##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


FORM 10-K

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the fiscal year ended September 30,
    2002                                        

0-24339

(Commission File Number)




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INKTOMI CORPORATION

(Exact name of Registrant as specified in its
charter)




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|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 94-3238130                          
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

4100 East Third Avenue

Foster City, California 94404


(Address of principal executive
offices)


(650) 653-2800

(Registrants telephone number, including
area code)




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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


(Title of Class)


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 þ          No o

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

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

Based on the closing sale price of the Common
Stock on the NASDAQ National Market System on November 30,
2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $249,014,641. Shares of
Common Stock held by each officer and director and by each
person known by the Company to own 5% or more of the outstanding
Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of
Registrants Common Stock, $0.001 par value, was
162,754,667 at November 30, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information is incorporated by reference
to the Proxy Statement for the Registrants 2003 Annual
Meeting of Stockholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by
this Form 10-K.



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TABLE OF CONTENTS



|              |                                                                                                         |  |  |  |  |  |  | 
|------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                                       
|              | Item 2. Properties                                                                                     
|              | Item 3. Legal Proceedings                                                                              
|              | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II      
|              | Item 5. Market for Registrants Common Stock and Related Stockholder Matters                           
|              | Item 6. Selected Financial Data                                                                        
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                    
|              | Item 8. Consolidated Financial Statements and Supplementary Data                                       
|              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III     
|              | Item 10. Directors and Executive Officers of the Registrant                                            
|              | Item 11. Executive Compensation                                                                        
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|              | Item 13. Certain Relationships and Related Transactions                                                
|              | Item 14. Controls and Procedures                                                                       
|PART IV      
|              | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES   
|EXHIBIT 10.31
|EXHIBIT 10.32
|EXHIBIT 10.33
|EXHIBIT 10.34
|EXHIBIT 10.35
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 99.1 
|EXHIBIT 99.2 



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##### Table of Contents



INKTOMI CORPORATION

FORM 10-K

For the Fiscal Year Ended September 30,
2002


TABLE OF CONTENTS

|                     |  |                                                                                           |     |      |    | 
|-------------------- |  | ----------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                     |  |                                                                                           |     | Page
|                     |  |                                                                                           |     |     
|PART I              
|Item 1.              |  | Business                                                                                  |     |      | 3  | 
|Item 2.              |  | Properties                                                                                |     |      | 7  | 
|Item 3.              |  | Legal Proceedings                                                                         |     |      | 8  | 
|Item 4.              |  | Submission of Matters to a Vote of Security
    Holders                                   |     |      | 8  | 
|PART II             
|Item 5.              |  | Market Registrants Common Stock and Related
    Stockholder Matters                      |     |      | 9  | 
|Item 6.              |  | Selected Financial Data                                                                   |     |      | 9  | 
|Item 7.              |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |     |      | 11 | 
|Item 7A.             |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |     |      | 39 | 
|Item 8.              |  | Financial Statements and Supplementary Data                                               |     |      | 39 | 
|Item 9.              |  | Changes and Disagreements with Accountants on
    Accounting and Financial Disclosure     |     |      | 41 | 
|PART III            
|Item 10.             |  | Directors and Executive Officers of the Registrant                                        |     |      | 41 | 
|Item 11.             |  | Executive Compensation                                                                    |     |      | 41 | 
|Item 12.             |  | Security Ownership of Certain Beneficial Owners
    and Management                        |     |      | 41 | 
|Item 13.             |  | Certain Relationships and Related Transactions                                            |     |      | 41 | 
|PART IV             
|Item 14.             |  | Controls and Procedures                                                                   |     |      | 41 | 
|Item 15.             |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |     |      | 42 | 
|SIGNATURES           |  |                                                                                           | 46  |     
|FINANCIAL STATEMENTS |  |                                                                                           | F-1 |     

This report on Form 10-K and other oral and
written statements made by the Company to the public contain and
incorporate forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and
Section 21E of the Securities Exchange Act of 1934. When
used in this report, the words anticipate,
believe, expect, intend,
may, will and similar expressions
identify forward-looking statements. Forward-looking statements
in this report include, but are not limited to, those relating
to the general direction of our business; our ability to
successfully enter new markets; our ability to grow and maintain
our Web search services and paid inclusion business models; our
ability to continue to support the service provider market; our
success generating sales through our partners; our ability to
introduce new products and services and enhance existing
products and services to meet customer needs; our expected
expenses for future periods; our ability to improve our sales
and distribution capabilities; our focus on both domestic and
international markets; our ability to develop and maintain
productive relationships with providers of leading network
technologies; our future expenses; the possibility of acquiring
complementary businesses, products, services and technologies;
results related to mergers, acquisitions and dispositions; and
the conditions of markets that impact our business. Although we
believe our plans, intentions and expectations reflected in
these forward-looking statements are reasonable, we can give no
assurance that these plans, intentions or expectations will be
achieved. Actual results, performance or achievements could
differ materially from those contemplated, expressed or implied
by the forward-looking statements contained in this

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report. Important factors that could cause actual
results to differ materially from our forward-looking statements
are set forth in this report under the headings Factors
Affecting Operating Results, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and in other reports filed with the Securities
and Exchange Commission. These factors are not intended to
represent a complete list of the general or specific factors
that may affect us. Other factors, including general economic
factors and business strategies, may be significant, presently
or in the future, and the factors set forth in this report may
affect us to a greater extent than indicated. You should not
rely on these forward-looking statements, which reflect our
position as of the date of this report. We do not assume any
obligation to revise forward-looking statements.


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PART I






|        |         
|------- | --------
|Item 1. | Business

Overview

Inktomi provides World Wide Web search services
for Internet portal and search destination sites. Inktomi Web
Search provides a customizable, private label solution that
offers portals and destination sites the ability to serve
differentiated, highly relevant search results. Inktomi Web
Search, through its paid inclusion services, also provides
content publishers greater access to end users through portal
and destination site customers of our search engine services.
Web search customers include Microsoft, Overture and HotBot.
Paid inclusion customers include Amazon, E-Bay and WalMart.com.

Based in Foster City, Calif., we were
incorporated in California in February 1996 and reincorporated
in Delaware in February 1998. In this report,
Inktomi, the Company, our,
us, we and similar expressions refer to
Inktomi Corporation and its subsidiaries. Inktomi, Essential to
the Internet, Traffic Server, Content Bridge, Search Everywhere,
and the tri-colored cube design and other marks are service
marks, trademarks and registered trademarks of Inktomi
Corporation in the United States and in other countries. All
other trademarks, trade names or service marks appearing herein
are owned by their respective owners.

Business Background and Strategy

We originally established Inktomi to provide Web
search services, entering the market in May 1996 as the first
OEM search infrastructure provider. Since 1996, we continued to
focus on developing and enhancing this core aspect of our
business at the same time as we began to expand our product
offerings to provide a range of network infrastructure
applications designed to enhance the performance and
intelligence of large-scale networks. We expanded our offerings
to respond to high initial growth rates in Internet traffic and
the resulting need for the build out of networking
infrastructure. We also built a worldwide sales organization and
a large development and support organization to provide products
and services in this area.

As a result of this expanded product offering, we
began our 2002 fiscal year with three main product and service
offerings: (i) Inktomi Web search services,
(ii) content networking products, comprised of a
portfolio of software products designed to address the content
and information management and distribution requirements of
large enterprises and internet service providers, and (iii)
enterprise search, comprised of software products
designed to enable an enterprise to both crawl and index content
within its private intranet and to make this information
searchable by its employees and to crawl and index content on a
public Internet site and to make this information searchable by
customers, prospects and other visitors.

Over the last year, the business climate in
general and the service provider market in particular continued
to experience dramatic declines. This has adversely impacted our
ability to generate revenues and achieve positive earnings. In
response to this challenging market environment we determined
that we needed to fundamentally restructure our business and
sales strategies. As a result of this decision, in July 2002, we
commenced a number of initiatives to adjust to this business
environment through strong cost cutting measures, consolidating
operations and undertaking work force reductions, with the goal
of reducing our financial losses and preserving cash resources.

In July 2002, we announced we would be reducing
our investment in our content networking products group. As a
result, we significantly scaled back the content networking
products group and related corporate infrastructure and closed
several sales offices around the world. In November 2002, we
signed an agreement with Satyam Computer Services, Inc. to take
over the support of our remaining content networking software
customers and therefore we expect to substantially exit this
business by the end of fiscal 2003. Further, in November 2002,
we announced an asset sale with Verity, Inc. pursuant to which
Verity purchased our enterprise search software business. This
asset sale closed on December 16, 2002.

As a result of these restructurings and the asset
sale, we are now focused on our Web Search offerings, which
utilize the Inktomi Search Engine to provide search results
information to our customers, and, through

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our paid inclusion services, also provide content
publishers greater access to end users through portal and
destination site customers of our search engine services.


Web Search Services

Our Web search services enable our customers to
provide a variety of online search services to end-users. We use
the Inktomi Search Engine to provide search results information
to our customers, who in turn incorporate these results into
their online offerings to end users. We provide and manage
hardware, software and operational aspects of the Inktomi Search
Engine and the associated database of Internet content. We also
provide the customer with a programming interface and software
tools to enable the customer to custom design its own search
service user interface. The user interface communicates with the
Inktomi Search Engine via a communication protocol, called the
Inktomi Data Protocol. Separating the user interface enables
this portion of the service to reside in a different physical
location from the Inktomi Search Engine and to run on the
customers choice of computing equipment. In addition, the
customer can customize the user interface as to look and feel
and functionality and can change the user interface at any time
without affecting the operation of the Inktomi Search Engine.
This turn-key model allows us to serve multiple customers while
continuing to concentrate on developing our core search engine
technology. Our Web search customers include Microsoft, Overture
and HotBot.

Our Search Engine comprises a crawler, an indexer
and search engine servers. The crawler and indexer are software
programs that collect and organize information, and store that
information on the cluster of search engine servers. The search
engine servers are a collection of workstations that are linked
together through the use of Inktomis proprietary software.
The search engine servers provide powerful full-text query
operations, including full Boolean support, date restrictions
and the recognition of multimedia files, various file formats
and other embedded objects. Search results are relevance-ranked
using state-of-the-art proprietary algorithms.

We generate search service revenues through a
variety of contractual arrangements, which include per-query
search fees, search service hosting fees, content provider paid
inclusion fees, license fees and support fees. Our search
services revenues result from the number of end-user searches
that are processed by the Inktomi Search Engine and the level of
advertising revenue generated by customers.

We have historically generated most search
services revenues directly from Internet portal and other online
destination site customers. More recently, we have expanded our
programs for content providers and other companies who desire to
be more easily found on the Internet. Through our paid inclusion
programs, content providers submit information often not
normally available by traditional web crawling techniques and
this information is included in our Web search index. We
generate fees when end users query the search index and,
depending on the nature of our agreement, click through on the
link to the customers web site and, in some customer
relationships, also purchase an item from our customer. We are
focusing our efforts on expanding these content provider paid
inclusion fees.

Our paid inclusion services are comprised of two
programs: Inktomi Index Connect and Inktomi Search Submit.
Inktomi Index Connect is a pay-for-performance program tailored
to large Web sites with more than 1,000 URLs. Inktomi Index
Connect subscribers pay fees based on sales leads delivered to
their sites from Internet portal searches powered by us. Smaller
content providers can join Inktomi Search Submit, a flat-fee,
subscription-based service that provides inclusion in the
Inktomi Web Search index and an automatic 48-hour refresh of the
submitted content. We also will enter into custom Inktomi Index
Connect agreements whereby we receive payments based on customer
registration or customer sales activity. Paid inclusion
customers include Amazon, E-Bay and WalMart.com. We pay certain
Internet portal customers, primarily Microsoft, a portion of all
paid inclusion revenues generated as they provide access to the
click-throughs which enable us to generate the paid inclusion
revenues. These payments to Microsoft are recorded as a
reduction to Web search revenues generated from Microsoft.

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Sales and Marketing

Our sales strategy is to pursue increased Web
search query volume by adding OEM customers and fostering the
growth of existing relationships. We currently maintain a small,
direct sales force based in the US and Europe. This sales force
focuses on portals and other destination sites.

Our strategy also includes expanding our paid
inclusion programs. A small, direct sales force works with large
content providers that are interested in adding content to our
index of Web data. We also have an expansive array of resellers
that sell access to our Web search index. The resellers are
provided a discount on paid inclusion fees and, in exchange,
provide most customer support, billing and administrative
services for the customers that they aggregate.

Our software product lines included a large
direct sales force to penetrate various targeted market segments
through multiple indirect distribution channels. We conducted a
variety of programs worldwide to stimulate market demand for our
software products, including public relations activities,
advertising, trade shows and collateral development. These
programs were focused on our target markets and were designed to
create awareness and generate sales leads. With the scale down
of our content networking products group in July 2002 and the
sale of our enterprise search group in December 2002, our direct
sales force for software products has been largely eliminated.

Customer Service and Support

We believe that a high level of customer service
and support is critical to the successful marketing, sale, and
deployment of our products. Web search customer support is
integrated into our technical, development and management
organizations.

For our software products, we developed a
comprehensive service and support organization to manage our
service provider customer accounts and enterprise customers. We
provide a base level of technical support to our customers
through support agreements. In November 2002, we signed an
agreement with Satyam Computer Services Ltd. to assign and, in
some cases, subcontract the support for remaining content
networking software customers. Satyam Computer Services is a
provider of professional services employees in offices
worldwide. Satyam Computer Services is expected to take over
most support obligations beginning in January 2003. In exchange,
we pay Satyam Computer Services a one-time fee, provide initial
training and transfer certain computer infrastructure components
to allow for customer support. In December 2002 we completed the
sale of our Enterprise Search Division to Verity, Inc. (see
Note 19 to the Financial Statements) and the related
support obligations were assumed by Verity, Inc.

Research and Development

We believe that strong product development
capabilities are essential to our strategy of enhancing our core
technology, developing additional services incorporating that
technology, and maintaining the competitiveness of our product
and service offerings. We have invested significant time and
resources in creating a structured process for undertaking all
product development projects. This process involves all
functional groups and all levels within Inktomi and is designed
to provide the framework for defining and addressing the steps,
tasks and activities required to bring product concepts and
development projects to market successfully. In addition, we
have actively recruited and hired key computer scientists,
engineers and software developers with expertise and degrees in
the areas of massively parallel computing, mathematics, and
computer science. Through this mix of personnel, we strive to
create and maintain an environment of rapid innovation and
product development.

Our current research and development efforts are
focused on adding features and functionality directed to derive
additional revenue from our Web search services. We are also
focused on continuing to improve the relevance of our Web search
service results and the size and freshness of our Web search
index. Our research and development expenses totaled
$51.3 million, $77.9 million and $59.7 million
for the fiscal years ended September 30, 2002, 2001 and
2000, respectively.

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Competition

We compete with a number of companies to provide
Internet search and directory services and technology. In the
Web services marketplace, our primary competitors include a
variety of established and newer companies, including AltaVista,
Ask Jeeves, FAST Search and Transfer, Google, Overture,
LookSmart, Northern Light, and Yahoo. These companies and other
competitors have focused on search result relevance, database
size metrics and ease of use to differentiate their services. In
addition, several large media and other Internet-based companies
have made investments in, or acquired, Internet search engine
companies and may seek to develop or customize their products
and services to deliver to our target customers.

Our competitors may be able to respond more
quickly to new or emerging technologies and changes in customer
requirements than we can. In addition, our current and potential
competitors may bundle their offerings with other services in a
manner that may discourage users from purchasing services
offered by us. Also, current and potential competitors have or
may have greater name recognition, more extensive customer bases
and access to proprietary content. Increased competition could
result in price reductions, fewer customer orders, fewer search
queries served, reduced gross margins and loss of market share.

Proprietary Rights

Our success and ability to compete are
substantially dependent upon our internally developed
technology, which we protect through a combination of patent,
copyright, trade secret and trademark law. We generally enter
into confidentiality or license agreements with our employees,
consultants and corporate partners, and generally control access
to and distribution of our software, documentation and other
proprietary information. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Policing
unauthorized use of our products is difficult, and we cannot be
sure that the steps we have taken will prevent misappropriation
of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the
United States.

Substantial litigation regarding intellectual
property rights exists in the software industry. We expect that
software products may be increasingly vulnerable to third-party
infringement claims as the number of competitors in our industry
segments grows and the functionality of products in different
industry segments overlaps. We believe that many companies have
filed or intend to file patent applications covering aspects of
their technology that they may claim our technology infringes.
Some of these companies have sent copies of their patents to
Inktomi for informational purposes. We cannot be sure that these
parties will not make a claim of infringement against us with
respect to our products and technology. Any claims, with or
without merit, could be time consuming to defend, result in
costly litigation, divert managements attention and
resources, and could cause product shipment delays or require us
to reengineer our products or enter into royalty or licensing
agreements. These royalty or licensing agreements, if required,
may not be available on acceptable terms, if at all.

In August, 2001, an amended complaint was filed
by Network Caching Technology, L.L.C. in the United States
District Court for the Northern District of California against
Inktomi as well as other providers of caching technologies
including Novell, Inc., Akamai Technologies, Inc., Volera, Inc.,
and Cacheflow, Inc. Plaintiff alleges that certain products
marketed by Inktomi and the other defendants violate one or more
patents owned by plaintiff. The complaint seeks compensatory and
other damages and injunctive relief. We subsequently filed a
response denying the allegations and asserting a number of
defenses. We believe these claims are without merit and we
intend to vigorously defend against them.

In October 2002, a complaint was served by
Teknowledge Corporation in the United States District Court for
Delaware against Inktomi, Akamai Technologies, Inc. and Cable
& Wireless Services, Inc. The plaintiff alleges that Inktomi
products, including Traffic Server, infringe a patent owned by
the plaintiff. The complaint seeks compensatory and other
damages and injunctive relief. In November 2002, the judge
assigned to the case in Delaware transferred jurisdiction of the
case to the Northern District of California. Inktomi intends to
vigorously defend the against the allegations made by plaintiff.

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Our products and services operate in part by
making copies of material available on the Internet and other
networks and aggregating this content within centralized or
distributed applications. This creates the potential for claims
to be made against us (either directly or through contractual
indemnification provisions with customers) for defamation,
negligence, copyright or trademark infringement, personal
injury, invasion of privacy or other legal theories based on the
nature, content, copying, collection or use of these materials.
These claims have been threatened against us from time to time
and have been brought, and sometimes successfully pressed,
against online service providers. It is also possible that if
any information provided through any our Web search business or
facilitated by our software products contains errors, third
parties could make claims against us for losses incurred in
reliance on this information. Although we carry general
liability insurance, our insurance may not cover potential
claims of this type or be adequate to protect us from all
liability that may be imposed.

Employees

We had 405 full-time employees as of
September 30, 2002. In October 2002, we announced a
restructuring that resulted in the elimination of 85 full-time
employee positions. With the sale of our enterprise search
product line in November 2002, we further reduced our size to
approximately 200 people. None of our employees are represented
by a labor union. We have not experienced any work stoppages and
consider relations with our employees to be good.

Current Developments

On December 22, 2002, we entered into a
definitive merger agreement with Yahoo! Inc. Under the
agreement, a newly incorporated wholly-owned subsidiary of
Yahoo! will merge with and into Inktomi, with Inktomi remaining
as the surviving legal entity and a wholly-owned subsidiary of
Yahoo! Under the terms of the merger agreement, upon completion
of the merger, Yahoo! will pay to Inktomis stockholders
$1.65 per share of Inktomi common stock outstanding and will
assume any outstanding options to purchase Inktomi common stock.

The merger is subject to a number of conditions
including, among others, approval of Inktomis stockholders
and certain regulatory approvals and clearances, including under
the Hart-Scott Rodino Antitrust Improvements Act of 1976, as
amended. We currently expect the merger to be completed in the
quarter ending March 31, 2003. There can be no assurance
that the merger will be consummated. In the event that the
proposed merger fails to close, under certain circumstances we
will be required to pay Yahoo! a termination fee of
$11.2 million.




Item 2.     Properties

Our corporate headquarters consist of
approximately 130,000 square feet of office space in Foster
City, California. In June 2000, we entered into a synthetic
lease agreement for this facility and another building on the
property totaling approximately 260,000 square feet. This
operating lease is commonly referred to as a synthetic lease
because it represents a form of off-balance sheet financing
pursuant to which an unrelated third-party funds 100% of the
costs of the acquisition of the property and leases the asset to
Inktomi as leasee. Immediately prior to the closing of the
synthetic lease, the agreement was assigned to a third-party
lessor under the terms of this synthetic lease finance
structure. On August 28, 2002, through the execution of a
Termination and Release Agreement, we exercised the purchase
option under the synthetic lease and title for the facilities
was transferred to Inktomi. In December 2002, we sold the
property for proceeds of $41.6 million and leased back the
portion we now occupy, which is approximately
130,000 square feet. The lease is for a period of five
years renewable at our election for three successive five year
periods. The lease may also be terminated at our election after
two years in exchange for a fee. Aggregate payments to be made
under the lease are approximately $9.8 million over the
lease term ending December 19, 2007, net of costs.

In April 2000, we entered into a lease agreement
commencing January 1, 2002 for 381,050 square feet of
office space in two mid-rise office buildings in Foster City,
California, known as Parkside Towers. Payments under the lease
commenced on January 1, 2002, when the property was
delivered to Inktomi by the developer

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and were to continue over the lease term ending
October 31, 2014 for one building and October 31, 2016
for the second building. Aggregate payments to be made under the
lease were approximately $324.4 million over the lease term
ending October 31, 2016. In September 2002, we executed a
Lease Termination Agreement with the landlords of this facility.
The total cost of the lease termination, including cash and
non-cash items, was approximately $54 million.


In addition, we have sales and development
offices, many of which we have abandoned, in several locations:
Herndon (Virginia), London, Tokyo, San Francisco, Needham
(Massachusetts), Redwood Shores (California), Carlsbad
(California), Downers Grove (Illinois) and San Mateo. The
Herndon, Virginia lease covers approximately 25,000 square feet
and expires in July 2005. The London lease covers approximately
17,500 square feet and expires in September 2015. The Tokyo
lease covers approximately 7,000 square feet and expires in
March 2003. The San Francisco lease covers approximately 30,000
square feet of office space and expires in December 2002 and
July 2004. The Needham, Massachusetts lease covers approximately
15,000 square feet and expires in July 2003. The Redwood Shores
lease covers approximately 30,700 square feet of office space
and expires in 2010. The Carlsbad (California) lease covers
approximately 9,000 square feet of office space and expires
in 2005. The Downers Grove (Illinois) lease covers
5,346 square feet of office space and expires in 2005. The
San Mateo lease covers 48,666 square feet of office
space and expires in 2003.




Item 3.     Legal
Proceedings

In August, 2001, an amended complaint was filed
by Network Caching Technology, L.L.C. in the United States
District Court for the Northern District of California against
Inktomi as well as other providers of caching technologies
including Novell, Inc., Akamai Technologies, Inc., Volera, Inc.,
and Cacheflow, Inc. Plaintiff alleges that certain products
marketed by Inktomi and the other defendants violate one or more
patents owned by plaintiff. The complaint seeks compensatory and
other damages and injunctive relief. We subsequently filed a
response denying the allegations and asserting a number of
defenses. We believe these claims are without merit and we
intend to vigorously defend against them.

In October 2002, a complaint was served by
Teknowledge Corporation in the United States District Court for
Delaware against Inktomi, Akamai Technologies, Inc. and Cable
& Wireless Services, Inc. The plaintiff alleges that Inktomi
products, including Traffic Server, infringe a patent owned by
the plaintiff. The complaint seeks compensatory and other
damages and injunctive relief. In November 2002, the Judge
assigned to the case in Delaware transferred jurisdiction of the
case to the Northern District of California. Inktomi intends to
vigorously defend the against the allegations made by the
plaintiff.

Other than as described above, we are not
involved in any legal proceedings at this time that our
management currently believes would be material to our business,
financial condition or results of operations.




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

We did not submit any matter to a vote of
security holders during the fourth quarter of the fiscal year
ended September 30, 2002.

8



---



##### Table of Contents






PART II




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

Our Common Stock is quoted on the NASDAQ National
Market under the symbol INKT. The following table
shows the high and low daily closing sale prices per share of
our Common Stock as reported on the NASDAQ National Market for
the periods indicated:

|             |                                           |      |  |        |  |  |  |       | 
|------------ | ----------------------------------------- | ---- |  | ------ |  |  |  | ----- | 
|             |                                           | High |  | Low   
|             |                                           |      |  |       
|Fiscal 2001: |                                           |      |  |        |  |  |  |      
|             | First Quarter                             |      |  | 108.94 |  |  |  | 17.88 | 
|             | Second Quarter                            |      |  | 18.63  |  |  |  | 5.74  | 
|             | Third Quarter                             |      |  | 10.96  |  |  |  | 2.79  | 
|             | Fourth Quarter                            |      |  | 9.17   |  |  |  | 2.25  | 
|Fiscal 2002: |                                           |      |  |        |  |  |  |      
|             | First Quarter                             |      |  | 7.71   |  |  |  | 2.70  | 
|             | Second Quarter                            |      |  | 7.31   |  |  |  | 3.45  | 
|             | Third Quarter                             |      |  | 3.82   |  |  |  | 0.78  | 
|             | Fourth Quarter                            |      |  | 1.06   |  |  |  | 0.25  | 
|Fiscal 2003: |                                           |      |  |        |  |  |  |      
|             | First Quarter (through November 30, 2002) |      |  | 1.64   |  |  |  | 0.26  | 

As of November 30, 2002, there were
approximately 1,370 holders of our Common Stock. We have never
declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in
the operation and expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future.
The covenants under our Loan and Security Agreement with Silicon
Valley Bank prohibit us from paying cash dividends.




Item 6.     Selected
Financial Data

The selected consolidated financial data set
forth below should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated
Financial Statements of Inktomi Corporation and the notes
thereto included elsewhere in this report. The historical
results are not necessarily indicative of results to be expected
for any future period.

CONSOLIDATED STATEMENTS OF OPERATIONS
DATA

|                                                                                                 |  |                                       |          |         |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------ |  | ------------------------------------- | -------- | ------- |  | ---- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                 |  |                                      
|                                                                                                 |  | For the Year Ended September 30,     
|                                                                                                 |  |                                      
|                                                                                                 |  | 2002(a)                               |          | 2001(b) |  | 2000 |          | 1999 |  | 1998
|                                                                                                 |  |                                       |          |         |  |      |          |      |  |     
|                                                                                                 |  |                                      
|                                                                                                 |  | (In thousands, except per share data)
|Total revenues                                                                                   |  | $                                     | 112,705  |         |  | $    | 198,562  |      |  | $    | 224,217 |   |  | $ | 73,503  |   |  | $ | 21,355  |  
|Operating loss                                                                                   |  |                                       | (506,639 | )       |  |      | (239,989 | )    |  |      | (42,465 | ) |  |   | (37,619 | ) |  |   | (30,428 | )
|Net loss                                                                                         |  |                                       | (500,795 | )       |  |      | (296,482 | )    |  |      | (27,340 | ) |  |   | (33,028 | ) |  |   | (29,915 | )
|Basic and diluted net loss per share                                                             |  |                                       | (3.51    | )       |  |      | (2.36    | )    |  |      | (0.24   | ) |  |   | (0.32   | ) |  |   | (0.38   | )
|Weighted average shares outstanding used in
    calculating basic and diluted net loss per share |  |                                       | 142,693  |         |  |      | 125,608  |      |  |      | 113,030 |   |  |   | 102,033 |   |  |   | 79,252  |  



---



|    |                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Fiscal 2002 includes: $202.6 million
    impairment charge related to goodwill and other intangibles;
    $80.0 million charges related to our Parkside lease
    restructuring and termination; and $103.0 million charge
    for impairment of property, plant and equipment.

9



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|    |                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Fiscal 2001 includes: $44.9 million
    impairment charge related to goodwill and other intangibles;
    $19.5 million in acquisition related costs; and a
    $65.9 million charge for impairment of investments.

CONSOLIDATED BALANCE SHEETS DATA

|                                                             |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        | 
|------------------------------------------------------------ |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------ | 
|                                                             |  |               
|                                                             |  | September 30, 
|                                                             |  |               
|                                                             |  | 2002           |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                             |  |                |         |      |  |      |         |      |  |     
|                                                             |  |               
|                                                             |  | (In thousands)
|Cash and cash equivalents and short-term
    investments     |  | $              | 45,407  |      |  | $    | 84,513  |      |  | $    | 218,511 |  |  | $ | 304,214 |  |  | $ | 54,711 | 
|Long term restricted cash                                    |  |                |        |      |  |      | 128,957 |      |  |      | 119,616 |  |  |   |        |  |  |   |       | 
|Investments in equity securities                             |  |                | 331     |      |  |      | 1,381   |      |  |      | 117,898 |  |  |   | 8,180   |  |  |   |       | 
|Working capital                                              |  |                | (36,377 | )    |  |      | 7,672   |      |  |      | 165,328 |  |  |   | 298,764 |  |  |   | 40,949 | 
|Total assets                                                 |  |                | 145,216 |      |  |      | 583,123 |      |  |      | 919,256 |  |  |   | 385,337 |  |  |   | 78,946 | 
|Debt and capital lease obligations, less current
    portion |  |                | 216     |      |  |      | 5,649   |      |  |      | 3,748   |  |  |   | 8,293   |  |  |   | 9,074  | 
|Total stockholders equity                                   |  |                | 46,634  |      |  |      | 471,981 |      |  |      | 803,062 |  |  |   | 343,867 |  |  |   | 50,184 | 



---

Note: All historical information has been
restated to reflect the acquisitions of C2B Technologies, Inc.
in September 1998, Impulse! Buy Network, Inc. in April 1999,
WebSpective Software, Inc. in October 1999, and FastForward
Networks, Inc. in October 2000. Each of these acquisitions were
accounted for as a pooling of interests.

10



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

Overview

Prior to July 2002, our business was focused
around three main product and service offerings: (i) Web
search services, comprised of customizable solutions that
offer portals and destination sites the ability to serve
differentiated, highly relevant search results to their end
users and our paid inclusion services, which provide content
publishers greater access to end users through portal and
destination site customers of our search engine services, (ii)
content networking products, comprised of a portfolio of
software products designed to address the content and
information management and distribution requirements of large
enterprises, and (iii) enterprise search, comprised of
software products designed to enable an enterprise to both crawl
and index content within its private intranet and to make this
information searchable by its employees and to crawl and index
content on a public Internet site and to make this information
searchable by customers, prospects and other visitors.

In recent periods, the business climate in
general and the service provider market in particular, has
experienced dramatic declines. This has adversely impacted our
ability to generate revenues and achieve positive earnings.
Since April 2001, we have undertaken a number of restructurings,
particularly workforce reductions and real estate
consolidations, to react to market conditions, reducing expenses
through strong cost cutting measures, consolidating operations
and undertaking work force reductions. In July 2002, our work
force reductions were particularly significant in our content
networking group, which has historically generated revenues from
the now struggling service provider market. In addition to the
workforce reductions, we also significantly reduced the
resources devoted to this business. Further, in November 2002,
we signed an agreement with Satyam Computer Services Ltd. to
assign and, in some cases, subcontract the support for our
remaining content networking software customers. Satyam is a
provider of professional services employees in offices
worldwide. Satyam is expected to take over most support
obligations beginning in January 2003. In exchange, we pay
Satyam a one-time fee, provide initial training and transfer of
certain computer infrastructure components to allow for customer
support. The cost of the agreement is approximately $1.0 million
which will be recognized over the remaining life of existing
customer support contracts. We expect revenues and expenses for
our content networking product line to eventually decline to
zero in fiscal 2003.

Further, in December 2002, we consummated the
divestiture of our Enterprise Search division to Verity Inc. in
a transaction accounted for as a sale of assets. As part of the
sale, Inktomi received $22 million in cash, with an
additional $3 million to be paid within 18 months of
the closing of this asset sale, subject to certain conditions.

As a result of these restructurings, our current
business is focused primarily on providing World Wide Web search
services for Internet portal and search destination sites.
Inktomi Web Search provides a customizable, private label
solution that offers portals and destination sites the ability
to serve differentiated, highly relevant search results. Inktomi
Web Search, through its paid inclusion services, also provides
content publishers greater access to end users through portal
and destination site customers of our search engine services.

Web search services revenues are generated
through a variety of contractual arrangements, which include
general service fees, per-query search fees, database inclusion
fees, maintenance fees and search service hosting fees.

General services fees and per-query search fees
are based, and recognized, on the query volume in the period or
the minimum payments of the respective contract. Database
inclusion fees are generated from customers who pay on a
click-through basis and customers who pay a flat rate per
universal resource locator (URL) to be included in
the Inktomi database. Fees based on click-throughs are
recognized based on the activity for that period. Fees based on
a flat rate per URL are recognized ratably over the term of the
contract. Maintenance fees and search services hosting fees are
recognized ratably over the term of the contract. For all Web
search services, revenue is recognized when persuasive evidence
of an arrangement exists, the services have been delivered,
performance obligations have been satisfied, no refund
obligations exist and collection is reasonably assured.

