended December 31, 1998. Web Properties revenues were $14.6 million
or 66% of total revenues for the year ended December 31, 1999 and $577,000 or 72% of total revenues for the year ended December 31, 1998. These revenues consisted of $12.5 million in advertising
revenues for the year ended December 31, 1999 and $455,000 in advertising revenues for the year ended December 31, 1998. Revenues from targeting and acquisition services were $504,000 for the year
ended December 31, 1999. There were no targeting and acquisition revenues for 1998. Syndication fees were $500,000 million for the year ended December 31, 1999 and $122,000 for the year ended December
31, 1998. Electronic commerce revenues were $1.1 million for the year ended December 31, 1999. There were no electronic commerce revenues for the year ended December 31, 1998.

Business
Solutions revenues were $7.5 million or 34% of total revenues for the year ended December 31, 1999 and $223,000 or 28% of total revenues for the year ended December 31, 1998.
These revenues consisted of $3.5 million in consulting services for the year ended December 31, 1999 and $223,000 in consulting services for the year ended December 31, 1998. Licensing fee revenues
were $4.0 million for the year ended December 31, 1999. There were no licensing fee revenues for the year ended December 31, 1998.

Cost of Revenues

Cost of revenues for Web Properties was $6.3 million for the year ended December 31, 1999 and $603,000 for the year ended December 31, 1998. The increase in
cost of revenues is attributed to increased third-party advertising management fees, hosting costs, and additional personnel and related personnel costs associated with developing, maintaining,
analyzing and testing of Ask.com to support the growth in traffic and the resulting revenues. Cost of revenues for Business Solutions was $7.8 million for the year ended December 31, 1999 and $797,000
for the year ended December 31, 1998. The increase in cost of revenues is attributed to personnel and related personnel costs associated with
providing consulting, information and maintenance services to our customers, and amortization charges related to assets acquired.

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Product Development Expenses

Product development expenses were $8.6 million for the year ended December 31, 1999 and $1.7 million for the year ended December 31, 1998. The increase in
expenses resulted from the hiring of additional personnel and related personnel costs, consultant fees, expenses related to the design, development, testing and enhancement of our technology and
services.

Sales and Marketing Expenses

Sales and marketing expenses were $35.3 million for the year ended December 31, 1999 and $2.3 million for the year ended December 31, 1998. The increase in
expenses are attributed to advertising expenses related to our branding campaign, the hiring of additional direct sales and marketing personnel and sales commissions associated with the increase in
revenues.

General and Administrative Expenses

General and administrative expenses were $8.4 million for the year ended December 31, 1999 and $2.3 million for the year ended December 31, 1998. The
increase in expenses is attributed to hiring of additional personnel and related personnel costs for finance, legal, business development and internal information systems development and support that
has accompanied the growth of our business, recruiting costs associated with filling key executive positions and depreciation expense associated with adding property and equipment.

Stock-based Compensation

For the years ended December 31, 1999 and 1998, we recorded $3.9 million and $29,000, respectively, in amortization of deferred stock-based compensation in
connection with the grant of stock options to employees and consultants. The increase in amortization is due to the significant increase in grants to employees and consultants in 1999 versus 1998 and
the differences between the deemed fair value of our common stock and the exercise price of options in 1999.

In-Process Technology

For the year ended December 31, 1999, we recognized purchased in-process technology costs of $544,000 in connection with the acquisition of certain technology
and computer equipment from Lumina and Excellerate. In connection with the acquisition of Net Effect in November 1999, we recorded acquisition costs of $6.0 million which primarily included investment
banking fees, legal and accounting costs.

Interest Income and Interest Expense

Interest income was $2.2 million for the year ended December 31, 1999 and $166,000 for the year ended December 31, 1998. The increase in interest income is
attributed to the interest on proceeds from our equity financings. Interest expense was $187,000 for the year ended December 31, 1999 and $6,000 for the year ended December 31, 1998. The increase in
interest expense is attributable to the interest charges incurred on additional capital lease obligations.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), which establishes accounting and reporting standards for derivative instruments and hedging activities. In June 2000, the FASB issued FAS 138 which
significantly amends FAS 133. FAS 133, as amended, requires that an entity recognize all derivatives as either assets or liabilities in the Statement

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of Financial Position and measure those instruments at fair value. The Company will be required to adopt FAS 133 effective January 1, 2001. Management of the Company does not believe the adoption of
this statement will have a material effect on the Company's consolidated financial position, results of operations or cash flows.

In
December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements," (SAB 101). SAB 101, as amended,
summarizes certain of the SEC's views in applying accounting principles generally accepted to revenue recognition and classification in financial statements. The Company adopted SAB 101 in the fourth
quarter of 2000. The adoption of SAB 101 did not have a material impact on its revenues or results of operations.

In
March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of APB No. 25. FIN 44 clarifies
guidance for certain issues that arose in the application of APB No. 25. FIN 44 is generally effective, and to be applied prospectively, to all new awards, modifications to outstanding awards and
changes in employee status on or after July 1, 2000. The adoption of FIN 44 did not have a material impact on the Company's consolidated financial position or results of operations.

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:



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 makes 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

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traditional media, this may result in our advertising sales being lower during summer vacation and year end holiday periods. 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.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through the private placement of equity securities, our initial public offering and our
follow-on offering. As of December 31, 2000, we had $105.0 million in cash and cash equivalents, short-term marketable securities and marketable securities.
Marketable securities consist of highly liquid instruments (primarily U.S., state and municipal government securities and corporate debt securities) with short maturities. Net cash used in operating
activities was $61.6 million for the year ended December 31, 2000, and $32.3 million for the year ended December 31, 1999. Net cash used in operating activities resulted
primarily from net losses adjusted for non-cash operating activities such as depreciation and amortization totaling $93.6 million and increases in deferred revenue totaling
$26.1 million. Deferred revenues result from payments made by our Business Solutions customers and joint ventures for the licensing of our technology. Deferred revenues increased substantially
from the prior year primarily due to the license fees paid by our joint ventures which are being recognized as revenue over three to four year periods. Net cash used in investing activities was $35.4
for the year ended December 31, 2000, and $42.1 million for the year ended December 31, 1999. Net cash used in investing activities for the year ended December 31, 2000,
related to purchases of
investments of $68.5 and property and equipment of $14.7 million, partially offset by redemptions of investments of $35.1 million. For the year ended December 31, 1999, net cash
used in investing was due primarily to purchases of property and equipment of $6.3 million and purchases of $34.2 million of short-term investments. Net cash provided by
financing activities was $124.3 million for the year ended December 31, 2000, and $83.3 million for the year ended December 31, 1999. For the year ended December 31,
2000, net cash provided by financing activities primarily related to net proceeds of $129.9 million from the sale of common equity securities. For the year ended December 31, 1999, net
cash provided from financing activities related primarily to net proceeds of $4.4 million from the sale of common and $34.4 million from the sale of preferred equity securities,
$43.0 million of net proceeds from our initial public offering, and $1.8 million of proceeds from capital lease financings.

We
have no material commitments or obligations other than those under capital and operating leases. The Company has available a revolving line of credit with a bank in the amount of
$25 million. The line of credit expires on July 1, 2002, unless extended. Borrowings under the line of credit bear interest at one of the following rates as selected by the Company: LIBOR plus 0.5% or
the bank's prime rate. All borrowings are collateralized by the Company's marketable securities. Borrowings under the line are subject to various covenants. As of December 31, 2000, there were no
amounts outstanding under the line of credit.

Our
capital requirements depend on numerous factors, including market acceptance of our services and the amount of resources we invest in site and content development, marketing and
selling our services, our brand promotions and any future acquisitions or divestitures. We have experienced a substantial increase in our expenditures since our inception consistent with growth in our
operations and staffing.

We
currently anticipate that our available cash resources will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next twelve
months. At the end of such period, we will need to generate sufficient cash flow from operations to meet our anticipated needs for working capital and capital expenditures, or we will need to raise
additional capital. However, if during that twelve-month period or thereafter, 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

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the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders will be reduced.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to financial market risk, including changes in interest rates and marketable equity security prices, relates primarily to our investment
portfolio. We typically do not attempt to reduce or
eliminate our market exposure on our investment securities because a substantial majority of our investments are in fixed-rate, short-term securities. These securities are classified as
available-for-sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income. We do
not have any derivative instruments. The fair value of our investment portfolio or related income would not be significantly impacted by either a 150 basis point increase or decrease in interest rates
due mainly to the fixed-rate, short-term nature of the substantial majority of our investment portfolio. All of our accounts and transactions are denominated in U.S. dollars and therefore are not
subject to foreign exchange fluctuation exposures.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                              |  | Page
|------------------------------------------------------------- |  | ----
|
|Ask Jeeves, Inc.                                              |  |     
|Report of Ernst & Young LLP, Independent Auditors             |  | 51  
|Report of PricewaterhouseCoopers LLP, Independent Accountants |  | 52  
|Consolidated Balance Sheets                                   |  | 53  
|Consolidated Statements of Operations                         |  | 54  
|Consolidated Statements of Stockholders' Equity               |  | 55  
|Consolidated Statements of Cash Flow                          |  | 56  
|Notes to Consolidated Financial Statements                    |  | 58  
|                                                             

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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, 2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Table of Contents as Item
14(a). 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. In November 1999, the Company merged with Net Effect Systems, Inc. in a transaction that was accounted for as a pooling of interests. We did not
audit the financial statements of Net Effect Systems, Inc. for the year ended December 31, 1998, which statements reflect net losses constituting approximately 37% of the related consolidated
financial statement totals for the year ended December 31, 1998. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data
included for Net Effect Systems, Inc. is based solely on the report of the other auditors.

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 and the report of the other auditors provide a reasonable basis for our opinion.

In
our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Ask Jeeves, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations, and its cash flows for each of the three years ended December 31, 2000, 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
February 7, 2001, except for Note 13,
as to which the date is
March 30, 2001

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REPORT OF INDEPENDENT ACCOUNTANTS

To
the Board of Directors and Stockholders
Net Effects Systems, Inc.

In
our opinion, the statements of operations, stockholders equity and of cash flows for the year ended December 31, 1998 (not presented separately herein) present fairly, in
all material respects, the results of operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements
in accordance with accounting standards generally accepted in the United States of America which 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, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/PRICEWATERHOUSECOOPERS LLP

March
22, 1999, except for Note 9 as to which the date is April 15, 1999

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CONSOLIDATED BALANCE SHEETS

|                                                |                                                                                                                                                                   |  | December 31,                               |         
|----------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | --------
|(in thousands, except share data)               |                                                                                                                                                                   |  | 2000                                       |         
|                                                |                                                                                                                                                                  
|Assets                                          |                                                                                                                                                                   |  |                                            |         
|Current assets:                                 |                                                                                                                                                                   |  |                                            |         
|                                                | Cash and cash equivalents                                                                                                                                         |  | $                                          | 44,725  
|                                                | Short-term marketable securities                                                                                                                                  |  |                                            | 47,813  
|                                                | Accounts receivable, net of allowance for doubtful accounts of $4,627 and $1,168 at December 31, 2000 and 1999, respectively                                      |  |                                            | 22,812  
|                                                | Prepaid expenses and other current assets(1)                                                                                                                      |  |                                            | 6,244   
|                                                |                                                                                                                                                                  
|                                                |                                                                                                                                                                   |  | Total current assets                       |         
|Marketable securities                           |                                                                                                                                                                   |  | 12,428                                     |         
|Property and equipment, net                     |                                                                                                                                                                   |  | 19,088                                     |         
|Intangible assets, net                          |                                                                                                                                                                   |  | 381,577                                    |         
|Other long-term assets                          |                                                                                                                                                                   |  | 3,180                                      |         
|                                                |                                                                                                                                                                  
|                                                |                                                                                                                                                                   |  | Total assets                               |         
|                                                |                                                                                                                                                                  
|Liabilities and Stockholders' Equity            |                                                                                                                                                                   |  |                                            |         
|Current liabilities:                            |                                                                                                                                                                   |  |                                            |         
|                                                | Accounts payable                                                                                                                                                  |  | $                                          | 5,186   
|                                                | Accrued compensation and related expenses                                                                                                                         |  |                                            | 6,981   
|                                                | Accrued marketing expenses                                                                                                                                        |  |                                            | 3,133   
|                                                | Accrued merger costs                                                                                                                                              |  |                                            |        
|                                                | Accrued restructuring costs                                                                                                                                       |  |                                            | 9,132   
|                                                | Other accrued liabilities                                                                                                                                         |  |                                            | 9,482   
|                                                | Deferred revenue(2)                                                                                                                                               |  |                                            | 33,410  
|                                                | Current portion of capital lease obligations                                                                                                                      |  |                                            | 886     
|                                                |                                                                                                                                                                  
|                                                |                                                                                                                                                                   |  | Total current liabilities                  |         
|Capital lease obligations, less current portion |                                                                                                                                                                   |  | 1,465                                      |         
|Other liabilities                               |                                                                                                                                                                   |  | 2,424                                      |         
|                                                |                                                                                                                                                                  
|                                                |                                                                                                                                                                   |  | Total liabilities                          |         
|Commitments and contingencies                   |                                                                                                                                                                   |  |                                           |         
|Stockholders' equity:                           |                                                                                                                                                                   |  |                                            |         
|                                                | Convertible preferred stock, $.001 par value; 5,000,000 shares authorized; no shares issued and outstanding                                                       |  |                                            |         
|                                                | Common stock, $.001 par value; 150,000,000 shares authorized; 36,246,144 and 28,472,883 shares issued and outstanding at December 31, 2000 and 1999, respectively |  |                                            | 717,692 
|                                                | Shareholder notes receivable                                                                                                                                      |  |                                            | (1,174  
|                                                | Deferred stock-based compensation                                                                                                                                 |  |                                            | (711    
|                                                | Accumulated deficit                                                                                                                                               |  |                                            | (250,174
|                                                | Accumulated other comprehensive income (loss)                                                                                                                     |  |                                            | 135     
|                                                |                                                                                                                                                                  
|                                                |                                                                                                                                                                   |  | Total stockholders' equity                 |         
|                                                |                                                                                                                                                                  
|                                                |                                                                                                                                                                   |  | Total liabilities and stockholders' equity |         
|                                                |                                                                                                                                                                  

See
accompanying notes.

53

---

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                           |                                                                                                                                                 |                          | Year Ended December 31, |       
|------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ----------------------- | ------
|(in thousands, except share and per share data)                                            |                                                                                                                                                 |                          | 2000                    |       
|                                                                                           |                                                                                                                                                
|Revenues:                                                                                  |                                                                                                                                                 |                          |                         |       
|                                                                                           | Web Properties                                                                                                                                  |                          | $                       | 58,397
|                                                                                           | Business Solutions(1)                                                                                                                           |                          |                         | 37,303
|                                                                                           |                                                                                                                                                
|                                                                                           |                                                                                                                                                 | Total revenues           |                         |       
|Cost of revenues:                                                                          |                                                                                                                                                 |                          |                         |       
|                                                                                           | Web Properties (exclusive of $45, $93 and $5 reported below as stock-based compensation in 2000, 1999 and 1998, respectively)                   |                          |                         | 19,166
|                                                                                           | Business Solutions (exclusive of $46, $96 and $3 reported below as stock-based compensation in 2000, 1999 and 1998, respectively)               |                          |                         | 20,103
|                                                                                           |                                                                                                                                                
|                                                                                           |                                                                                                                                                 | Total cost of revenues   |                         |       
|Gross profit (loss)                                                                        |                                                                                                                                                 |                          | 56,431                  |       
|Operating expenses:                                                                        |                                                                                                                                                 |                          |                         |       
|                                                                                           | Product development (exclusive of $704, $527 and $5 reported below as stock-based compensation in 2000, 1999 and 1998, respectively)            |                          |                         | 24,502
|                                                                                           | Sales and marketing (exclusive of $335, $977 and $8 reported below as stock-based compensation in 2000, 1999 and 1998, respectively)            |                          |                         | 81,641
|                                                                                           | General and administrative (exclusive of $1,866, $2,243 and $8 reported below as stock-based compensation in 2000, 1999 and 1998, respectively) |                          |                         | 29,598
|                                                                                           | Stock-based compensation                                                                                                                        |                          |                         | 2,996 
|                                                                                           | Amortization of goodwill and other intangible assets                                                                                            |                          |                         | 82,624
|                                                                                           | Write-off of in-process technology                                                                                                              |                          |                         | 11,652
|                                                                                           | Acquisition costs                                                                                                                               |                          |                         |      
|                                                                                           | Restructuring costs                                                                                                                             |                          |                         | 13,466
|                                                                                           |                                                                                                                                                
|                                                                                           |                                                                                                                                                 | Total operating expenses |                         |       
|                                                                                           |                                                                                                                                                
|Operating loss                                                                             |                                                                                                                                                 |                          | (190,048                | )     
|Interest income                                                                            |                                                                                                                                                 |                          | 6,973                   |       
|Interest expense                                                                           |                                                                                                                                                 |                          | (467                    | )     
|Write-down of impaired investments                                                         |                                                                                                                                                 |                          | (4,254                  | )     
|                                                                                           |                                                                                                                                                
|Net loss before income tax provision                                                       |                                                                                                                                                 | $                        | (187,796                | )     
|Income tax provision                                                                       |                                                                                                                                                 |                          | 1,810                   |       
|                                                                                           |                                                                                                                                                
|Net loss                                                                                   |                                                                                                                                                 | $                        | (189,606                | )     
|                                                                                           |                                                                                                                                                
|Basic and diluted net loss per share                                                       |                                                                                                                                                 | $                        | (5.51                   | )     
|                                                                                           |                                                                                                                                                
|Weighted average shares outstanding used in computing basic and diluted net loss per share |                                                                                                                                                 |                          | 34,399,200              |       
|                                                                                           |                                                                                                                                                
|(1) Revenues from related parties                                                          |                                                                                                                                                 | $                        | 12,308                  |       
|                                                                                           |                                                                                                                                                

See
accompanying notes.