11



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##### Table of Contents



Licenses revenues are composed of license and
upgrade fees in connection with our software products, which
includes our content networking products and our enterprise
search products. Our content networking products include our
Traffic Server network cache platform, our Content Delivery
Suite software solutions, our Media Products, Traffic Core,
Traffic Edge, Traffic Controller, Inktomi Media Publisher, and
Personal Edge. License fees are generally based on the number of
CPUs or nodes running the software, or on network traffic
throughput across our products, depending on customer
deployment, and are generally recognized upon shipment of the
software assuming all other revenue recognition criteria have
been met. License fees for our enterprise search products were
typically based on the number of documents that can be indexed
and searched by a customer.

Maintenance service revenues are generated
through maintenance fees related to our software products.
Maintenance service fees are recognized ratably over the term of
the maintenance agreement.

Other services revenues are composed of revenues
generated through consulting and, for some historical periods,
through fees generated from our Commerce Engine. Consulting fees
are recognized ratably over the service period as the services
are performed. We completed the sale of our Commerce Division in
March 2001 and therefore, services revenues for year ended
September 30, 2002 consisted of only consulting and support
fees. Our contracts for the Commerce Engine provided for
payments consisting of annual infrastructure service fees,
transaction fees from participating online merchants and
per-query search fees, and advertising revenues and general
service fees from Internet portals and other Web site customers.

In October 1999, we acquired WebSpective
Software, Inc., a developer of software solutions for content
and application distribution, delivery and management, in a
transaction accounted for as a pooling of interests.

In July 2000, we acquired Ultraseek, Inc., a
provider of scalable and customizable search and navigation
software solutions, in a transaction accounted for under the
purchase method of accounting.

In October 2000, we acquired FastForward
Networks, Inc., a developer of software solutions for
efficiently enabling streaming media over networks, in a
transaction accounted for as a pooling of interests.

In December 2000, we acquired various business
assets of Adero, Inc. relating to billing, settlement and
traffic reporting and licensed other related technologies, in a
transaction accounted for under the purchase method of
accounting.

In March 2001, we consummated the divestiture of
our Commerce Division to e-centives, Inc. in a transaction
accounted for as a sale of assets.

In June 2001, we acquired eScene Networks, Inc.,
a developer of advanced streaming media applications and
services, in a transaction accounted for under the purchase
method of accounting.

In August 2002, we acquired Quiver Inc., a
developer of information categorization and taxonomy solutions,
in a transaction accounted for under the purchase method of
accounting.

Critical Accounting Policies

The consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United States, which require management to make
estimates and assumptions. On an ongoing basis, we evaluate our
estimates and assumptions, including those related to revenue
recognition, impairment of long-lived assets, allowance for
doubtful accounts and contingent liabilities related to lease
obligation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable
under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. We believe
that the following critical accounting policies may involve a
higher degree of judgment and complexity.

12



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| |                    
| | -------------------
| | Revenue Recognition



| |         
| | --------
| | Licenses

Licenses revenues are composed of license and
upgrade fees in connection with our software products including
Traffic Server network cache platform, Content Delivery Suite
software solutions, Media Products, Traffic Core, Traffic Edge,
Traffic Controller, Inktomi Media Publisher, enterprise search
products and Personal Edge. License fees are generally based on
the number of CPUs or nodes running the software, or on network
traffic throughput across our products, depending on customer
deployment, and are generally recognized upon shipment of the
software assuming all other revenue recognition criteria have
been met.

License fees for our enterprise search products
are typically based on the number of documents that can be
indexed and searched by a customer. We recognize revenues from
software licenses when the licensed product is delivered,
collection is reasonably assured, the fee for each element of
the transaction is fixed or determinable, persuasive evidence of
an arrangement exists, and vendor-specific objective evidence
exists to allocate the total fee to any undelivered elements of
the arrangement.

We estimate whether collection is reasonably
assured based on our knowledge of the customers payment history
with us and other sources that may include use of third-party
credit rating agencies. Actual collection of amounts from
customers will depend on customer specific circumstances and
therefore amounts, which we have determined that collection is
assured, may ultimately not be collected.

We estimate whether fees are fixed and
determinable based on contractual terms of the arrangement. We
generally do not offer rights of refund or acceptance
provisions. We do not record revenue until the lapse of these
provisions, if provided. We assess whether there is sufficient
history of collection for any payment terms provided to
customers which are longer than what we provide the majority of
our customers. We recognize revenue when amounts become due for
any amounts considered to be extended payments.

Fees from licenses sold together with support and
upgrade rights, consulting and implementation services are
generally recognized upon delivery provided that the above
criteria have been met, payment of the license fees is not
dependent upon the performance of the services and the services
are not essential to the functionality of the licensed software.
Services are unbundled from these arrangements based on the
price sold separately, or in some instances for support and
upgrades, substantive renewal rates using the residual method.

We assess numerous factors of services provided
with licenses sold in order to determine whether they are
essential to the functionality of the software including, but
not limited to, our history of providing similar services,
whether other vendors can provide similar services, whether core
software is being changed and whether customer collection of
license fees are contingent upon completion of services. Our
assessment of these factors is based on our knowledge of the
service market, the software functionality which the customer is
purchasing and the contractual terms of the arrangement.

Revenue on upgrade rights is recognized ratably
over the term of the agreement and included in licenses revenue.



| |                    
| | -------------------
| | Web search services

Web search services revenues are generated
through a variety of contractual arrangements, which include
general service fees, per-query search fees, database inclusion
fees, maintenance fees and search service hosting fees. General
services fees and per-query search fees are based, and
recognized, on the query volume in the period or the minimum
payments of the respective contract. Database inclusion fees are
generated from customers who pay on a click-through basis, in
some cases also acquiring a customers product, and
customers who pay a flat rate per page to be included in the
Inktomi database. Fees based on click-throughs are recognized
based on the activity for that period. Fees based on a flat rate
per universal resource locator (URL) are recognized ratably over
the term of the contract. Maintenance fees and search services
hosting fees are recognized ratably over the term of the
contract.

13



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##### Table of Contents



For all Web search services, revenue is
recognized when persuasive evidence of an arrangement exists,
the services have been delivered, performance obligations have
been satisfied, no refund obligations exist and collection is
reasonably assured.



| |                     
| | --------------------
| | Maintenance services

Maintenance services revenues are generated
through the sale of support services in connection with initial
license sales and renewals of support services after the initial
service period. Support services generally have a term of
one-year and are recognized over the term of the support
agreement.



| |               
| | --------------
| | Other services

Other Services revenues are composed of revenues
generated through consulting services and commerce revenues,
prior to the divestiture of our Commerce Division in March 2001
(see Note 2 to the Financial Statements). Consulting fees
are recognized as the services are performed or upon customer
acceptance. In instances where the criteria for recognizing
license revenues separate from the consulting or implementation
revenues have not been met, both the licenses and consulting
fees, excluding the maintenance and support elements, are
recognized using contract accounting. When management can make
reliable estimates on the extent of consulting services required
for full functionality, the revenue for the licenses and
consulting fees is recognized on a percentage-of-completion
based on labor hours incurred compared to total estimated hours.
When management cannot make reliable estimates on the extent of
consulting services required for full functionality, the revenue
for the licenses and consulting is deferred until the consulting
services are completed. We classify revenue from these
arrangements as licenses and services revenues, respectively,
based upon the vendor-specific objective evidence of each
element.



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

We review our long-lived assets, including
property, plant and equipment, goodwill and other intangibles,
for impairment whenever events or changes in circumstances
indicate that the carrying amount of such an asset may not be
recoverable. Events or changes in circumstances that we consider
as impairment indicators include, but are not limited to the
following:



| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | significant underperformance relative to expected
    historical or projected future operating results;                                                                                     
|
| |  | significant changes in the manner of use of the
    acquired assets or the strategy for our overall business;                                                                               
|
| |  | a significant decrease in the market price of a
    long-lived asset;                                                                                                                       
|
| |  | significant adverse economic and industry trends;                                                                                                                                           
|
| |  | a current expectation that, more likely than not,
    a long-lived asset will be sold or otherwise disposed of
    significantly before the end of its previously estimated useful
    life;
|
| |  | significant decline in our stock price for a
    sustained period; and                                                                                                                      
|
| |  | our net book value relative to our market
    capitalization.                                                                                                                               

Estimates of cash flows related to sublease
income and other real estate estimates are based on historical
and current information obtained from commercial real estate
brokers. This information requires significant judgment and may
change in the future.

When we determine that the carrying amount of the
long-lived asset may not be recoverable based upon the existence
of one or more of the above indicators of impairment, we measure
any impairment based on a projected discounted cash flow method
using a discount rate commensurate with the risk inherent in our
current business model. Significant judgment is required in the
development of projected cash flows for these purposes including
assumptions regarding the appropriate level of aggregation of
cash flows, their term and discount rate as well as the
underlying forecasts of expected future revenue and expense. We
use established

14



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##### Table of Contents



valuation techniques which rely on these
estimates of cash flows which are developed based on our
understanding of the underlying cash flows expected from the
long-lived asset.


At June 30, 2002, due primarily to the
sustained decrease in our market value as well as other factors,
we recorded a charge of $200.9 million in addition to the
quarterly amortization of $16.7 million to reflect the
impairment of intangibles and other assets, primarily related to
our goodwill which was created from our purchase of Ultraseek,
Inc. See Note 12 to the Financial Statements for further
information. Effective October 1, 2002, we will adopt
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets, which
requires, among other things, that goodwill and other
intangibles determined to have an indefinite life are no longer
to be amortized but are to be tested for impairment at least
annually. In addition, the standard includes provisions upon
adoption for assessing the impairment of goodwill at the
reporting unit level as compared to the enterprise level under
the current rules. We will adopt SFAS 142 as of
October 1, 2002 and expect to complete the initial review
during our second fiscal quarter ending March 31, 2003.

In October 2001, the Financial Accounting
Standards Board (FASB) issued SFAS 144,
Accounting for the Impairment or Disposal of Long-lived
Assets. The objectives of SFAS 144 are to address
significant issues relating to the implementation of
SFAS 121, Accounting for the Impairment of Long-lived
Assets to be Disposed of, and to develop a single accounting
model, based on the framework established by SFAS 121, for
long-lived assets to be disposed of by sale, whether previously
held and used or newly acquired. Although SFAS 144
supercedes SFAS 121, it retains some fundamental provisions
of SFAS 121. SFAS 144 is effective for financial
statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal
years. We will adopt SFAS 144 as of October 1, 2002
and do not expect that the implementation will have a
significant effect on our financial statements, except for our
expected discontinued operations treatment of the sale of our
enterprise search division to Verity, Inc. (see Note 19 to
the Financial Statements).



| |               
| | --------------
| | Restructurings

We monitor our organizational structure and
associated operating expenses periodically. Depending on events
and circumstances we may decide to restructure our business to
reduce operating costs which may include terminating employees,
abandoning lease space and incurring other exit costs. We accrue
for the restructuring costs when all of the following occur:
(1) management commits to the restructuring plan,
(2) the termination benefits are communicated to employees
subject to termination or other exit costs are estimated in
detail, (3) the plan of termination identifies the number
of employees, classification and location, and (4) the
period of time to complete the restructuring indicates that
significant changes are not likely.

Any resulting restructuring accrual includes
numerous estimates made by management. Estimates of exit costs
are developed based on our knowledge of the activity being
effected and existing commitments and the cost to exit those
commitments. Lease abandonment estimates include estimates of
sublease income which are based on historical and current
information often obtained from commercial real estate brokers.
This information requires significant judgment and may change in
the future, which may impact the restructuring accrual. For
instance, subsequent to an accrual of lease abandonment we may
negotiate a lease termination payment with the landlord which is
different than the initial accrual. We monitor our initial
estimates periodically and will record an adjustment for any
significant changes in estimates.

In June 2002, the FASB issued SFAS 146,
Accounting for Exit or Disposal Activities. SFAS 146
addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with
exit and disposal activities, including restructuring activities
that are currently accounted for under EITF No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The scope of
SFAS 146 also includes costs related to terminating a
contract that is not a capital lease and termination benefits
that employees who are involuntarily terminated receive under
the terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS 146 will be effective
for exit or disposal activities that are initiated after
December 31, 2002 and early application is encouraged. The

15



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##### Table of Contents



provisions of EITF No. 94-3 shall continue
to apply for an exit activity initiated under an exit plan that
met the criteria of EITF No. 94-3 prior to the adoption of
SFAS 146. We will adopt FSAS 146 for exit or disposal
activities that are initiated after December 31, 2002. The
effect on adoption of SFAS 146 will change on a prospective
basis the timing of when restructuring charges are recorded from
a commitment date approach to when the liability is incurred.




| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers
to make required payments. Management regularly reviews the
adequacy of the allowance after considering the size of the
accounts receivable balance, historical bad debts,
customers expected ability to pay and our collection
history with each customer. Management reviews significant
individual invoices that are past due to determine whether an
allowance should be made based on the factors described above.
The allowance for doubtful accounts represents our best
estimate, but changes in circumstances discussed above may
result in a change to the amount of the allowance.

Recently Issued Accounting
Pronouncements

In November 2001, the FASB Emerging Issues Task
Force (EITF) reached a consensus on EITF
Issue 01-09, Accounting for Consideration Given by a
Vendor to a Customer or a Reseller of the Vendors
Products, which is a codification of EITF 00-14, 00-22
and 00-25. This issue presumes that consideration from a vendor
to a customer or reseller of the vendors products to be a
reduction of the selling prices of the vendors products
and, therefore, should be characterized as a reduction of
revenue when recognized in the vendors income statement
and could lead to negative revenue under certain circumstances.
Revenue reduction is required unless consideration relates to a
separate identifiable benefit and the benefits fair value
can be established. We implemented EITF 01-09 during the
fiscal year ended September 30, 2002. The adoption of
EITF 01-09 did not have a significant impact on the
financial position or results of operations for the fiscal 2001
and 2000.

In July 2001, the FASB issued SFAS 142,
Goodwill and Other Intangible Assets, which is effective
for fiscal years beginning after December 15, 2001.
SFAS 142 requires, among other things, the discontinuance
of goodwill amortization. In addition, the standard includes
provisions upon adoption for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the
useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously
reported goodwill and the testing for impairment of existing
goodwill and other intangibles. The impairment review required
under SFAS 142 will involve a two-step process as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Step 1
    we will compare the fair value of our reporting units to the
    carrying value, including goodwill of each of those units. For
    each reporting unit where the carrying value, including
    goodwill, exceeds the units fair value, we will move on to
    step 2. If a units fair value exceeds the carrying
    value, no further work is performed and no impairment charge is
    necessary.                                                                                                                                                                        
|
| |  | Step 2
    we will perform an allocation of the fair value of the reporting
    unit to its identifiable tangible and non-goodwill intangible
    assets and liabilities. This will derive an implied fair value
    for the reporting units goodwill. We will then compare the
    implied fair value of the reporting units goodwill with
    the carrying amount of the reporting units goodwill. If
    the carrying amount of the reporting units goodwill is
    greater than the implied fair value of its goodwill, an
    impairment loss must be recognized for the excess.

We will adopt SFAS 142 as of October 1,
2002 and expect to complete the initial review during our second
quarter ending March 31, 2003.

In October 2001, the FASB issued SFAS 144,
Accounting for the Impairment or Disposal of Long-lived
Assets. The objectives of SFAS 144 are to address
significant issues relating to the implementation of
SFAS 121, Accounting for the Impairment of Long-lived
Assets to be Disposed of, and to develop a single accounting
model, based on the framework established by SFAS 121, for
long-lived assets to be disposed of by

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sale, whether previously held and used or newly
acquired. Additionally, SFAS 144 expands the scope of
discontinued operations to include all components of an entity
with operations that (1) can be distinguished from the rest
of the entity and (2) will be eliminated from the ongoing
operations of the entity in a disposal transaction. Although
SFAS 144 supercedes SFAS 121, it retains some
fundamental provisions of SFAS 121. SFAS 144 is
effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods
within those fiscal years. We will adopt SFAS 144 as of
October 1, 2002 and do not expect that the implementation
will have a significant effect on our financial statements,
except for our expected discontinued operations treatment of the
sale of our enterprise search division to Verity, Inc. (see
Note 19 to the Financial Statements).


In June 2002, the FASB issued SFAS 146,
Accounting for Exit or Disposal Activities. SFAS 146
addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with
exit and disposal activities, including restructuring activities
that are currently accounted for under EITF No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The scope of
SFAS 146 also includes costs related to terminating a
contract that is not a capital lease and termination benefits
that employees who are involuntarily terminated receive under
the terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS 146 will be effective
for exit or disposal activities that are initiated after
December 31, 2002 and early application is encouraged. The
provisions of EITF No. 94-3 shall continue to apply for an
exit activity initiated under an exit plan that met the criteria
of EITF No. 94-3 prior to the adoption of SFAS 146. We
will adopt SFAS 146 for exit or disposal activities that
are initiated after December 31, 2002. The effect on
adoption of SFAS 146 will change on a prospective basis the
timing of when restructuring charges are recorded from a
commitment date approach to when the liability is incurred.

In November 2002, FASB issued FASB Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45
requires that upon issuance of a guarantee, the guarantor must
recognize a liability for the fair value of the obligation it
assumes under that guarantee. The disclosure provisions of
FIN 45 are effective for financial statements of interim or
annual periods that end after December 15, 2002. The
provisions for initial recognition and measurement are effective
on a prospective basis for guarantees that are issued or
modified after December 31, 2002, irrespective of a
guarantors year-end. We are currently assessing what the
impact of the guidance would have on our financial statements.

In November 2002, the EITF reached a consensus on
issue No. 00-21 Accounting for Revenue Arrangements with
Multiple Deliverables (EITF 00-21) on a
model to be used to determine when a revenue arrangement with
multiple deliverables should be divided into separate units of
accounting and, if separation is appropriate, how the
arrangement consideration should be allocated to the identified
accounting units. The EITF also reached a consensus that this
guidance should be effective all revenue arrangements entered
into in fiscal periods beginning after June 15, 2003, which
for us would be the quarter ending September 30, 2003. We
are currently assessing what the impact of the guidance would
have on our financial statements.

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Results of Operations

The following table sets forth our results of
operations expressed as a percentage of revenues. Our historical
operating results are not necessarily indicative of the results
for any future period.

|                          |                                                |                                  |      |      |      |      |      |    |      |    |     |    |     |   
|------------------------- | ---------------------------------------------- | -------------------------------- | ---- | ---- | ---- | ---- | ---- | -- | ---- | -- | --- | -- | --- | --
|                          |                                                |                                 
|                          |                                                | For the Year Ended September 30,
|                          |                                                |                                 
|                          |                                                | 2002                             |      | 2001 |      | 2000
|                          |                                                |                                  |      |      |      |     
|Revenues                  |                                                |                                  |      |      |      |      |      |    |      |    |     |   
|                          | Licenses                                       |                                  |      | 37   | %    |      |      | 54 | %    |    |     | 61 | %  
|                          | Web search services                            |                                  |      | 42   | %    |      |      | 26 | %    |    |     | 23 | %  
|                          | Maintenance services                           |                                  |      | 15   | %    |      |      | 11 | %    |    |     | 6  | %  
|                          | Other services                                 |                                  |      | 6    | %    |      |      | 9  | %    |    |     | 10 | %  
|                          |                                                |                                  |      |      |      |      |      |    |      |    |     |   
|                          |                                                | Total revenues                   |      |      | 100  | %    |      |    | 100  | %  |     |    | 100 | % 
|Cost of revenues          |                                                |                                  |      |      |      |      |      |    |      |    |     |   
|                          | Licenses                                       |                                  |      | 3    | %    |      |      | 4  | %    |    |     | 3  | %  
|                          | Web search services                            |                                  |      | 13   | %    |      |      | 12 | %    |    |     | 10 | %  
|                          | Maintenance services                           |                                  |      | 4    | %    |      |      | 3  | %    |    |     | 2  | %  
|                          | Other services                                 |                                  |      | 5    | %    |      |      | 6  | %    |    |     | 4  | %  
|                          |                                                |                                  |      |      |      |      |      |    |      |    |     |   
|                          |                                                | Total cost of revenues           |      |      | 25   | %    |      |    | 25   | %  |     |    | 19  | % 
|Gross Profit              |                                                |                                  | 75   | %    |      |      | 75   | %  |      |    | 81  | % 
|Operating expenses        |                                                |                                  |      |      |      |      |      |    |      |    |     |   
|                          | Sales and marketing                            |                                  |      | 61   | %    |      |      | 70 | %    |    |     | 54 | %  
|                          | Research and development                       |                                  |      | 46   | %    |      |      | 40 | %    |    |     | 27 | %  
|                          | General and administrative                     |                                  |      | 13   | %    |      |      | 12 | %    |    |     | 9  | %  
|                          | Amortization of intangibles and other assets   |                                  |      | 44   | %    |      |      | 35 | %    |    |     | 6  | %  
|                          | Impairment of intangibles and other assets     |                                  |      | 180  | %    |      |      | 23 | %    |    |     |   |    
|                          | Restructuring                                  |                                  |      | 18   | %    |      |      | 6  | %    |    |     |   |    
|                          | Parkside lease restructuring and termination   |                                  |      | 71   | %    |      |      |   |      |    |     |   |    
|                          | Impairment of building, property and equipment |                                  |      | 91   | %    |      |      |   |      |    |     |   |    
|                          | Purchased in-process research and development  |                                  |      |     |      |      |      |   |      |    |     | 2  | %  
|                          | Acquisition-related costs                      |                                  |      |     |      |      |      | 10 | %    |    |     | 2  | %  
|                          |                                                |                                  |      |      |      |      |      |    |      |    |     |   
|                          |                                                | Total operating expenses         |      |      | 524  | %    |      |    | 196  | %  |     |    | 100 | % 
|Operating loss            |                                                |                                  | (450 | )%   |      |      | (121 | )% |      |    | (19 | )%
|Impairment of investments |                                                |                                  |     |      |      |      | (33  | )  |      |    |    |   
|Other income, net         |                                                |                                  | 6    | %    |      |      | 5    | %  |      |    | 8   | % 
|                          |                                                |                                  |      |      |      |      |      |    |      |    |     |   
|Pretax loss               |                                                |                                  | (444 | )%   |      |      | (149 | )% |      |    | (11 | )%
|                          | Income tax provision                           |                                  |      | (1   | )%   |      |      |   |      |    |     | (1 | )% 
|                          |                                                |                                  |      |      |      |      |      |    |      |    |     |   
|                          |                                                | Net loss                         |      |      | (445 | )%   |      |    | (149 | )% |     |    | (12 | )%
|                          |                                                |                                  |      |      |      |      |      |    |      |    |     |   

Fiscal Years Ended September 30, 2002 and
2001



| |         
| | --------
| | Revenues

Revenues totaled $112.7 million in fiscal
2002, a decrease of $85.9 million or 43% from revenues of
$198.6 million in fiscal 2001. All of our business
experienced declines in revenue, however most of the decline is
attributable to decreased license sales in our software
products. For fiscal 2002, one customer, America Online
(AOL) represented 22% of total revenues, while no single
customer represented over 10% of total revenues in fiscal 2001.
For fiscal 2002, AOL represented 33.2% of total license
revenues, 13.9% of total

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services revenues and 17.5% of total Web search
services revenues. For fiscal 2002, Microsoft represented 20.8%
of total Web search services revenues. For fiscal 2001, AOL
represented 6.7% of total license revenues, 6.0% of total
services revenues and 15.5% of total Web search services
revenues. For fiscal 2001, Microsoft represented 23.1% of total
Web search services revenues.


We market and sell our products to customers
located in the United States and abroad, both through our direct
sales force and through our channel partners. Historically, the
percentage of sales to customers located outside of the United
States has varied substantially. We expect this variation to
continue for the foreseeable future. We have generated most of
our revenues through direct sales efforts, except in Asia where
our revenues have been principally generated through our channel
partners.

License revenues totaled $41.2 million in
fiscal 2002, representing a decrease of $65.5 million or
61% from license revenues of $106.7 million in fiscal 2001.
The decrease was primarily due to lower demand for our content
networking products across all market segments. As a result of
this continued decline in demand, we announced in July 2002 a
restructuring in which we decided to focus our efforts on the
Web search services and enterprise search software markets and
to reduce our investment in our content networking products
group while continuing to maintain support for our content
networking software customers and partners. Subsequently in
November 2002, we also announced that we had entered into an
agreement with Verity Inc. under which Verity will purchase our
enterprise search software business. The transaction was
consummated in December 2002. As a result, we expect license
revenues to continue to decline to insignificant amounts going
forward. We recognized $12.4 million, $18.7 million
and $2.7 million of Enterprise Search license revenues in
fiscal years 2002, 2001 and 2000, respectively.

Web search services revenues totaled
$47.1 million in fiscal 2002, representing a decrease of
$4.2 million or 8% from Web search services revenues of
$51.3 million in fiscal 2001. The decrease was primarily
due to weakness in our traditional Web search services, which
decreased $20.6 million in fiscal 2002, the result of many
smaller or poorly funded companies not being able raise
sufficient funds to continue to purchase our services. This
decrease in our traditional Web search services was partially
offset by the growth of our paid inclusion fee services of
$16.4 million or 544% in fiscal 2002 as compared to fiscal
2001. Also, upon expiration in August 2002, AOL, one of our
major portal customers, did not renew their Web search services
agreement. We expect that this will significantly decrease our
traditional Web search business revenues in fiscal 2003. In the
future, we expect revenues from paid inclusion fee business to
continue to become a greater percentage of our total Web search
services revenues. Also going forward, we expect Microsoft,
another major portal customer, to contribute a majority of web
search service and total company revenues. Web search revenues
from Microsoft totaled $9.8 million in fiscal year 2002
representing 20.8% of total Web search revenue for this period.
Query volume from Microsofts MSN Network were also
indirectly responsible for $12.7 million of paid inclusion
revenue in fiscal year 2002. Total revenue, direct and indirect,
generated through Microsofts MSN Network was
$22.5 million in fiscal year 2002.

Maintenance services revenues totaled
$18.3 million in fiscal 2002, representing a decrease of
$3.4 million or 16% over maintenance services revenues of
$21.7 million in fiscal 2001. The decrease was primarily
the result of a decline in our content networking support
revenues of $6.1 million, offset by growth in our
enterprise search support revenues of $2.7 million. Our
emphasis on Web search markets will reduce future services
revenues as current maintenance agreements expire. At
September 30, 2002, deferred maintenance revenue was
$9.9 million, the majority of which we expect to be
recognized or sold over our 2003 fiscal year.

Other services revenues totaled $6.1 million
in fiscal 2002, representing a decrease of $12.7 million or
68% over services revenues of $18.9 million in fiscal 2001.
The decrease was the result of a decline in our consulting
revenues of $5.8 million and a decline in our Commerce
Division revenues of $7.0 million (which we sold in March
2001). We expect other services revenue to be insignificant
going forward.

During fiscal 2002 and 2001, we recognized
revenues of approximately $4.5 million and $29.5 million,
respectively, on contracts, development, and licensing
arrangements with customers in which we were equity shareholders
at September 30, 2002 and 2001, respectively. Prices and
fees on these contracts and arrangements were comparable to
those given to other similarly situated customers.

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| |                 
| | ----------------
| | Cost of Revenues

Cost of revenues totaled $28.5 million in
fiscal 2002, representing a decrease of $20.7 million or
42% from cost of revenues of $49.2 million in fiscal 2001.

Licenses cost of revenues generally consists of
royalties or license fees associated with licensed technologies
used in our software applications. License cost of revenues were
$3.6 million in fiscal 2002, representing a decrease of
$2.7 million or 43% from licenses cost of revenues of
$6.3 million in fiscal 2001. The decrease in license cost
of revenues was due primarily to decreased license sales in
fiscal 2002. Licenses cost of revenues does not necessarily
fluctuate proportionately with licenses revenue due to
guaranteed minimum royalty obligations we have with certain
licensed technologies.

Web search cost of revenues generally consist of
expenses related to the operation of our Web search business,
primarily depreciation, and network and hosting charges as well
as licensed technology fees. Web search services cost of
revenues were $15.3 million in fiscal 2002, representing a
decrease of $9.4 million or 38% from Web search services cost of
revenues of $24.7 million in fiscal 2001. The decrease was
primarily the result of decreased network and hosting costs of
$5.4 million and decreased depreciation of
$2.5 million.

Maintenance services cost of revenues generally
consists of expenses associated with our technical support
department. Maintenance services cost of revenues were
$4.2 million in fiscal 2002, representing a decrease of
$1.7 million or 29% from services cost of revenues of
$5.9 million in fiscal 2001. The decrease was primarily due
to reduced headcount in our technical support department.

Other services cost of revenues generally
consists of expenses associated with our consulting services as
well as depreciation and network and hosting charges associated
with the operation of our former Commerce business. Other
services cost of revenues were $5.5 million in fiscal 2002,
representing a decrease of $6.9 million or 56% from
services cost of revenues of $12.3 million in fiscal 2001.
The decrease was primarily the result of decreased consulting
services expenses of $4.9 million and decreased Commerce
related expenses of $3.2 million.



| |         
| | --------
| | Expenses

Operating expenses include sales and marketing
expenses, research and development expenses, general and
administrative expenses, amortization of goodwill and other
intangibles, impairment of goodwill and other intangibles,
impairment of intangibles and other assets, restructuring costs,
lease termination costs, impairment of fixed assets, purchased
in-process research and development, and acquisition-related
costs. Research and development, sales and marketing and general
and administrative expenses primarily consist of personnel and
related costs.

In connection with stock option grants and our
business acquisitions, certain options granted have been
considered to be compensatory. Compensation associated with such
options was $5.1 million in fiscal 2002, representing a
decrease of $0.5 million or 8% as compared to fiscal 2001.
The decrease is a result of a decreased number of employees in
fiscal 2002. As of September 30, 2002, we had unamortized
deferred compensation of $2.0 million, which will be
charged to operations as the underlying options vest.

Over the next fiscal year, expenses are expected
to decrease due to our workforce reductions, lease terminations,
fixed assets impairments and our narrower business focus on Web
search products and services.



| |                             
| | ----------------------------
| | Sales and Marketing Expenses

Sales and marketing expenses consist of personnel
and related costs for our direct sales force and marketing staff
and marketing programs, including trade shows and advertising.
Sales and marketing expenses were $68.9 million in fiscal
2002, a decrease of $70.2 million or 50% over fiscal 2001.
Of the $70.2 million decrease, approximately
$41.6 million was due to reduced sales and marketing
headcount, $8.7 million resulted from lower commissions on
reduced sales, $8.5 million resulted from reduced marketing
programs, $8.1 million resulted from reduced bad debt
expense and $3.3 million resulted from miscellaneous other

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savings. The reduction in bad debt expense in
fiscal 2002 was the result of improved collections, a change in
the remaining revenue mix and lower revenue.




| |                                      
| | -------------------------------------
| | Research and Development
    Expenses

Research and development expenses consist
primarily of personnel and related costs for our development
efforts. Research and development expenses were
$51.3 million in fiscal 2002, a decrease of
$26.6 million or 34% over fiscal 2001. This decrease was
primarily due to decreased headcount in fiscal 2002 as a result
of the restructurings highlighted in Note 13 to the
Financial Statements. Our current research and development
efforts are focused on adding features and functionality
directed to derive additional revenue from our Web search
services. We are also focused on continuing to improve the
relevance of our Web search service results and the size and
freshness of our Web search index.



| |                                        
| | ---------------------------------------
| | General and Administrative
    Expenses

General and administrative expenses consist
primarily of personnel and related costs for general corporate
functions, including finance, accounting, purchasing, human
resources, facilities and legal. General and administrative
expenses totaled $15.0 million in fiscal 2002, representing
a decrease of $9.6 million or 39% over fiscal 2001. Of the
$9.6 million decrease, approximately $2.6 million was
due to reduced bad debt expense, $2.2 million from reduced
general and administrative headcount, $2.0 million from
reduced outside consulting expense, $1.3 million from
reduced facilities expense, $1.1 million due to reduced
depreciation expense, and $0.4 million to other
miscellaneous expenses. The reduction in bad debt expense in
fiscal 2002 was the result of improved collections, a change in
the remaining revenue mix and lower revenue.



| |                                                   
| | --------------------------------------------------
| | Amortization of Goodwill and Other
    Intangibles

Amortization of goodwill and other intangibles
primarily relates to amortization of goodwill acquired through
our purchase acquisitions of Ultraseek Corporation and eScene,
and through our asset purchase from Adero. Amortization of
intangibles and other assets totaled $50.2 million in
fiscal 2002, a decrease of $20.2 million or 29% from
$70.4 million in fiscal 2001. The decrease was primarily
due to our impairment of Ultraseek goodwill in the quarter ended
June 30, 2002.



| |                                                 
| | ------------------------------------------------
| | Impairment of Goodwill and Other
    Intangibles

During fiscal 2002 we recorded
$202.6 million in charges to reflect the impairment of
goodwill and other intangibles, compared to $44.9 million
in fiscal 2001.