54

---

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

|                              |                                                                                 | Convertible
Preferred Stock |            |   |        |         |            | Shareholder
Notes
Receivable |   | Deferred
Stock-based
Compensation |         |   |        | Accumulated
Other
Comprehensive
Income (loss) |   |        |        |   |         
|----------------------------- | ------------------------------------------------------------------------------- | --------------------------- | ---------- | - | ------ | ------- | ---------- | ---------------------------- | - | --------------------------------- | ------- | - | ------ | --------------------------------------------- | - | ------ | ------ | - | --------
|
|
|
|Balances at December 31, 1997 |                                                                                 | 54,250                      |            | $ | 220    |         | 6,159,109  |                              | $ | 1,180                             |         | $ |       |                                               | $ |       |        | $ | (833    
|                              | Issuance of preferred stock for cash                                            |                             | 3,756,212  |   |        | 11,338  |            |                             |   |                                   |        |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock options to stockholders in exchange for services       |                             |           |   |        |        |            |                             |   |                                   | 300     |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock for cash                                               |                             |           |   |        |        |            | 5,410,764                    |   |                                   | 2,774   |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock to consultants                                         |                             |           |   |        |        |            | 16,300                       |   |                                   | 8       |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock warrants to consultants                                |                             |           |   |        |        |            |                             |   |                                   | 24      |   |        |                                              |   |        |       |   |         
|                              | Compensation charge related to grants of common stock options                   |                             |           |   |        |        |            |                             |   |                                   | 57      |   |        |                                              |   |        |       |   |         
|                              | Deferred stock-based compensation                                               |                             |           |   |        |        |            |                             |   |                                   | 506     |   |        |                                              |   |        | (506   | ) |         
|                              | Amortization of deferred stock-based compensation                               |                             |           |   |        |        |            |                             |   |                                   |        |   |        |                                              |   |        | 29     |   |         
|                              | Net loss and comprehensive loss                                                 |                             |           |   |        |        |            |                             |   |                                   |        |   |        |                                              |   |        |       |   |         
|                              |                                                                                
|Balances at December 31, 1998 |                                                                                 | 3,810,462                   |            |   | 11,558 |         | 11,586,173 |                              |   | 4,849                             |         |   |       |                                               |   | (477   | )      |   | (7,639  
|                              |                                                                                
|                              | Issuance of preferred stock for cash                                            |                             | 7,070,148  |   |        | 34,423  |            |                             |   |                                   |        |   |        |                                              |   |        |       |   |         
|                              | Issuance of preferred stock for license fee                                     |                             | 393        |   |        | 45      |            |                             |   |                                   |        |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock to consultants                                         |                             |           |   |        |        |            | 3,761                        |   |                                   | 99      |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock warrants to consultants                                |                             |           |   |        |        |            |                             |   |                                   | 9       |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock warrants in connection with equipment lease financings |                             |           |   |        |        |            |                              |   |                                   | 157     |   |        |                                              |   |        |       |   |         
|                              | Conversion of preferred stock to common stock                                   |                             | (9,485,690 | ) |        | (32,535 | )          | 9,485,690                    |   |                                   | 32,535  |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock for cash                                               |                             |            |   |        |        |            | 5,771,071                    |   |                                   | 47,446  |   |        |                                              |   |        |       |   |         
|                              | Conversion of preferred stock to common stock upon Net Effect acquisition       |                             | (1,395,313 | ) |        | (13,491 | )          | 1,395,313                    |   |                                   | 13,491  |   |        |                                              |   |        |       |   |         
|                              | Common stock issued for assets acquired                                         |                             |            |   |        |        |            | 230,875                      |   |                                   | 1,413   |   |        |                                              |   |        |       |   |         
|                              | Compensation charge related to grants of common stock options                   |                             |           |   |        |        |            |                             |   |                                   | 203     |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock options to stockholders in exchange for services       |                             |           |   |        |        |            |                             |   |                                   | 511     |   |        |                                              |   |        | (511   | ) |         
|                              | Deferred stock-based compensation                                               |                             |           |   |        |        |            |                             |   |                                   | 6,923   |   |        |                                              |   |        | (8,122 | ) |         
|                              | Amortization of deferred stock-based compensation                               |                             |           |   |        |        |            |                             |   |                                   |        |   |        |                                              |   |        | 3,935  |   |         
|                              | Issuance of shareholder notes receivable                                        |                             |           |   |        |        |            |                             |   |                                   |        |   |        | (400                                          | ) |        |        |   |         
|Comprehensive loss:           |                                                                                 |                             |            |   |        |         |            |                              |   |                                   |         |   |        |                                               |   |        |        |   |         
|                              | Unrealized losses on marketable securities                                      |                             |           |   |        |        |            |                             |   |                                   |        |   |        |                                              |   |        |       |   |         
|                              | Net loss                                                                        |                             |           |   |        |        |            |                             |   |                                   |        |   |        |                                              |   |        |       |   |         
|                              |                                                                                
|Comprehensive loss            |                                                                                 |                             |            |   |        |         |            |                              |   |                                   |         |   |        |                                               |   |        |        |   |         
|                              |                                                                                
|Balances at December 31, 1999 |                                                                                 |                            |            |   |       |         | 28,472,883 |                              |   | 107,636                           |         |   | (400   | )                                             |   | (5,175 | )      |   | (60,568 
|                              |                                                                                
|                              | Issuance of common stock under Employee Stock Purchase Plan                     |                             |            |   |        | 232,685 |            | 2,809                        |   |                                   |        |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock upon exercise of stock options and warrants            |                             |           |   |        |        |            | 1,391,735                    |   |                                   | 4,582   |   |        | (1,988                                        | ) |        |       |   |         
|                              | Issuance of common stock in connection with business combinations               |                             |           |   |        |        |            | 4,770,774                    |   |                                   | 484,619 |   |        |                                              |   |        |       |   |         
|                              | Issuance of common stock in secondary public offering, net of issuance costs    |                             |           |   |        |        |            | 1,715,000                    |   |                                   | 122,472 |   |        |                                              |   |        |       |   |         
|                              | Repurchase of common stock options early exercised                              |                             |           |   |        |        |            | (313,894                     | ) |                                   | (632    | ) |        |                                              |   |        |       |   |         
|                              | Return of shares held in escrow from Net Effect acquisition                     |                             |           |   |        |        |            | (23,039                      | ) |                                   | (2,000  | ) |        |                                              |   |        |       |   |         
|                              | Reduction of deferred stock-based compensation related to terminations          |                             |           |   |        |        |            |                             |   |                                   | (2,692  | ) |        |                                              |   |        | 2,692  |   |         
|                              | Amortization of deferred stock-based compensation                               |                             |           |   |        |        |            |                             |   |                                   |        |   |        |                                              |   |        | 1,772  |   |         
|                              | Payments on shareholder notes receivable                                        |                             |           |   |        |        |            |                             |   |                                   |        |   |        | 167                                           |   |        |       |   |         
|                              | Adjustments related to shareholder notes receivable                             |                             |           |   |        |        |            |                             |   |                                   | 898     |   |        | 1,047                                         |   |        |       |   |         
|Comprehensive loss:           |                                                                                 |                             |            |   |        |         |            |                              |   |                                   |         |   |        |                                               |   |        |        |   |         
|                              | Unrealized losses on marketable securities                                      |                             |           |   |        |        |            |                             |   |                                   |        |   |        |                                              |   |        |       |   |         
|                              | Net loss                                                                        |                             |           |   |        |        |            |                             |   |                                   |        |   |        |                                               |   |        |       |   |         
|                              |                                                                                
|Comprehensive loss            |                                                                                 |                             |            |   |        |         |            |                              |   |                                   |         |   |        |                                               |   |        |        |   |         
|                              |                                                                                
|Balances at December 31, 2000 |                                                                                 |                            |            | $ |       |         | 36,246,144 |                              | $ | 717,692                           |         | $ | (1,174 | )                                             | $ | (711   | )      | $ | (250,174
|                              |                                                                                

55

---

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                            |                                                                 |                                           | Year Ended December 31, |       
|--------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------- | ----------------------- | ------
|(in thousands)                                                              |                                                                 |                                           | 2000                    |       
|                                                                            |                                                                
|Operating Activities                                                        |                                                                 |                                           |                         |       
|Net loss                                                                    |                                                                 | $                                         | (189,606                | )     
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                 |                                           |                         |       
|                                                                            | Depreciation and amortization                                   |                                           |                         | 5,577 
|                                                                            | Loss on disposal of assets                                      |                                           |                         | 3     
|                                                                            | Issuance of common stock to consultants                         |                                           |                         |      
|                                                                            | Issuance of preferred stock for license fee                     |                                           |                         |      
|                                                                            | Contribution of services by stockholders                        |                                           |                         |      
|                                                                            | Compensation charge related to grants of common stock options   |                                           |                         |      
|                                                                            | Stock-based compensation                                        |                                           |                         | 2,996 
|                                                                            | Amortization of goodwill and intangible assets                  |                                           |                         | 88,066
|                                                                            | Non-cash restructuring charges                                  |                                           |                         | 12,411
|                                                                            | Write-off of in-process technology                              |                                           |                         | 11,652
|                                                                            | Non-cash charge for impaired asset write down                   |                                           |                         | 4,254 
|                                                                            | Non-cash charge for adjustments to shareholder notes receivable |                                           |                         | 1,945 
|                                                                            | Changes in operating assets and liabilities:                    |                                           |                         |       
|                                                                            |                                                                 | Accounts receivable                       |                         |       
|                                                                            |                                                                 | Prepaid expenses and other current assets |                         |       
|                                                                            |                                                                 | Accounts payable                          |                         |       
|                                                                            |                                                                 | Accrued compensation and related expenses |                         |       
|                                                                            |                                                                 | Accrued marketing expenses                |                         |       
|                                                                            |                                                                 | Accrued merger costs                      |                         |       
|                                                                            |                                                                 | Other accrued liabilities                 |                         |       
|                                                                            |                                                                 | Deferred revenue                          |                         |       
|                                                                            |                                                                
|Net cash used in operating activities                                       |                                                                 |                                           | (61,644                 | )     
|Investing Activities                                                        |                                                                 |                                           |                         |       
|Purchases of property and equipment                                         |                                                                 |                                           | (14,660                 | )     
|Sale of property and equipment                                              |                                                                 |                                           |                        |       
|Purchases of marketable securities                                          |                                                                 |                                           | (68,524                 | )     
|Redemption of marketable securities                                         |                                                                 |                                           | 35,138                  |       
|Cash acquired from business combinations                                    |                                                                 |                                           | 12,646                  |       
|Purchase of other assets                                                    |                                                                 |                                           |                        |       
|                                                                            |                                                                
|Net cash used in investing activities                                       |                                                                 |                                           | (35,400                 | )     
|Financing Activities                                                        |                                                                 |                                           |                         |       
|Issuance of common stock                                                    |                                                                 |                                           | 129,869                 |       
|Redemption of common stock                                                  |                                                                 |                                           | (2,632                  | )     
|Issuance of notes receivable to stockholders                                |                                                                 |                                           | (2,238                  | )     
|Repayment of notes receivable to stockholders                               |                                                                 |                                           | 167                     |       
|Issuance of preferred stock                                                 |                                                                 |                                           |                        |       
|Proceeds from sale-leaseback transaction                                    |                                                                 |                                           | 1,809                   |       
|Repayment of capital lease obligations                                      |                                                                 |                                           | (817                    | )     
|                                                                            |                                                                
|Net cash provided by financing activities                                   |                                                                 |                                           | 124,349                 |       
|Increase in cash and cash equivalents                                       |                                                                 |                                           | 27,305                  |       
|Cash and cash equivalents at beginning of period                            |                                                                 |                                           | 17,420                  |       
|Cash and cash equivalents at end of period                                  |                                                                 | $                                         | 44,725                  |       
|                                                                            |                                                                

56

---

|Supplemental disclosure of noncash investing and financing activities |                                                                                                                           |  |   |         |  |   |       |  |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- |  | - | ------- |  | - | ----- |  | -
|                                                                      | Capital lease obligations incurred                                                                                        |  | $ |        |  | $ | 1,690 |  | $
|                                                                     
|                                                                      | Common stock issued for assets acquired                                                                                   |  | $ | 484,619 |  | $ | 1,412 |  | $
|                                                                     
|                                                                      | Common stock warrants issued in connection with equipment lease financings                                                |  | $ |        |  | $ | 158   |  | $
|                                                                     
|                                                                      | Deferred stock-based compensation in connection with employment guarantee                                                 |  | $ |        |  | $ | 1,200 |  | $
|                                                                     
|                                                                      | Deferred stock-based compensation in connection with common stock options issued to stockholders in exchange for services |  | $ |        |  | $ | 511   |  | $
|                                                                     
|Supplemental disclosure of cash flow information                      |                                                                                                                           |  |   |         |  |   |       |  |  
|                                                                      | Interest paid                                                                                                             |  | $ | 464     |  | $ | 121   |  | $
|                                                                     
|                                                                      | Income taxes paid                                                                                                         |  | $ | 1,810   |  | $ |      |  | $
|                                                                     

See
accompanying notes.

57

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Ask Jeeves, Inc. ("Ask Jeeves" or "the Company") provides natural language question answering technologies and services. The Company's proprietary
technology combined with human intelligence creates an interaction centered on understanding users' specific needs and interests and connecting them to the most relevant information, products and
services. The Company delivers its natural language question answering technologies and services through its own Web sites at Ask.com, AJKids.com and DirectHit.com. Through the Company's Web
Properties Group, Ask Jeeves provides a highly targeted medium for advertisers to reach online users. The Company also syndicates services to portals, infomediaries, and content and destination sites
to help companies increase e-commerce and advertising revenue. Through its Business Solutions Group, the Company develops and maintains customized automated search, natural language question
answering, and intelligent advisor services on numerous corporate Web sites. 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 affiliates in which
the Company has significant influence but does not have a controlling interest are accounted for under the equity method and investments in which the Company does not have the ability to exert
significant influence are accounted for at cost. All significant intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all cash and highly liquid investments purchased with an original maturity of less than three months at the date of purchase to be cash
equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value. Substantially all of the Company's cash and cash equivalents are held in the custody of two major domestic
financial institutions.

Marketable Securities

The Company's marketable securities are primarily comprised of commercial paper, U.S., state and municipal government securities and corporate debt securities.
Marketable securities are primarily held in the custody of one major financial institution. The specific identification method is used to determine the cost of securities disposed. At December 31,
2000 and 1999, substantially all the Company's marketable securities were classified as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses on
these securities included as a separate component of accumulated other comprehensive income (loss).

58

---

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

Concentrations of Credit Risk and Credit Risk Evaluations

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

Property and Equipment

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

Goodwill and Other Intangible Assets

Goodwill and purchased intangible assets are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over the
estimated economic lives of the assets, generally three to five years.

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.

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Impairment of Long-Lived Assets

We
record impairment losses or write-downs on intangible assets when events and circumstances indicate that an impairment assessment should be performed and that assessment indicates
that there is an impairment. Events and circumstances that would trigger an impairment assessment include a significant decrease in the market value of an asset, a significant change in the manner or
extent that an asset is used including a decision to abandon acquired products, services or technologies, a significant adverse change in operations or business climate affecting the asset, and
historical operating or cash flow losses expected to continue for the foreseeable future associated with the asset. An asset is considered impaired when the undiscounted cash flows projected to be
generated from the asset over its remaining useful life is less than the recorded amount of that asset. Impairment losses are measured based on the difference between the asset's fair value and
carrying amount and are recorded as impairment write-downs in the consolidated statements of operations in the period that an indicator of impairment arises. Measurement of fair value is based on
estimated expected future cash flows, including terminal value cash flows expected to result from the disposition of the asset at the end of its useful life, discounted at our weighted average cost of
capital. Weighted average cost of capital is based on historical risk premiums required by investors for companies of our size, industry and capital structure and includes risk factors specific to us.
In some instances, the measurement of fair value includes a factor, if appropriate, for market comparables, representing our estimate of the value that a buyer is willing to pay for similar assets in
terms of products and services, customer base, risks and earnings capabilities.

At
December 31, 2000, the Company has goodwill and other intangible assets with an aggregate carrying value of $381.6 million. These and other long-lived assets will continue to be
subject to evaluation for impairment when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If a determination is made that the assets are
impaired, it could result in a significant reduction in the carrying value of such assets and a material charge.

Revenue Recognition

The Company generally recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. A significant portion of the Company's revenues from its Web Properties Group are derived from the sale of promotional space on the Company's online Internet properties.
Promotional space offered ranges from "run-of-site" banner advertisements and sponsorships to targeting and acquisition service. Targeting and acquisition service products are
tailored to deliver a customer's promotional content to a specific target market in a dynamic, customized environment and which may include the development of branded, integrated websites. Revenue
derived from such arrangements is recognized during the period which the service is provided, provided that no significant obligations remain at the end of the period. Company obligations typically
include the guarantee of a minimum number of "impressions" or times that an advertisement appears in pages viewed by users of the Company's 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. Syndication services offered range from the
sale of promotional material on behalf of partners to the syndication of our web-wide search technology to portals, infomediaries, and content and destination sites. Syndication fees
primarily consist of revenue-sharing arrangements, fixed or fee-per-use arrangements, and revenues are recognized as the service is delivered. Revenues from revenue-sharing
arrangements are recorded net of amounts paid to syndication partners, except when the Company acts as the primary obligor in the arrangement and bears risk with respect to the inventory of
promotional space and credit risk, in accordance with Emerging Issues Task Force Issue No. 99-19. Revenues from electronic commerce are generated when a user clicks on the answer
that links to an electronic commerce merchant's Web site on a cost per click, or CPC basis. Electronic commerce transaction fees are derived from short-term

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electronic commerce merchant contracts, generally over a three-to-six month period, and are recognized as services are performed.

Revenues
from our Business Solutions Group include revenue streams that are derived from companies licensing our natural language and customer intelligence technologies for use on
corporate websites and from consulting services associated with implementing a customized natural language question and answering solution. We recognize consulting services, ongoing support, and
licensing fees ratably over the contractual term, generally twelve months, commencing from the implementation of service. Amounts invoiced prior to service implementation or provision of consulting
services are recorded as deferred revenue and recognized ratably over the contractual term, commencing upon service implementation.

Significant Customers

For the years ended December 31, 2000 and 1999, no customer accounted for more than 10% of total revenues. For the year ended December 31, 1998, two customers
each accounted for 10% of total revenues.

Stock-Based Compensation

The Company accounts for employee stock options using the intrinsic value method and makes the required pro forma disclosures. Compensation expense based on
the difference, if any, on 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.

Advertising Costs

The Company expenses the costs of advertising as incurred. Advertising expense for the years ended December 31, 2000, 1999 and 1998 was $32,215,000,
$23,824,000 and $1,092,000, respectively.

Income Taxes

The Company uses the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are
expected to reverse.

Net Loss Per Share

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

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), which establishes accounting and reporting standards for derivative instruments and hedging activities. In June 2000, the FASB issued
FAS 138 which significantly amends FAS 133. FAS 133, as amended, requires that an entity recognize all derivatives as either assets or liabilities in the Statement of Financial
Position and measure those instruments at fair value. The Company will be

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required to adopt FAS 133 effective January 1, 2001. Management of the Company does not believe the adoption of this statement will have a material effect on the Company's consolidated
financial position, results of operations or cash flows.

In
December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements," ("SAB 101"). SAB 101, as amended,
summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition and classification in financial statements. The Company adopted SAB 101 in the fourth
quarter of 2000. The adoption of SAB 101 did not have a material impact on its revenues or results of operations.

In
March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of APB No. 25. FIN 44 clarifies
guidance for certain issues that arose in the application of APB No. 25. FIN 44 is generally effective, and to be applied prospectively, to all new awards, modifications to outstanding awards and
changes in employee status on or after July 1, 2000. The adoption of FIN 44 did not have a material impact on the Company's consolidated financial position or results of operations.

Reclassifications

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

2. BUSINESS COMBINATIONS

Acquisition of Direct Hit Technologies, Inc.

In
February 2000, the Company acquired Direct Hit Technologies, Inc. ("Direct Hit"), a provider of search and navigation services on the Internet. The purchase consideration
consisted of 4,751,878 shares of common stock with a fair value of $456.0 million, 331,596 shares to be issued upon the exercise of outstanding Direct Hit options assumed as part of the merger with a
fair value of $25.8 million, liabilities assumed of $10.2 million and $11.2 million in acquisition costs.

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

|                               
|-------------------------------
|Tangible assets                
|Equipment                      
|Purchased in-process technology
|Purchased technology           
|Acquired workforce             
|Goodwill                       
|                               
|Total purchase consideration   
|                               

Purchased in-process technology.The amounts allocated to purchased in-process technology were determined through established valuation
techniques in the high technology Internet industry by an independent valuation expert and were expensed upon acquisition because technological feasibility had not been established and no future
alternative uses existed. The values assigned to purchased in-process technology were determined by identifying the on-going research projects for which technological feasibility had not been achieved
and assessing the state of completion of the research and development effort. The state of completion was determined by estimating the costs and time incurred to date relative to those costs and time
to be incurred to develop the purchased in-process technology into commercially viable products, estimating the resulting net cash flows only from the percentage of

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research and development efforts complete at the date of acquisition, and discounting the net cash flows back to their present value using a 25% discount rate. The discount rate included a factor that
took into account the uncertainty surrounding the successful development of the purchased in-process technology projects.