On June 30, 2002, we recorded a charge of
$200.9 million to reflect the impairment of goodwill and
other intangibles created from the purchase of Ultraseek
($192.4 million) and eScene ($8.5 million). In fiscal
2000, we integrated Ultraseeks product offerings and
operations into our entire organization and, therefore, the
associated goodwill from this purchase transaction was accounted
for as enterprise goodwill. In the quarter ended June 30,
2002, we experienced a sustained decline in our market
capitalization to amounts well below our net book value. In
addition, other factors occurred in the quarter ended
June 30, 2002 that led us to assess whether an enterprise
goodwill impairment charge was appropriate. In particular,
America Online, one of our largest customers announced in April
2002, that it would not renew its web search contract with us
upon expiration in August 2002. In addition, we were
experiencing continued negative cash flows during the third
quarter ended June 30, 2002. These factors affected our
overall enterprise value leading to further decreases in the
market capitalization. Because of these factors we conducted an
enterprise goodwill impairment analysis and recorded a charge at
June 30, 2002 related to the goodwill created from the
purchase of Ultraseek and eScene.

In December 2001, we evaluated the remaining
intangible assets associated with our asset purchase from Adero
and recorded a $1.8 million charge to write-off the
remaining net book value as there will be no further revenue
streams related to these assets.

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During fiscal 2001, we recorded a non-cash charge
of $44.9 million to reflect the impairment of goodwill and
other intangibles, primarily related to our goodwill associated
with our investment in AirFlash and with the assets acquired
from Adero. Our private equity investment in AirFlash was
determined to be impaired due to continuing sustained operating
losses and no success by AirFlash of obtaining additional
funding. No cash flows were anticipated from our investment in
AirFlash therefore the associated goodwill was fully impaired.
Our goodwill related to the assets acquired from Adero was
determined to be impaired as we licensed the remaining
technology to a third party during 2001 and estimated discounted
cashflows were below the carrying value of the goodwill. An
impairment charge was recorded to adjust the carrying value of
the Adero goodwill down to the estimated fair value, which was
based on the estimated discounted cash flows.



| |                    
| | -------------------
| | Restructuring Costs



| |            
| | -----------
| | Fiscal 2002

For fiscal 2002, we accrued $19.9 million
for restructuring. At September 30, 2002, $7.4 million
for restructuring remained outstanding as an accrued liability
on our balance sheet.

Fiscal 2002 Fourth Quarter Restructuring:

In July 2002, we announced plans to focus our
business on web search and enterprise retrieval markets. As a
result, we significantly scaled back the content networking
products group and related corporate infrastructure and
eliminated 290 positions and closed several sales offices around
the world. As a result of this restructuring, we incurred a
charge of $15.4 million made up of $11.9 million of
severance and related expenses and $3.5 million in costs
associated with office consolidations. Approximately
$8.3 million of the charge was paid in the quarter ended
September 30, 2002 and the remainder will be paid over the
next twelve months.

As a result of the restructuring, we expected to
reduce compensation related expenses by approximately
$10.0 million per quarter. We also expected to reduce
facility related operating expenses in the amount of
$0.7 million for the quarter ended December 31, 2002
and $0.3 million per quarter thereafter, through the end of
the lease term which will be through the end of fiscal 2003. In
the remaining portion of fiscal 2002, we realized the expected
benefits of these restructuring efforts.

Fiscal 2002 Third Quarter Restructuring:

In April 2002, we completed a restructuring and a
workforce reduction of approximately 50 employees to reduce our
operating expenses. All of our functional areas were affected by
the reduction. As a result of this workforce reduction, we
incurred a charge of $2.2 million. During the quarter ended
September 30, 2002, a $0.3 million adjustment was made
to reduce the charge for severance and related expenses. As of
September 30, 2002, approximately $0.3 million of this
restructuring accrual remained outstanding as an accrued
liability on our balance sheet. The remaining payments will be
made over the next six months.

As a result of the restructuring, we expected to
reduce compensation related expenses by approximately
$1.6 million per quarter. We also expected to reduce
facility related operating expenses in the amount of
$0.3 million per quarter through the end of the remaining
lease term. In the remaining portion of fiscal 2002, we realized
the expected benefits of these restructuring efforts.

Fiscal 2002 First Quarter Restructuring:

In the quarter ended December 31, 2001, we
announced and substantially completed a restructuring and a
workforce reduction of approximately 115 employees to reduce our
operating expenses. All of our functional areas were affected by
the reduction. As a result of this workforce reduction, we
incurred a charge of $2.7 million. As of September 30,
2002, none of this restructuring accrual remained outstanding as
an accrued liability on our balance sheet.

As a result of the restructuring we expected to
reduce compensation related expenses of approximately
$3.3 million per quarter. We also expected to reduce
facility related operating expenses through the end of the

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related lease term and depreciation, through the
end of the related useful lives, in the respective amounts of
$0.2 million and $0.1 million per quarter. In the
remaining portion of fiscal 2002, we realized the expected
benefits from this restructuring effort.




| |            
| | -----------
| | Fiscal 2001

For fiscal 2001, we accrued $11.6 million
for restructuring charges. At September 30, 2002,
$1.1 million for restructuring remained outstanding as an
accrued liability on our balance sheet.

Fiscal 2001 Fourth Quarter Restructuring:

In the quarter ended September 30, 2001, we
instituted a restructuring and a workforce reduction of
approximately 35 employees to reduce our operating
expenses. The reduction in workforce primarily affected our
employees working on wireless related products. As a result of
this restructuring, we incurred a charge of approximately
$6.6 million in the quarter ended September 30, 2001.
This charge included costs associated with underutilized space
and office consolidations related primarily to approximately
eight sales offices in North America and the United Kingdom.
During the quarter ended September 30, 2002, a
$0.2 million adjustment was made to reduce the charge for
severance and related expenses. As of September 30, 2002,
approximately $1.1 million of this restructuring accrual
remained outstanding as an accrued liability on our balance
sheet, which will be paid over the next twelve months.

As a result of the restructuring we expected to
reduce compensation related expenses of approximately
$1.7 million per quarter. We also expected to reduce
facility related operating expenses in the amount of
$1.7 million for the quarter ended December 31, 2001
and $0.5 million per quarter thereafter, through the end of
the lease terms which are through fiscal 2003. We realized the
expected benefits from this restructuring effort.

Fiscal 2001 Third Quarter Restructuring:

In the quarter ended June 30, 2001, we
announced and substantially completed a restructuring and a
workforce reduction of approximately 200 employees to
reduce our operating expenses. All of our functional areas were
affected by the reduction. Included in the restructuring charge
was $0.6 million for professional fees related primarily to
job consultation services for displaced employees. As a result
of this workforce reduction, we incurred a charge of
$5.0 million. As of September 30, 2002, no amount
remained outstanding as an accrued liability on our balance
sheet.

As a result of the restructuring we expected to
reduce compensation related expenses of approximately
$6.9 million per quarter. We realized the expected benefits
from this restructuring effort.



| |                                                 
| | ------------------------------------------------
| | Parkside Lease Restructuring and
    Termination

In April 2000, we entered into a lease agreement
commencing January 1, 2002 for 381,050 square feet of
office space in two mid-rise office buildings in Foster City,
California, known as Parkside Towers. Payments under the lease
commenced on January 1, 2002, when the property was
delivered to Inktomi by the developer and continue over the
lease term ending October 31, 2014 for one building and
October 31, 2016 for the second building.

In the quarter ending March 31, 2002, we
completed our assessment of our current and future anticipated
needs for operating facilities and adopted a plan to consolidate
our operating facilities. In accordance with this plan, we
recorded a lease termination charge of $74.6 million during
the quarter ended March 31, 2002 related to the abandonment
of our lease for 381,050 square feet of office space
described above. Of the $74.6 million charge, $62.3 related
to the expected loss on future subleases and $12.3 related to
asset write-offs. Lease abandonment costs for this facility were
estimated to include the remaining lease liabilities through the
term of the lease, impairment of leasehold improvements,
estimated future leasehold improvements and brokerage fees
offset by estimated sublease income. Estimates related to
sublease costs and income are based on

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assumptions regarding the period required to
locate sub-lessees and sublease rates which were derived from
market trend information provided by commercial real estate
brokers (see Note 14 to the Financial Statements for
further detail).


On September 5, 2002, we executed a Lease
Termination Agreement providing for the termination of Parkside
Towers. In exchange for the termination of the lease, we agreed
to pay the landlords certain consideration including the
following: (i) immediate surrender of the cash security
deposit of approximately $1.5 million, (ii) consent
for the landlords to immediately draw on a letter of credit with
Silicon Valley Bank in the amount of approximately
$16.5 million, (iii) immediate cash payment of
$12.0 million, a portion of which covered August rent and
the pro-rated rent for the month of September through the
effective date of the Lease Termination Agreement,
(iv) issuance of a $21.5 million promissory note,
including $0.2 million imputed interest, of which
$5 million is payable on October 1, 2002 and
$16.5 million is paid the earlier of the sale of the
Bayside facilities or January 21, 2003, (v) payment of
50% of any amounts in excess of $50 million that Inktomi
realize upon the sale of the Bayside facilities,
(vi) issuance of five million shares of our common stock
valued at $2.3 million, (vii) the transfer of two HVAC
chillers, (viii) the relinquishment of Inktomis claim
to undispursed portions of the landlords obligations to
contribute funds for tenant improvements in the amount of
$441,223, (ix) the granting of registration rights related
to the 5 million shares of common stock issued to the
Parkside landlords, and (x) the granting of deeds of trust
for the Bayside facilities to the landlords to secure the
$21.5 million promissory note.

Total value of the lease termination, including
cash and non-cash items, was $54.0 million. As a result, we
recorded a charge of $5.4 million in the fiscal 2002 fourth
quarter representing the cost in excess of the remaining lease
restructuring accrual initially recorded in the quarter ended
March 31, 2002.

As part of the lease termination transaction, the
landlords of the Parkside facility (and their affiliates)
agreed, at Inktomis election, to purchase the Bayside
facilities (see Note 11 to the Financial Statements) for
$37.5 million. Inktomis right to require the
landlords to purchase the Bayside facilities commenced on
November 1, 2002 and ended on January 21, 2003. In
December 2002, we sold the building to a third party for
$41.5 million.



| |                           
| | --------------------------
| | Impairment of Fixed Assets



| |            
| | -----------
| | Fiscal 2002

In August 2000, we entered into an operating
lease agreement for the land and facilities of our corporate
headquarters, known as Bayside, in Foster City, California. This
operating lease is commonly referred to as a synthetic lease
because it represents a form of off-balance sheet financing
under which an unrelated third-party funds 100% of the costs of
the acquisition of the property and leases the asset to Inktomi
as lessee. Under the lease terms, we were required to pay lease
payments for five years to the lessor. The payments were
calculated based on a floating interest rate applied against a
$114 million principal value. The agreement was assigned to
a third party lessor under the terms of a lease finance
structure. This structure also required the creation and
maintenance of a cash collateral account that limited the
liquidity of $119.6 million of our cash, which was
classified as long-term on our balance sheet. During the term of
the lease, we had a purchase option to buy the building for
$114 million plus breakup fees or to extend the lease. If
we elected not to purchase the building or extend the lease
term, we had guaranteed to compensate the lessor for the
difference between the market value of the building and
$114 million, limited upwards to a maximum amount of
$101 million (residual value guarantee).

Due to the declining commercial real estate
market in the Bay Area, we believed that it was probable at the
end of the lease term in August 2005 that the market value of
our Bayside corporate headquarters would be less than the
$114 million residual value guarantee. Therefore, we
accrued for this loss on a straight-line basis from
April 1, 2002 to the end of the lease term. Accordingly, we
had recorded $2.2 million in fiscal 2002 as the total
estimated future probable loss amounted to $18.8 million.
This loss was based on the difference between the residual value
guarantee amount and the estimated value of our Bayside
corporate headquarters at the end of the lease term determined
through the use of estimated future sublease income provided by
commercial real estate brokers.

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In August 2002, through the execution of a
Termination and Release Agreement, we exercised the purchase
option under our operating lease arrangement for the Bayside
corporate headquarters and title for such facilities was
transferred to Inktomi on such date. We paid $114 million
to Deutsche Bank and its affiliates, the holders of the
synthetic lease, for the purchase of the Bayside corporate
headquarters.

At the purchase date we valued the Bayside
corporate headquarters at $44.8 million based on
established valuation techniques. As a result of this valuation,
we incurred a charge of $67.0 million in the quarter ended
September 30, 2002. We also wrote down to zero the net book
value of the Bayside leasehold improvements which totaled
$15.5 million during the quarter ended September 30,
2002. In December 2002, we sold the Bayside property to a third
party for $41.5 million, with the additional loss on the
sale to be recorded in the quarter ending December 31, 2002.

In September 2002, we incurred an additional
$10.5 million non-cash asset impairment primarily related
to computer equipment and furniture and fixtures held in use as
the expected cash flows were less than the carrying value of
these assets. Factors which triggered our assessment for
impairment included continued negative cash flows from
operations, continued operating losses and carrying values which
exceeded market values. These assets were written down to their
estimated fair value based on information obtained from recent
sales of similar assets. After the asset write-offs, we expect
depreciation expenses to reduce by $2.1 million per quarter
beginning in the quarter following the impairment.

Primarily as a result of our July 2002
restructuring (see Note 13 to the Financial Statements), we
incurred an $8.7 million non-cash asset impairment related
to abandoned assets of our Web search group and content
networking products group.

As a result of our December 2001 restructuring
(see Note 13 to the Financial Statements), we incurred a
$1.3 million asset impairment charge. The $1.3 million
write-down represents computer equipment consisting of
$0.5 million of abandoned assets in the London office that
was downsized in the restructuring and $0.8 million of
abandoned assets related to Content Bridge services that were
discontinued as a product line in the quarter ended
December 31, 2001.



| |            
| | -----------
| | Fiscal 2001

As a result of our September 2001 restructuring
(see Note 13 to the Financial Statements), we incurred a
$0.7 million non-cash asset impairment charge.

As a result of our June 2001 restructuring (see
Note 13 to the Financial Statements), we incurred a
$0.2 million non-cash asset impairment charge.

During fiscal 2001, we recorded a non-cash charge
of $44.9 million to reflect the impairment of goodwill and
other intangibles, primarily related to our goodwill associated
with our investment in AirFlash and with the assets acquired
from Adero. Our private equity investment in AirFlash was
determined to be impaired due to continuing sustained operating
losses and no success by AirFlash of obtaining additional
funding. No cash flows were anticipated from our investment in
AirFlash therefore the associated goodwill was fully impaired.
Our goodwill related to the assets acquired from Adero was
determined to be impaired as we licensed the remaining
technology to a third party during 2001 and estimated discounted
cashflows were below the carrying value of the goodwill. An
impairment charge was recorded to adjust the carrying value of
the Adero goodwill down to the estimated fair value, which was
based on the estimated discounted cash flows.



| |                                                  
| | -------------------------------------------------
| | Purchased In-Process Research and
    Development

A portion of the purchase prices we paid for
Ultraseek and various assets of Adero have been identified as
developed technology and in-process research and development
(IPRD). We identified and valued the developed
technology and IPRD by conducting extensive interviews,
analyzing data provided by the acquired companies concerning
developmental products, considering the stage of development of
such products and the time and resources needed to complete
them, and assessing the expected income generating ability of
the products, target markets and associated risks. The income
approach, which includes an analysis of the markets, cash flows,
and risks associated with achieving such cash flows, was the
primary technique utilized in

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valuing the developed technology and IPRD. Based
on our analysis of these variables, we recorded a one-time
purchased IPRD charge of $0.4 million in fiscal 2001
associated with our purchase of various assets of Adero, and a
one-time purchased IPRD charge of $4.4 million in fiscal
2000 associated with our Ultraseek acquisition because
technological feasibility had not been established and no future
alternative uses existed.




| |                          
| | -------------------------
| | Acquisition-Related Costs

As a result of our FastForward acquisition in
October 2000 we recorded acquisition-related costs of
$19.5 million in fiscal 2001, primarily for investment
banking fees, accounting, legal and other professional expenses.
As of September 30, 2002, no accrued liabilities relating
to FastForward acquisition related costs remained outstanding.



| |                          
| | -------------------------
| | Impairment of Investments

In late 1999 and early 2000, we made numerous
equity investments in both public and private companies for
strategic purposes. Our approach was to invest in companies that
were working to expand the markets that we believed to be
strategically beneficial to us. Market conditions for technology
companies began to deteriorate in late 2000 and this
deterioration continued during the first half of 2001. During
our quarter ended June 30, 2001, we determined that there
was an other-than-temporary decline, or impairment, in value of
most of our strategic investments in the amount of
$65.9 million. The $65.9 million impairment charge
consists of $39.7 million related to four public company
investments and $26.2 million related to nine private
company investments. We considered the prolonged decline in
overall technology market conditions as well as factors such as
liquidity and market acceptance on a company specific basis.

Other Income,
Net

Other income, net generally includes interest on
our cash and cash equivalents and short-term investments, less
expenses related to our debt and capital lease obligations and
gains and losses on disposal of assets and sale of investments.
Other income, net, also included $0.4 million of rent from other
tenants in our Bayside corporate headquarters after the building
was purchased in August 2002. Other income, net, totaled
$6.6 million of income in fiscal 2002, a decrease of
$3.7 million or 36% over fiscal 2001. The decrease in other
income, net, was primarily due to a decrease in interest income
of $10.6 million, offset by decreased realized losses on
investments of $2.2 million, a $2.8 million gain
relating principally to the settlement of accruals from previous
one-time charges, and a $0.8 million reversal of an accrual
related to our former Commerce division in fiscal 2002. Please
refer to Note 2 to the Financial Statements for further detail.

Fiscal Years Ended September 30, 2001 and
2000

Revenues

Revenues totaled $198.6 million in fiscal
2001, a decrease of $25.7 million or 11% from revenues of
$224.2 million in fiscal 2000. No single customer
represented over 10% of total revenues in either fiscal 2001 or
2000. We market and sell our products to customers located in
the United States and abroad, both through our direct sales
force and through our channel partners. Historically, the
percentage of sales to customers located outside of the United
States has varied substantially, reflecting the early stage
build-out of our international operations. We have generated
most of our revenues through direct sales efforts, except in
Asia where our revenues have been principally generated through
our channel partners.

License revenues totaled $106.7 million in
fiscal 2001, representing a decrease of $29.1 million or
21% from license revenues of $135.8 million in fiscal 2000.
A majority of our license revenues had been generated from
Internet service providers. In previous fiscal years, service
providers were investing substantial amounts of capital to build
out their networks to address Internet opportunities. In fiscal
2001, this segment substantially curtailed spending in response
to the challenging economic environment. The year to year
decrease in license revenue was partially offset by the
inclusion of revenue derived from the licensing of our
enterprise search product that we launched in earnest in fiscal
2000. Enterprise search license revenues grew from
$2.7 million in fiscal 2000 to $20.0 million in fiscal
2001.

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Maintenance Services revenues totaled
$21.7 million in fiscal 2001, representing an increase of
$9.1 million or 72% over maintenance services revenues of
$12.6 million in fiscal 2000. The increase was the result
of an increase in our content networking support revenues of
$4.7 million and an increase in our enterprise search
support revenues of $4.4. The increase in our content networking
support revenues was primarily due to an increase in our support
revenues generated from service provider customers who purchased
support for our products over the last several fiscal years.

Other Services revenues totaled
$18.9 million in fiscal 2001, representing a decrease of
$4.8 million or 20% over services revenues of
$23.7 million in fiscal 2000. The decrease was the result
of a decline in our Commerce Division revenues of
$8.5 million (which we sold in March 2001), offset by an
increase in our consulting revenues of $3.7 million.

Web search services revenues totaled
$51.3 million in fiscal 2001, representing a decrease of
$0.8 million or 2% from Web search services revenues of
$52.1 million in fiscal 2000. The decrease was due a
decrease in our general Web search business of $3.8 million
where many smaller or poorly funded companies could not raise
sufficient funds to continue to purchase our services, partially
offset by growth in our database inclusion fee business of
$3.0 million.

During fiscal 2001 and 2000, we recognized
revenues of approximately $29.5 million and
$31.3 million, respectively, on contracts, development, and
licensing arrangements with customers in which we were equity
shareholders at September 30, 2001 and 2000, respectively.
Prices on these contracts and arrangements were comparable to
those given to other similarly situated customers.

Cost of
Revenues

Licenses cost of revenues generally consists of
royalties or license fees associated with licensed technologies
used in our software applications. License cost of revenues were
$6.3 million in fiscal 2001, representing a decrease of
$0.2 million or 3% from licenses cost of revenues of
$6.4 million in fiscal 2000. The decrease in license cost
of revenues was due primarily to decreased license sales in
fiscal 2001. Licenses cost of revenues does not necessarily
fluctuate proportionately with licenses revenue due to
guaranteed minimum royalty obligations we have with certain
licensed technologies.

Web search cost of revenues generally consist of
expenses related to the operation of our Web search business,
primarily depreciation, and network and hosting charges as well
as licensed technology fees. Web search services cost of
revenues were $24.7 million in fiscal 2001, representing an
increase of $2.9 million or 13% from Web search services
cost of revenues of $21.8 million in fiscal 2000. The
increase was primarily the result of increased network and
hosting costs.

Maintenance services cost of revenues generally
consists of expenses associated with our technical support
department. Maintenance services cost of revenues were
$5.9 million in fiscal 2001, representing an increase of
$2.1 million or 54% from services cost of revenues of
$3.9 million in fiscal 2000. The increase was primarily due
to increased headcount in our tech support department.

Other services cost of revenues generally
consists of expenses associated with our consulting services as
well as depreciation and network and hosting charges associated
with the operation of our former Commerce business. Other
services cost of revenues were $12.3 million in fiscal
2001, representing an increase of $2.2 million or 22% from
services cost of revenues of $10.1 million in fiscal 2000.
The increase was primarily the result of increased consulting
services expenses.

Expenses

Operating expenses include sales and marketing
expenses, research and development expenses, general and
administrative expenses, amortization of goodwill and other
intangibles, impairment of goodwill and other intangibles,
impairment of intangibles and other assets, restructuring costs,
lease termination costs, impairment of fixed assets, purchased
in-process research and development, and acquisition-related
costs. Research and development, sales and marketing and general
and administrative expenses primarily consist of personnel and
related costs.

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Sales and
Marketing Expenses

Sales and marketing expenses consist of personnel
and related costs for our direct sales force and marketing staff
and marketing programs, including trade shows and advertising.
Sales and marketing expenses were $139.1 million in fiscal
2001, an increase of $16.0 million or 13% over fiscal 2000.
This increase was primarily due to an increase in headcount in
the first half of fiscal 2001, offset partially by workforce
reductions implemented in April and September 2001.

Research and
Development Expenses

Research and development expenses consist
primarily of personnel and related costs for our development
efforts. Research and development expenses were
$77.9 million in fiscal 2001, an increase of
$18.2 million or 30% over fiscal 2000. This increase was
primarily due to an increase in headcount in the first half of
fiscal 2001, offset partially by workforce reductions
implemented in April and September 2001.

General and
Administrative Expenses

General and administrative expenses consist
primarily of personnel and related costs for general corporate
functions, including finance, accounting, purchasing, human
resources, facilities and legal. General and administrative
expenses totaled $24.6 million in fiscal 2001, an increase
of $5.5 million or 29% over fiscal 2000. This increase was
primarily related to an increase in headcount and consulting
expenses.

Amortization
of Goodwill and Other Intangibles

Amortization of goodwill and other intangibles
primarily relates to amortization of goodwill acquired through
our purchase acquisitions of Ultraseek Corporation and eScene
and through our asset purchase from Adero. Amortization of
intangibles and other assets totaled $70.4 million in
fiscal 2001, an increase of $57.2 million or 434% over
fiscal 2000. The increase was primarily due to amortization of
goodwill associated with our acquisition of Ultraseek in the
fourth quarter of fiscal 2000 and our Adero and eScene
acquisitions consummated in fiscal 2001.

Impairment of
Goodwill and Other Intangibles

During fiscal 2001, we recorded a non-cash charge
of $44.9 million to reflect the impairment of goodwill and
other intangibles, primarily related to our goodwill associated
with our investment in AirFlash and with the assets acquired
from Adero. Our private equity investment in AirFlash was
determined to be impaired due to continuing sustained operating
losses and no success by AirFlash of obtaining additional
funding. No cash flows were anticipated from our investment in
AirFlash therefore the associated goodwill was fully impaired.
Our goodwill related to the assets acquired from Adero was
determined to be impaired as we licensed the remaining
technology to a third party during 2001 and estimated discounted
cashflows were below the carrying value of the goodwill. An
impairment charge was recorded to adjust the carrying value of
the Adero goodwill down to the estimated fair value, which was
based on the estimated discounted cash flows.

Restructuring
Costs

In fiscal 2001, in light of a challenging
operating and business environment, we implemented two
restructurings and workforce reductions, totaling approximately
235 employee positions, to reduce our operating expenses. As a
result of these workforce reductions, we incurred restructuring
charges of $11.6 million in fiscal 2001. The restructuring
charge included approximately $6.2 million of severance
related amounts, $4.8 million of committed excess
facilities and $0.6 million of professional fees.

Purchased
In-Process Research and Development

A portion of the purchase prices we paid for
Ultraseek and various assets of Adero have been identified as
developed technology and in-process research and development
(IPRD). We identified and valued the developed
technology and IPRD by conducting extensive interviews,
analyzing data provided by the acquired

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companies concerning developmental products,
considering the stage of development of such products and the
time and resources needed to complete them, and assessing the
expected income generating ability of the products, target
markets and associated risks. The income approach, which
includes an analysis of the markets, cash flows, and risks
associated with achieving such cash flows, was the primary
technique utilized in valuing the developed technology and IPRD.
Based on our analysis of these variables, we recorded a one-time
purchased IPRD charge of $0.4 million in fiscal 2001
associated with our purchase of various assets of Adero, and a
one-time purchased IPRD charge of $4.4 million in fiscal
2000 associated with our Ultraseek acquisition because
technological feasibility had not been established and no future
alternative uses existed.


Acquisition-Related
Costs

As a result of our FastForward acquisition in
October 2000 and our WebSpective acquisition in October 1999, we
recorded acquisition-related cots of $19.5 million and
$4.0 million in fiscal 2001 and 2000, respectively,
primarily for investment banking fees, accounting, legal and
other professional expenses.

Impairment of
Investments

In late 1999 and early 2000, we made numerous
equity investments in both public and private companies for
strategic purposes. Our approach was to invest in companies that
were working to expand the markets that we believed to be
strategically beneficial to us. Market conditions for technology
companies began to deteriorate in late 2000 and this
deterioration continued during the first half of 2001. During
our quarter ended June 30, 2001, we determined that there
was an other-than-temporary decline, or impairment, in value of
most of our strategic investments in the amount of
$65.9 million. The $65.9 million impairment charge
consists of $39.7 million related to four public company
investments and $26.2 million related to nine private
company investments. We considered the prolonged decline in
overall technology market conditions as well as factors such as
liquidity and market acceptance on a company specific basis.

Other Income,
Net

Other income, net includes interest on our cash
and cash equivalents, short-term investments and our long-term
restricted cash, less expenses related to our debt and capital
lease obligations and loss on disposal of assets. Other income,
net, totaled $10.3 million of income in fiscal 2001, a
decrease of $6.6 million or 39% over fiscal 2000. The
decrease in other income, net was primarily the result of net
realized losses on the sale of investments in fiscal 2001. We
incurred net realized losses on the sale of investments of
$2.9 million in fiscal 2001, as compared to net realized
gains of $1.9 million in fiscal 2000. Interest income
decreased from $15.9 million in fiscal 2000 to
$15.4 million in fiscal 2001. We incurred foreign exchange
losses of $0.6 million in fiscal 2001, as compared to
foreign exchange gains of $0.1 million in fiscal 2000.
Please refer to Note 2 to the Financial Statements for
further detail.

Liquidity and Capital Resources

Cash and cash equivalents and short-term
investments totaled $45.4 million at September 30,
2002, a decrease of $39.1 million or 46% from
$84.5 million at September 30, 2001. The decrease
primarily came from cash used in operating activities.

We used $116.9 million in cash from
operations during fiscal 2002 as compared to cash used in
operations of $74.9 million during the prior year. The
change was primarily due to the increase in net loss of
$204.3 million, offset by an increase in non-cash charges
of $162.4 million.

Cash provided by investing activities was
$32.0 million in fiscal 2002, as compared to cash provided
by investing of $47.8 million in the prior year. The change
was primarily the result of $79.1 million less in net
proceeds from the sale of short-term investments, net of
reinvestments, $114.0 million used in the purchase of our
Bayside headquarters, $11.6 million of other increased cash
items partially offset by the release of restricted cash
balances of $129.0 million compared to cash restrictions in
the prior year of $9.3 million, and $33.3 million less
cash used to purchase property, plant, and equipment, and to
fund company acquisitions.

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Cash provided by financing activities was
$83.7 million in fiscal 2002, an increase of
$79.2 million from the prior year, primarily due to
$52.8 million of net proceeds from the issuance of
13.2 million shares of Common Stock in November 2002, and
$23.1 million of increased cash proceeds net of repayments
of notes payable.

From time to time, we have used debt and leases
to partially finance capital purchases. At September 30,
2002, we had $31.4 million in total loans and capitalized
lease obligations outstanding. Our underlying assets
collateralize the loans, and the underlying equipment obtained
through the lease agreements collateralizes each capitalized
lease.

Approximately $8.8 million of our debt at
September 30, 2002 was in the form of bank loans, of which
$3.8 million was a term loan and $5.0 million were
borrowings under a line of credit the size of which is based on
accounts receivable balances. The loans are subject to specific
financial covenants that are reported to the bank monthly. The
covenants (i) require minimum unrestricted cash, cash
equivalents and short term investments of $27.5 million,
(ii) provide that we cannot incur GAAP loss of more than
$137.0 million, $10.3 million, $7.6 million,
$4.7 million, $1.3 million for the quarters ended
September 30, 2002, March 31, 2003, June 30, 2003
and September 30, 2003 respectively, and (iii) require
that we maintain all US bank deposits at the bank. We were in
compliance with these covenants at September 30, 2002.

Any one or more of the following events would
constitute a default under the bank facility: payment default,
covenant default, the occurrence of a material adverse change,
default under certain other agreements, subordinated debt and
judgments, misrepresentations regarding information we have
disclosed to the bank, and insolvency. Upon the occurrence of a
default the bank may declare all obligations due and payable
immediately, settle or adjust disputes and claims directly with
account debtors for amounts that the bank considers advisable,
make such payments as necessary to protect its security interest
in the collateral, apply company balances held by the bank to
the obligations, and sell the collateral.

We violated the minimum cash balance covenants
for the months ending October and November 2002. The bank waived
the covenant violations in December 2002. The Company is
currently negotiating to restructure its loan covenants, as it
is probable that it will be in violation of the maximum GAAP
loss covenants for the quarter ended December 31, 2002. In
December 2002, the bank prospectively waived this GAAP loss
covenant for the quarter ended December 31, 2002.
Accordingly, we have classified all amounts due as current under
this facility at September 30, 2002. If we were required to
repay the amounts borrowed under these loan arrangements, it
would reduce the amount of cash we have available for our
operations.

In September 2002, we executed a Lease
Termination Agreement on our Parkside facilities. The total
value of the lease termination, including cash and non-cash
items, was $54.0 million, with $17.9 million of
unrestricted cash paid in the September quarter and additional
$21.5 million provided in the form of a promissory note, of
which $5 million is payable on October 1, 2002 and
$16.5 million is paid the earlier of the sale of the
Bayside facilities or January 21, 2003. Non cash items
transferred to the lease provider included certain previously
purchased assets, five million shares of our common stock, and
permission to draw down a letter of credit provided as a
security deposit on the facility that was partially
collateralized by restricted cash investments. The promissory
note was paid in full in the December 2002 quarter.

In August 2000, we entered into a synthetic lease
agreement for our corporate headquarters in Foster City,
California. This operating lease is commonly referred to as a
synthetic lease because it represents a form of off-balance
sheet financing which an unrelated third-party funds 100% of the
costs of the acquisition of the property and leases the asset to
Inktomi as leasee. This structure required the creation and
maintenance of a cash collateral account that limited the
liquidity of $119.6 million of our cash, which was
classified as long-term on our balance sheet. On August 28,
2002, through the execution of a Termination and Release
Agreement, we exercised the purchase option under our lease and
title for the facilities was transferred to Inktomi in exchange
for $114.0 million. In December 2002, we sold the property
for $41.5 million and leased back the portion we now occupy.