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

Acquired workforce.To determine the values of the acquired workforce, employees were identified who would require significant cost to
replace and train. Then each employee's partially burdened cost (salary, benefits, facilities), the cost to train the employee, and the recruiting costs (locating, interviewing, and hiring) were
estimated. These costs were then aggregated and tax-affected to estimate the value of the assembled workforce.

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

The
acquisition of Direct Hit was recorded as a purchase and accordingly, the Consolidated Financial Statements include the operating results of Direct Hit from the date of
acquisition which occurred in February 2000. The unaudited pro forma information presented in the table below represents the combined revenue, net loss and net loss per share of the Company for the
year ended December 31, 1999 as if the acquisition had taken place on January 1, 1999 and includes the amortization of goodwill and other intangible assets (in thousands).

|                                                                                           |  |   | Year Ended
December 31, 1999 |  
|------------------------------------------------------------------------------------------ |  | - | ---------------------------- | -
|                                                                                           | 
|Revenues                                                                                   |  | $ | 23,923                       |  
|Net loss                                                                                   |  | $ | (168,998                     | )
|Net loss per share, basic and diluted                                                      |  | $ | (6.81                        | )
|Weighted average shares outstanding used in computing basic and diluted net loss per share |  |   | 24,798,837                   |  
|                                                                                           | 

Merger with Net Effect Systems, Inc.

In November 1999, the Company entered into an Agreement and Plan of Merger (the "Agreement") with Net Effect Systems, Inc. ("Net Effect") in a
stock-for-stock transaction which was accounted for as a pooling of interests when consummated. Pursuant to the Agreement, all outstanding shares of Net Effect were exchanged for 1,631,863 shares of
the Company's common stock, and options to purchase Net Effect common stock were converted into options to purchase 497,353 shares of the Company's common stock.

The
merger was accounted for as a pooling of interests and financial statements for all dates and periods prior to consummation of the transaction have been restated to combine the
financial position and results of operations of the Company with the respective financial statements of Net Effect. No adjustments were necessary to conform accounting policies of the entities. There
were no intercompany transactions requiring elimination in any period presented.

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The following table shows the historical results of the Company and Net Effect for the periods prior to the consummation of the merger of the two entities:

|           |  |   | Year Ended
December 31, 1998 |  |   | Nine Months Ended
September 30, 1999
|---------- |  | - | ---------------------------- |  | - | ------------------------------------
|          
|           |  |   |                              |  |   | (unaudited)                         
|Revenues:  |  |   |                              |  |   |                                     
|Ask Jeeves |  | $ | 592                          |  | $ | 10,302                              
|Net Effect |  |   | 208                          |  |   | 823                                 
|          
|Total      |  | $ | 800                          |  | $ | 11,125                              
|          
|Net loss:  |  |   |                              |  |   |                                     
|Ask Jeeves |  | $ | 4,261                        |  | $ | 24,179                              
|Net Effect |  |   | 2,545                        |  |   | 5,007                               
|          
|Total      |  | $ | 6,806                        |  | $ | 29,186                              
|          

Joint Ventures

In December 1999, the Company entered into a joint venture to create a new partnership, the Ask Jeeves U.K. Partnership (the "Partnership") with
Carlton & Granada Internet Limited ("CGCo"), a joint venture between Carlton Communications Plc. ("Carlton") and Granada Media Group Limited ("Granada"). In August 2000, the Company entered
into two additional joint ventures. The Company partnered with Univision Communications, Inc to create Ask Jeeves En Espanol, Inc. ("AJ En Espanol") and with Trans Cosmos Inc. USA Pacific
Holdings Company III to create Ask Jeeves Kabushiki Kaisha ("AJ Japan"), (collectively "the Ventures"). The Company contributed to the joint ventures the use of certain intellectual property within
defined territories, which had no carrying value for accounting purposes. The Company accounts for its investment in the Ventures under the equity method of accounting. The Company recorded no value
for its interests in the Ventures for accounting purposes. Therefore, the Company has not recognized any portion of the net losses of the Ventures.

The
Company has entered into various agreements with its joint ventures for the license of its technology within the United Kingdom, Japan and to the Spanish speaking market. In
connection with these agreements, the Company received initial cash payments that have been recorded as deferred revenues and are being recognized as revenues on a straight-line basis over three to
four year periods. For the years ended December 31, 2000 and 1999, the Company recorded revenues of $12,308,000 and $118,000, respectively, relating to these licenses.

3. MARKETABLE SECURITIES

At December 31, 2000 and 1999, all of the Company's investments were classified as available-for-sale. Management determines the appropriate classification of
investments at the time of purchase and re-evaluates such designation at the end of each period. Investments with a maturity date of less than one year from the consolidated balance sheet date are
classified short-term and are carried at fair value, based on quoted market prices. The amount of realized gains or losses for the years ended December 31, 2000, 1999 and 1998, was not significant.

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The following tables summarize the Company's investments (in thousands):

|December 31, 2000                   |                                  |       | Amortized
Cost |  |   | Gross
Unrealized
Gains |  |   | Gross
Unrealized
Losses |   |   | Estimated Fair
Value
|----------------------------------- | -------------------------------- | ----- | -------------- |  | - | ---------------------- |  | - | ----------------------- | - | - | --------------------
|                                   
|Commercial paper                    |                                  | $     | 23,786         |  | $ |                       |  | $ | (28                     | ) | $ | 23,758              
|Municipal bonds                     |                                  |       | 7,650          |  |   |                       |  |   |                        |   |   | 7,650               
|US Government notes                 |                                  |       | 3,996          |  |   | 10                     |  |   |                        |   |   | 4,006               
|Corporate notes                     |                                  |       | 21,675         |  |   | 117                    |  |   |                        |   |   | 21,792              
|Asset-backed securities             |                                  |       | 2,999          |  |   | 36                     |  |   |                        |   |   | 3,035               
|                                   
|Total available for sale securities |                                  | $     | 60,106         |  | $ | 163                    |  | $ | (28                     | ) | $ | 60,241              
|                                   
|Classified as:                      |                                  |       |                |  |   |                        |  |   |                         |   |   |                     
|                                    | Short-term marketable securities |       |                |  |   |                        |  |   |                         |   |   | $                   
|                                    | Marketable securities            |       |                |  |   |                        |  |   |                         |   |   |                     
|                                   
|                                    |                                  | Total |                |  |   |                        |  |   |                         |   |   |                     
|                                   

|December 31, 1999                   |                |                                  | Amortized
Cost |  |   | Gross
Unrealized
Gains |  |   | Gross
Unrealized
Losses |   |   | Estimated Fair
Value
|----------------------------------- | -------------- | -------------------------------- | -------------- |  | - | ---------------------- |  | - | ----------------------- | - | - | --------------------
|                                   
|Commercial paper                    |                | $                                | 1,829          |  | $ |                       |  | $ | (7                      | ) | $ | 1,822               
|Municipal bonds                     |                |                                  | 2,000          |  |   |                       |  |   |                        |   |   | 2,000               
|State notes                         |                |                                  | 2,000          |  |   |                       |  |   |                        |   |   | 2,000               
|US Government notes                 |                |                                  | 11,987         |  |   |                       |  |   | (8                      | ) |   | 11,979              
|Corporate notes                     |                |                                  | 13,720         |  |   |                       |  |   | (27                     | ) |   | 13,693              
|Equity securities                   |                |                                  | 2,616          |  |   |                       |  |   |                        |   |   | 2,616               
|                                   
|Total available for sale securities |                | $                                | 34,152         |  | $ |                       |  | $ | (42                     | ) | $ | 34,110              
|                                   
|                                    | Classified as: |                                  |                |  |   |                        |  |   |                         |   |   |                     
|                                    |                | Short-term marketable securities |                |  |   |                        |  |   |                         |   |   |                     
|                                   

The
amortized cost and estimated fair value of investments in debt securities at December 31, 2000, by effective maturity, were as follows (in thousands):

|                                     |  |   | Amortized Cost |  |   | Estimated Fair
Value
|------------------------------------ |  | - | -------------- |  | - | --------------------
|                                    
|Due in 1 year or less                |  | $ | 47,782         |  | $ | 47,813              
|Due in 1-2 years                     |  |   | 9,325          |  |   | 9,393               
|Due in 2-5 years                     |  |   | 2,999          |  |   | 3,035               
|                                    
|Total investments in debt securities |  | $ | 60,106         |  | $ | 60,241              
|                                    

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4. PROPERTY AND EQUIPMENT

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

|                                               |  |   | December 31, |  
|---------------------------------------------- |  | - | ------------ | -
|                                               |  |   | 2000         |  
|                                               | 
|Computer equipment and related software        |  | $ | 21,109       |  
|Furniture and fixtures                         |  |   | 3,217        |  
|Leasehold improvements                         |  |   | 2,213        |  
|                                               | 
|                                               |  |   | 26,539       |  
|Less accumulated depreciation and amortization |  |   | (7,451       | )
|                                               | 
|Property and equipment, net                    |  | $ | 19,088       |  
|                                               | 

Cost
related to assets under capital lease obligations was $3,499,000 at December 31, 2000 and 1999. Accumulated amortization related to assets under capital lease obligations at
December 31, 2000 and 1999 was $1,723,000 and $543,000, respectively.

5. LEASE COMMITMENTS

In June 1999, the Company entered into a leasing agreement with an equipment leasing company to finance equipment and internal-use software purchases of up to
a maximum of $3.5 million, including the sale-leaseback of certain assets previously purchased by the Company. As of December 31, 1999, the Company had utilized the total lease financing line. Lease
payments are due on a monthly basis under lease terms which range from 30 to 48 months and bear interest at a rate of 8.3% per annum.

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

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

|Years ending December 31:                         |  |   | Capital Leases |   |   | Operating Leases
|------------------------------------------------- |  | - | -------------- | - | - | ----------------
|                                                 
|2001                                              |  | $ | 1,041          |   | $ | 4,979           
|2002                                              |  |   | 978            |   |   | 9,440           
|2003                                              |  |   | 589            |   |   | 9,068           
|2004                                              |  |   |               |   |   | 8,718           
|2005                                              |  |   |               |   |   | 6,686           
|Thereafter                                        |  |   |               |   |   | 41,526          
|                                                 
|Total minimum lease payments                      |  |   | 2,608          |   | $ | 80,417          
|                                                 
|Less interest                                     |  |   | (257           | ) |   |                 
|                                                 
|Present value of minimum lease payments           |  |   | 2,351          |   |   |                 
|Less current portion of capital lease obligations |  |   | (886           | ) |   |                 
|                                                 
|Capital lease obligations, less current portion   |  | $ | 1,465          |   |   |                 
|                                                 

Rent
expense was $4,315,000, $1,499,000 and $128,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

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6. LINE OF CREDIT

The Company has available a revolving line of credit with a bank in the amount of $25 million. The line of credit expires on July 1, 2002. Borrowings under the
line of credit bear interest at one of the following rates as selected by the Company: LIBOR plus 0.5% or the bank's prime rate. All borrowings are collateralized by the Company's marketable
securities. Borrowings under the line are subject to various covenants. As of December 31, 2000, there were no amounts outstanding under the line of credit.

7. INCOME TAXES

There has been no provision for U.S. federal or state income taxes for any period as the Company has incurred operating losses in all periods. During the year
ended December 31, 2000, the Company recorded a foreign income tax provision of $1.8 million related to taxes withheld from customer payments and remitted to foreign taxing jurisdictions on the
Company's behalf.

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

|                                           |  |   | December 31, |  
|------------------------------------------ |  | - | ------------ | -
|                                           |  |   | 2000         |  
|                                           | 
|Deferred Tax Assets:                       |  |   |              |  
|Net operating loss carryforwards           |  | $ | 42,343       |  
|Capitalized research and development costs |  |   | 1,611        |  
|Accrued expenses                           |  |   | 5,537        |  
|Deferred revenue                           |  |   | 13,364       |  
|Other                                      |  |   | 1,116        |  
|                                           | 
|Deferred tax assets                        |  |   | 63,971       |  
|Valuation allowance                        |  |   | (57,246      | )
|                                           | 
|Total deferred tax assets                  |  | $ | 6,725        |  
|                                           | 
|Deferred Tax Liabilities:                  |  |   |              |  
|Other identified intangible assets         |  | $ | (6,725       | )
|                                           | 
|Total deferred tax liabilities             |  | $ | (6,725       | )
|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 $38.6 million and $16.7 million during the years ended December 31, 2000 and 1999, 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 history of net losses since its inception and expected near-term future losses. The Company will continue to assess the realizability of the deferred
tax assets based on actual and forecasted operating results.

The
tax benefits associated with employee stock options provide a deferred benefit of $14.9 million as of December 31, 2000. The deferred tax benefit associated with the employee
stock options will be credited to common stock when realized.

At
December 31, 2000, the Company had net operating loss carryforwards for federal income tax purposes of approximately $117.0 million, which expire in the years 2012 through 2020.
The Company

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also had net operating loss carryforwards for state income tax purposes of approximately $37.0 million which expires in the years 2004 through 2010.

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.

8. STOCKHOLDERS' EQUITY

Stock Split

On April 16, 1999, the Company's Board of Directors approved a 1-for-2 reverse stock split of all issued and outstanding common and preferred stock. All share
and per share amounts in the accompanying consolidated financial statements have been adjusted to reflect the stock split.

Common Stock Offerings

In June 1999, the Company completed an initial public offering of 3,450,000 shares of common stock at a purchase price of $14.00 per share. Net proceeds to the
Company aggregated approximately $43.0 million. In connection with the offering, all of the preferred stock outstanding automatically converted into 9,485,690 shares of common stock.

In
March 2000, the Company completed a secondary offering of 1,715,000 shares of common stock at a purchase price per share of $76.00, which includes underwriter's exercise of an
option to purchase an additional 315,000 shares. Net proceeds to the Company aggregated approximately $122.5 million (net of underwriters' commission and offering expenses).

Shares Reserved for Future Issuance

At December 31, 2000, the Company has reserved shares of capital stock for future issuance as follows:

|                                 
|---------------------------------
|Stock options outstanding        
|Stock options available for grant
|Employee stock purchase plan     
|                                 
|                                 
|                                 

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9. RESTRUCTURING AND ASSET IMPAIRMENT

In December 2000, the Company's Board of Directors approved a 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 152 positions. The reductions came from all areas
of the Company and, as of December 31, 2000, the majority of these terminations were completed. As part of the restructuring, the Company determined that the operations of the Evergreen Project, Inc,
which was acquired in January 2000, no longer fit the Company's strategic objectives and were terminated.

The
Company incurred a charge of approximately $13.5 million in the fourth quarter of the year ended December 31, 2000 relating to the restructuring. This charge included $2.2 million
related to severance and other employee costs associated with the elimination of 152 positions and accounting and legal costs. Costs associated with employee termination included severance pay and
medical and other benefits. All of the affected employees had been notified as of December 31, 2000.

The
charge also included approximately $8.0 million in estimated facility exit costs and $3.3 million in non-cash asset write-downs. The facility exit costs are associated with the
consolidation of various facilities in California and Missouri. Asset write-downs related to the termination of the Evergreen operation included approximately $3.1 million of goodwill and $200,000 of
equipment.

The
Company expects the restructuring program to be completed during the second quarter of the year ended December 31, 2000.

The
following table sets forth the restructuring activity during the year ended December 31, 2000.

|                                     
|-------------------------------------
|Charged to restructuring expense:    
|                                     
|                                     
|Facility exit costs                  
|Asset write-downs                    
|Severance, legal and accounting costs
|                                     
|                                     
|                                     

Also
in the fourth quarter of 2000, the Company recorded write-downs to estimated fair value of nonmarketable investments in privately held companies that were deemed to have had
other than temporary declines in value below their carrying value totaling $4.3 million. There were no similar write-downs for the year ending December 31, 1999.

10. EMPLOYEE BENEFIT PLANS

Defined Contribution Plan

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

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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 400,000 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 the applicable one-year offering
period or the last day of the applicable six-month purchase period. At December 31, 2000, 346,167 shares were available for grant under the plan.

Also
in 1999, in conjuction with an employment contract with an executive, the Company guaranteed $1,200,000 in cash or stock to be paid to the executive after 36 months of
employment. This amount has been recorded as deferred stock compensation and is being amortized by charges to operations using a graded vesting method over the 36-month life of the guarantee. Such
amortization amounted to $5,594,044 for the year ended December 31, 2000.

In
2000, the Company granted equity interests in the joint ventures to certain executives of AJI and recorded a compensation charge of $1,223,000 in connection with these grants
during the year.

11. STOCK-BASED COMPENSATION

1996 Equity Incentive Plan

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

1999 Equity Incentive Plan

In April 1999, the Company adopted the 1999 Equity Incentive Plan (the "1999 Plan"). The Company has reserved a total of 3,906,872 shares of common stock for
the issuance of ISOs or NSOs to employees, officers, directors, or consultants under the 1999 Plan.

1999 Non-Officer Equity Incentive Plan

In October 1999, the Company adopted the 1999 Non-Officer Equity Incentive Plan. The Company has reserved a total of 5,100,000 shares of common stock
authorized for issuance under the 1999 Non-Officer Incentive Plan, which provides for the grant of non-statutory stock options, restricted stock purchase awards and stock bonuses to employees and
consultants of the Company and its affiliates who are not officers or member of the Board of Directors of the Company or any of its affiliates.

Net Effect 1997 Stock Plan

Pursuant to the merger with Net Effect Systems, Inc., the Company assumed the 1997 Stock Plan of Net Effect (the "Net Effect Plan"), including incentive
and non-statutory stock options to purchase 497,353 shares of common stock with exercise prices ranging from $0.81 to $103.00. The Company will not grant any additional options under the Net Effect
Plan. Options granted under the Net Effect 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.

70

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Direct Hit Option Plans

Pursuant to the acquisition of Direct Hit Technologies, Inc., the Company assumed the 1998 A & B Stock Plans of Direct Hit (the "1998 Stock
Option Plan" and the "Immediately Exercisable Incentive Stock Option Plan"), including incentive and non-statutory stock options to purchase 331,596 shares of common stock with exercise prices ranging
from $0.01 to $34.93. The Company will not grant any additional options under the 1998 Stock Option Plan or the Immediately Exercisable Incentive Stock Option Plan. Options granted under the Direct
Hit Plans are exercisable over a maximum term of ten years from the date of grant and generally vest over periods of up to four years.

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

|                                           
|-------------------------------------------
|                                           
|                                           
|                                           
|Outstanding at December 31, 1997           
|                                           
|                                           
|                                           
|Outstanding at December 31, 1998           
|                                           
|                                           
|                                           
|Outstanding at December 31, 1999           
|                                           
|                                           
|                                           
|                                           
|                                           
|Outstanding at December 31, 2000           
|                                           
|Vested and exercisable at December 31, 2000
|                                           

The
weighted-average remaining contractual life of options outstanding at December 31, 2000 and 1999 was 8.9 years and 9.2 years, respectively.

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The following table summarizes the status of stock options outstanding at December 31, 2000:

|                        
|------------------------
|                        
|Range of
Exercise Prices
|                        
|$0.00-0.73              
|0.75-10.00              
|10.09-16.69             
|16.81-18.13             
|18.19-18.50             
|18.56-32.94             
|34.93-125.86            
|125.86-125.86           
|128.00-128.00           
|138.00-138.00           
|                        
|                        
|                        

Pro Forma Disclosures of the Effect of Stock-Based Compensation

Pro forma information regarding the results of operations and net loss per share is determined as if the Company had accounted for its employee stock options
using the fair value method. The fair value of each option granted is estimated on the date of grant using the Black Scholes valuation model. The risk-free interest rate for 2000, 1999 and 1998, was
5.0%, 6.5% and 6.5%, respectively. The expected life of options granted in the years ended December 31, 2000, 1999 and 1998, was 5 years each. No dividend and a volatility factor of 1.6, 2.6 and 0.34
for 2000, 1999, and 1998, respectively, were used.