At September 30, 2002, we had negative
working capital of $36.4 million, down from
$7.7 million at September 30, 2001. Our current
significant capital commitments consist of commitments under
operating

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leases of $37.7 million as well as our
agreement to pay cash consideration of $21.5 million in
connection with our Parkside lease termination. The
$21.5 million cash consideration was paid by
December 20, 2002.


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|                                               |  | Payments Due by Period
|                                               |  |                       
|Significant Contractual Cash Obligations       |  |                        |      | Less than |  | 1-3   |      | After 3
|At September 30, 2002 (in millions)            |  | Total                  |      | 1 year    |  | years |      | years  
|                                               |  |                        |      |           |  |       |      |        
|Operating leases                               |  | $                      | 37.7 |           |  | $     | 7.4  |         |  | $ | 12.1 |  |  | $ | 18.2 | 
|Payment for Parkside lease termination         |  | $                      | 21.5 |           |  | $     | 21.5 |         |  |   |     |  |  |   |     | 
|                                               |  |                        |      |           |  |       |      |         |  |   |      |  |  |   |      | 
|Total significant contractual cash obligations |  | $                      | 59.2 |           |  | $     | 28.9 |         |  | $ | 12.1 |  |  | $ | 18.2 | 
|                                               |  |                        |      |           |  |       |      |         |  |   |      |  |  |   |      | 

On December 20, 2002, we completed the sale
of our Bayside corporate headquarters and also entered into a
five-year lease with the facilities new owner for the
portion of the property that we occupy for an aggregate lease
commitment of approximately $2 million per year for a total
of $9.8 million, net of costs. The lease may also be
terminated at our election after two years in exchange for a fee.

In December 2002, we sold our Enterprise Search
division for $25.0 million, with $22.0 million paid to
us in the period and an additional $3.0 million,
potentially offset by any claims that may arise during the
interim period, to be paid in June 2004.

In December 2001, our Board of Directors approved
a $5 million revolving line of credit to our Chief
Executive Officer. In December 2001, we provided loans to our
Chief Executive Officer totaling $4.7 million of which
$2.7 million was repaid prior to December 31, 2001.
During the quarter ended March 31, 2002, we provided loans
to our Chief Executive Officer totaling $0.9 million of
which $0.1 was repaid prior to March 31, 2002. During the
quarter ended June 30, 2002, we provided loans to our Chief
Executive Officer totaling $2.1 million. As of
September 30, 2002, total loans outstanding and total
accrued interest to our Chief Executive Officer were
approximately $4.9 million and $160,000, respectively.
These loans are unsecured and are represented by full recourse
promissory notes accruing interest at the rate of 6% per annum.
Each loan, plus any accrued unpaid interest, will become due the
earlier of either two years from the grant date of the
individual loan or the date that our Chief Executive Officer
leaves the Company. All after tax proceeds of compensatory
bonuses and 50% of after tax proceeds from sales of Company
stock must be used to pay down the loans outstanding. The first
loans will become due in December 2003.

Our capital and liquidity requirements depend on
numerous factors, including market acceptance of our products
and services, economic conditions impacting our revenue
generation, the resources we devote to developing, marketing,
selling and supporting our products and services, the timing and
extent of establishing and consolidating international
operations, the resources we commit to facilities, the extent
and timing our investments, the value of our investments in
equity securities and real estate, acquisition costs, and the
ability to raise capital and other factors. For the years ended
September 30, 2002, 2001 and 2000, the Company has incurred
losses from operations of $506.6 million,
$240.0 million and $42.5 million, respectively, and
negative cash flows from operations for the years ended
September 30, 2002 and 2001 of $116.9 million and
$74.9, respectively. We have historically relied upon proceeds
from equity offerings to fund operations. During 2002, we
undertook restructurings to reduce costs and to reduce cash
outflows from operations. As described in Note 19 to the
Financial Statements, subsequent to September 30, 2002 the
Company completed the sale of the Enterprise Search Division for
net proceeds of $25.0 million and the sale of its corporate
headquarters for net proceeds of $41.6 million. As further
described in Note 19 to the Financial Statements the
Company also implemented subsequent to September 30, 2002 a
restructuring plan in order to reduce the operating expenses on
an ongoing basis. These activities generated cash flows needed
for our operations. Management believes it has adequate cash
resources to fund operations for at least until December 2003
with these additional subsequent cash flows and continued
efforts on pursuing increased revenues and monitoring expenses.

Other Matters

At a meeting held on December 10, 2002, our
Audit Committee approved future non-audit tax services,
including tax planning and tax compliance, to be performed by
PricewaterhouseCoopers in fiscal 2003. The Audit Committee also
approved other non-audit services to be performed by
PricewaterhouseCoopers in fiscal

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2003, including transaction services such as pre-
and post-acquisition activities and due diligence, where the
aggregate fees for such services did not exceed $50,000. The
Chairman of the Audit Committee has been delegated the authority
to approve these other non-audit services to the extent they
exceed $50,000.


Factors Affecting Operating Results

Interested persons should carefully consider the
risks described below in evaluating us. Additional risks and
uncertainties not presently known to us or that we currently
consider immaterial may also impair our business operations. If
any of the following risks actually occur, our business,
financial condition or results of operations could be materially
adversely affected. In that case, the trading price of our
common stock could decline.

If we do not increase our revenues, we will
fail to achieve or sustain operating
profitability.

We are not currently profitable, and our revenues
have declined in recent periods. To achieve and sustain
operating profitability on a quarterly and annual basis, we will
need to increase our revenue associated with our Web search
services. We plan to continue to invest in technology and
marketing to develop and improve our products and services and
increase market share, but these investments and expenditures
may not result in increased revenues. In the future, our
revenues may continue to decline, remain flat, or grow at a slow
rate, particularly in light of the current market environment.

In the absence of substantial and sustained
revenue growth, we cannot predict when or if we will become
profitable. If we fail to achieve profitability or display
significant progress towards profitability, our stock price may
fall due to a lower perceived value, customers may defer or
delay purchases based on our financial condition, our
relationships with our partners and distributors may suffer, and
we may breach financial covenants in our financial arrangements.

Our operating expenses are largely based on
anticipated revenue trends and a high percentage of our expenses
are fixed in the short term. Despite our recent workforce
reductions, we expect to continue to make appropriate
investments to develop and market products for the information
retrieval markets, improve our customer support capabilities,
develop new distribution channels, and fund of research and
development. These investments and expenditures may not result
in increased revenues in the near term, if at all.

Recent restructuring efforts have resulted
in our recognizing substantial charges. These restructuring
efforts may not improve our operating results or financial
condition and there exists uncertainty as to whether these
actions will be successful.

In order to reduce our recurring losses, we have
taken a number of actions to reduce our expenses. In fiscal year
2002 and continuing in October 2002, we implemented
restructuring initiatives where we consolidated operations,
closed certain branch offices, reduced headcount across all
business units, sold certain assets and reduced our content
networking products group. In the event these restructurings
were implemented too late or at insufficient levels, our
expenses will be too great over coming periods to achieve
profitability. In addition, there is a risk that these
cost-cutting actions will impair our ability to effectively
develop and market products and services and remain competitive
in the industries in which we compete. In the future, we may
undertake additional expense reducing actions that may involve
one-time expenditures related to severance, facilities or real
estate. The impact of these one-time expenses on our financial
statements may adversely impact our perceived value.

If customers choose not to use or promote
our Web search services, our revenue will decrease and our
growth opportunities will suffer.

Revenues from our Web search services result
primarily from the number of end-user searches processed by our
Search Engine. Our agreements with customers do not require them
to direct end-users to our search services or to use our search
services exclusively or at all. Accordingly, revenues from
search services are highly dependent upon the willingness of
customers to promote and use the search services we provide, the
ability of our customers to attract end-users to their online
services, the volume of end-user searches that are

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processed by our Web search services, and the
ability of customers to monetize traffic from their Web site
search pages. Some of our customers have selected competing
search and directory services to operate in combination with our
services, which has reduced the number of queries available for
us to serve and may erode future revenue growth opportunities.
The technological barriers for customers to implement additional
services or to replace our services are not substantial.


The declining market for Internet portals
has limited the market opportunities for our Web search services
business and has adversely affected demand for our services.
Consequently, our Web search revenues are largely dependent upon
a relatively small number of large portal
customers.

Many of our smaller search services customers
have elected not to renew their contracts and our market
opportunity from portals has become more limited. Many smaller
and medium size portals are not profitable, suffer from
declining revenue growth and have limited access to capital to
fund operational needs, which has resulted in consolidation in
the portal industry. In addition, many portals are terminating
their operations. As a result, our Web search revenues have
become increasingly dependent on a relatively few number of
major customers. Economic conditions may lead such customers to
stop paying for Web search services, to only pay for such
services at highly reduced rates or to leave our services in
favor of competitors offering Web search services bundled with
other offerings. In order for us to increase revenues from our
Web search services business, we will need to attract new
customers, develop and deliver new search services, products and
features to existing and future customers, establish deeper
strategic relationships with our customers, and increase the
adoption of our Index Connect and Search Submit search marketing
solutions for content publishers.

A large percentage of our current revenue
is dependent on one customer and if this customer stops
utilizing our search services, our revenues will
decline.

Our Web search revenue is dependent upon the
distribution channel provided through the portal customers
serving our search queries. Should any significant portal
customer reduce or stop utilizing our search services our search
marketing solutions revenue would decline. Currently, Microsoft
is our largest portal customer, accounting for $9.8 million
in Web search services revenue for the fiscal year ended
September 30, 2002 and representing 20.8% of total Web
search services revenue for this period. Microsofts Web
search services agreement with us expires in April 2003 and we
do not know whether Microsoft intends to renew this agreement
upon its expiration or, if this agreement is renewed, whether it
will be renewed on the same terms and conditions as currently
exist. Should Microsoft cease to be a customer, our business and
financial condition would be materially and adversely affected.
In addition, AOL, one of our largest portal customers, did not
renew its Web search services agreement with us when it expired
in August 2002. For the fiscal year ended September 30,
2002, AOL represented $8.3 million in Web search services
revenue representing 17.5% of total Web search services revenue
for this period. Revenues from our Web search services decreased
as a result of the loss of AOL as a customer.

The shift in our focus away from the
content networking market could have a material adverse effect
on our operating results.

Our shift in strategy away from content
networking will likely reduce the average size of our software
transactions and corresponding services revenue. We expect
revenues from content networking to be insignificant going
forward. In order to maintain existing revenue levels or achieve
any revenue growth, we will need to significantly increase
revenue from our existing Web search services business. Since
the quarter ended December 2000, we have experienced a decline
in licenses revenue from sales of our content networking
software products. In July 2002, we announced a shift in our
strategy to reduce our investment in our content networking
products group and focus our business on the Web search services
and enterprise search software markets. In December 2002, we
consummated the sale of our enterprise search business. We may
not be able to increase our Web search revenues in amounts
sufficient to offset lost revenues from our content networking
business. Although we intend to continue to support customers
who purchased our content networking software products and
partners marketing such products, such customers and partners
may view our strategic shift as a breach of certain obligations
we have to them. If these customers and partners were to bring or

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threaten legal action against us, defending these
actions could be costly to defend, time-consuming and
distracting to our management team.


We operate in a highly competitive and
rapidly changing market, and our inability to compete
successfully against new entrants and established companies
could result in a loss of market share, fewer customer orders,
price reductions, reduced gross margins and otherwise adversely
harm our financial results.

We compete in markets that are new, intensely
competitive, highly fragmented and rapidly changing. We have
experienced and expect to continue to experience increased
competition from current and potential competitors, many of
which are bringing new solutions to market, establishing
technology alliances and OEM relationships with larger
companies, and focusing on specific segments of our target
markets. In some cases, our competitors are implementing
aggressive pricing and other strategies that are focused in the
short term on building customer bases, name recognition in the
market and capturing market share. This may cause some price
pressure on our products and services in the future. We compete
with a number of companies to provide Internet search and
directory services and technology. In the Web services
marketplace, our primary competitors include a variety of
established and newer companies, including AltaVista, Ask
Jeeves, FAST Search and Transfer, Google, Overture, Look-Smart,
and Northern Light. These companies and other competitors have
focused on search result relevance, database size metrics and
ease of use to differentiate their services. In addition,
several large media and other Internet-based companies have made
investments in, or acquired, Internet search engine companies
and may seek to develop or customize their products and services
to deliver to our target customers.

Our competitors may be able to respond more
quickly to new or emerging technologies and changes in customer
requirements than we can. In addition, our current and potential
competitors may bundle their products with other software
services, or hardware, including operating systems, browsers and
network hardware in a manner that may discourage users from
purchasing services offered by us. Also, current and potential
competitors have or may have greater name recognition, more
extensive customer bases and access to proprietary content.
Increased competition could result in price reductions, fewer
customer orders, fewer search queries served, reduced gross
margins and loss of market share.

We may lose customers and our business will
suffer if we do not develop, license or acquire new services,
products or technologies or deliver enhancements to existing
products and services on a timely and cost-effective
basis.

The markets that we target for our Web search
services are characterized by rapid technological change,
frequent new product introductions, changes in customer
requirements and evolving industry standards. The introduction
of services embodying new technologies and the emergence of new
industry standards could render our existing services obsolete.
Our future success and revenue growth will depend upon our
ability to develop, acquire and introduce a variety of new
services and service enhancements to address the increasingly
sophisticated needs of our customers. We have experienced delays
in releasing new services and product enhancements and may
experience similar delays in the future. Material delays in
introducing new services and enhancements may cause customers to
forego purchases of our services or to purchase those of our
competitors.

If the use of the internet, intranets,
extranets, corporate portals and web portals does not grow as
anticipated, our business opportunities would be seriously
limited.

Sales of our products and services are dependent
upon the development and expand use of corporate intranets,
extranets, portals and Websites. Global acceptance and use of
these mediums may not continue to develop at recent historical
rates. The lack of growing use or initial adoption of these
mediums by our targeted customers and their end user customers
would impair demand for our products and services and would
adversely affect our ability to sell our products and services.
Demand and market acceptance for our products and services aimed
at servicing intranets, extranets, portals and Websites are
subject to a high level of uncertainty and there exist few
proven services and products. Our paid inclusion business model
relies on the

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willingness of retailers and service providers to
allocate marketing funds to online programs. Our business would
be adversely impacted if online marketing programs become an
unpopular business tool.


If we do not continue to improve the
effectiveness and breadth of our sales personnel, we will have
difficulty acquiring and retaining customers.

Our products and services often require
sophisticated sales efforts targeted at a limited number of key
people within a prospective customers organization.
Because the market for our products and services is relatively
new, many prospective customers are unfamiliar with the services
we offer. As a result, our sales effort requires highly trained
sales personnel. Competition for qualified sales personnel is
intense, and we might not be able to hire the kind and number of
sales personnel we are targeting. If we are unable to continue
to improve our direct sales operations, we may not be able to
increase market awareness and sales of our products and
services, which may prevent us from growing our revenue and
achieving and maintaining profitability.

If we do not attract and retain highly
trained customer service and support personnel, we will have
difficulty acquiring and retaining customers.

We require highly trained customer service and
support personnel to support our services and products and these
personnel are difficult to replace. We currently have a
relatively small customer service and support organization and
will need to continue to provide extensive training to our staff
to enable them to support new customers, new product lines, and
the expanding needs of existing customers. Competition for
customer service and support personnel is intense in our
industry due to the limited number of people available with the
necessary technical skills and understanding of the relevant
industries.

If we do not establish and maintain
productive relationships with distribution partners who have
technical and marketing expertise and who we are able to train
in our products and services, we will be unable to develop our
business and increase revenue.

Our future revenue growth is dependent upon
establishing and maintaining productive relationships with a
variety of distribution partners, including OEMs, resellers, and
joint marketing partners. We seek to sign up distribution
partners that have a substantial amount of technical and
marketing expertise. Even with this expertise, our distribution
partners generally require a significant amount of training and
support from us before they develop the expertise and skills
necessary to effectively sell our products. Particularly, we may
be adversely affected if resellers of our paid inclusion
products fail to maintain their efforts towards promoting our
services.

We generate a significant portion of our
revenue from a limited number of customers and, consequently,
the loss of a key customer could adversely affect our revenues
and be perceived as a loss of momentum in our
business.

We have generated a substantial portion of our
historical revenues from a limited number of customers. We
expect that a small number of portal customers and paid
inclusion customers will continue to account for a substantial
portion of revenues for the foreseeable future. As a result, if
we lose a major customer for any reason, including non-renewal
of a customer contract or a failure to meet performance
requirements, or if there is a decline in usage of any
customers search service, our revenues would be adversely
affected. AOL, one of our major portal customers, did not renew
its Web search services agreement with us when it expired. As a
result of AOL ceasing to be a customer, a significant amount of
our Web search services revenue is dependent either directly or
indirectly on Microsoft. Should Microsoft cease to be a customer
our business and financial condition would be materially and
adversely impacted. Our potential customers and public market
analysts or investors may perceive any loss of a major portal or
paid inclusion customer as a loss of momentum in our business,
which may adversely affect future opportunities to sell our
products and services and cause our stock price to decline. We
cannot be sure that customers that have accounted for
significant revenues in past periods, individually or as a
group, will continue to generate revenues in any future period.

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If we are unable to maintain our
relationships with partners, companies that supply and
distribute our products, and customers, we may have difficulty
selling our products and services.

We believe that our success in penetrating our
target markets depends in part on our ability to develop and
maintain strategic relationships. We believe these relationships
are important in order to validate our technology, facilitate
broad market acceptance of our products and services, enhance
our product and service offerings, and expand our sales,
marketing and distribution capabilities. If we are unable to
develop these key relationships or maintain and enhance existing
relationships across our entire product and service offerings,
we may have difficulty generating revenues.

We license software components that are
necessary to our products and services, and the loss of access
to this software or any decline or obsolescence in its
functionality could harm our revenues and increase our
costs.

We have from time to time licensed components
from others such as reporting functions, security features, and
internalization capabilities, and incorporated them into our
products and services. If these licensed components are not
maintained, it could impair the functionality of our products
and services and require us to obtain alternative products from
other sources or to develop this software internally. In either
case, this could involve costs and delays and divert the
attention of our engineering resources.

Governmental regulation and the application
of existing laws to the Internet may increase our costs of doing
business and create potential liability for the dissemination of
information over the Internet.

Our products and services operate in part by
making copies of material available on the Internet and other
networks and making this material available to end-users from a
central location or local systems. In addition, our Web search
services collect end-user information, which we use to deliver
services to our customers, and our customers use to deliver
services to their users. This creates the potential for claims
to be made against us (either directly or through contractual
indemnification provisions with customers) for defamation,
negligence, copyright or trademark infringement, personal
injury, invasion of privacy or under other legal theories based
on the nature, content, copying, dissemination, collection or
use of these materials. These claims have been threatened
against us from time to time and have been brought, and
sometimes successfully pressed, against online service
providers. It is also possible that if any information provided
through any of our products or services contains errors, third
parties could make claims against us for losses incurred in
reliance on this information. Although we carry general
liability insurance, our insurance may not cover potential
claims of this type or be adequate to protect us from all
liability that may be imposed.

Internet-related laws could adversely
affect our business by increasing our costs of doing business
and resulting potential liability.

Laws and regulations that apply to communications
and commerce over the Internet are becoming more prevalent. The
United States Congress has enacted Internet laws regarding
childrens privacy, copyrights, taxation and the
transmission of sexually explicit material. The European Union
has enacted its own privacy regulations as well as legislation
governing e-commerce, copyrights and caching. The law of the
Internet, however, remains largely unsettled, even in areas
where there has been some legislative action. It may take years
to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation
apply to the Internet. In addition, the growth and development
of the market for online commerce may prompt calls for more
stringent consumer protection laws, both in the United States
and abroad, that may impose additional burdens on companies
conducting business online. The adoption, implementation or
modification of laws and regulations relating to the Internet,
or interpretations of existing law, could adversely affect our
business.

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Our recent sale of our enterprise search
software business to Verity and the announcement of the sale of
our business to Yahoo could impair existing relationships with
our suppliers, customers, strategic partners and employees,
which could have an adverse effect on our business and financial
results.

The recent closing of the sale of our enterprise
search software assets to Verity and the public announcement
that we have entered into a definitive merger agreement with
Yahoo, Inc. could substantially impair important business
relationships because of uncertainty regarding our future
strategic direction and the distraction completing these
transactions will create. Impairment of these business
relationships could reduce revenues or increase expenses, either
of which could harm our financial results. Specific examples of
situations in which we could experience problems include the
following:



| |   |                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | supplier, distributors or customers could decide
    to cancel or terminate existing arrangements, or fail to renew
    those arrangements, as a result of either the asset sale or the
    pending merger with Yahoo;                                      
|
| |  | our employees may be distracted by concerns about
    the asset sale or the pending merger with Yahoo and therefore
    may not meet critical deadlines in their assigned tasks or
    otherwise perform effectively;                                       
|
| |  | our management personnel may be distracted from
    day to day operations by the time demands associated with these
    significant corporate transactions and therefore may be unable
    to timely identify and address business issues as they arise; and
|
| |  | other current or prospective employees may
    experience uncertainty about their future roles with us, which
    could adversely affect our ability to attract and retain key
    management, sales, marketing and technical personnel.                    

Our future success is dependent on our
ability to attract and retain experienced and capable personnel
and our business will therefore suffer if we are unable to
attract or retain the highest qualified personnel necessary for
our success.

Our primary asset is the intellectual
capabilities of our employees. We are therefore dependent on
recruiting and retaining a strong team of personnel across all
functional areas. Competition for these individuals is intense,
and we may not be able to attract or retain the highly qualified
personnel necessary for our success. Our employment
relationships are generally at-will. We have had key employees
leave us in the past and we can make no assurance that one or
more will not leave us in the future. If any of our key
employees were to leave us, we could face substantial difficulty
in hiring qualified successors and could experience a loss in
productivity while any such successor obtains the necessary
training and experience. Many of our key employees have reached
or will soon reach the four-year anniversary of their hiring
date and will be fully vested in their initial stock option
grants. While our key employees are typically granted additional
stock options to provide additional incentive to remain with us,
the initial option grant is typically the largest and an
employee may be more likely to leave us upon completion of the
vesting period for the initial option grant. In addition, we
must continue to motivate employees and keep them focused on our
strategies and goals, which may be difficult due to morale
challenges posed by our workforce reductions and general
uncertainty about the economy. In light of current market
conditions, we may undertake programs to retain our employees
that may be viewed as dilutive to our shareholders. We do not
have key person life insurance policies covering any of our
employees other than our Chief Executive Officer.

Our efforts to increase our presence in
markets outside of the United States may be unsuccessful and
could result in losses.

We market and sell our products in the United
States and internationally, principally Europe and Asia.
Historically, the percentage of sales to customers located
outside of the United States has varied from quarter to quarter,
reflecting the limited build-out of our international
operations. We have limited experience in developing localized
versions of our products and marketing and distributing our
products internationally. Inherent risks may apply to
international markets and operations, including:



| |   |                                                                     
| | - | --------------------------------------------------------------------
| |  | the impact of recessions in economies outside the
    United States;

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| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | greater difficulty in accounts receivable
    collection and longer collection periods;        
|
| |  | the impact of changes in foreign currencies, in
    particular the EUs conversion to the Euro;
|
| |  | unexpected changes in regulatory requirements;                                                 
|
| |  | difficulties and costs of staffing and managing
    foreign operations;                        
|
| |  | potentially adverse tax consequences; and                                                      
|
| |  | political and economic instability.                                                            

We also have limited experience operating in
foreign countries and managing multiple offices with facilities
and personnel in disparate locations. We may have difficulties
coordinating our efforts, supervising and training our personnel
or otherwise successfully managing our resources in these
foreign countries. The laws and cultural requirements in foreign
countries can vary significantly from those in the United
States. The inability to integrate our business in these
jurisdictions and to address cultural differences may adversely
affect the success of our international operations.

We are currently the subject of a lawsuit
by Network Caching Technology and other third parties could
assert that our products infringe their intellectual property
rights. Such claims could be expensive to defend, distracting to
management, and adversely affect our ability to sell our
products.

Substantial litigation regarding intellectual
property rights exists in the software industry. We expect that
software products may be increasingly vulnerable to third party
infringement claims as the number of competitors in our industry
segments grow and the functionality of products in different
industry segments overlaps. We believe that many companies have
filed or intend to file patent applications covering aspects of
their technology that they may claim our technology infringes.
Some of these companies have sent copies of their patents to us
for informational purposes. We cannot be sure that these parties
will not make a claim of infringement against us with respect to
our products and technology. In August 2001, Network Caching
Technology L.L.C. (NCT) initiated an action against us that
our caching products violate one or more patents owned by NCT.
The complaint seeks compensatory and other damages and
injunctive relief. This case, and any future actions initiated
against us, including an action brought by Teknowledge
Corporation which was filed on October 2002, will be time
consuming and expensive to defend, will distract
managements attention and resources, and could cause
product shipment delays or require us to reengineer our products
or enter into royalty or licensing agreements. We do not expect
to have any significant shipments going forward. Such royalty or
licensing agreements, if required, may not be available on
acceptable terms, if at all.

Anti-takeover provisions contained in our
charter and under Delaware law could impair a takeover
attempt.

We are subject to the provisions of
Section 203 of the Delaware General Corporation Law
prohibiting, under some circumstances, publicly held Delaware
corporations from engaging in business combinations with some
stockholders for a specified period of time without the approval
of the holders of substantially all of our outstanding voting
stock. Such provisions could delay or impede the removal of
incumbent directors and could make more difficult a merger,
tender offer or proxy contest involving us, even if such events
could be beneficial, in the short term, to the interests of the
stockholders. In addition, such provisions could limit the price
that some investors might be willing to pay in the future for
shares of our Common Stock. These provisions, in addition to
provisions contained in our charter, may have the effect of
deterring hostile takeovers or delaying changes in our control
or management.

Our stock price is volatile.

The market price of our Common Stock has been and
may continue to be subject to wide fluctuations. Our stock price
may fluctuate in response to a number of events and factors,
such as quarterly variations in operating results, announcements
of technological innovations, new products or services or
changing customer relationships by us or our competitors,
announcements of technological alliances and partnerships,
changes in financial estimates and recommendations by securities
analysts, the operating and stock price performance of

38



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##### Table of Contents



other companies that investors may deem
comparable, and news reports relating to trends in our markets.
In addition, the stock market in general, and the market prices
for technology-related companies in particular, have experienced
extreme volatility that often has been unrelated to the
operating performance of such companies. These broad market and
industry fluctuations may adversely affect the price of our
stock, regardless of our operating performance. In the past,
companies that have experienced volatility in the market price
of their stock have been the subjects of securities class action
litigation. If we were the subject of securities class action
litigation, it could result in substantial costs and a diversion
of managements attention and resources.





Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk

We do not use derivative financial instruments to
hedge interest rate and foreign currency exposure. We limit our
interest rate risks by placing our marketable securities
investments with high quality issuers principally in United
States government and corporate debt securities with terms of
less than two years. We do not expect any material losses from
our marketable securities investments and believe that our
interest rate exposure is modest. We sell our products and
services in the United States and abroad. We expect sales of
software products to be insignificant going forward.
Historically, the percentage of sales to customers located
outside the United States has varied substantially. We currently
transact substantially all of our revenues, whether domestic or
abroad, in United States currency. Our expenditures and
consolidated financial results could be affected by a change in
the exchange rate of the U.S. Dollar versus a foreign
currency.

We are exposed to interest rate risk primarily in
our investment portfolio and historically on our synthetic
lease. We do not use derivative financial instruments to hedge
interest rate risk. The primary objective of our investment
activities is to preserve the principal while maximizing yields
without significantly increasing risk. This is accomplished by
placing our marketable securities investments with high quality
issuers principally in United States government and corporate
debt securities with terms of less than two years.

Under our notes payable agreements (see Note 6 to
the Financial Statements), we have borrowed $30.0 million
as of September 30, 2002. The notes payable have a variable
interest rate at approximately zero to 3% above prime.

The following table presents the amounts of our
cash and cash equivalents and short-term investments that are
subject to interest rate risk by year of expected
maturity/expiration of the selected interest rate terms as of
September 30, 2002:

|                        |                       |                |        |         |   |       |       |      |   |   |        |  | 
|----------------------- | --------------------- | -------------- | ------ | ------- | - | ----- | ----- | ---- | - | - | ------ |  | 
|                        |                       | FY 2002        |        | FY 2003 |   | Total
|                        |                       |                |        |         |   |      
|                        |                       |               
|                        |                       | (In thousands)
|Cash & Cash Equivalents |                       | $              | 17,292 |         |   |       |      |      |   | $ | 17,292 | 
|                        | Average Interest Rate |                |        | 0.87    | % |       |       |     |   |   |        |  | 
|Short-term Investments  |                       | $              | 24,931 |         |   | $     | 3,184 |      |   | $ | 28,115 | 
|                        | Average Interest Rate |                |        | 2.61    | % |       |       | 3.04 | % |   |        |  | 

The effect of changes in interest rates of +/-10%
over a next twelve month horizon would result in a less than a
$0.1 million impact to interest expense, after considering
the full payment of the Parkside lease termination note of
$21.5 million in December 2002, and would not have a
material effect on the fair market value of the interest rate
bearing securities in our investment portfolio.




Item 8.     Consolidated
Financial Statements and Supplementary Data

The Consolidated Financial Statements and
Supplementary Data required by this Item are set forth at the
pages indicated in Item 14(a).

Quarterly Results of Operations

The following table presents our operating
results for each of the eight quarters in the period ending
September 30, 2002. The information for each of these
quarters is unaudited and has been prepared on the

39



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same basis as the audited consolidated financial
statements. In the opinion of management, all necessary
adjustments (consisting only of normal recurring adjustments)
have been included to present fairly the unaudited quarterly
results when read in conjunction with our audited consolidated
financial statements and the notes thereto appearing elsewhere
in this Annual Report on Form 10-K. These operating results
are not necessarily indicative of the results of any future
period.


|                                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |         |         |  
|------------------------------------ | ------------------------------------------------------------------- | ------------------------------------------------ | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ------- | -------- | ------- | - | ------- | ------- | ------- | - | -------- | ------- | -------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                     |                                                                     |                                                 
|                                     |                                                                     | For the Quarters Ended                          
|                                     |                                                                     |                                                 
|                                     |                                                                     | Sep. 30,                                         |          | Jun. 30, |          | Mar. 31, |          | Dec. 31, |          | Sep. 30, |          | Jun. 30, |          | Mar. 31, |         | Dec. 31,
|                                     |                                                                     | 2002                                             |          | 2002     |          | 2002     |          | 2001     |          | 2001     |          | 2001     |          | 2001     |         | 2000    
|                                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |         
|                                     |                                                                     |                                                 
|                                     |                                                                     | (Unaudited, in thousands, except per share data)
|Revenues                             |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|                                     | Licenses                                                            |                                                  | $        | 4,186    |          |          | $        | 4,772    |          |          | $        | 11,201   |          |          | $       | 21,059   |         |   | $       | 17,772  |         |   | $        | 20,068  |          |   | $       | 17,676  |         |   | $       | 51,221  |        
|                                     | Web search services                                                 |                                                  |          | 11,522   |          |          |          | 13,139   |          |          |          | 11,795   |          |          |         | 10,628   |         |   |         | 12,011  |         |   |          | 11,374  |          |   |         | 12,946  |         |   |         | 14,956  |        
|                                     | Maintenance services                                                |                                                  |          | 3,800    |          |          |          | 4,470    |          |          |          | 4,554    |          |          |         | 4,201    |         |   |         | 5,893   |         |   |          | 4,745   |          |   |         | 5,147   |         |   |         | 5,897   |        
|                                     | Other Services                                                      |                                                  |          | 941      |          |          |          | 1,440    |          |          |          | 1,901    |          |          |         | 3,096    |         |   |         | 3,337   |         |   |          | 3,373   |          |   |         | 3,716   |         |   |         | 8,430   |        
|                                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|                                     |                                                                     | Total revenues                                   |          |          | 20,449   |          |          |          | 23,821   |          |          |          | 29,451   |          |         |          | 38,984  |   |         |         | 39,013  |   |          |         | 39,560   |   |         |         | 39,485  |   |         |         | 80,504  |  
|Cost of Revenues                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|                                     | Licenses                                                            |                                                  |          | 656      |          |          |          | 882      |          |          |          | 955      |          |          |         | 1,095    |         |   |         | 1,701   |         |   |          | 1,845   |          |   |         | 629     |         |   |         | 2,102   |        
|                                     | Web search services                                                 |                                                  |          | 3,960    |          |          |          | 3,608    |          |          |          | 3,419    |          |          |         | 4,277    |         |   |         | 5,574   |         |   |          | 6,369   |          |   |         | 6,458   |         |   |         | 6,254   |        
|                                     | Maintenance services                                                |                                                  |          | 584      |          |          |          | 1,119    |          |          |          | 1,203    |          |          |         | 1,265    |         |   |         | 1,276   |         |   |          | 1,544   |          |   |         | 1,673   |         |   |         | 1,423   |        
|                                     | Other Services                                                      |                                                  |          | 998      |          |          |          | 1,044    |          |          |          | 1,137    |          |          |         | 2,287    |         |   |         | 1,602   |         |   |          | 1,635   |          |   |         | 4,609   |         |   |         | 4,483   |        
|                                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|                                     |                                                                     | Total cost of revenues                           |          |          | 6,198    |          |          |          | 6,653    |          |          |          | 6,714    |          |         |          | 8,924   |   |         |         | 10,153  |   |          |         | 11,393   |   |         |         | 13,369  |   |         |         | 14,262  |  
|Gross Profit                         |                                                                     |                                                  | 14,251   |          |          |          | 17,168   |          |          |          | 22,737   |          |          |          | 30,060  |          |         |   | 28,860  |         |         |   | 28,167   |         |          |   | 26,116  |         |         |   | 66,242  |        
|Operating expenses:                  |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|                                     | Sales and marketing                                                 |                                                  |          | 11,479   |          |          |          | 17,224   |          |          |          | 19,332   |          |          |         | 20,878   |         |   |         | 26,746  |         |   |          | 29,837  |          |   |         | 37,915  |         |   |         | 44,571  |        
|                                     | Research and development                                            |                                                  |          | 10,121   |          |          |          | 13,635   |          |          |          | 13,419   |          |          |         | 14,137   |         |   |         | 16,368  |         |   |          | 17,776  |          |   |         | 22,283  |         |   |         | 21,498  |        
|                                     | General and administrative                                          |                                                  |          | 2,599    |          |          |          | 2,973    |          |          |          | 4,221    |          |          |         | 5,179    |         |   |         | 6,112   |         |   |          | 5,733   |          |   |         | 6,812   |         |   |         | 5,924   |        
|                                     | Amortization of intangibles and other assets                        |                                                  |          | 79       |          |          |          | 16,709   |          |          |          | 16,709   |          |          |         | 16,709   |         |   |         | 16,557  |         |   |          | 18,353  |          |   |         | 19,308  |         |   |         | 16,208  |        
|                                     | Impairment of intangibles and other assets                          |                                                  |          |         |          |          |          | 200,865  |          |          |          |         |          |          |         | 1,750    |         |   |         | 2,600   |         |   |          | 42,315  |          |   |         |        |         |   |         |        |        
|                                     | Restructuring                                                       |                                                  |          | 14,937   |          |          |          | 2,220    |          |          |          |         |          |          |         | 2,712    |         |   |         | 6,576   |         |   |          | 5,051   |          |   |         |        |         |   |         |        |        
|                                     | Parkside lease restructuring and termination                        |                                                  |          | 5,378    |          |          |          |         |          |          |          | 74,608   |          |          |         |         |         |   |         |        |         |   |          |        |          |   |         |        |         |   |         |        |        
|                                     | Impairment of fixed assets                                          |                                                  |          | 101,682  |          |          |          |         |          |          |          |         |          |          |         | 1,300    |         |   |         | 706     |         |   |          | 198     |          |   |         |        |         |   |         |        |        
|                                     | Purchased in-process research and development                       |                                                  |          |         |          |          |          |         |          |          |          |         |          |          |         |         |         |   |         |        |         |   |          |        |          |   |         |        |         |   |         | 430     |        
|                                     | Acquisition-related costs                                           |                                                  |          |         |          |          |          |         |          |          |          |         |          |          |         |         |         |   |         |        |         |   |          |        |          |   |         |        |         |   |         | 19,497  |        
|                                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|Total operating expenses             |                                                                     |                                                  | 146,275  |          |          |          | 253,626  |          |          |          | 128,289  |          |          |          | 62,665  |          |         |   | 75,665  |         |         |   | 119,263  |         |          |   | 86,318  |         |         |   | 108,128 |        
|                                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|Operating loss                       |                                                                     |                                                  | (132,024 | )        |          |          | (236,458 | )        |          |          | (105,552 | )        |          |          | (32,605 | )        |         |   | (46,805 | )       |         |   | (91,096  | )       |          |   | (60,202 | )       |         |   | (41,886 | )      
|Impairment of investments            |                                                                     |                                                  |         |          |          |          |         |          |          |          |         |          |          |          |        |          |         |   |        |         |         |   | (65,895  | )       |          |   |        |         |         |   |        |        
|Other income, net                    |                                                                     |                                                  | 611      |          |          |          | 901      |          |          |          | 1,728    |          |          |          | 3,363   |          |         |   | 1,924   |         |         |   | 2,101    |         |          |   | 2,320   |         |         |   | 3,995   |        
|                                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|Pretax loss                          |                                                                     |                                                  | (131,413 | )        |          |          | (235,557 | )        |          |          | (103,824 | )        |          |          | (29,242 | )        |         |   | (44,881 | )       |         |   | (154,890 | )       |          |   | (57,882 | )       |         |   | (37,891 | )      
|Income tax provision                 |                                                                     |                                                  | (219     | )        |          |          | (118     | )        |          |          | (223     | )        |          |          | (199    | )        |         |   | (145    | )       |         |   | (141     | )       |          |   | (436    | )       |         |   | (216    | )      
|                                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|                                     |                                                                     | Net loss                                         |          | $        | (131,632 | )        |          | $        | (235,675 | )        |          | $        | (104,047 | )        |         | $        | (29,441 | ) |         | $       | (45,026 | ) |          | $       | (155,031 | ) |         | $       | (58,318 | ) |         | $       | (38,107 | )
|                                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|Earnings per share:                  |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|                                     | Basic and diluted net loss per share                                |                                                  | $        | (0.87    | )        |          | $        | (1.62    | )        |          | $        | (0.72    | )        |          | $       | (0.22    | )       |   | $       | (0.35   | )       |   | $        | (1.22   | )        |   | $       | (0.46   | )       |   | $       | (0.31   | )      
|Weighted average shares outstanding: |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        
|                                     | Shares used in calculating basic and diluted net
    loss per share |                                                  |          | 152,037  |          |          |          | 145,666  |          |          |          | 144,073  |          |          |         | 133,660  |         |   |         | 127,487 |         |   |          | 126,755 |          |   |         | 125,731 |         |   |         | 124,452 |        
|                                     |                                                                     |                                                  |          |          |          |          |          |          |          |          |          |          |          |          |         |          |         |   |         |         |         |   |          |         |          |   |         |         |         |   |         |        

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

Not Applicable.




PART III




Item 10.     Directors
and Executive Officers of the Registrant

Information concerning our directors and
executive officers is incorporated by reference to the sections
entitled Proposal No. 1: Election of
Directors  Nominees and
Management  Executive Officers contained
in our definitive Proxy Statement with respect to our 2003
Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission not later than 120 days after the
end of the fiscal year covered by this Form 10-K.
Information concerning compliance with Section 16(a) of
the, Exchange Act of 1934 is incorporated by reference to the
section entitled Compliance with Section 16(a) of the
Exchange Act contained in our Proxy Statement.




Item 11.     Executive
Compensation

Information concerning executive compensation is
incorporated by reference to the sections entitled
Proposal No. 1: Election of Directors 
Director Compensation, Management 
Summary Compensation Table, Management 
Option Grants in Last Fiscal Year,
Management  Option Exercises in Last Fiscal
Year and Fiscal Year-End Option Values, and
Management  Employment Agreement
contained in our definitive Proxy Statement referred to in
Item 10 above.




Item 12.     Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

Information concerning the security ownership of
certain beneficial owners and management and related stockholder
matters is incorporated by reference to the section entitled
Information Concerning Solicitation and Voting Security
Ownership of Certain Beneficial Owners and Management
contained in the definitive Proxy Statement referred to in
Item 10 above.




Item 13.     Certain
Relationships and Related Transactions

Information concerning certain relationships is
incorporated by reference to the section entitled Certain
Transactions contained in our definitive Proxy Statement
referred to in Item 10 above.




Item 14.     Controls
and Procedures

(a) Evaluation
of disclosure controls and procedures

Within the 90 days prior to the filing of
this Annual Report on Form 10-K (the Evaluation
Date), we carried out an evaluation, under the supervision
and with the participation of our management, including our
Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Exchange Act). Based upon that evaluation,
our Chief Executive Officer and our Chief Financial Officer
concluded that our disclosure controls and procedures are
effective to ensure that material information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission rules and forms. It should be noted, however, that
the design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in
achieving its stated goals under all potential future
conditions, regardless of how remote.

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(b) Changes
in internal controls

Subsequent to the Evaluation Date, there have
been no significant changes in our internal controls or in other
factors that could significantly affect these controls
subsequent to the date of their last evaluation.




PART IV




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

(a) The following documents are filed as a
part of this report:

(1) Financial Statements:

|                                                                                                                           |  |      |     | 
|-------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                           |  | Page
|                                                                                                                           |  |     
|Report of Independent Accountants                                                                                          |  |      | F-1 | 
|Consolidated Balance Sheets at September 30,
    2002 and 2001                                                             |  |      | F-2 | 
|Consolidated Statements of Operations 
    Fiscal Years Ended September 30, 2002, 2001, and 2000                          |  |      | F-3 | 
|Consolidated Statements of Changes in
    Stockholders Equity  Fiscal Years Ended
    September 30, 2002, 2001, and 2000 |  |      | F-4 | 
|Consolidated Statements of Cash Flows 
    Fiscal Years Ended September 30, 2002, 2001, and 2000                          |  |      | F-5 | 
|Notes to Consolidated Financial Statements                                                                                 |  |      | F-6 | 

(2) Financial Statement Schedules:

The following financial statement schedule of
Inktomi for the years ended September 30, 2002,
September 30, 2001 and September 30, 2000 is filed as
part of this Annual Report and should be read in conjunction
with the Financial Statements of Inktomi:

Schedule II  Valuation and
Qualifying Accounts

|                                |      |                                                        |   |            |  |            |   |            |   |  |   |        |  |  |   |       | 
|------------------------------- | ---- | ------------------------------------------------------ | - | ---------- |  | ---------- | - | ---------- | - |  | - | ------ |  |  | - | ----- | 
|                                |      | Balance at                                             |   | Charged to |  | Write-Offs |   | Balance at
|                                |      | Beginning                                              |   | Costs and  |  | Net of     |   | End of    
|                                |      | of Year                                                |   | Expenses   |  | Recoveries |   | Year      
|(In thousands)                  |      |                                                        |   |            |  |            |   |           
|                                |      |                                                       
|                                |      | For the Years Ended September 30, 2002, 2001, and 2000
|Allowance for Doubtful Accounts |      |                                                        |   |            |  |            |   |            |   |  |   |        |  |  |   |      
|                                | 2002 |                                                        | $ | 4,910      |  |            | $ | (257       | ) |  | $ | 3,509  |  |  | $ | 1,144 | 
|                                | 2001 |                                                        | $ | 4,902      |  |            | $ | 10,544     |   |  | $ | 10,536 |  |  | $ | 4,910 | 
|                                | 2000 |                                                        | $ | 3,282      |  |            | $ | 6,366      |   |  | $ | 4,746  |  |  | $ | 4,902 | 

All other schedules are omitted because they are
not applicable or the required information is shown in
consolidated financial statements or notes thereto. Please also
see the Report on Schedule II prepared by our independent
accountants included on page F-43.

(3) Exhibits

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|        |    |             |  |                                                                                                                                                                    
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .2(3)       |  | Amended and Restated Certificate of Incorporation
    of Inktomi.                                                                                                  
|        | 3  | .2a(6)      |  | Amendment to Amended and Restated Certificate of
    Incorporation of Inktomi.                                                                                     
|        | 3  | .2b(11)     |  | Amendment to Amended and Restated Certificate of
    Incorporation of Inktomi.                                                                                     
|        | 3  | .4(3)       |  | Bylaws of Inktomi.                                                                                                                                                 
|        | 4  | .1(3)       |  | Specimen Common Stock Certificate.                                                                                                                                 
|        | 10 | .1(3)       |  | Form of Indemnification Agreement between Inktomi
    and each of its directors and officers.                                                                      
|        | 10 | .2(14)      |  | 1998 Stock Plan and form of agreement thereunder.                                                                                                                  
|        | 10 | .3(3)       |  | 1998 Employee Stock Purchase Plan and form of
    agreements thereunder.                                                                                           
|        | 10 | .4(3)       |  | 1996 Equity Incentive Plan and form of agreement
    thereunder.                                                                                                   
|        | 10 | .5(3)       |  | Fifth Amended and Restated Investors Rights
    Agreement dated as February 13, 1998 among Inktomi and
    certain of its security holders named therein.         
|        | 10 | .6(3)       |  | Executive Employment Agreement dated as of
    July 1, 1996 between Inktomi and David C. Peterschmidt.                                                             
|        | 10 | .7(10)      |  | Agreement of Sublease dated July 1, 1998 by
    and between Designs, Inc. and Atreve Software, Inc.                                                                
|        | 10 | .9(12)      |  | Ultraseek Stock Option Plan and form of agreement
    thereunder.                                                                                                  
|        | 10 | .10(11)     |  | Preferred Stock Rights Agreement dated as of
    August 10, 2000 between Inktomi and Wells Fargo Shareowners
    Services.                                         
|        | 10 | .11(4)      |  | C2B Technologies Inc. (formerly BeyondNews, Inc.)
    1997 Stock Plan and form of agreement thereunder.                                                            
|        | 10 | .12(2)      |  | Registration Rights Agreement dated
    September 25, 1998 between Inktomi and former stockholders
    of C2B Technologies Inc. (included in Exhibit 2.1).         
|        | 10 | .13(14)     |  | 1998 Nonstatutory Stock Option Plan and form of
    agreement thereunder.                                                                                          
|        | 10 | .14(5)      |  | Declaration of Registration Rights dated
    April 30, 1999 for the benefit of former Impulse! Buy
    Network, Inc. stockholders (included in Exhibit 2.2).       
|        | 10 | .15(1)      |  | Amended and Restated Loan and Security agreement
    dated as of September 2, 1998 between Inktomi and Silicon
    Valley Bank.                                    
|        | 10 | .16(6)      |  | Amendment dated January 28, 1999 to Amended
    and Restated Loan and Security Agreement dated as of
    September 2, 1998 between Inktomi and Silicon Valley Bank.
|        | 10 | .17(8)      |  | Impulse! Buy Network, Inc. 1997 Stock Plan and
    form of agreement thereunder.                                                                                   
|        | 10 | .18(9)      |  | WebSpective Software, Inc. (formerly Atreve
    Software, Inc.) 1997 Stock Option Plan and form of agreement
    thereunder.                                       
|        | 10 | .19(7)      |  | Declaration of Registration Rights dated
    October 1, 1999 for the benefit of former WebSpective
    Software, Inc. stockholders (included in Exhibit 2.3).      
|        | 10 | .20(14)     |  | Amendment to 1996 Equity Incentive Plan.                                                                                                                           
|        | 10 | .21(14)     |  | Amendment to C2B Technologies 1997 Stock Plan                                                                                                                      
|        | 10 | .22(14)     |  | Amendment to Impulse! Buy Network, Inc. 1997
    Stock Plan.                                                                                                       
|        | 10 | .23(14)     |  | Amendment to WebSpective Software, Inc. 1997
    Stock Plan.                                                                                                       
|        | 10 | .24(13)     |  | FastForward Networks, Inc. 1998 Stock Plan and
    form of agreement thereunder.                                                                                   
|        | 10 | .25(15)     |  | Amendment to the Ultraseek Stock Option Plan.                                                                                                                      
|        | 10 | .26(15)     |  | Amendment to the FastForward Networks, Inc. 1998
    Stock Plan.                                                                                                   
|        | 10 | .27(16)     |  | Promissory Note dated December 10, 2001
    executed by David Peterschmidt for the benefit of Inktomi
    Corporation.                                             
|        | 10 | .28(17)     |  | Registration Rights Agreement dated
    September 5, 2002 for the benefit of the landlords of our
    Parkside Towers office facility.                             
|        | 10 | .29(18)     |  | Loan Modification Agreement dated
    September 30, 2002 between Inktomi and Silicon Valley Bank.                                                                  

43



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                           
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .30(18)     |  | Registration Rights Agreement dated
    August 13, 2002 for the benefit of the former stockholders
    of Quiver, Inc.                                                                                                                                                    
|        | 10 | .31         |  | Portal Services Agreement between Inktomi
    Corporation and Microsoft Corporation dated October 28,
    1999 with amendments thereto dated June 1, 2000,
    January 17, 2001, May 1, 2001, June 13, 2001,
    March 5, 2002, October 1, 2002 and December 10,
    2002.
|        | 10 | .32         |  | Severance Agreement and Release dated
    December 17, 2002 between Inktomi and Dominic Gattuso.                                                                                                                                                                          
|        | 10 | .33         |  | Office Lease Agreement dated December 19,
    2002 between Walton Bayside Investors IV, L.L.C. and Inktomi
    Corporation.                                                                                                                                               
|        | 10 | .34         |  | Severance Agreement and Release dated
    December 17, 2002 between Inktomi and Keyur Patel.                                                                                                                                                                              
|        | 10 | .35         |  | Termination Letter dated April 9, 2002
    between Inktomi Corporation and Ted Hally.                                                                                                                                                                                     
|        | 10 | .36(19)     |  | Merger Agreement dated December 23, 2002
    between Inktomi, Yahoo! Inc. and a wholly owned subsidiary of
    Yahoo! Inc.                                                                                                                                                
|        | 21 | .1          |  | Subsidiaries                                                                                                                                                                                                                                                              
|        | 23 | .1          |  | Consent of PricewaterhouseCoopers, LLP                                                                                                                                                                                                                                    
|        | 99 | .1          |  | Certification of David C. Peterschmidt, Chief
    Executive Officer, pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                        
|        | 99 | .2          |  | Certification of Randy Gottfried, Chief Financial
    Officer, pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002                                                                                                                                              



---



|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference from Inktomis
    Registration Statement on Form S-1 (Reg.
    No. 333-66661), as amended.                                  
|   
|(2) | Incorporated by reference from Inktomis
    Current Report on Form 8-K filed with the Commission on
    October 9, 1998, as amended November 2, 1998. 
|   
|(3) | Incorporated by reference from Inktomis
    Registration Statement on Form S-1 (Reg.
    No. 333-50247), as amended.                                  
|   
|(4) | Incorporated by reference from Inktomis
    Registration Statement on Form S-8 (Reg.
    No. 333-71037).                                              
|   
|(5) | Incorporated by reference from Inktomis
    Current Report on Form 8-K filed with the Commission on
    May 13, 1999.                                 
|   
|(6) | Incorporated by reference from Inktomis
    Quarterly Report on Form 10-Q filed with the Commission on
    May 17, 1999.                              
|   
|(7) | Incorporated by reference from Inktomis
    Current Report on Form 8-K filed with the Commission on
    October 15, 1999, as amended November 5, 1999.
|   
|(8) | Incorporated by reference from Inktomis
    Registration Statement on Form S-8 (Reg.
    No. 333-80195).                                              
|   
|(9) | Incorporated by reference from Inktomis
    Registration Statement on Form S-8 (Reg.
    No. 333-89581).                                              



|     |                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference from Inktomis
    Quarterly Report on Form 10-Q filed with the Commission on
    February 14, 2000.
|    
|(11) | Incorporated by reference from Inktomis
    Current Report on Form 8-A filed with the Commission on
    August 11, 2000.     
|    
|(12) | Incorporated by reference from Inktomis
    Registration Statement on Form S-8 (Reg.
    No. 333-42102).                     
|    
|(13) | Incorporated by reference from Inktomis
    Registration Statement on Form S-8 (Reg.
    No. 333-49874).                     
|    
|(14) | Incorporated by reference from Inktomis
    Annual Report on Form 10-K/ A filed with the Commission on
    January 2, 2001.  
|    
|(15) | Incorporated by reference from Inktomis
    Quarterly Report on Form 10-Q filed with the Commission on
    February 14, 2001.

44



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##### Table of Contents





|     |                                                                                                                             
|---- | ----------------------------------------------------------------------------------------------------------------------------
|(16) | Incorporated by reference from Inktomis
    Quarterly Report on Form 10-Q filed with the Commission on
    August 14, 2002.
|    
|(17) | Incorporated by reference from Inktomis
    Registration Statement on Form S-3 (Reg.
    No. 333-101258).                  
|    
|(18) | Incorporated by reference from Inktomis
    Registration Statement on Form S-3 (Reg.
    No. 333-98551).                   
|    
|(19) | Incorporated by reference from Inktomis
    Current Report on Form 8-K filed with the Commission on
    December 26, 2002. 

(b)     Reports on
Form 8-K

On September 6, 2002 we filed a Current
Report on Form 8-K in connection with the restructuring of
certain of Inktomis properties.

On November 15, 2002 we filed a Current
Report on Form 8-K announcing the sale of Inktomis
enterprise search software business to Verity, Inc.

On December 22, 2002 we filed a Current
Report on Form 8-K announcing the execution of a merger
agreement between Inktomi, Yahoo! Inc. and a wholly owned
subsidiary of Yahoo! Inc.

On December 26, 2002 we filed a Current
Report on Form 8-K which included the merger agreement
entered into between Inktomi, Yahoo! Inc. and a wholly owned
subsidiary of Yahoo! Inc.

45



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on December 30,
2002.



| |                                 
| | --------------------------------
| | INKTOMI CORPORATION             
|
| | /s/ DAVID C. PETERSCHMIDT       
| |                                 
| | David C. Peterschmidt           
| | Chairman of the Board, President
| | and Chief Executive Officer     

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below hereby constitutes and
appoints David C. Peterschmidt and randy Gottfried, and each of
them individually, as his attorney-in-fact, each with full power
of substitution, for him 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 said
attorney-in fact, or his substitutes, may 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 below by the
following persons in the capacities and on the dated indicated.

|                                               |  |                                                                                                    |  |                   |  | 
|---------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ----------------- |  | 
|                                               |  |                                                                                                    |  |                  
|Signature                                      |  | Title                                                                                              |  | Date             
|                                               |  |                                                                                                    |  |                  
|                                              
|/s/ DAVID C. PETERSCHMIDTDavid C. Peterschmidt |  | Chairman of the Board, President, Chief Executive
    Officer (Principal Executive Officer)        |  | December 30, 2002
|                                              
|                                              
|/s/ RANDY GOTTFRIEDRandy Gottfried             |  | Senior Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | December 30, 2002
|                                              
|                                              
|/s/ ERIC BREWEREric A. Brewer                  |  | Director and Chief Scientist                                                                       |  | December 30, 2002
|                                              
|                                              
|/s/ ALLEN J. GULA, JR.Allen J. Gula, Jr.       |  | Director                                                                                           |  | December 30, 2002
|                                              
|                                              
|/s/ GREG MYERSGreg Myers                       |  | Director                                                                                           |  | December 30, 2002
|                                              
|                                              
|/s/ ROGER NOALLRoger Noall                     |  | Director                                                                                           |  | December 30, 2002

46



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##### Table of Contents



CERTIFICATIONS

I, David C. Peterschmidt, certify that:

1.     I have reviewed
this annual report on Form 10-K of Inktomi Corporation;

2.     Based on my
knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this annual report, fairly represent in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;

4.     The
registrants other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



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

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



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

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



| |     |                          
| | --- | -------------------------
| | By: | /s/ DAVID C. PETERSCHMIDT

| |                                                                   
| | ------------------------------------------------------------------
| | ______________________________________ 
     David C. Peterschmidt
| | President and Chief Executive
    Officer                         

Date: December 30, 2002

47



---



##### Table of Contents



CERTIFICATIONS

I, Randy Gottfried, certify that:

1.     I have reviewed
this annual report on Form 10-K of Inktomi Corporation;

2.     Based on my
knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this annual report, fairly represent in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;

4.     The
registrants other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



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

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



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

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



| |     |                    
| | --- | -------------------
| | By: | /s/ RANDY GOTTFRIED

| |                                                             
| | ------------------------------------------------------------
| | ______________________________________ 
     Randy Gottfried
| | Chief Financial Officer                                     

Date: December 30, 2002

48



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Inktomi Corporation:

In our opinion, the accompanying consolidated
balance sheets and related consolidated statements of
operations, of changes in stockholders equity and of cash
flows present fairly, in all material respects, the financial
position of Inktomi Corporation and its subsidiaries at
September 30, 2002 and 2001, and the results of their
operations and cash flows for each of the three years in the
period ended September 30, 2002, 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 audits. We
conducted our audits of these statements in accordance with
auditing 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 audits provide a reasonable
basis for our opinion.

PricewaterhouseCoopers LLP

San Jose, California


October 23, 2002, except as to recently


issued accounting pronouncements in Note 2


and as to the subsequent events listed in


Note 19 which are as of December 27,
2002


F-1



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##### Table of Contents



INKTOMI CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                                |                                                                                                                                                                                               |                                                                |          |        |         |  |          |        |         | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | -------- | ------ | ------- |  | -------- | ------ | ------- | 
|                                                |                                                                                                                                                                                               |                                                               
|                                                |                                                                                                                                                                                               | September 30,                                                 
|                                                |                                                                                                                                                                                               |                                                               
|                                                |                                                                                                                                                                                               | 2002                                                           |          | 2001  
|                                                |                                                                                                                                                                                               |                                                                |          |       
|                                                |                                                                                                                                                                                               |                                                               
|                                                |                                                                                                                                                                                               | (In thousands, except per                                     
|                                                |                                                                                                                                                                                               | share amounts)                                                
|ASSETS                                         
|Current assets:                                 |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                                | Cash and cash equivalents                                                                                                                                                                     |                                                                | $        | 17,292 |         |  | $        | 18,518 |        
|                                                | Short-term investments                                                                                                                                                                        |                                                                |          | 28,115 |         |  |          | 65,995 |        
|                                                |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                                |                                                                                                                                                                                               | Total cash and cash equivalents and short-term
    investments |          |        | 45,407  |  |          |        | 84,513  | 
|                                                | Accounts receivable, net of allowances of $1,144
    and $4,910, respectively                                                                                                                 |                                                                |          | 10,864 |         |  |          | 22,449 |        
|                                                | Prepaid expenses and other current assets                                                                                                                                                     |                                                                |          | 5,533  |         |  |          | 5,915  |        
|                                                |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                                |                                                                                                                                                                                               | Total current assets                                           |          |        | 61,804  |  |          |        | 112,877 | 
|Restricted cash                                 |                                                                                                                                                                                               |                                                                |         |        |         |  | 128,957  |       
|Investments in equity securities                |                                                                                                                                                                                               |                                                                | 331      |        |         |  | 1,381    |       
|Property, plant and equipment, net              |                                                                                                                                                                                               |                                                                | 62,536   |        |         |  | 76,101   |       
|Goodwill and other intangibles, net             |                                                                                                                                                                                               |                                                                | 10,028   |        |         |  | 253,993  |       
|Other assets                                    |                                                                                                                                                                                               |                                                                | 4,708    |        |         |  | 5,478    |       
|Loans to related parties                        |                                                                                                                                                                                               |                                                                | 5,809    |        |         |  | 4,336    |       
|                                                |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                                |                                                                                                                                                                                               | Total assets                                                   |          | $      | 145,216 |  |          | $      | 583,123 | 
|                                                |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                               
|LIABILITIES AND STOCKHOLDERS
    EQUITY       
|Current liabilities:                            |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                                | Accounts payable                                                                                                                                                                              |                                                                | $        | 10,021 |         |  | $        | 7,979  |        
|                                                | Accrued liabilities                                                                                                                                                                           |                                                                |          | 30,180 |         |  |          | 58,646 |        
|                                                | Deferred revenue                                                                                                                                                                              |                                                                |          | 26,767 |         |  |          | 34,610 |        
|                                                | Current portion of notes payable                                                                                                                                                              |                                                                |          | 30,003 |         |  |          | 2,500  |        
|                                                | Current portion of capital lease obligations                                                                                                                                                  |                                                                |          | 1,210  |         |  |          | 1,470  |        
|                                                |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                                |                                                                                                                                                                                               | Total current liabilities                                      |          |        | 98,181  |  |          |        | 105,205 | 
|Notes payable, less current portion             |                                                                                                                                                                                               |                                                                |         |        |         |  | 4,231    |       
|Capital lease obligations, less current portion |                                                                                                                                                                                               |                                                                | 216      |        |         |  | 1,418    |       
|Other liabilities                               |                                                                                                                                                                                               |                                                                | 185      |        |         |  | 288      |       
|                                                |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                                |                                                                                                                                                                                               | Total liabilities                                              |          |        | 98,582  |  |          |        | 111,142 | 
|Commitments and contingencies (Note 15)         |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|Stockholders equity:                           |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                                | Common Stock, $0.001 par value; authorized:
    1,500,000 at September 30, 2002 and 2001, respectively;
    outstanding: 162,109 and 129,110 at September 30, 2002 and
    2001, respectively |                                                                |          | 162    |         |  |          | 129    |        
|Additional paid-in capital                      |                                                                                                                                                                                               |                                                                | 952,602  |        |         |  | 897,241  |       
|Deferred compensation                           |                                                                                                                                                                                               |                                                                | (2,039   | )      |         |  | (20,824  | )     
|Accumulated other comprehensive loss            |                                                                                                                                                                                               |                                                                | (1,276   | )      |         |  | (2,545   | )     
|Accumulated deficit                             |                                                                                                                                                                                               |                                                                | (902,815 | )      |         |  | (402,020 | )     
|                                                |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                                |                                                                                                                                                                                               | Total stockholders equity                                     |          |        | 46,634  |  |          |        | 471,981 | 
|                                                |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       
|                                                |                                                                                                                                                                                               | Total liabilities and stockholders equity                     |          | $      | 145,216 |  |          | $      | 583,123 | 
|                                                |                                                                                                                                                                                               |                                                                |          |        |         |  |          |       

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

F-2



---



##### Table of Contents



INKTOMI CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                     |                                                                     |                                       |          |         |          |      |          |         |          |   |         |         |         |  
|------------------------------------ | ------------------------------------------------------------------- | ------------------------------------- | -------- | ------- | -------- | ---- | -------- | ------- | -------- | - | ------- | ------- | ------- | -
|                                     |                                                                     |                                      
|                                     |                                                                     | For the Year Ended September 30,     
|                                     |                                                                     |                                      
|                                     |                                                                     | 2002                                  |          | 2001    |          | 2000
|                                     |                                                                     |                                       |          |         |          |     
|                                     |                                                                     |                                      
|                                     |                                                                     | (In thousands, except per share data)
|Revenues:                            |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|                                     | Licenses                                                            |                                       | $        | 41,218  |          |      | $        | 106,737 |          |   | $       | 135,796 |        
|                                     | Web search services                                                 |                                       |          | 47,084  |          |      |          | 51,287  |          |   |         | 52,127  |        
|                                     | Maintenance services                                                |                                       |          | 17,025  |          |      |          | 21,682  |          |   |         | 12,628  |        
|                                     | Other services                                                      |                                       |          | 7,378   |          |      |          | 18,856  |          |   |         | 23,666  |        
|                                     |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|                                     |                                                                     | Total revenues                        |          |         | 112,705  |      |          |         | 198,562  |   |         |         | 224,217 |  
|Cost of Revenues:                    |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|                                     | Licenses                                                            |                                       |          | 3,588   |          |      |          | 6,277   |          |   |         | 6,449   |        
|                                     | Web search services                                                 |                                       |          | 15,264  |          |      |          | 24,655  |          |   |         | 21,774  |        
|                                     | Maintenance services                                                |                                       |          | 4,171   |          |      |          | 5,916   |          |   |         | 3,852   |        
|                                     | Other services                                                      |                                       |          | 5,466   |          |      |          | 12,329  |          |   |         | 10,100  |        
|                                     |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|                                     |                                                                     | Total cost of revenues                |          |         | 28,489   |      |          |         | 49,177   |   |         |         | 42,175  |  
|Gross Profit                         |                                                                     |                                       | 84,216   |         |          |      | 149,385  |         |          |   | 182,042 |        
|Operating expenses:                  |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|                                     | Sales and marketing                                                 |                                       |          | 68,913  |          |      |          | 139,069 |          |   |         | 123,046 |        
|                                     | Research and development                                            |                                       |          | 51,312  |          |      |          | 77,925  |          |   |         | 59,714  |        
|                                     | General and administrative                                          |                                       |          | 14,972  |          |      |          | 24,581  |          |   |         | 19,121  |        
|                                     | Amortization of goodwill and other intangibles                      |                                       |          | 50,206  |          |      |          | 70,426  |          |   |         | 13,182  |        
|                                     | Impairment of goodwill and other intangibles                        |                                       |          | 202,615 |          |      |          | 44,915  |          |   |         |        |        
|                                     | Restructuring                                                       |                                       |          | 19,869  |          |      |          | 11,627  |          |   |         |        |        
|                                     | Parkside lease restructuring and termination                        |                                       |          | 79,986  |          |      |          |        |          |   |         |        |        
|                                     | Impairment of property, plant and equipment                         |                                       |          | 102,982 |          |      |          | 904     |          |   |         | 1,045   |        
|                                     | Purchased in-process research and development                       |                                       |          |        |          |      |          | 430     |          |   |         | 4,400   |        
|                                     | Acquisition-related costs                                           |                                       |          |        |          |      |          | 19,497  |          |   |         | 3,999   |        
|                                     |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|                                     |                                                                     | Total operating expenses              |          |         | 590,855  |      |          |         | 389,374  |   |         |         | 224,507 |  
|                                     |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|Operating loss                       |                                                                     |                                       | (506,639 | )       |          |      | (239,989 | )       |          |   | (42,465 | )      
|Impairment of investments            |                                                                     |                                       |         |         |          |      | (65,895  | )       |          |   |        |        
|Other income, net                    |                                                                     |                                       | 6,603    |         |          |      | 10,340   |         |          |   | 16,951  |        
|                                     |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|Loss before income tax provision     |                                                                     |                                       | (500,036 | )       |          |      | (295,544 | )       |          |   | (25,514 | )      
|Income tax provision                 |                                                                     |                                       | (759     | )       |          |      | (938     | )       |          |   | (1,826  | )      
|                                     |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|                                     |                                                                     | Net loss                              |          | $       | (500,795 | )    |          | $       | (296,482 | ) |         | $       | (27,340 | )
|                                     |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|Earnings per share:                  |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|                                     | Basic and diluted net loss per share                                |                                       | $        | (3.51   | )        |      | $        | (2.36   | )        |   | $       | (0.24   | )      
|                                     |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|Weighted average shares outstanding: |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        
|                                     | Shares used in calculating basic and diluted net
    loss per share |                                       |          | 142,693 |          |      |          | 125,608 |          |   |         | 113,030 |        
|                                     |                                                                     |                                       |          |         |          |      |          |         |          |   |         |        