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

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

Had
compensation cost for the Company's stock-based compensation plans been determined using the fair value at the grant dates for awards under those plans calculated using the Black
Scholes

72

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valuation model, the Company's net loss and basic and diluted net loss per share would have been increased to the pro forma amounts indicated below (in thousands, except per share amounts):

|                                                  | 
|------------------------------------------------- | 
|
|
|                                                  | 
|Net loss, as reported                             | 
|Net loss, pro forma                               | 
|                                                  | 
|Basic and diluted net loss per share, as reported | 
|Basic and diluted net loss per share, pro forma   | 
|                                                  | 

The
weighted-average grant-date fair value of options granted was $24.49, $24.14 and $0.31 for grants made during years ended December 31, 2000, 1999 and 1998, respectively.

The
pro forma impact of options on the net loss for the years ended December 31, 2000, 1999 and 1998, is not representative of the effects on net income (loss) for future years, as
future years will include the effects of additional years of stock option grants.

12. RELATED PARTY TRANSACTIONS

During 1999, the Company provided loans to shareholders totaling $400,000. During 2000, the Company provided additional loans totaling $1,988,000. The loans
bear interest at rates between 7.5% and 10.4%. The loans are collateralized by various assets of the employees including shares of the Company's common stock. During 2000, a charge to general and
administrative expense of $1,945,000 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.

Certain
members of the Company's Board of Directors are also owners of a related entity to which the Company paid facilities fees for rent, utilities, and administrative services of
approximately $151,000 and $109,000 for the years ended December 31, 1999 and 1998, respectively. For 1998, these directors served in management positions of the Company and received monthly grants of
common stock options as compensation pursuant to the terms of a management agreement, which expired in December 1998. Effective January 1999, these directors entered into a new management agreement
whereby they received $200,000 in cash and a grant of 150,000 common stock options for services performed through December 31, 1999. The options vested over a six-month period ending in June 1999. The
management services agreement was terminated in August 1999. The Company determined the fair value of the services contributed to be $511,000 and $300,000 for the years ended December 31, 1999 and
1998, respectively and recorded charges to operations in the respective periods.

13. LEGAL PROCEEDINGS

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of
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. In addition,
from time to time, third parties assert patent infringement claims against the Company in the form of letters, lawsuits and other forms of communication. Currently, the Company is engaged in one
lawsuit regarding patent issues.

In
July 1999, IP Learn LLC filed a complaint against the Company in the United States District Court for the Northern District of California. The complaint, which was amended by the
plaintiff, alleged that aspects of the Company's technology infringed three patents alleged to be held by the plaintiff. The Company settled this lawsuit in February 2001, and an Order of Dismissal
with Prejudice was entered by the Court on February 20, 2001. Under the terms of the settlement agreement, the Company will receive a license to certain intellectual property owned by IP Learn, LLC.
The remaining

73

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portion of the settlement cost allocable to the future license of intellectual property of $1.3 million will be charged to cost of revenue over a three-year period.

On
December 16, 1999, Patrick H. Winston and Boris Katz filed a complaint against us in the United States District Court for the District of Massachusetts (Patrick H. Winston and
Boris Katz v. Ask Jeeves, Inc., Case No. 99GV12584 MLW), alleging infringement by the Company of United States Patent Nos. 5,309,359 and 5,404,295 that are alleged to be held by the plaintiffs.
The complaint seeks injunctive relief and unspecified damages, including attorneys' fees. The Company filed an answer to the complaint and a counterclaim for declaratory relief on January 28, 2000.
The answer denies the allegations made in the complaint and seeks a dismissal of the complaint, invalidation of the asserted patents and an award to the Company of our costs, including attorneys'
fees. The parties are in the discovery process in this litigation.

The
Company intends to vigorously defend against the allegations asserted in this complaint and it believes it has meritorious defenses to the claims. The results of any litigation
matter are inherently uncertain. In the event of an adverse result in this lawsuit, or in any other litigation with third parties that could arise in the future with respect to intellectual property
rights relevant to the Company products or services, the Company could be required to pay substantial damages, including treble damages if it is held to have willfully infringed, to cease the use of
infringing products or services, to expend significant resources to develop non-infringing technology or to attempt to obtain licenses to the infringing technology on commercially reasonable terms. In
addition, litigation frequently involves substantial expenditures and can require significant management attention, even if the Company ultimately prevails. Accordingly, there can be no assurance that
this lawsuit will not seriously harm our business.

14. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

For management reporting purposes, the Company is divided into two business groups, the Web Properties Group and the Business Solutions Group. Results of
operations for these business groups include revenues, cost of revenues and gross profit (loss) information as provided to the Company's President, who is the Chief Operating Decision Maker.
Information as to operating expenses, operating
loss and net loss is not provided by business segment. Summarized financial information by segment for 2000, 1999 and 1998, as reported to the President is as follows (in thousands):

|                    |  |   | Year Ended December 31, | 
|------------------- |  | - | ----------------------- | 
|                    |  |   | 2000                    | 
|                    | 
|Web Properties:     |  |   |                         | 
|Revenues            |  | $ | 58,397                  | 
|Cost of revenues    |  |   | 19,166                  | 
|                    | 
|Gross profit (loss) |  | $ | 39,231                  | 
|                    | 
|Business Solutions: |  |   |                         | 
|Revenues            |  | $ | 37,303                  | 
|Cost of revenues    |  |   | 20,103                  | 
|                    | 
|Gross profit (loss) |  | $ | 17,200                  | 
|                    | 

The
Company provides its natural language question answering technologies and services internationally directly and through its joint ventures. Attribution of revenues by geographic
region is

74

---

based on the country in which the customer is domiciled. Geographic information on revenue is as follows (in thousands):

|          |               |  | Year Ended December 31,
|--------- | ------------- |  | -----------------------
|          |               |  | 2000                   
|         
|Revenues: |               |  |                        
|          | North America |  | $                      
|          | International |  |                        
|         
|          | Total         |  | $                      
|         

Included
in International revenues are amounts from related parties of $12,308,000, $118,000, and $0 for the years ended December 31, 2000, 1999, and 1998, respectively.

15. NET LOSS PER SHARE

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

|                                     |                                                                                     |  | Year Ended December 31, |           
|------------------------------------ | ----------------------------------------------------------------------------------- |  | ----------------------- | ----------
|                                     |                                                                                     |  | 2000                    |           
|                                     |                                                                                    
|Basic and diluted net loss per share |                                                                                     |  |                         |           
|                                     | Numerator: Net loss                                                                 |  | $                       | (189,606  
|                                     | Denominator: Weighted-average shares common stock outstanding                       |  |                         | 35,269,508
|                                     | Less: weighted average shares common stock subject to repurchase                    |  |                         | 870,308   
|                                     | Weighted-average shares used in calculation of basic and diluted net loss per share |  |                         | 34,399,200
|                                     | Basic and diluted net loss per share                                                |  | $                       | (5.51     
|                                     |                                                                                    

If
the Company had reported net income, the calculation of historical diluted earnings per share would have included an additional 4,812,380, 4,450,618 and 893,352 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, 2000, 1999 and 1998, respectively. For the
years ended December 31, 2000, 1999 and 1998, a total of 1,286,697, 143,926 and 398,007 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.

75

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16. QUARTERLY FINANCIAL DATA (UNAUDITED)

|                                       |  | Three Months Ended |        
|-------------------------------------- |  | ------------------ | -------
|
|                                       | 
|Revenue                                |  | $                  | 23,045 
|Gross profit (loss)                    |  | $                  | 13,166 
|Net loss                               |  | $                  | (61,961
|Net loss per share  basic and diluted |  | $                  | (1.74  

|                                       |  | Three Months Ended |        
|-------------------------------------- |  | ------------------ | -------
|
|                                       | 
|Revenue                                |  | $                  | 10,902 
|Gross profit (loss)                    |  | $                  | 5,136  
|Net loss                               |  | $                  | (23,743
|Net loss per share  basic and diluted |  | $                  | (0.87  

See
Notes 2, 10, 13 and 14 for non-recurring quarterly items.

SUBSEQUENT EVENTS (UNAUDITED)

Long-lived Asset Impairment

During the first quarter of 2001, the Company identified indicators of possible impairment of long-lived assets, consisting principally of acquired intangible
assets and goodwill. These indicators included deterioration in the business climate for Internet advertising and other web-related companies, reduced levels of venture capital funding activity for
Internet-based consumer businesses, significant declines in the market values of competitors in the Internet advertising industry and recent changes in our 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 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 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 $339.2 million, allocated entirely to goodwill, was recorded during the first quarter of 2001 reflecting the amount by which the carrying
amount of the assets exceed their respective fair values. No write-downs of long-lived assets were recorded during the three months ended March 31, 2000.

Restructuring

In response to continued change in the marketplace, in April 2001 the Company's Board of Directors approved additional restructuring activities designed
to better align its underlying cost structure with anticipated levels of business activities. The Company will incur a charge in the second quarter of the year ended December 31, 2001 relating
to the restructuring. This amount will be entirely comprised of charges relating to severance and other employee costs associated with the elimination of approximately 75 positions.

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Stockholder Rights Plan

In May 2001, the Company adopted a Stockholder Rights Plan. Under the plan, Rights will be distributed as a dividend at the rate of one Right for each
share of Common Stock held by stockholders of record as of the close of business on May 7, 2001. Each right entitles the holder to purchase one unit consisting of one one-thousandth of a share
of the Company's 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 the Company is merged having a value of $40. The rights expire on May 7, 2011 unless extended by the Company's Board of Directors.