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

F-3



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##### Table of Contents



INKTOMI CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY

|                                                                                                                    |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ---------- |  | -------------- | --- | ------------- |  | ------------- | ------- | ------- |  | ----- | ------- | - |  | - | ------- | - |  | - | -------- | - |  | - | -------- | -
|                                                                                                                    |  |                |         |            |  |                |     | Accumulated   |  |               |         |        
|                                                                                                                    |  | Common Stock   |         | Additional |  | Deferred       |     | Other         |  |               |         |        
|                                                                                                                    |  |                |         | Paid-in    |  | Compensation & |     | Comprehensive |  | Accumulated   |         |        
|                                                                                                                    |  | Shares         |         | Amount     |  | Capital        |     | Other Equity  |  | Income (Loss) |         | Deficit |  | Total
|                                                                                                                    |  |                |         |            |  |                |     |               |  |               |         |         |  |      
|                                                                                                                    |  |               
|                                                                                                                    |  | (In thousands)
|Balances, September 30, 1999                                                                                        |  |                | 116,136 |            |  | $              | 116 |               |  | $             | 424,193 |         |  | $     | (3,691  | ) |  | $ | 1,447   |   |  | $ | (78,198  | ) |  | $ | 343,867  |  
|Foreign currency translation                                                                                        |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   | 189     |   |  |   |          |   |  |   | 189      |  
|Unrealized gain on short-term investments                                                                           |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   | 58,507  |   |  |   |          |   |  |   | 58,507   |  
|Net loss                                                                                                            |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   |         |   |  |   | (27,340  | ) |  |   | (27,340  | )
|                                                                                                                    |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   |          |  
|Total comprehensive income                                                                                          |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   | 31,356   |  
|Issuance of Common Stock for acquisition of
    Ultraseek                                                           |  |                | 2,513   |            |  |                | 3   |               |  |               | 319,745 |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   | 319,748  |  
|Issuance of Common Stock for cash, including for
    exercise of options and warrants, net of issuance costs of $71 |  |                | 8,000   |            |  |                | 8   |               |  |               | 99,234  |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   | 99,242   |  
|Stock compensation in connection with issuance of
    stock options to non-employees                                |  |                |         |            |  |                |     |               |  |               | 1,265   |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   | 1,265    |  
|Stock compensation in connection with issuance of
    stock options to employees                                    |  |                |         |            |  |                |     |               |  |               | 50,407  |         |  |       | (43,066 | ) |  |   |         |   |  |   |          |   |  |   | 7,341    |  
|Repayment of stockholder loans                                                                                      |  |                |         |            |  |                |     |               |  |               |         |         |  |       | 243     |   |  |   |         |   |  |   |          |   |  |   | 243      |  
|                                                                                                                    |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   |          |  
|Balances, September 30, 2000                                                                                        |  |                | 126,649 |            |  | $              | 127 |               |  | $             | 894,844 |         |  | $     | (46,514 | ) |  | $ | 60,143  |   |  | $ | (105,538 | ) |  | $ | 803,062  |  
|Foreign currency translation                                                                                        |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   | (1,066  | ) |  |   |          |   |  |   | (1,066   | )
|Unrealized loss on short-term investments                                                                           |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   | (86,720 | ) |  |   |          |   |  |   | (86,720  | )
|Reclassification adjustment for realized losses
    included in net income                                          |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   | 25,098  |   |  |   |          |   |  |   | 25,098   |  
|Net loss                                                                                                            |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   |         |   |  |   | (296,482 | ) |  |   | (296,482 | )
|                                                                                                                    |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   |          |  
|Total comprehensive loss                                                                                            |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   | (359,170 | )
|Issuance of Common Stock for acquisition of eScene                                                                  |  |                | 935     |            |  |                | 1   |               |  |               | 8,813   |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   | 8,814    |  
|Issuance of Common Stock for cash, including for
    exercise of options and warrants,                              |  |                | 1,526   |            |  |                | 1   |               |  |               | 8,545   |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   | 8,546    |  
|Stock compensation in connection with issuance of
    stock options to non-employees                                |  |                |         |            |  |                |     |               |  |               | 877     |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   | 877      |  
|Stock compensation in connection with issuance of
    stock options to employees                                    |  |                |         |            |  |                |     |               |  |               | 4,198   |         |  |       | 5,570   |   |  |   |         |   |  |   |          |   |  |   | 9,768    |  
|Reversal of unamortized stock compensation for
    terminated employees                                             |  |                |         |            |  |                |     |               |  |               | (20,036 | )       |  |       | 20,036  |   |  |   |         |   |  |   |          |   |  |   |         |  
|Repayment of stockholder loans                                                                                      |  |                |         |            |  |                |     |               |  |               |         |         |  |       | 84      |   |  |   |         |   |  |   |          |   |  |   | 84       |  
|                                                                                                                    |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   |         |   |  |   |          |   |  |   |          |  
|Balances, September 30, 2001                                                                                        |  |                | 129,110 |            |  | $              | 129 |               |  | $             | 897,241 |         |  | $     | (20,824 | ) |  | $ | (2,545  | ) |  | $ | (402,020 | ) |  | $ | 471,981  |  
|Foreign currency translation                                                                                        |  |                |         |            |  |                |     |               |  |               |         |         |  |       |         |   |  |   | (152    | ) |  |   |          |   |  |   | (152     | )

F-4



---



##### Table of Contents



INKTOMI CORPORATION


CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY  (Continued)

|                                                                                                                     |  |                |         |            |  |                |     |               |  |               |         |         |  |       |        |   |  |   |        |   |  |   |          |   |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ---------- |  | -------------- | --- | ------------- |  | ------------- | ------- | ------- |  | ----- | ------ | - |  | - | ------ | - |  | - | -------- | - |  | - | -------- | -
|                                                                                                                     |  |                |         |            |  |                |     | Accumulated   |  |               |         |        
|                                                                                                                     |  | Common Stock   |         | Additional |  | Deferred       |     | Other         |  |               |         |        
|                                                                                                                     |  |                |         | Paid-in    |  | Compensation & |     | Comprehensive |  | Accumulated   |         |        
|                                                                                                                     |  | Shares         |         | Amount     |  | Capital        |     | Other Equity  |  | Income (Loss) |         | Deficit |  | Total
|                                                                                                                     |  |                |         |            |  |                |     |               |  |               |         |         |  |      
|                                                                                                                     |  |               
|                                                                                                                     |  | (In thousands)
|Unrealized gain on short-term investments                                                                            |  |                |         |            |  |                |     |               |  |               |         |         |  |       |        |   |  |   | 685    |   |  |   |          |   |  |   | 685      |  
|Reclassification adjustment for realized losses
    included in net income                                           |  |                |         |            |  |                |     |               |  |               |         |         |  |       |        |   |  |   | 736    |   |  |   |          |   |  |   | 736      |  
|Net loss                                                                                                             |  |                |         |            |  |                |     |               |  |               |         |         |  |       |        |   |  |   |        |   |  |   | (500,795 | ) |  |   | (500,795 | )
|                                                                                                                     |  |                |         |            |  |                |     |               |  |               |         |         |  |       |        |   |  |   |        |   |  |   |          |   |  |   |          |  
|Total comprehensive loss                                                                                             |  |                |         |            |  |                |     |               |  |               |         |         |  |       |        |   |  |   |        |   |  |   |          |   |  |   | (499,526 | )
|Issuance of Common Stock for cash, including for
    exercise of options, warrants, and employee stock purchase plan |  |                | 4,186   |            |  |                | 4   |               |  |               | 9,004   |         |  |       |        |   |  |   |        |   |  |   |          |   |  |   | 9,008    |  
|Issuance of Common Stock for acquisition of Quiver                                                                   |  |                | 10,638  |            |  |                | 11  |               |  |               | 4,958   |         |  |       |        |   |  |   |        |   |  |   |          |   |  |   | 4,969    |  
|Issuance of Common Stock for termination of
    Parkside lease                                                       |  |                | 5,000   |            |  |                | 5   |               |  |               | 2,250   |         |  |       |        |   |  |   |        |   |  |   |          |   |  |   | 2,255    |  
|Public offering, net of issuance costs of $361k                                                                      |  |                | 13,175  |            |  |                | 13  |               |  |               | 52,826  |         |  |       |        |   |  |   |        |   |  |   |          |   |  |   | 52,839   |  
|Reversal of unamortized stock compensation for
    terminated employees                                              |  |                |         |            |  |                |     |               |  |               | (13,677 | )       |  |       | 13,677 |   |  |   |        |   |  |   |          |   |  |   |         |  
|Stock compensation in connection with issuance of
    stock options to employees                                     |  |                |         |            |  |                |     |               |  |               |         |         |  |       | 5,108  |   |  |   |        |   |  |   |          |   |  |   | 5,108    |  
|                                                                                                                     |  |                |         |            |  |                |     |               |  |               |         |         |  |       |        |   |  |   |        |   |  |   |          |   |  |   |          |  
|Balances, September 30, 2002                                                                                         |  |                | 162,109 |            |  | $              | 162 |               |  | $             | 952,602 |         |  | $     | (2,039 | ) |  | $ | (1,276 | ) |  | $ | (902,815 | ) |  | $ | 46,634   |  
|                                                                                                                     |  |                |         |            |  |                |     |               |  |               |         |         |  |       |        |   |  |   |        |   |  |   |          |   |  |   |          |  

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

F-5



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##### Table of Contents



INKTOMI CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                      |                                                                   |                                                                                               |                                              |                                                         |         |         |          |          |        |         |         |            |        |         |        | 
|------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------- | ------- | ------- | -------- | -------- | ------ | ------- | ------- | ---------- | ------ | ------- | ------ | 
|                                      |                                                                   |                                                                                              
|                                      |                                                                   | For the Year Ended September 30,                                                             
|                                      |                                                                   |                                                                                              
|                                      |                                                                   | 2002                                                                                          |                                              | 2001                                                    |         | 2000   
|                                      |                                                                   |                                                                                               |                                              |                                                         |         |        
|                                      |                                                                   |                                                                                              
|                                      |                                                                   | (In thousands)                                                                               
|Cash flows from operating activities: |                                                                   |                                                                                               |                                              |                                                         |         |         |          |          |        |         |         |           
|                                      | Net loss                                                          |                                                                                               | $                                            | (500,795                                                | )       |         | $        | (296,482 | )      |         | $       | (27,340    | )     
|                                      |                                                                   | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                              |                                                         |         |         |          |          |        |         |         |            |        |        
|                                      |                                                                   | Parkside lease termination  non-cash
    asset impairments                                   |                                              |                                                         | 12,315  |         |          |          |       |         |         |            |       |        
|                                      |                                                                   | Parkside lease termination  common
    stock issued to landlords                             |                                              |                                                         | 2,255   |         |          |          |       |         |         |            |       |        
|                                      |                                                                   | Purchased in-process research and development                                                 |                                              |                                                         |        |         |          |          | 430    |         |         |            | 4,400  |        
|                                      |                                                                   | Amortization of goodwill and other intangibles                                                |                                              |                                                         | 50,206  |         |          |          | 70,426 |         |         |            | 13,182 |        
|                                      |                                                                   | Non-cash intangible amortization in cost of
    revenue                                       |                                              |                                                         | 1,250   |         |          |          |       |         |         |            |       |        
|                                      |                                                                   | Depreciation                                                                                  |                                              |                                                         | 25,057  |         |          |          | 32,416 |         |         |            | 22,112 |        
|                                      |                                                                   | Provision for (recovery of) doubtful accounts                                                 |                                              |                                                         | (257    | )       |          |          | 10,544 |         |         |            | 6,366  |        
|                                      |                                                                   | Valuation allowance for related party loans                                                   |                                              |                                                         | 200     |         |          |          |       |         |         |            |       |        
|                                      |                                                                   | Non-cash stock compensation for stock options
    issued to non-employees                     |                                              |                                                         |        |         |          |          | 877    |         |         |            | 1,265  |        
|                                      |                                                                   | Non-cash stock compensation for stock options
    issued to employees                         |                                              |                                                         | 5,108   |         |          |          | 9,768  |         |         |            | 7,341  |        
|                                      |                                                                   | Amortization of warrants issued in connection
    with note payable                           |                                              |                                                         |        |         |          |          |       |         |         |            | 17     |        
|                                      |                                                                   | Impairment of property, plant and equipment                                                   |                                              |                                                         | 102,982 |         |          |          | 904    |         |         |            | 1,045  |        
|                                      |                                                                   | Impairment of goodwill and other intangibles                                                  |                                              |                                                         | 202,615 |         |          |          | 44,915 |         |         |            |       |        
|                                      |                                                                   | Loss on sale of Commerce Division                                                             |                                              |                                                         |        |         |          |          | 934    |         |         |            |       |        
|                                      |                                                                   | Loss on disposal of property and equipment                                                    |                                              |                                                         | 937     |         |          |          |       |         |         |            |       |        
|                                      |                                                                   | Loss on residual value guarantee                                                              |                                              |                                                         | 2,225   |         |          |          |       |         |         |            |       |        
|                                      |                                                                   | Realized (gains) losses on sale of investments,
    net                                       |                                              |                                                         | 736     |         |          |          | 2,925  |         |         |            | (1,930 | )      
|                                      |                                                                   | Impairment of investments                                                                     |                                              |                                                         |        |         |          |          | 65,895 |         |         |            |       |        
|                                      |                                                                   |                                                                                               | Changes in operating assets and liabilities: |                                                         |         |         |          |          |        |         |         |            |        |         |       
|                                      |                                                                   |                                                                                               | Accounts receivable                          |                                                         |         | 11,842  |          |          |        | 18,519  |         |            |        | (33,647 | )     
|                                      |                                                                   |                                                                                               | Prepaid expenses and other assets            |                                                         |         | 988     |          |          |        | (7,405  | )       |            |        | (7,545  | )     
|                                      |                                                                   |                                                                                               | Accounts payable                             |                                                         |         | 2,031   |          |          |        | (2,550  | )       |            |        | 3,599   |       
|                                      |                                                                   |                                                                                               | Accrued liabilities and other liabilities    |                                                         |         | (28,772 | )        |          |        | (7,244  | )       |            |        | 24,312  |       
|                                      |                                                                   |                                                                                               | Deferred revenue                             |                                                         |         | (7,843  | )        |          |        | (19,762 | )       |            |        | 50,385  |       
|                                      |                                                                   |                                                                                               |                                              |                                                         |         |         |          |          |        |         |         |           
|                                      |                                                                   |                                                                                               |                                              | Net cash provided by (used in) operating
    activities |         |         | (116,920 | )        |        |         | (74,890 | )          |        |         | 63,562 | 
|Cash flows from investing activities: |                                                                   |                                                                                               |                                              |                                                         |         |         |          |          |        |         |         |           
|                                      | Purchases of short-term investments                               |                                                                                               |                                              | (197,351                                                | )       |         |          | (566,318 | )      |         |         | (1,193,720 | )     
|                                      | Proceeds from the sale and maturity of short-term
    investments |                                                                                               |                                              | 234,953                                                 |         |         |          | 682,993  |        |         |         | 1,229,930  |       
|                                      | Release (restriction) of cash for lease
    agreements            |                                                                                               |                                              | 128,957                                                 |         |         |          | (9,341   | )      |         |         | (119,616   | )     
|                                      | Purchases of investments in equity securities                     |                                                                                               |                                              | (500                                                    | )       |         |          | (16,815  | )      |         |         | (61,844    | )     
|                                      | Proceeds from the sale of investments in equity
    securities    |                                                                                               |                                              | 2,514                                                   |         |         |          | 15,179   |        |         |         | 7,911      |       
|                                      | Purchases of property and equipment                               |                                                                                               |                                              | (17,240                                                 | )       |         |          | (31,878  | )      |         |         | (67,950    | )     
|                                      | Purchase of Bayside corporate headquarters                        |                                                                                               |                                              | (114,000                                                | )       |         |          |         |        |         |         |           |       

F-6



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##### Table of Contents



INKTOMI CORPORATION


CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |         |          |  
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------- | ------ | ------ | ------ | ---- | ------- | ------- | ------ | - | ------- | ------- | -------- | -
|                                                          |                                                                                                                    |                                                        
|                                                          |                                                                                                                    | For the Year Ended September 30,                       
|                                                          |                                                                                                                    |                                                        
|                                                          |                                                                                                                    | 2002                                                    |        | 2001   |        | 2000
|                                                          |                                                                                                                    |                                                         |        |        |        |     
|                                                          |                                                                                                                    |                                                        
|                                                          |                                                                                                                    | (In thousands)                                         
|                                                          | Acquisition of companies, net of acquired cash                                                                     |                                                         |        | (4,879 | )      |      |         | (23,500 | )      |   |         | (3,500  | )       
|                                                          | Loans to related parties                                                                                           |                                                         |        | (5,284 | )      |      |         | (2,836  | )      |   |         | (1,950  | )       
|                                                          | Payments received on loans to related parties                                                                      |                                                         |        | 3,611  |        |      |         |        |        |   |         | 2,200   |         
|                                                          | Deposits on subleased property                                                                                     |                                                         |        | (93    | )      |      |         | 288     |        |   |         |        |         
|                                                          | Proceeds from sale of property and equipment                                                                       |                                                         |        | 1,352  |        |      |         |        |        |   |         | 3,431   |         
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|                                                          |                                                                                                                    | Net cash provided by (used in) investing
    activities |        |        | 32,040 |      |         |         | 47,772 |   |         |         | (205,108 | )
|Cash flows from financing activities:                     |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|                                                          | Proceeds from notes payable                                                                                        |                                                         |        | 32,253 |        |      |         | 7,500   |        |   |         | 2,718   |         
|                                                          | Repayments on notes payable                                                                                        |                                                         |        | (8,981 | )      |      |         | (7,337  | )      |   |         | (6,303  | )       
|                                                          | Proceeds from sales leaseback transactions
    accounted for as capital leases                                     |                                                         |        |       |        |      |         | 995     |        |   |         | 958     |         
|                                                          | Payments on obligations under capital leases                                                                       |                                                         |        | (1,462 | )      |      |         | (5,302  | )      |   |         | (946    | )       
|                                                          | Proceeds from loans issued to stockholders                                                                         |                                                         |        |       |        |      |         | 84      |        |   |         | 243     |         
|                                                          | Proceeds from issuance of Common Stock for cash,
    exercise of stock options and warrants, net of issuance costs |                                                         |        | 9,008  |        |      |         | 8,546   |        |   |         | 99,242  |         
|                                                          | Proceeds from issuance of Common Stock, net of
    issuance costs                                                  |                                                         |        | 52,839 |        |      |         |        |        |   |         |        |         
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|                                                          |                                                                                                                    | Net cash provided by financing activities               |        |        | 83,657 |      |         |         | 4,486  |   |         |         | 95,912   |  
|Effect of exchange rates on cash and cash
    equivalents |                                                                                                                    |                                                         | (3     | )      |        |      | (729    | )       |        |   | 189     |        
|Decrease in cash and cash equivalents                     |                                                                                                                    |                                                         | (1,226 | )      |        |      | (23,361 | )       |        |   | (45,445 | )      
|Cash and cash equivalents at beginning of period          |                                                                                                                    |                                                         | 18,518 |        |        |      | 41,879  |         |        |   | 87,324  |        
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|Cash and cash equivalents at end of period                |                                                                                                                    | $                                                       | 17,292 |        |        | $    | 18,518  |         |        | $ | 41,879  |        
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|Supplemental disclosures of cash flow information:        |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|                                                          | Assets acquired under capital lease                                                                                |                                                         | $      |       |        |      | $       | 995     |        |   | $       | 4,338   |         
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|                                                          | Goodwill related to purchase of acquired company                                                                   |                                                         | $      | 8,033  |        |      | $       | 10,658  |        |   | $       | 319,436 |         
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|                                                          | Common stock issued for acquisitions accounted
    for as a purchase                                               |                                                         | $      | 4,969  |        |      | $       | 8,814   |        |   | $       | 319,748 |         
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|                                                          | Common stock issued for termination of Parkside
    lease                                                          |                                                         | $      | 2,255  |        |      | $       |        |        |   | $       |        |         
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|                                                          | Stock received for Commerce sale                                                                                   |                                                         | $      |       |        |      | $       | 18,791  |        |   | $       |        |         
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|                                                          | Cash paid for taxes                                                                                                |                                                         | $      | (152   | )      |      | $       | (570    | )      |   | $       | (2,054  | )       
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        
|                                                          | Cash paid for interest                                                                                             |                                                         | $      | (934   | )      |      | $       | (1,076  | )      |   | $       | (2,233  | )       
|                                                          |                                                                                                                    |                                                         |        |        |        |      |         |         |        |   |         |        

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

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##### Table of Contents



INKTOMI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(1) Basis of Presentation



| |                       
| | ----------------------
| | Nature of the Business

Inktomi Corporation (Inktomi or the
Company) was incorporated in California in February
1996 and reincorporated in Delaware in February 1998. Inktomi
provides World Wide Web search services for Internet portal and
search destination sites. Inktomi Web Search provides a
customizable, private label solution that offers portals and
destination sites the ability to serve relevant search results.
Inktomi Web Search, through its paid inclusion services,
provides content publishers greater access to end users through
portal and destination site customers of our search engine
services. During fiscal year 2002, we also had a licensed
software and support business comprised of our
(i) content networking products, included in
Software Products segment, comprised of a portfolio of software
products designed to address the content and information
management and distribution requirements of large enterprises,
and (ii) enterprise search products, included in
Software Products segment, comprised of software products
designed to enable an enterprise to crawl and index content
within its private intranet and make this information searchable
by its employees and to crawl and index content on a public
Internet site and make this information searchable by customers,
prospects and other visitors.

In July 2002, we announced we would be reducing
our investment in our content networking products group. As a
result, we significantly scaled back the content networking
products group and related corporate infrastructure and closed
several sales offices around the world.

In November 2002, we signed an agreement with
Satyam Computer Services Ltd. to assign, and in some cases
subcontract for the remaining content networking software
customers (see Note 19).

In December 2002, we completed the sale of our
Enterprise Search Division, included in our Software Products
segment to Verify, Inc. (see Note 19).



| |                                        
| | ---------------------------------------
| | Formation and Basis of
    Presentation

In October 1999, we acquired WebSpective
Software, Inc. (WebSpective), a developer of
software solutions for content and application distribution,
delivery and management. Under the terms of the merger
agreement, we acquired all outstanding shares of capital stock
and assumed all outstanding warrants, stock options and stock
purchase rights of WebSpective in exchange for 1,655,048 shares
of our Common Stock. We accounted for the acquisition as a
pooling of interests and accordingly, all prior financial
statements have been restated. No significant adjustments were
required to conform the accounting policies of the acquired
company. We recorded acquisition-related costs of approximately
$4.0 million in fiscal 2000, primarily for investment
banking fees, accounting, legal and other expenses. WebSpective
revenues from inception through September 30, 1999 were
$3.2 million. WebSpective raised $12.4 million through
various stock issuances since its inception in March 1997, and
had net losses from inception to September 30, 1999 of
$13.5 million.

In July 2000, we acquired Ultraseek, Inc.
(Ultraseek), a provider of scalable and customizable
search and navigation software solutions to businesses for their
corporate intranet and extranet sites. Under the terms of the
purchase agreement, we acquired all outstanding shares of
capital stock and assumed all outstanding warrants, stock
options and stock purchase rights of Ultraseek in exchange for
$3.5 million in cash and 2,512,880 shares of our Common
Stock valued at $337.7 million. The transaction was
accounted for under the purchase method of accounting and the
results of operations are included in our consolidated financial
statements beginning on the acquisition date. As a part of our
Ultraseek acquisition, we recorded goodwill of
$319.4 million under intangibles and other assets. We began
amortizing this balance in July 2000. At June 30, 2002, due
primarily to the sustained decrease in our market value below
net assets as well as other factors, we recorded a charge of
$192.4 million to reflect the impairment of goodwill from our
acquisition of Ultraseek (see Note 12). On
December 17, 2002, the software acquired from Ultraseek was
sold to Verity, Inc (see Note 19).

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A portion of the purchase price we paid for
Ultraseek was allocated to developed technology and in-process
research and development (IPRD). Inktomi identified
and valued the developed technology and IPRD by conducting
extensive interviews, analyzing data provided by Ultraseek
concerning developmental products, considering the stage of
development of such products and the time and resources needed
to complete them, and assessing the expected cash flow
generating ability, target markets and associated risks. The
income approach, which includes an analysis of the markets, cash
flows, and risks associated with achieving such cash flows, was
the primary techniqueutilized in valuing the developed
technology and IPRD. In the estimate, we used a discount rate of
25% representing the cost of capital as related to the estimated
time to complete the projects and the level of risk involved.
There were three separate projects identified that were at 80%,
60% and 30% of completion. The expected cost to complete these
projects were $230,000, $322,000 and $153,000, respectively, and
were all expected to be completed by the end of calendar 2000.
Based on the analysis of these variables, we recorded a one-time
purchased IPRD charge of $4.4 million in fiscal 2000 upon
our acquisition of Ultraseek because technological feasibility
had not been established and no future alternative uses existed.

In October 2000, we acquired FastForward
Networks, Inc. (FastForward), a developer of
software solutions for efficiently enabling streaming media over
networks, in exchange for approximately 12.0 million shares
of our Common Stock. The transaction was accounted for as a
pooling of interests. Accordingly, all prior year financial
information included herein has been restated to reflect the
combined operations of FastForward and Inktomi. No significant
adjustments were required to conform the accounting policies of
the acquired company. FastForward had $0.7 million in
revenues and raised $88.9 million through various stock
issuances from its inception in May 1998 through
September 30, 2000. We recorded acquisition-related costs
of approximately $19.5 million in the three months ended
December 31, 2000, primarily for investment banking fees,
accounting, legal and other expenses.

In December 2000, we acquired various business
assets of Adero, Inc. (Adero) relating to billing,
settlement and traffic reporting and licensed other related
technologies from Adero. The total purchase price was
approximately $39.5 million, comprised of
$23.5 million in cash, $15.0 million in assumed
liabilities and $1.0 million incurred in transaction costs.
With this transaction, we assumed the operator role for Content
Bridge alliance services. Content Bridge is an alliance of
technology and network service providers formed to enable
cross-network content distribution and speed the delivery of
content from the point of origin to end users. We accounted for
the transaction under the purchase method of accounting and the
results of operations are included in our consolidated financial
statements beginning on the acquisition date. We recorded
goodwill of $35.9 million under intangibles and other
assets and recorded a one-time charge of $0.4 million upon
acquisition to write-off in-process research and development,
because technological feasibility had not been established and
no future alternative uses existed. We identified and valued the
IPRD consistent with the methodology discussed in the Ultraseek
acquisition discussion above. In June 2001, we ceased acting in
the operator role for Content Bridge alliance services and
assigned the operator role to a third party. Included in our
fiscal 2001 revenues is installment basis revenue from Adero on
an agreement consummated in December 1999.

In March 2001, we consummated the divestiture of
our Commerce Division to e-centives, Inc.
(e-centives). As part of the divestiture, we sold
various business assets to e-centives consisting primarily of
computer equipment, software, intellectual property and
contracts, and e-centives hired certain employees of the
Commerce Division. In exchange for the assets, we received
2,551,700 shares of Common Stock of e-centives, of which 382,755
shares are held in escrow pending satisfaction of certain
performance criteria, and 637,925 shares are held in escrow
subject to claims for indemnity by e-centives. The
637,925 shares were released to Inktomi from the escrow in
the quarter ending September 30, 2002 and were initially
recorded at fair value in March 2001. We also received a warrant
to purchase up to 1,860,577 shares of e-centives on or after
March 28, 2006, which will become exercisable, if at all,
upon the achievement of certain performance criteria by the
Commerce Division. No value was assigned to these warrants
initially and, as of September 30, 2002, the performance
criteria related to the

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

shares in escrow and the warrant have not been
achieved. Financial results herein include revenues and expenses
generated and incurred by our Commerce Division through the
closing of the transaction.

In June 2001, we acquired eScene Networks, Inc.
(eScene), a developer of advanced streaming media
applications and services. The total purchase price was
approximately $10.6 million, comprised of approximately
866,000 shares of our Common Stock valued at $8.8 million
and net liabilities assumed of $1.8 million. We accounted
for the transaction under the purchase method of accounting and
recorded goodwill and other intangibles of approximately
$10.6 million under intangibles and other assets. At
June 30, 2002, due primarily to the sustained decrease in
our market value below net assets as well as other factors, we
recorded a charge of $8.5 million to reflect the impairment
of goodwill which was created from our purchase of eScene. See
Note 12 for further information.

In August 2002, we acquired all of the
outstanding shares and assets of Quiver, Inc.
(Quiver), a developer of enterprise categorization
and taxonomy software. Our primary reason for acquiring Quiver,
Inc. was to expand our product offerings. We paid
$6.5 million in cash and issued approximately
10.6 million shares of our common stock with a value of
approximately $5 million in exchange for all of the
outstanding shares of Quiver. The common stock issued was valued
in accordance with EITF 99-12, Determination of the
Measurement Date for the Market Price of Acquiror Securities
Issued in a Purchase Business Combination, using the
average of market values of Inktomis common stock in the
period from two days prior to two days after the date the number
of shares issued to shareholders of Quiver was finalized. We
incurred $0.4 million in professional fees, including
legal, valuation and accounting fees, related to the
acquisition, which were included as part of the purchase price
of the transaction. On December 17, 2002, the software
acquired from Quiver was sold to Verity, Inc (see Note 19).

We accounted for the acquisition of Quiver, Inc.
using the purchase method of accounting. The allocation of the
purchase price to the tangible and identifiable intangible
assets acquired and liabilities assumed is summarized below. The
amount allocated to intangibles was determined based on
managements estimates using established valuation
techniques.

|                       |                     |                |        |        | 
|---------------------- | ------------------- | -------------- | ------ | ------ | 
|                       |                     | (In thousands)
|Current assets         |                     | $              | 2,167  |       
|Property and equipment |                     |                | 63     |       
|Purchased technology   |                     |                | 1,900  |       
|Goodwill               |                     |                | 8,033  |       
|                       |                     |                |        |       
|Total assets acquired  |                     |                | 12,163 |       
|Current liabilities    |                     |                | (307   | )     
|                       |                     |                |        |       
|                       | Net assets acquired |                | $      | 11,856 | 
|                       |                     |                |        |       

The purchased technology will be amortized on a
straight-line basis over their estimated useful lives of three
years. SFAS 141 requires the discontinuance of goodwill
amortization for all business combinations initiated after
June 30, 2001. In accordance with SFAS 141, goodwill
will not be amortized but will be tested annually for
impairment. The goodwill is not tax deductible.



| |                            
| | ---------------------------
| | Unaudited pro forma results

The following unaudited pro forma information
reflects the results of operations for the year ended
September 30, 2002 as if the acquisition of Quiver had
occurred on October 1, 2001 and after giving effect to
purchase accounting adjustments, principally amortization of
purchased technology intangibles. The unaudited pro forma
results for the year ended September 30, 2002 combine
Inktomis historical statement of

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

operations for year ended September 30, 2002
and the consolidated statement of operations of Quiver for the
period October 1, 2001 to August 12, 2002.

In addition, the following unaudited pro forma
information reflects the results of operations for the years
ended September 30, 2001 as if the acquisition of eScene
and Quiver had occurred on October 1, 2000 after giving
effect to purchase accounting adjustments, principally
amortization of goodwill and other intangibles. The unaudited
pro forma results for the year ended September 30, 2001
combine Inktomis historical statement of operations for
year ended September 30, 2001 and the consolidated
statement of operations of Quiver for the year ended
September 30, 2001 and the consolidated statement of
operations for eScene for the period from October 1, 2000
to June 15, 2001.

In addition, the following unaudited pro forma
information reflects the results of operations for the years
ended September 30, 2000 as if the acquisition of Ultraseek
and eScene had occurred on October 1, 1999 after giving
effect to purchase accounting adjustments, principally
amortization of goodwill and other intangibles. The unaudited
pro forma results for the year ended September 30, 2001
combine Inktomis historical statement of operations for
year ended September 30, 2000 and the consolidated
statement of operations of eScene for the year ended
September 30, 2000 and the consolidated statement of
operations for Ultraseek for the period from October 1,
1999 to March 31, 2000.

We have not presented the pro forma financial
information for the Adero acquisition required under APB
No. 16 Business Combinations, since we have
effectively ceased the assumed operator role of the acquired
Adero division, Content Bridge, and have recognized the related
full impairment of goodwill and other assets.

These unaudited pro forma results have been
prepared for comparative purposes only and may not be indicative
of future operating results (in thousands, except per share
data).

|                                                                                                       |  |                                  |          |      |  |      |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------ |  | -------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                                                                       |  |                                 
|                                                                                                       |  | For the Year Ended September 30,
|                                                                                                       |  |                                 
|                                                                                                       |  | 2002                             |          | 2001 |  | 2000
|                                                                                                       |  |                                  |          |      |  |     
|Pro forma revenues                                                                                     |  | $                                | 112,863  |      |  | $    | 199,022  |   |  | $ | 232,115  |  
|Pro forma net loss                                                                                     |  | $                                | (504,511 | )    |  | $    | (309,946 | ) |  | $ | (109,923 | )
|Pro forma basic and diluted net loss per share                                                         |  | $                                | (3.32    | )    |  | $    | (2.26    | ) |  | $ | (0.95    | )
|Weighted averages shares used in the calculation
    of basic and diluted pro forma net loss per share |  |                                  | 151,932  |      |  |      | 136,858  |   |  |   | 115,906  |  



| |             
| | ------------
| | Stock Splits

In December 1998, and again in December 1999, our
Board of Directors approved a two-for-one stock split (in the
form of a 100% stock dividend) of our Common Stock. These stock
splits have been retroactively reflected in our consolidated
financial statements.

Historical weighted average shares outstanding
and loss per share amounts have been restated to reflect all
stock splits and acquisitions accounted for as pooling of
interests.



| |          
| | ---------
| | Liquidity

For the years ended September 30, 2002, 2001
and 2000, we have incurred losses from operations of
$506.6 million, $240.0 million and $42.5 million,
respectively, and negative cash flows from operations for the
years ended September 30, 2002 and 2001 of
$116.9 million and $74.9, respectively. We have
historically relied upon proceeds from equity offerings to fund
operations. During 2002, we undertook restructurings to reduce
costs and to reduce cash outflows from operations. As described
in Note 19, subsequent to September 30, 2002 we
completed the sale of the Enterprise Search Division for net
proceeds of $25 million and the sale of its corporate
headquarters for net proceeds of $41.6 million. As further
described in Note 19 we also implemented subsequent to
September 30, 2002 a restructuring plan in order to reduce
the operating

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

expenses on an ongoing basis. These activities
generated cash flows needed for our operations. Management
believes it has adequate cash resources to fund operations for
at least until December 2003 with these additional subsequent
cash flows, maintaining its existing customer relationships and
continued efforts on pursuing increased revenues and monitoring
expenses.

(2) Summary of Significant Accounting
Policies



| |                 
| | ----------------
| | Use of Estimates

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



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
accounts of the Company and its subsidiaries, which are all
wholly owned. All inter-company balances and transactions have
been eliminated in the consolidated financial statements.



| |                             
| | ----------------------------
| | Foreign Currency Translation

We translate into U.S. Dollars the accounts
of our foreign subsidiaries using the local currency as the
functional currency. The balance sheets of our subsidiaries are
translated into U.S. dollars at period end rates of
exchange. Revenues and expenses are translated at average rates
for the period. The resulting translation adjustments are
included in other comprehensive income (loss). Exchange gains
and losses arising from transactions denominated in a foreign
currency other than the functional currency of the entity
involved are included in other income, net.



| |                  
| | -----------------
| | Reclassifications

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



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

The Companys financial instruments,
including cash and cash equivalents, restricted cash, short-term
investments, accounts receivable, and accounts payable are
carried at cost, which approximates fair value due to the
relatively short maturity of those instruments. The market rate
structure of interest rates on notes payable approximates fair
value.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents are stated at cost,
which approximates fair value. Cash equivalents consist of
highly liquid investments that mature within three months of
their purchase date. Cash equivalents consist primarily of money
market funds.



| |                       
| | ----------------------
| | Short-Term Investments

Short-term investments are comprised primarily of
high-grade commercial paper and debt instruments and are
classified as available-for-sale investments. The carrying value
of the short-term investments is adjusted to fair value with a
resulting adjustment to stockholders equity. The amortized
cost of debt securities are adjusted for amortization of
premiums and accretion of discounts to maturity, both of which
are included

F-12



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

in interest income. Realized gains and losses are
recorded using the specific identification method and have been
minimal through September 30, 2002.



| |                
| | ---------------
| | Restricted Cash

Restricted cash was a cash collateral account
maintained under the terms of Parkside lease agreement amounting
to $9.3 million (see Note 14) and an operating lease
agreement for the land and facilities of our corporate
headquarters, Bayside, amounting to $119.6 million (see
Note 11). In accordance with these agreements, we had
created and had maintained a cash collateral account that
limited the liquidity of $129.0 million of our cash prior
to August 2002, at which time the related lease agreements were
terminated.



| |                                     
| | ------------------------------------
| | Investments in Equity
    Securities

Investments in equity securities include equity
investments in both publicly traded and privately held
technology companies. For companies where we do not have the
ability to exercise significant influence over any of these
companies, investments in publicly held companies are classified
as available-for-sale and are reported at fair value, with
unrealized gains and losses, net of tax, recorded in
stockholders equity and investments in privately held
companies are accounted for under the cost method of accounting.
For companies where we are able to exercise significant
influence investments are accounted for under the equity method.

We perform periodic reviews of our investments
for impairment. Our investments in publicly held companies are
generally considered impaired when a decline in the fair value
of an investment as measured by quoted market prices is less
than its carrying value and such a decline is not considered
temporary. Our investments in privately held companies are
considered impaired when a review of the investees
operations and other indicators of impairment indicate that the
carrying value of the investment is not likely to be
recoverable. Such indicators include, but are not limited to,
limited capital resources, limited prospects of receiving
additional financing, and prospects for liquidity of the related
securities. Impaired investments in privately held companies are
written down to estimated fair value, which is the amount we
believe is recoverable from our investment.



| |                                       
| | --------------------------------------
| | Property, Plant and Equipment,
    Net

Property, plant and equipment is stated at cost
and is depreciated using the straight-line method over the
estimated useful lives of the related assets, generally three
years for computer equipment, five years for furniture and
fixtures and twenty years for buildings. Any gains or losses on
the disposal of property and equipment are recorded in the
period of disposition. Assets held under capital lease and
leasehold improvements are amortized on a straight-line basis
over the shorter of their estimated useful lives or remaining
lease term (up to fifteen years). Major additions and
improvements are capitalized, while replacements, maintenance
and repairs that do not improve or extend the life of the assets
are charged to expense.

We record impairments or write-downs of property,
plant and equipment 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, but are not
limited to, 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 the asset, a
significant adverse change in operations or business climate
affecting the asset not considered temporary, 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. Impairments are
performed at the lowest level where we have distinguishable cash
flows for all assets at that level grouped together. Impairment
losses are measured based

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

on the difference between the assets
estimated 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.



| |                                        
| | ---------------------------------------
| | Goodwill and Other Intangibles,
    Net

Goodwill and other intangibles, net relates to
our acquisitions accounted for under the purchase method. For
acquisitions prior to June 30, 2001, goodwill has been
amortized using the straight-line method over a period of five
years, based on the period of expected benefit. The goodwill
from our acquisition of Quiver in August 2002 is not amortized
in accordance with Statement of Financial Accounting Standards
(SFAS) No. 141 Business Combinations.

We assess the impairment of goodwill and other
intangibles periodically in accordance with the provisions of
SFAS No. 121, Accounting for the Impairment of Long
Lived Assets. We also assess the impairment of enterprise
level goodwill periodically in accordance with the provision of
Accounting Principles Board (APB) Opinion No. 17,
Intangible Assets. The goodwill associated with the
acquisitions has been considered by Inktomi as enterprise
goodwill as Inktomi historically has not had distinguishable
cash flows for any of its divisions. Therefore impairment
assessments are performed at the Inktomi level. An impairment
review is performed whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors
considered important which could trigger an impairment review
include, but are not limited to, significant underperformance
relative to expected historical or projected future operating
results, significant changes in the manner of use of the
acquired assets or the strategy for our overall business,
significant negative industry or economic trends and a
significant decline in stock price resulting in Inktomis
market capitalization falling below Inktomis shareholders
equity for a sustained period. When it is determined that the
carrying value of goodwill may not be recoverable based upon the
existence of one or more of the above indicators of impairment,
measurement of any impairment are based on a projected
discounted cash flow method using a discount rate commensurate
with the risk inherent in the current business model.



| |                           
| | --------------------------
| | Software Development Costs

Software development costs have been accounted
for in accordance with SFAS No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. Under the standard, capitalization of software
development costs begins upon the establishment of technological
feasibility that, for us, is upon completion of a working model
and ends upon release of the product. To date, such amounts have
been insignificant, and accordingly, we have charged all
software development costs to research and development expense.



| |                    
| | -------------------
| | Revenue Recognition



| |         
| | --------
| | Licences

We recognize revenues from software licenses and
services when the licensed product or service is delivered,
collection is reasonably assured, the fee for each element of
the transaction is fixed or determinable, persuasive evidence of
an arrangement exists, and vendor-specific objective evidence
exists to allocate the total fee to any undelivered elements of
the arrangement.

For software resellers, we generally recognize
revenue upon selling into the channel, provided that persuasive
evidence of an arrangement exists, fees are fixed or
determinable, collectibility is probable, no contingencies exist
and delivery has occurred. Reseller license revenue as a
percentage of total revenue was 4%, 8% and 9% for fiscal 2002,
2001 and 2000, respectively. We do not offer a right of return
and fees under these arrangements are non-refundable.

For software original equipment manufacturers
(OEMs), where there is a non-refundable prepayment,
generally we recognize revenue upon completion and delivery of
any required modifications for the OEM,

F-14



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INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

provided that persuasive evidence of an
arrangement exists, fees are fixed or determinable,
collectibility is probable and no contingencies exist. We do not
offer a right of return and fees are nonrefundable. In other
cases, where there is no up-front payment, Inktomi recognizes
revenue when the OEM notifies Inktomi of the royalties payable
to Inktomi as a result of selling through the product. OEM
license revenue as a percentage of total revenue was 3%, 6% and
1% for fiscal year ended September 30, 2002, 2001 and 2000,
respectively. We do not offer a right of return.

We estimate whether collection is reasonably
assured based on our knowledge of the customers payment history
with us and other sources that may include use of third-party
credit rating agencies. Actual collection of amounts from
customers will depend on customer specific circumstances and
therefore amounts, which we have determined that collection is
assured, may ultimately not be collected.

We estimate whether fees are fixed and
determinable based on contractual terms of the arrangement. We
generally do not offer rights of refund or acceptance
provisions. We do not record revenue until the lapse of these
provisions, if provided. We assess whether there is sufficient
history of collection for any payment terms provided to
customers which are longer than what we provide the majority of
our customers. We recognize revenue when amounts become due for
any amounts considered to be extended payments.

Fees from licenses sold together with consulting
and implementation services are generally recognized upon
delivery provided that the above criteria have been met, payment
of the license fees is not dependent upon the performance of the
services and the services are not essential to the functionality
of the licensed software.

In instances where the aforementioned criteria
have not been met, both the licenses and consulting fees,
excluding the upgrade and support elements, are recognized using
contract accounting. Where reliable estimates can be made by
management with respect to the extent of consulting or
implementation services required for full functionality, the
license and service revenue, excluding the upgrade and support
element, is recognized on a percentage-of-completion method.
Management estimates the percentage of completion for contracts
based on the labor hours incurred compared to total estimated
hours for the full implementation or completion of consulting
services as well as contract milestones completed. We classify
revenue from these arrangements as licenses, maintenance, and
other services revenues, respectively, based upon the estimated
fair value of each element.

We assess numerous factors of services provided
with licenses sold in order to determine whether they are
essential to the functionality of the software including, but
not limited to, our history of providing similar services,
whether other vendors can provide similar services, whether core
software is being changed and whether customer collection of
license fees are contingent upon completion of services. Our
assessment of these factors is based on our knowledge of the
service market, the software functionality which the customer is
purchasing and the contractual terms of the arrangement.

Revenue on upgrade rights is recognized ratably
over the term of the agreement and included in licences revenue.



| |                    
| | -------------------
| | Web Search Services

Web search services revenues are generated
through a variety of contractual arrangements, which include
general service fees, per-query search fees, database inclusion
fees, maintenance fees and search service hosting fees.

General services fees and per-query search fees
are based, and recognized, on the query volume in the period or
the minimum payments of the respective contract. Database
inclusion fees are generated from customers who pay on a
click-through basis and customers who pay a flat rate per
universal resource locator

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(URL) to be included in the Inktomi
database. Fees based on click-throughs are recognized based on
the activity for that period. Fees based on a flat rate per URL
are recognized ratably over the term of the contract.

Maintenance fees and search services hosting fees
are recognized ratably over the term of the contract. For all
Web search services, revenue is recognized when persuasive
evidence of an arrangement exists, the services have been
delivered, performance obligations have been satisfied, no
refund obligations exist and collection is reasonably assured.



| |                     
| | --------------------
| | Maintenance Services

Maintenance services revenues are generated
through the sale of support services in connection with initial
licence sales and renewals of support services after the initial
service period. Support services generally have a term of
one-year and are recognized over the term of the support
agreement.



| |               
| | --------------
| | Other Services

Other services revenues are generated from
consulting services and Commerce revenues, prior to the
divestiture of our Commerce Division in March 2001 (see
Note 1). Revenue from consulting services is recognized as
services are performed or upon acceptance. We generated commerce
revenues through a variety of contractual arrangements,
consisting of annual infrastructure service fees, transaction
fees from participating online merchants and per-query search
fees and advertising revenues and general service fees from
Internet portals and other Web site customers. Annual
infrastructure service fees and general service fees are
recognized ratably over the contract period. Transaction and
per-query fees are recognized based on the activity in the
period and advertising revenues are recognized in the period
that the advertisement is displayed. Commerce revenues are
included in other service revenue.



| |                  
| | -----------------
| | Advertising Costs

We expense advertising costs as they are
incurred. Advertising expense was approximately
$10.8 million, $19.3 million, and $18.8 million
in the years ended September 30, 2002, 2001, and 2000,
respectively.



| |            
| | -----------
| | 401(k) Plan

In May 1996, we established a 401(k) Plan which
covers substantially all employees. Under the 401(k) Plan,
employees are permitted to contribute up to 25% of gross
compensation not to exceed the annual 402(g) limitation for any
plan year. We may make discretionary contributions, but have not
made any contributions to the 401(k) Plan since inception.



| |                                            
| | -------------------------------------------
| | Accounting for Stock-Based
    Compensation

The Company uses the fixed intrinsic value method
to record stock-based compensation for employees provided the
stock options terms meet the requirements for fixed accounting.
The fixed intrinsic value method requires that deferred stock
compensation is recorded for the difference between the exercise
price and fair value of the underlying common stock on the grant
date of the stock option. Compensation expense resulting from
employee stock options is amortized to expense ratably over the
vesting period. Pro forma net loss disclosures are presented in
Note 16, assuming all employee stock options were valued
using the Black-Scholes model and the resulting stock-based
compensation is amortized ratably over the vesting term.
Stock-based compensation to non-employees is based on the fair
value of the stock option estimated using the Black-Scholes
model on the date of grant and re-measured until vested.

F-16



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                          
| | -------------------------
| | Acquisition-Related Costs

As a result of our FastForward acquisition in
October 2000 and our WebSpective acquisition in October 1999, we
recorded acquisition-related cots of $19.5 million and
$4.0 million in fiscal 2001 and 2000, respectively,
primarily for investment banking fees, accounting, legal and
other professional expenses.



| |                  
| | -----------------
| | Other Income, Net

Other income, net includes gains on sales of
investments, interest income and expense, foreign exchange gains
and losses and losses on asset dispositions. Other income for
the years ended September 30, 2002, 2001 and 2000 consists
of (in thousands):

|                                                                   |  |               |       |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------------ |  | ------------- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                   |  |              
|                                                                   |  | September 30,
|                                                                   |  |              
|                                                                   |  | 2002          |       | 2001 |  | 2000
|                                                                   |  |               |       |      |  |     
|Interest expense                                                   |  | $             | (934  | )    |  | $    | (1,107 | ) |  | $ | (2,192 | )
|Interest income                                                    |  |               | 4,799 |      |  |      | 15,375 |   |  |   | 15,917 |  
|Foreign exchange gain (loss)                                       |  |               | (160  | )    |  |      | (567   | ) |  |   | 118    |  
|Realized gain (loss) on sale of investments, net                   |  |               | (736  | )    |  |      | (2,925 | ) |  |   | 1,930  |  
|Loss on disposition                                                |  |               | (937  | )    |  |      | (934   | ) |  |   |       |  
|Reversal of accruals associated with previous one
    time charges |  |               | 2,755 |      |  |      |       |   |  |   |       |  
|Other                                                              |  |               | 1,816 |      |  |      | 498    |   |  |   | 1,178  |  
|                                                                   |  |               |       |      |  |      |        |   |  |   |        |  
|Other income, net                                                  |  | $             | 6,603 |      |  | $    | 10,340 |   |  | $ | 16,951 |  
|                                                                   |  |               |       |      |  |      |        |   |  |   |        |  



| |             
| | ------------
| | Income Taxes

Income taxes are accounted for in accordance with
SFAS No. 109, Accounting for Income Taxes, which
requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.



| |                            
| | ---------------------------
| | Comprehensive Income (Loss)

SFAS No. 130, Reporting Comprehensive
Income, requires companies to report foreign currency
translation gains and losses and unrealized gains and losses on
equity securities that have been previously excluded from net
income and reflected instead in stockholders equity.
Comprehensive income (loss) for the periods ended
September 30, 2002, 2001 and 2000 have been included in our
Consolidated Statements of Changes in Stockholders Equity.



| |                   
| | ------------------
| | Net Loss Per Share

We compute net loss per share in accordance with
SFAS No. 128, Earnings per Share, and SAB
No. 98. Under the provisions of SFAS No. 128 and SAB
No. 98, basic and diluted net loss per share are based on
the weighted average shares outstanding in each period. Basic
net loss per share is calculated by dividing net loss by the
weighted average number of outstanding shares during the period.
Diluted net loss per share is calculated by adjusting the
average number of outstanding shares assuming conversion of all
potentially dilutive stock options and warrants under the
treasury stock method. For all fiscal years presented,
potentially

F-17



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

dilutive stock options and warrants were excluded
from the calculation of diluted net loss per share, as their
effect would have been anti-dilutive.

The following is a reconciliation of the
numerator and denominator used to determine basic and diluted
earnings per share (EPS) (in thousands, except per
share amounts):

|                                                                                                 |                                                                                                 |                                  |          |         |   |      |          |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------- | -------------------------------- | -------- | ------- | - | ---- | -------- | ------- | - | - | ------- | ------- | -
|                                                                                                 |                                                                                                 |                                 
|                                                                                                 |                                                                                                 | For the Year Ended September 30,
|                                                                                                 |                                                                                                 |                                 
|                                                                                                 |                                                                                                 | 2002                             |          | 2001    |   | 2000
|                                                                                                 |                                                                                                 |                                  |          |         |   |     
|Numerator  Basic and diluted EPS net
    loss                                                   |                                                                                                 |                                  | (500,795 | )       |   | $    | (296,482 | )       |   | $ | (27,340 | )      
|                                                                                                 |                                                                                                 |                                  |          |         |   |      |          |         |   |   |         |        
|Denominator  Basic and diluted EPS
    weighted average Common Stock outstanding                |                                                                                                 |                                  | 144,168  |         |   |      | 127,361  |         |   |   | 124,068 |        
|                                                                                                 | Less weighted average Common Stock subject to
    repurchase                                    |                                  |          | (1,475  | ) |      |          | (1,753  | ) |   |         | (11,038 | )
|                                                                                                 |                                                                                                 |                                  |          |         |   |      |          |         |   |   |         |        
|                                                                                                 | Weighted average Common Stock used to calculate
    basic and diluted net loss per Common Share |                                  |          | 142,693 |   |      |          | 125,608 |   |   |         | 113,030 |  
|                                                                                                 |                                                                                                 |                                  |          |         |   |      |          |         |   |   |         |        
|Basic and diluted net loss per Common share                                                      |                                                                                                 | $                                | (3.51    | )       |   | $    | (2.36    | )       |   | $ | (0.24   | )      
|                                                                                                 |                                                                                                 |                                  |          |         |   |      |          |         |   |   |         |        
|Dilutive securities outstanding that are not
    included as their effect would be anti-dilutive |                                                                                                 |                                  | 26,469   |         |   |      | 28,629   |         |   |   | 23,759  |        
|                                                                                                 |                                                                                                 |                                  |          |         |   |      |          |         |   |   |         |        



| |                                                   
| | --------------------------------------------------
| | Business Risk and Concentration of Credit
    Risk

We operate in the internet and software industry,
which is rapidly evolving and intensely competitive.

Financial instruments that potentially subject us
to concentrations of credit risk consist primarily of temporary
cash investments (including money market accounts), short-term
investments, and accounts receivable. We place our cash, cash
equivalents, short-term investments and restricted cash with
major financial institutions and such deposits exceed federally
insured limits.

We do not require collateral, and maintain
allowances for potential credit losses on customer accounts when
deemed necessary. For the year ended September 30, 2002,
one customer accounted for 22% of all revenue generated. For the
years ended September 30, 2001, and 2000, no customer
accounted for 10% of all revenue generated. At
September 30, 2002, one customer accounted for 24% of gross
accounts receivable, at September 30, 2001, no customer
accounted for 10% of gross accounts receivable and at
September 30, 2000, one customer accounted for 14% of gross
accounts receivable.



| |                                              
| | ---------------------------------------------
| | Recently Issued Accounting
    Pronouncements

In November 2001, the Financial Accounting
Standards Board (FASB) Emerging Issues Task Force
(EITF) reached a consensus on EITF
Issue 01-09, Accounting for Consideration Given by a
Vendor to a Customer or a Reseller of the Vendors
Products, which is a codification of EITF 00-14, 00-22
and 00-25. This issue presumes that consideration from a vendor
to a customer or reseller of the vendors products to be a
reduction of the selling prices of the vendors products
and, therefore, should be characterized as a reduction of
revenue when recognized in the vendors income statement
and could lead to negative revenue under certain circumstances.
Revenue reduction is required unless consideration relates to a
separate identifiable benefit and the benefits fair value
can be established. We implemented EITF 01-09 during the
fiscal year ended September 30, 2002. The adoption of
EITF 01-09 did not have a significant impact on the
financial position or results of operations for the fiscal 2001
and 2000.

In July 2001, the FASB issued SFAS 142,
Goodwill and Other Intangible Assets, which is effective
for fiscal years beginning after December 15, 2001.
SFAS 142 requires, among other things, the discontinuance of

F-18



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

goodwill amortization. In addition, the standard
includes provisions upon adoption for the reclassification of
certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of
previously reported goodwill and the testing for impairment of
existing goodwill and other intangibles. The impairment review
required under SFAS 142 will involve a two-step process as
follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Step 1  we will compare the fair
    value of our reporting units to the carrying value, including
    goodwill of each of those units. For each reporting unit where
    the carrying value, including goodwill, exceeds the units
    fair value, we will move on to step 2. If a units
    fair value exceeds the carrying value, no further work is
    performed and no impairment charge is necessary.                                                                                                                                                                            
|
| |  | Step 2  we will perform an
    allocation of the fair value of the reporting unit to its
    identifiable tangible and non-goodwill intangible assets and
    liabilities. This will derive an implied fair value for the
    reporting units goodwill. We will then compare the implied
    fair value of the reporting units goodwill with the
    carrying amount of the reporting units goodwill. If the
    carrying amount of the reporting units goodwill is greater
    than the implied fair value of its goodwill, an impairment loss
    must be recognized for the excess.

We will adopt SFAS 142 as of October 1,
2002 and expect to complete the initial review during our second
quarter ending March 31, 2003.

In October 2001, the FASB issued SFAS 144,
Accounting for the Impairment or Disposal of Long-lived
Assets. The objectives of SFAS 144 are to address
significant issues relating to the implementation of
SFAS 121, Accounting for the Impairment of Long-lived
Assets to be Disposed of, and to develop a single accounting
model, based on the framework established by SFAS 121, for
long-lived assets to be disposed of by sale, whether previously
held and used or newly acquired. Additionally, SFAS 144
expands the scope of discontinued operations to include all
components of an entity with operations that (1) can be
distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a
disposal transaction. Although SFAS 144 supercedes
SFAS 121, it retains some fundamental provisions of
SFAS 121. SFAS 144 is effective for financial
statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal
years. We will adopt SFAS 144 as of October 1, 2002
and do not expect that the implementation will have a
significant effect on our financial statements, except for our
expected discontinued operations treatment of the sale of our
enterprise search division to Verity, Inc. (see Note 19).

In June 2002, the FASB issued SFAS 146,
Accounting for Exit or Disposal Activities. SFAS 146
addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with
exit and disposal activities, including restructuring activities
that are currently accounted for under EITF No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The scope of
SFAS 146 also includes costs related to terminating a
contract that is not a capital lease and termination benefits
that employees who are involuntarily terminated receive under
the terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS 146 will be effective
for exit or disposal activities that are initiated after
December 31, 2002 and early application is encouraged. The
provisions of EITF No. 94-3 shall continue to apply
for an exit activity initiated under an exit plan that met the
criteria of EITF No. 94-3 prior to the adoption of
SFAS 146. We will adopt FSAS 146 for exit or disposal
activities that are initiated after December 31, 2002. The
effect on adoption of SFAS 146 will change on a prospective
basis the timing of when restructuring charges are recorded from
a commitment date approach to when the liability is incurred.

In November 2002, the FASB issued FASB
Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair
value of

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the obligation it assumes under that guarantee.
The disclosure provisions of FIN 45 are effective for
financial statements of interim or annual periods that end after
December 15, 2002. The provisions for initial recognition
and measurement are effective on a prospective basis for
guarantees that are issued or modified after December 31,
2002, irrespective of a guarantors year-end. We are
currently assessing what the impact of the guidance would be on
our financial statements.

In November 2002, the EITF reached a consensus on
issue No. 00-21 Accounting for Revenue Arrangements with
Multiple Deliverables (EITF 00-21) on a
model to be used to determine when a revenue arrangement with
multiple deliverables should be divided into separate units of
accounting and, if separation is appropriate, how the
arrangement consideration should be allocated to the identified
accounting units. The EITF also reached a consensus that this
guidance should be effective all revenue arrangements entered
into in fiscal periods beginning after June 15, 2003, which
for the company would be the quarter ending September 30,
2003. We are currently assessing what the impact of the guidance
would be on our financial statements.

(3) Property, Plant and Equipment,
Net

Property, plant and equipment consists of (in
thousands):

|                                               |  |               |        |      |  |   |         |  
|---------------------------------------------- |  | ------------- | ------ | ---- |  | - | ------- | -
|                                               |  |              
|                                               |  | September 30,
|                                               |  |              
|                                               |  | 2002          |        | 2001
|                                               |  |               |        |     
|Computer equipment                             |  | $             | 15,885 |      |  | $ | 83,140  |  
|Furniture and fixtures                         |  |               | 311    |      |  |   | 10,030  |  
|Leasehold improvements                         |  |               | 3,157  |      |  |   | 35,306  |  
|Building                                       |  |               | 24,950 |      |  |   |        |  
|Land                                           |  |               | 19,850 |      |  |   |        |  
|                                               |  |               |        |      |  |   |         |  
|                                               |  |               | 64,153 |      |  |   | 128,476 |  
|Less accumulated depreciation and amortization |  |               | (1,617 | )    |  |   | (52,375 | )
|                                               |  |               |        |      |  |   |         |  
|Property, plant and equipment, net             |  | $             | 62,536 |      |  | $ | 76,101  |  
|                                               |  |               |        |      |  |   |         |  

Net assets acquired under capitalized lease
obligations are included in furniture and fixtures and totaled
$0.3 million at September 30, 2002. Net assets
acquired under capitalized lease obligations are included in
computer equipment and furniture and fixtures and totaled
$18.9 million at September 30, 2001. Depreciation
expense for the year ended September 30, 2002, 2001, and
2000 was $25.1 million, $32.4 million, and
$22.1 million, respectively.

As described in Note 11 building and land
consist of our Bayside corporate headquarters. We purchased this
facility for $114 million in August 2002. As of the
purchase date we completed an impairment assessment of our
corporate headquarter and related leasehold improvements in
August 2002 resulting in a write down of the assets to the
estimated fair value. This represents the new cost basis for the
building and leasehold improvements. The building will be
depreciated over the expected remaining economic life. As
described in Note 19 the Company completed the sale of its
corporate headquarters on December 20, 2002.

Further as described in Note 11 the company
completed an impairment assessment of its computer equipment and
furniture and fixtures resulting in a write down of the assets
to the estimated fair value. This represents the new cost basis
for the assets and will be amortized over the expected remaining
economic life.

F-20



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(4) Investments

The following table summarizes the Companys
investment in available-for-sale securities (in thousands):

|                                                                                           |  |                    |        |            |  |            |     |            |  |   |    |   |  |   |        | 
|------------------------------------------------------------------------------------------ |  | ------------------ | ------ | ---------- |  | ---------- | --- | ---------- |  | - | -- | - |  | - | ------ | 
|                                                                                           |  |                   
|                                                                                           |  | September 30, 2002
|                                                                                           |  |                   
|                                                                                           |  | Gross              |        | Gross      |  | Gross      |     |           
|                                                                                           |  | Amortized          |        | Unrealized |  | Unrealized |     | Estimated 
|                                                                                           |  | Costs              |        | Gains      |  | Losses     |     | Fair Value
|                                                                                           |  |                    |        |            |  |            |     |           
|Certificates of Deposits, Money Market Funds,
    Mutual Funds and Auction Rate Securities |  | $                  | 353    |            |  | $          |    |            |  | $ |   |   |  | $ | 353    | 
|United States Government and Agencies                                                      |  |                    | 999    |            |  |            | 1   |            |  |   |   |   |  |   | 1,000  | 
|Municipal Bonds                                                                            |  |                    | 9,751  |            |  |            |    |            |  |   |   |   |  |   | 9,751  | 
|Corporate Debt Securities                                                                  |  |                    | 16,907 |            |  |            | 105 |            |  |   | (1 | ) |  |   | 17,011 | 
|Investment in Equity Securities                                                            |  |                    | 331    |            |  |            |    |            |  |   |   |   |  |   | 331    | 
|                                                                                           |  |                    |        |            |  |            |     |            |  |   |    |   |  |   |        | 
|                                                                                           |  | $                  | 28,341 |            |  | $          | 106 |            |  | $ | (1 | ) |  | $ | 28,446 | 
|                                                                                           |  |                    |        |            |  |            |     |            |  |   |    |   |  |   |        | 

|                                                                                           |  |                    |        |            |  |            |     |            |  |   |        |   |  |   |        | 
|------------------------------------------------------------------------------------------ |  | ------------------ | ------ | ---------- |  | ---------- | --- | ---------- |  | - | ------ | - |  | - | ------ | 
|                                                                                           |  |                   
|                                                                                           |  | September 30, 2001
|                                                                                           |  |                   
|                                                                                           |  | Gross              |        | Gross      |  | Gross      |     |           
|                                                                                           |  | Amortized          |        | Unrealized |  | Unrealized |     | Estimated 
|                                                                                           |  | Costs              |        | Gains      |  | Losses     |     | Fair Value
|                                                                                           |  |                    |        |            |  |            |     |           
|Certificates of Deposits, Money Market Funds,
    Mutual Funds and Auction Rate Securities |  | $                  | 34,309 |            |  | $          |    |            |  | $ | (1     | ) |  | $ | 34,308 | 
|United States Government and Agencies                                                      |  |                    | 1,008  |            |  |            | 172 |            |  |   | (14    | ) |  |   | 1,166  | 
|Municipal Bonds                                                                            |  |                    | 5,910  |            |  |            |    |            |  |   |       |   |  |   | 5,910  | 
|Corporate Debt Securities                                                                  |  |                    | 24,417 |            |  |            | 205 |            |  |   | (11    | ) |  |   | 24,611 | 
|Investment in Equity Securities                                                            |  |                    | 3,222  |            |  |            | 37  |            |  |   | (1,878 | ) |  |   | 1,381  | 
|                                                                                           |  |                    |        |            |  |            |     |            |  |   |        |   |  |   |        | 
|                                                                                           |  | $                  | 68,866 |            |  | $          | 414 |            |  | $ | (1,904 | ) |  | $ | 67,376 | 
|                                                                                           |  |                    |        |            |  |            |     |            |  |   |        |   |  |   |        | 

The contractual maturities of available-for-sale
debt securities are as follows (in thousands):

|                    |  |               |        |      |  |   |        | 
|------------------- |  | ------------- | ------ | ---- |  | - | ------ | 
|                    |  |              
|                    |  | September 30,
|                    |  |              
|                    |  | 2002          |        | 2001
|                    |  |               |        |     
|Due within one year |  | $             | 24,944 |      |  | $ | 49,644 | 
|Due over one year   |  |               | 3,171  |      |  |   | 16,351 | 
|                    |  |               |        |      |  |   |        | 
|                    |  | $             | 28,115 |      |  | $ | 65,995 | 
|                    |  |               |        |      |  |   |        | 

The Companys investment in
available-for-sale securities are classified as short term
assets as we expect to sell the assets within one year.