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

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Ask
Jeeves incorporates by reference the information set forth under the caption "Executive Officers of the Company" in Part I hereof and the information concerning its directors set
forth under the caption "Election of Directors" in our definitive Proxy Statement to be filed for our 2001 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

Ask
Jeeves incorporates by reference the information set forth under the caption "Executive Officers of the Company" in Part I hereof and the information set forth under the caption
"Executive Compensation" in our definitive Proxy Statement to be filed for our 2001 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Ask
Jeeves incorporates by reference the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in our definitive Proxy Statement to
be filed for our 2001 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS

Ask
Jeeves incorporates by reference the information set forth under the captions "Certain Relationships and Related Transactions," and "Executive Compensation," in our definitive
Proxy Statement to be filed for our 2001 Annual Meeting of Stockholders.

78

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PART IV

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

The
following are filed as part of Item 8 of this Report on Form 10-K:



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 "Schedule II-Valuation and Qualifying Accounts" is filed as part of this report and should be read in conjunction with the consolidated financial
statements.

The
following exhibits are filed herewith or incorporated by reference:

|Exhibit    |  | Description                                                                                                                                   
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|          
|3.1(1)     |  | Certificate of Incorporation of the Registrant.                                                                                               
|3.2(1)     |  | Bylaws of the Registrant.                                                                                                                     
|4.1(1)     |  | Reference is made to Exhibit 3.1.                                                                                                             
|4.2(1)     |  | Specimen Certificate for Registrant's Common Stock.                                                                                           
|4.3(1)     |  | Warrant to purchase 15,000 shares of Common Stock granted by the Registrant to Antenna Group PR dated as of June 30, 1998.                    
|4.4(1)     |  | Warrant to purchase 20,000 shares of Common Stock granted by the Registrant to Antenna Group PR dated as of July 31, 1998.                    
|4.5(1)     |  | Warrant to purchase 8,000 shares of Common Stock granted by the Registrant to Antenna Group PR dated as of May 31, 1998.                      
|4.6(1)     |  | Warrant to purchase 5,000 shares of Common Stock granted by the Registrant to Soren Jacobsen dated as of March 11, 1999.                      
|10.1(1)    |  | Amended and Restated 1996 Equity Incentive Plan.                                                                                              
|10.2(1)    |  | Form of Option Agreement for the Amended and Restated 1996 Equity Incentive Plan.                                                             
|10.3.3(7) |  | 1999 Equity Incentive Plan, As Amended and Restated.                                                                                          
|10.4.1(1) |  | Form of Option Agreement for the 1999 Equity Incentive Plan.                                                                                  
|10.4.2(7) |  | Form of Option Agreement for the 1999 Equity Incentive Plan, As Amended and Restated.                                                         
|10.5.1(1) |  | 1999 Employee Stock Purchase Plan.                                                                                                            
|10.5.2(1) |  | 1999 Employee Stock Purchase Plan, As Amended.                                                                                                
|10.6(1)    |  | Commercial Office Lease dated as of August 20, 1997, by and between Eat/Work Development, L.P. and the Roda Group Venture Development Company.
|10.7(1)    |  | Commercial Office Lease dated as of August 14, 1998, by and between Eat/Work Development, L.P. and the Roda Development Company.              

79

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|10.8(1)     |  | Commercial Office Lease dated as of November 15, 1998, by and between Eat/Work Development, L.P. and the Roda Development Company.                                                                                                                                 
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9(1)     |  | Commercial Office Lease dated as of May 15, 1998, by and between the Registrant and Eat/Work Development, L.P.                                                                                                                                                     
|10.10(1)    |  | Lease Agreement dated as of January 26, 1999, by and between the Registrant and Parker Associates.                                                                                                                                                                 
|10.11(1)    |  | Assignment and Assumption of Standard Commercial Office Lease for Eat/Work Development dated as of January 1, 1999, by and between the Roda Group Development Company, L.L.C. and the Registrant (relating to 918 Parker
Street, Suite A-14, Berkeley, CA).        
|10.12(1)    |  | License Agreement dated as of October 2, 1998, by and between the Registrant and Compaq Computer Corporation.                                                                                                                                                      
|10.13(1)    |  | License and Development Agreement dated as of September 30, 1999, by and between the Registrant and Compaq Computer Corporation.                                                                                                                                   
|10.18(1)   |  | Offer letter dated as of January 5, 1999, by and between the Registrant and Frank A. Vaculin.                                                                                                                                                                      
|10.19.1(1) |  | Offer letter dated as of May 22, 1998, by and between the Registrant and Robert W. Wrubel.                                                                                                                                                                         
|10.19.2(1) |  | Offer letter dated as of June 1, 1999, by and between Registrant and Robert W. Wrubel, as amended.                                                                                                                                                                 
|10.19.3(7) |  | Employment Agreement dated as of December 1, 2000, by and between the Registrant and Robert W. Wrubel.                                                                                                                                                             
|10.23(1)    |  | Series A Preferred Stock Purchase Agreement dated as of November 13, 1998, by and between the Registrant and certain investors of the Registrant.                                                                                                                  
|10.24(1)    |  | Series B Preferred Stock Purchase Agreement dated as of February 24, 1999, by and between the Registrant and certain investors of the Registrant.                                                                                                                  
|10.25(1)    |  | Asset Purchase Agreement dated as of April 16, 1999, by and between the Registrant and Lumina Decision Systems, Inc.                                                                                                                                               
|10.26(1)    |  | Form of Indemnity Agreement by and between the Registrant and each of its directors and executive officers.                                                                                                                                                        
|10.27(1)    |  | Assignment and Assumption of Standard Commercial Office Lease for EAT/Work development dated as of January 1, 1999, by and between the Registrant and the Roda Group Development Company, LLC (relating to 918 Parker Street,
Suite A-1-1 and A-1-2, Berkeley, CA).
|10.28(1)    |  | Office Lease dated as of April 29, 1999, by and between the Registrant and Emery Station Associates, L.L.C.                                                                                                                                                        
|10.29(1)   |  | Offer Letter dated as of May 27, 1999, by and between the Registrant and George S. Lichter.                                                                                                                                                                        
|10.30(1)    |  | Master Lease Agreement dated as of June 15, 1999, by and between the Registrant and Comdisco, Inc.                                                                                                                                                                 
|10.31(1)    |  | Forms of Promissory Note and Stock Pledge Agreement for loans to executive officers.                                                                                                                                                                               
|10.32(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.                                                                                                 
|10.33(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.                                                                                              
|10.35(4)    |  | Form of Registration Rights Agreement, between the Registrant and Stockholders of Net Effect Systems, Inc.                                                                                                                                                         
|10.36(5)    |  | Office Lease dated as of February 24, 2000, by and between the Registrant and Oakland City Center LLC.                                                                                                                                                             

80

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|10.37(6)  |  | Lease Agreement dated as of May 15, 2000, by and between the Registrant and Oakland City Center, LLC.
|--------- |  | -----------------------------------------------------------------------------------------------------
|10.38(7) |  | Offer Letter dated as of June 30, 1999, by and between the Registrant and Jeffrey S. Mahl.           
|10.39(7) |  | Offer Letter dated as of July 24, 2000, by and between the Registrant and Adam Klein.                
|10.40(7) |  | Offer Letter dated as of December 8, 2000, by and between the Registrant and A. George (Skip) Battle.
|21.1(7)   |  | Subsidiaries of the Registrant                                                                       
|23.1*     |  | Consent of Ernst & Young LLP, Independent Auditors.                                                  
|24.1(7)   |  | Power of attorney.                                                                                   

---

The
following Reports on Form 8-K was filed during the quarter ended December 31, 2000: A Report on Form 8-K dated December 29, 2000 relating to certain press releases issued by the
Registrant.

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SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Emeryville, State of California, on June 7, 2001.

| |  | ASK JEEVES, INC.
| |  | ----------------
| |  | By:             

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

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

|Signature                                         |  | Title                                                                  |  | Date        
|------------------------------------------------- |  | ---------------------------------------------------------------------- |  | ------------
|
|                                                  |  |                                                                        |  |             
|/s/A. GEORGE (SKIP) BATTLEA. George (Skip) Battle |  | Chief Executive Officer and Director
(Principal Executive Officer)     |  | June 7, 2001
|/s/STEPHEN J. SORDELLOStephen J. Sordello         |  | Chief Financial Officer
(Principal Financial Officer)                  |  | June 7, 2001
|/s/CHRISTINE M. DAVISChristine M. Davis           |  | Vice President and Corporate
Controller (Principal Accounting Officer) |  | June 7, 2001
|/s/GARRETT GRUENERGarrett Gruener                 |  | Chairman of the Board of Directors                                     |  | June 7, 2001
|/s/GEOFFREY Y. YANGGeoffrey Y. Yang               |  | Director                                                               |  | June 7, 2001
|/s/JAMES KIRSNERJames Kirsner                     |  | Director                                                               |  | June 7, 2001
|/s/DANIEL J. NOVADaniel J. Nova                   |  | Director                                                               |  | June 7, 2001
|/s/ROGER A. STRAUCHRoger A. Strauch               |  | Director                                                               |  | June 7, 2001

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

|                              |                                 |  | Balance at
Beginning
of Period |       |  | Charge to Costs
and Expenses |       |  | Deductions |       |  | Balance at
End of
Period
|----------------------------- | ------------------------------- |  | ------------------------------ | ----- |  | ---------------------------- | ----- |  | ---------- | ----- |  | ------------------------
|                             
|Year ended December 31, 2000: |                                 |  |                                |       |  |                              |       |  |            |       |  |                         
|                              | Allowance for doubtful accounts |  | $                              | 1,168 |  | $                            | 4,500 |  | $          | 1,041 |  | $                       
|                             
|Year ended December 31, 1999: |                                 |  |                                |       |  |                              |       |  |            |       |  |                         
|                              | Allowance for doubtful accounts |  | $                              | 85    |  | $                            | 1,083 |  | $          |      |  | $                       
|                             
|Year ended December 31, 1998: |                                 |  |                                |       |  |                              |       |  |            |       |  |                         
|                              | Allowance for doubtful accounts |  | $                              |      |  | $                            | 85    |  | $          |      |  | $                       
|                             

83

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