F-21



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(5) Income Taxes

|         |         |                    |     |      |  |      |     |     |  |   |       |     | 
|-------- | ------- | ------------------ | --- | ---- |  | ---- | --- | --- |  | - | ----- | --- | 
|         |         |                   
|         |         | For the Year Ended
|         |         | September 30,     
|         |         |                   
|         |         | 2002               |     | 2001 |  | 2000
|         |         |                    |     |      |  |     
|Current: |         |                    |     |      |  |      |     |     |  |   |       |    
|         | Federal |                    | $   |     |  |      | $   |    |  |   | $     | 741 | 
|         | State   |                    |     | 81   |  |      |     | 236 |  |   |       | 225 | 
|         | Foreign |                    |     | 678  |  |      |     | 702 |  |   |       | 860 | 
|         |         |                    |     |      |  |      |     |     |  |   |       |    
|         |         |                    | 759 |      |  |      | 938 |     |  |   | 1,826 |    
|Deferred |         |                    |    |      |  |      |    |     |  |   |      |    
|         |         |                    |     |      |  |      |     |     |  |   |       |    
|         |         | $                  | 759 |      |  | $    | 938 |     |  | $ | 1,826 |    
|         |         |                    |     |      |  |      |     |     |  |   |       |    

The principal items accounting for the difference
between the income tax benefits computed using the United States
statutory rate and the provision for income taxes are as follows
(in thousands):

|                                        |  |                    |          |      |  |      |          |   |  |   |        |  
|--------------------------------------- |  | ------------------ | -------- | ---- |  | ---- | -------- | - |  | - | ------ | -
|                                        |  |                   
|                                        |  | For the Year Ended
|                                        |  | September 30,     
|                                        |  |                   
|                                        |  | 2002               |          | 2001 |  | 2000
|                                        |  |                    |          |      |  |     
|Federal tax benefit at statutory rate   |  | $                  | (170,012 | )    |  | $    | (100,892 | ) |  | $ | (8,622 | )
|State tax benefit of federal tax effect |  |                    | (24,564  | )    |  |      | (15,619  | ) |  |   | (839   | )
|Research and experimentation credits    |  |                    | (2,955   | )    |  |      | (1,000   | ) |  |   | (808   | )
|Acquisition-related costs               |  |                    | 204      |      |  |      | 937      |   |  |   | 1,360  |  
|Goodwill and other intangibles          |  |                    | 3,419    |      |  |      |         |   |  |   |       |  
|Amortization of deferred compensation   |  |                    | 1,736    |      |  |      | 3,853    |   |  |   | 2,410  |  
|Other                                   |  |                    | (1,122   | )    |  |      | 262      |   |  |   | 586    |  
|Net operating losses not benefited      |  |                    | 194,053  |      |  |      | 113,397  |   |  |   | 7,739  |  
|                                        |  |                    |          |      |  |      |          |   |  |   |        |  
|                                        |  | $                  | 759      |      |  | $    | 938      |   |  | $ | 1,826  |  
|                                        |  |                    |          |      |  |      |          |   |  |   |        |  

For the year ended September 30, 2002,
income (loss) before income tax provision for our United
States entities was $(500,824) and for our foreign entities was
$789.

F-22



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Net deferred tax assets
(liabilities) comprise (in thousands):

|                                                         |                         |               |          |      |  |   |          |   | 
|-------------------------------------------------------- | ----------------------- | ------------- | -------- | ---- |  | - | -------- | - | 
|                                                         |                         |              
|                                                         |                         | September 30,
|                                                         |                         |              
|                                                         |                         | 2002          |          | 2001
|                                                         |                         |               |          |     
|Net operating loss carryforwards 
    federal and state |                         | $             | 126,456  |      |  | $ | 56,440   |  
|Research credit and other credit carryforwards           |                         |               | 9,373    |      |  |   | 5,179    |  
|Capital loss carryforward                                |                         |               | 10,073   |      |  |   | 2,858    |  
|Other liabilities and reserves                           |                         |               | 4,496    |      |  |   | 11,676   |  
|Deferred revenue                                         |                         |               | 2,865    |      |  |   | 3,127    |  
|Property and equipment                                   |                         |               | 11,500   |      |  |   | 6,833    |  
|Goodwill and other intangibles                           |                         |               | 147,335  |      |  |   | 35,206   |  
|Loss from equity investment                              |                         |               | 33,628   |      |  |   | 30,308   |  
|Other                                                    |                         |               | 60       |      |  |   | 106      |  
|Valuation allowance                                      |                         |               | (345,786 | )    |  |   | (151,733 | )
|                                                         |                         |               |          |      |  |   |          |  
|                                                         | Net deferred tax assets |               | $        |     |  |   | $        |  | 
|                                                         |                         |               |          |      |  |   |          |  

Due to the uncertainty surrounding the
realization of the favorable tax attributes in future tax
returns, we have recognized a valuation allowance against our
otherwise recognizable net deferred tax assets.

At September 30, 2002, we had the following
carryforwards available to reduce future taxable income and
income taxes (in thousands):

|                                                                    |  |                    |         |       |  |   |         | 
|------------------------------------------------------------------- |  | ------------------ | ------- | ----- |  | - | ------- | 
|                                                                    |  |                   
|                                                                    |  | September 30, 2002
|                                                                    |  |                   
|                                                                    |  | Federal            |         | State
|                                                                    |  |                    |         |      
|Net operating loss carryforwards (excluding stock
    compensation) |  | $                  | 338,910 |       |  | $ | 199,799 | 
|Net operating loss carryforwards (including stock
    compensation) |  |                    | 641,263 |       |  |   | 450,628 | 
|Research and experimentation credit carryforwards                   |  |                    | 5,913   |       |  |   | 5,242   | 

The federal and state net operating loss
carryforwards expire through 2022 and 2009, respectively, and
the research and experimentation credits expire through 2022.

For federal and state tax purposes, our net
operating loss and research and experimentation credit
carryforwards could be subject to certain limitations on annual
utilization if certain changes in ownership have occurred, as
defined by federal and state tax laws.

The tax benefit related to the exercise of stock
compensation is recorded in the Additional Paid-in-Capital
account.

F-23



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(6) Notes Payable and Equipment
Line

Notes payable and line of credit comprise (in
thousands):

|                                    |  |               |         |      |  |   |        |  
|----------------------------------- |  | ------------- | ------- | ---- |  | - | ------ | -
|                                    |  |              
|                                    |  | September 30,
|                                    |  |              
|                                    |  | 2002          |         | 2001
|                                    |  |               |         |     
|Notes payable(1)                    |  | $             | 21,500  |      |  | $ |       |  
|Imputed interest(1)                 |  |               | (247    | )    |  |   |       |  
|Notes payable(2)                    |  |               | 3,611   |      |  |   |       |  
|Notes payable(3)                    |  |               | 1,389   |      |  |   |        |  
|Equipment notes(4)                  |  |               | 3,750   |      |  |   | 6,250  |  
|Equipment line(5)                   |  |               |        |      |  |   | 481    |  
|                                    |  |               |         |      |  |   |        |  
|                                    |  |               | 30,003  |      |  |   | 6,731  |  
|Current portion                     |  |               | (30,003 | )    |  |   | (2,500 | )
|                                    |  |               |         |      |  |   |        |  
|Notes payable, less current portion |  | $             |        |      |  | $ | 4,231  |  
|                                    |  |               |         |      |  |   |        |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | At September 30, 2002, we had a note bearing
    interest at 0% until January 21, 2003 and 6% per annum
    thereafter resulting from the lease termination agreement with
    the landlords of our Parkside facilities. From the note
    inception to January 21, 2003, we applied an imputed annual
    interest rate of 6%. The loan is payable $5.0 million on or
    before October 1, 2002 and the remainder earlier of
    (i) January 21, 2003 or (ii) the date of the sale
    of the Bayside facility. On October 1, 2002, we paid the
    initial amount due of $5.0 million and on December 20,
    2002, we paid the remaining $16.5 million upon the close of
    the Bayside facility (see Note 19). This loan was secured
    by our Bayside corporate headquarters facility.
|   
|(2) | At September 30, 2002, we had a line of
    credit with a banking institution that was primarily
    collateralized by our accounts receivable. Interest rate is
    prime plus 3% per annum. The loan is repayable one year from
    September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(3) | At September 30, 2002, we had a secured
    promissory note with a banking institution that was secured by
    all pledges and security interests previously, now or hereafter
    granted by Inktomi to the bank. Interest rate is prime plus 3%
    per annum. The note is repayable on October 5, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(4) | At September 30, 2002 and 2001, the
    equipment note consisted of one loan which has equal monthly
    payments of $208,000 plus interest at prime (4.75% at
    September 30, 2002). The note is collateralized by the
    underlying equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(5) | At September 30, 2001, we had an equipment
    line with a leasing company for $481. The monthly payment on the
    equipment line was $30,000 as of September 30, 2001. The
    equipment line was collateralized by the underlying equipment.
    The interest rate was approximately 7%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

The carrying value of notes payable approximated
fair value as the related interest rates approximate market
rates.

On September 30, 2002, we entered into a new
Loan Modification Agreement with our bank as a result of our
failure to comply with certain covenants under our existing loan
arrangements. The Loan Modification Agreement provides a waiver
of existing breaches and the revised covenants under this
agreement require, among other things, (i) that we maintain
monthly unrestricted cash balances of not less than
$27.5 million, (ii) that we maintain a tangible net
worth of not less than $25 million at the end of each month
until March 2003, and of not less than $13 million as of
the end of each month from April 2003 to September 2003, and
(iii) that we do not incur a net loss of more than
$137 million for the quarter ended September 30, 2002,
$10.3 million for the quarter ended December 31, 2002,
$7.6 million for the quarter ended March 31, 2003,

F-24



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$4.7 million for the quarter ended
June 30, 2003 and $1.3 million for the quarter ended
September 30, 2003. The covenants also prohibit us from
paying cash dividends.

The Loan Modification Agreement also contains a
material adverse change clause. As a result of this provision,
we will be in default under the loan facility if any of the
following conditions exist: payment default, covenant default,
the occurrence of a material adverse change, default under
certain other agreements, subordinated debt and judgments,
misrepresentations regarding information we have disclosed to
the bank, and insolvency. Upon the occurrence of a default the
bank may declare all obligations due and payable immediately,
settle or adjust disputes and claims directly with account
debtors for amounts that the bank considers advisable, make such
payments as necessary to protect its security interest in the
collateral, apply company balances held by the bank to the
obligations, and sell the collateral.

We violated the minimum cash balance convents for
the months ending October and November 2002. The bank waived the
covenant violations on December 27, 2002. The Company is
currently negotiating to restructure its loan covenants, as it
is probable that it will be in violation of the maximum GAAP
loss covenants for the quarter ended December 31, 2002. In
December 2002, the bank prospectively waived the maximum
GAAP loss covenant for the quarter ended December 31, 2002.
Accordingly, we have classified all amounts due as current under
this facility at September 30, 2002. If we were required to
repay the amounts borrowed under these loan arrangements, it
would reduce the amount of cash we have available for our
operations (see Note 19).

(7) Accrued Liabilities

Accrued liabilities comprise (in thousands):

|                                    |                           |               |       |        |  |   |        |        | 
|----------------------------------- | ------------------------- | ------------- | ----- | ------ |  | - | ------ | ------ | 
|                                    |                           |              
|                                    |                           | September 30,
|                                    |                           |              
|                                    |                           | 2002          |       | 2001  
|                                    |                           |               |       |       
|Accrued compensation                |                           | $             | 7,866 |        |  | $ | 21,831 |       
|Accrued royalties                   |                           |               | 2,140 |        |  |   | 9,020  |       
|Accrued consulting                  |                           |               | 1,203 |        |  |   | 5,301  |       
|Accrued marketing                   |                           |               | 1,392 |        |  |   | 4,496  |       
|Accrued for restructuring (Note 13) |                           |               | 8,522 |        |  |   | 4,375  |       
|Accrued legal costs                 |                           |               | 727   |        |  |   | 2,021  |       
|Accrued taxes                       |                           |               | 1,737 |        |  |   | 1,481  |       
|Other accrued liabilities           |                           |               | 6,593 |        |  |   | 10,121 |       
|                                    |                           |               |       |        |  |   |        |       
|                                    | Total accrued liabilities |               | $     | 30,180 |  |   | $      | 58,646 | 
|                                    |                           |               |       |        |  |   |        |       

(8) Goodwill and Other Intangibles,
Net

Goodwill and Other Intangibles, net consist of
(in thousands):

|                                                             |                                           |               |       |        |  |   |          |         | 
|------------------------------------------------------------ | ----------------------------------------- | ------------- | ----- | ------ |  | - | -------- | ------- | 
|                                                             |                                           |              
|                                                             |                                           | September 30,
|                                                             |                                           |              
|                                                             |                                           | 2002          |       | 2001  
|                                                             |                                           |               |       |       
|Goodwill (5 year life for acquisitions
    before July 2001) |                                           | $             | 8,207 |        |  | $ | 374,125  |        
|Purchased technology (3 year life)                           |                                           |               | 1,900 |        |  |   |         |        
|Accumulated amortization                                     |                                           |               | (79   | )      |  |   | (120,132 | )      
|                                                             |                                           |               |       |        |  |   |          |        
|                                                             | Total Goodwill and Other Intangibles, Net |               | $     | 10,028 |  |   | $        | 253,993 | 
|                                                             |                                           |               |       |        |  |   |          |        

F-25



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Net income (loss) on a pro forma basis, excluding
goodwill amortization expense, would have been as follows (in
thousands, except per share data):

|                                      |                                        |               |   |          |   |      |   |          |   |  |   |         |  
|------------------------------------- | -------------------------------------- | ------------- | - | -------- | - | ---- | - | -------- | - |  | - | ------- | -
|                                      |                                        |              
|                                      |                                        | September 30,
|                                      |                                        |              
|                                      |                                        | 2002          |   | 2001     |   | 2000
|                                      |                                        |               |   |          |   |     
|Net loss:                             |                                        |               |   |          |   |      |   |          |   |  |   |        
|                                      | Reported net loss                      |               | $ | (500,795 | ) |      | $ | (296,482 | ) |  | $ | (27,340 | )
|                                      | Add: Goodwill amortization, net of tax |               |   | 50,127   |   |      |   | 70,426   |   |  |   | 13,182  |  
|                                      |                                        |               |   |          |   |      |   |          |   |  |   |        
|                                      | Adjusted net loss                      |               | $ | (450,668 | ) |      | $ | (226,056 | ) |  | $ | (14,158 | )
|                                      |                                        |               |   |          |   |      |   |          |   |  |   |        
|Basic and diluted net loss per share: |                                        |               |   |          |   |      |   |          |   |  |   |        
|                                      | Reported net loss                      |               | $ | (3.51    | ) |      | $ | (2.36    | ) |  | $ | (0.24   | )
|                                      | Add: Goodwill amortization, net of tax |               |   | 0.35     |   |      |   | 0.56     |   |  |   | 0.12    |  
|                                      |                                        |               |   |          |   |      |   |          |   |  |   |        
|                                      | Adjusted net loss                      |               | $ | (3.16    | ) |      | $ | (1.80    | ) |  | $ | (0.12   | )
|                                      |                                        |               |   |          |   |      |   |          |   |  |   |        
|                                      | Share used in per share calculation    |               |   | 142,693  |   |      |   | 125,608  |   |  |   | 113,030 |  

(9) Other Assets

Other assets consist of (in thousands):

|                  |                    |               |       |       |  |   |       |       | 
|----------------- | ------------------ | ------------- | ----- | ----- |  | - | ----- | ----- | 
|                  |                    |              
|                  |                    | September 30,
|                  |                    |              
|                  |                    | 2002          |       | 2001 
|                  |                    |               |       |      
|Security deposits |                    | $             | 3,321 |       |  | $ | 4,747 |      
|Other assets      |                    |               | 1,387 |       |  |   | 731   |      
|                  |                    |               |       |       |  |   |       |      
|                  | Total Other Assets |               | $     | 4,708 |  |   | $     | 5,478 | 
|                  |                    |               |       |       |  |   |       |      

(10) Impairment of Investments

In late 1999 and early 2000, we made numerous
equity investments in both public and private companies for
strategic purposes. Our approach was to invest in companies that
were working to expand the markets that we believed to be
strategically beneficial to us. Market conditions for technology
companies began to deteriorate in late 2000 and this
deterioration continued during the first half of 2001. During
our quarter ended June 30, 2001 we determined that there
was an other-than-temporary decline, or impairment, in value of
most of our strategic investments in the amount of
$65.9 million. The $65.9 million impairment charge
consists of $39.7 million related to four public company
investments and $26.2 million related to nine private
company investments. We considered the prolonged decline in
overall technology market conditions as well as factors such as
liquidity and market acceptance on a company specific basis.

(11) Impairment of Property, Plant and
Equipment

Fiscal
2002

In August 2000, we entered into an operating
lease agreement for the land and facilities of our corporate
headquarters, known as Bayside, in Foster City, California. This
operating lease is commonly referred to as a synthetic lease
because it represents a form of off-balance sheet financing
under which an unrelated third-party funds 100% of the costs of
the acquisition of the property and leases the asset to Inktomi
as lessee. Under the lease terms, we were required to pay lease
payments for five years to the lessor. The payments were
calculated based on a floating interest rate applied against a
$114 million principal value. The agreement was assigned to
a third party lessor under the terms of a lease finance
structure. This structure also required the creation and
maintenance of a cash collateral account that limited the
liquidity of $119.6 million of our cash,

F-26



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

which was classified as long-term on our balance
sheet. During the term of the lease, we had a purchase option to
buy the building for $114 million plus breakup fees or to
extend the lease. If we elected not to purchase the building or
extend the lease term, we had guaranteed to compensate the
lessor for the difference between the market value of the
building and $114 million, limited upwards to a maximum
amount of $101 million (residual value guarantee).

In our third quarter of 2002, due to the
declining commercial real estate market in the Bay Area, we
believed that it was probable at the end of the lease term by
August 2005 that the market value of our Bayside corporate
headquarters would be less than the $114 million
guaranteed. Therefore, we accrued for this loss on a
straight-line basis from April 1, 2002 to the end of the
lease term. Accordingly, we had recorded $2.2 million in
fiscal 2002 as the total estimated future probable loss amounted
to $18.8 million. This loss was based on the difference
between the residual value guarantee amount and the estimated
value of our Bayside corporate headquarters at the end of the
lease term determined through the use of estimated future
sublease income provided by commercial real estate brokers.

In August 2002, through the execution of a
Termination and Release Agreement, we exercised the purchase
option under our operating lease arrangement for the Bayside
corporate headquarters. Title for such facilities was
transferred to Inktomi on such date. We paid $114.0 million
to Deutsche Bank and its affiliates, the holders of the
synthetic lease, for the purchase of the Bayside corporate
headquarters.

At the purchase date we valued the Bayside
corporate headquarters at $44.8 million based on
established valuation techniques. As a result of this valuation,
we incurred a charge of $67.0 million in the quarter ended
September 30, 2002. We also wrote down to zero the net book
value of the Bayside leasehold improvements which totaled
$15.5 million during the quarter ended September 30,
2002.

In September 2002, we incurred $10.5 million
non-cash corporate asset impairment primarily related to
computer equipment and furniture and fixtures held in use as the
expected cash flows were less than the carrying value of these
assets. Factors which triggered our assessment for impairment
included continued negative cash flows from operations,
continued operating losses and carrying values which exceeded
market values. These assets were written down to their estimated
fair value based on information obtained from recent sales of
similar assets. After the asset write-offs, we expect
depreciation expenses to reduce by $2.1 million per quarter
beginning in the quarter following the impairment.

Primarily as a result of our July 2002
restructuring (see Note 13), we incurred an
$8.7 million non-cash asset impairment related to abandoned
assets of the web search group and content networking products
group equipment.

As a result of our December 2001 restructuring
(see Note 13), we incurred a $1.3 million asset
impairment charge. The $1.3 million write-down represents
computer equipment consisting of $0.5 million of abandoned
assets in the London office that was downsized in the
restructuring and $0.8 million of abandoned assets related
to Content Bridge services that were discontinued as a product
line in the quarter.

Fiscal
2001

As a result of our September 2001 restructuring
(see Note 13), we incurred a $0.7 million asset
impairment charge related to abandoned fixed assets.

As a result of our June 2001 restructuring (see
Note 13), we incurred a $0.2 million asset impairment
charge related to abandoned fixed assets.

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INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(12) Impairment of Goodwill and Other
Intangibles

Fiscal
2002

On June 30, 2002, we recorded a charge of
$200.9 million to reflect the impairment of goodwill and
other intangibles created from the purchase of Ultraseek
($192.4 million) and eScene ($8.5 million). In fiscal
2000, we integrated Ultraseeks product offerings and
operations into our entire organization and, therefore, the
associated goodwill from this purchase transaction was accounted
for as enterprise goodwill. In the quarter ended June 30,
2002, we experienced a sustained decline in our market
capitalization to amounts well below our net book value. In
addition, other factors occurred in the quarter ended
June 30, 2002 that led us to assess whether an enterprise
goodwill impairment charge was appropriate. In particular,
America Online, one of our largest customers announced in April
2002, that it would not renew its web search contract with us
upon expiration in August 2002. In addition, we were
experiencing continued negative cash flows during the third
quarter ended June 30, 2002. These factors affected our
overall enterprise value leading to further decreases in the
market capitalization. Because of these factors we conducted an
enterprise goodwill impairment analysis and recorded a charge at
June 30, 2002 related to the goodwill created from the
purchase of Ultraseek and eScene.

In December 2001, we evaluated the remaining
intangible assets associated with our asset purchase from Adero
and recorded a $1.8 million charge to write-off the
remaining net book value as there will be no further revenue
streams related to these assets.



| |            
| | -----------
| | Fiscal 2001

During fiscal 2001, we recorded a charge of
$44.9 million to reflect the impairment of goodwill and
other intangibles, primarily related to our goodwill associated
with our investment in AirFlash and with the assets acquired
from Adero. Our private equity investment in AirFlash was
determined to be impaired due to continuing sustained operating
losses and no success by AirFlash of obtaining additional
funding. No cash flows were anticipated from our investment in
AirFlash therefore the associated goodwill was fully impaired.
Our goodwill related to the assets acquired from Adero was
determined to be impaired as we licensed the remaining
technology to a third party during 2001 and estimated discounted
cashflows were below the carrying value of the goodwill. An
impairment was recorded to adjust the carrying value of the
Adero goodwill down to the estimated fair value, which was based
on the estimated discounted cash flows.

(13) Restructuring



| |            
| | -----------
| | Fiscal 2002

For fiscal 2002, we incurred $20.1 million
in restructuring charges less $0.2 million release of
excess accrual that related to a fiscal 2001 restructuring. At
September 30, 2002, $7.4 million for restructuring
remained outstanding as an accrued liability on our balance
sheet. The restructuring for fiscal 2002 consisted of:

Fiscal 2002 Fourth Quarter Restructuring:

In July 2002, we announced plans to focus our
business on web search and enterprise retrieval markets. As a
result, we significantly scaled back the content networking
products group and related corporate infrastructure and
eliminated 290 positions and closed several sales offices around
the world. As a result of this restructuring, we incurred a
charge of $15.4 million made up of $11.9 million of
severance and related expenses and $3.5 million in costs
associated primarily with the consolidation of sales offices in
North America and Europe Approximately $8.3 million of the
charge was paid in the quarter ended September 30, 2002 and
the remainder will be paid over the next twelve months.

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth an analysis of the
components of the fiscal 2002 fourth quarter restructuring
charge and the payments made against the accrual through
September 30, 2002 (in thousands):

|                                      |                             |           |        |               |        |       |       |       |       |   |        |        |        | 
|------------------------------------- | --------------------------- | --------- | ------ | ------------- | ------ | ----- | ----- | ----- | ----- | - | ------ | ------ | ------ | 
|                                      |                             | Severance |        | Underutilized |        |      
|                                      |                             | Related   |        | Space         |        | Total
|                                      |                             |           |        |               |        |      
|Restructuring provision:              |                             |           |        |               |        |       |       |       |       |   |        |       
|                                      | Severance related           |           | $      | 11,874        |        |       | $     |      |       |   | $      | 11,874 |       
|                                      | Committed excess facilities |           |        |              |        |       |       | 3,535 |       |   |        | 3,535  |       
|                                      |                             |           |        |               |        |       |       |       |       |   |        |       
|                                      |                             | Total     |        |               | 11,874 |       |       |       | 3,535 |   |        |        | 15,409 | 
|Cash paid                             |                             |           | (7,922 | )             |        |       | (363  | )     |       |   | (8,285 | )     
|                                      |                             |           |        |               |        |       |       |       |       |   |        |       
|Accrual balance at September 30, 2002 |                             | $         | 3,952  |               |        | $     | 3,172 |       |       | $ | 7,124  |       
|                                      |                             |           |        |               |        |       |       |       |       |   |        |       

Fiscal 2002 Third Quarter Restructuring:

In April 2002, we completed a restructuring and a
workforce reduction of approximately 50 employees to reduce our
operating expenses. All of our functional areas were affected by
the reduction. As a result of this workforce reduction, we
incurred a charge of $2.2 million. During the quarter ended
September 30, 2002, a $0.3 million adjustment was made
to reduce the charge for severance and related expenses. As of
September 30, 2002, approximately $0.3 million of this
restructuring accrual remained outstanding as an accrued
liability on our balance sheet. The remaining payments will be
made over the next six months.

The following table sets forth an analysis of the
components of the fiscal 2002 third quarter restructuring charge
and the payments made against the accrual through
September 30, 2002 (in thousands):

|                                      |                             |           |        |               |       |       |     |     |     |   |        |       |       | 
|------------------------------------- | --------------------------- | --------- | ------ | ------------- | ----- | ----- | --- | --- | --- | - | ------ | ----- | ----- | 
|                                      |                             | Severance |        | Underutilized |       |      
|                                      |                             | Related   |        | Space         |       | Total
|                                      |                             |           |        |               |       |      
|Restructuring provision:              |                             |           |        |               |       |       |     |     |     |   |        |      
|                                      | Severance related           |           | $      | 1,952         |       |       | $   |    |     |   | $      | 1,952 |      
|                                      | Committed excess facilities |           |        |              |       |       |     | 268 |     |   |        | 268   |      
|                                      |                             |           |        |               |       |       |     |     |     |   |        |      
|                                      |                             | Total     |        |               | 1,952 |       |     |     | 268 |   |        |       | 2,220 | 
|Cash paid                             |                             |           | (1,610 | )             |       |       | (50 | )   |     |   | (1,660 | )    
|Release of excess accrual             |                             |           | (273   | )             |       |       |    |     |     |   | (273   | )    
|                                      |                             |           |        |               |       |       |     |     |     |   |        |      
|Accrual balance at September 30, 2002 |                             | $         | 69     |               |       | $     | 218 |     |     | $ | 287    |      
|                                      |                             |           |        |               |       |       |     |     |     |   |        |      

Fiscal 2002 First Quarter Restructuring:

In the quarter ended December 31, 2001, we
announced and substantially completed a restructuring and a
workforce reduction of approximately 115 employees to reduce our
operating expenses. All of our functional areas were affected by
the reduction. As a result of this workforce reduction, we
incurred a charge of $2.7 million. As of September 30,
2002, none of this restructuring accrual remained outstanding as
an accrued liability on our balance sheet.

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INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth an analysis of the
components of the fiscal 2002 first quarter restructuring charge
and the payments made against the accrual through
September 30, 2002 (in thousands):

|                                      |                             |           |        |               |       |       |      |     |     |   |        |       |       | 
|------------------------------------- | --------------------------- | --------- | ------ | ------------- | ----- | ----- | ---- | --- | --- | - | ------ | ----- | ----- | 
|                                      |                             | Severance |        | Underutilized |       |      
|                                      |                             | Related   |        | Space         |       | Total
|                                      |                             |           |        |               |       |      
|Restructuring provision:              |                             |           |        |               |       |       |      |     |     |   |        |      
|                                      | Severance related           |           | $      | 2,497         |       |       | $    |    |     |   | $      | 2,497 |      
|                                      | Committed excess facilities |           |        |              |       |       |      | 215 |     |   |        | 215   |      
|                                      |                             |           |        |               |       |       |      |     |     |   |        |      
|                                      |                             | Total     |        |               | 2,497 |       |      |     | 215 |   |        |       | 2,712 | 
|Cash paid                             |                             |           | (2,497 | )             |       |       | (215 | )   |     |   | (2,712 | )    
|                                      |                             |           |        |               |       |       |      |     |     |   |        |      
|Accrual balance at September 30, 2002 |                             | $         |       |               |       | $     |     |     |     | $ |       |      
|                                      |                             |           |        |               |       |       |      |     |     |   |        |      



| |            
| | -----------
| | Fiscal 2001

For fiscal 2001, we accrued $11.6 million
for restructuring charges. At September 30, 2002,
$1.1 million for restructuring remained outstanding as an
accrued liability on our balance sheet. The restructuring for
fiscal 2001 consisted of:

Fiscal 2001 Fourth Quarter Restructuring:

In the quarter ended September 30, 2001, we
instituted a restructuring and a workforce reduction of
approximately 35 employees to reduce our operating expenses. The
reduction in workforce primarily affected our employees working
on wireless related products, which is part of our content
networking products group. As a result of this restructuring, we
incurred a charge of approximately $6.6 million in the
quarter ended September 30, 2001. This charge included
costs associated with underutilized space and office
consolidations related primarily to approximately eight sales
offices in North America and the United Kingdom. During the
quarter ended September 30, 2002, a $0.2 million
adjustment was made to reduce the charge for severance and
related expenses. As of September 30, 2002, approximately
$1.1 million of this restructuring accrual remained
outstanding as an accrued liability on our balance sheet, which
will be paid over the next twelve months.

The following table sets forth an analysis of the
components of the fiscal 2001 fourth quarter restructuring
charge and the payments made against the accrual through
September 30, 2002 (in thousands):

|                                      |                             |           |        |               |       |       |        |       |       |   |        |       |       | 
|------------------------------------- | --------------------------- | --------- | ------ | ------------- | ----- | ----- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                      |                             | Severance |        | Underutilized |       |      
|                                      |                             | Related   |        | Space         |       | Total
|                                      |                             |           |        |               |       |      
|Restructuring provision:              |                             |           |        |               |       |       |        |       |       |   |        |      
|                                      | Severance related           |           | $      | 2,201         |       |       | $      |      |       |   | $      | 2,201 |      
|                                      | Committed excess facilities |           |        |              |       |       |        | 4,375 |       |   |        | 4,375 |      
|                                      |                             |           |        |               |       |       |        |       |       |   |        |      
|                                      |                             | Total     |        |               | 2,201 |       |        |       | 4,375 |   |        |       | 6,576 | 
|Cash paid                             |                             |           | (2,201 | )             |       |       | (3,064 | )     |       |   | (5,265 | )    
|Release of excess accrual             |                             |           |       |               |       |       | (200   | )     |       |   | (200   | )    
|                                      |                             |           |        |               |       |       |        |       |       |   |        |      
|Accrual balance at September 30, 2002 |                             | $         |       |               |       | $     | 1,111  |       |       | $ | 1,111  |      
|                                      |                             |           |        |               |       |       |        |       |       |   |        |      



Fiscal 2001 Third Quarter Restructuring:

In the quarter ended June 30, 2001, we
announced and substantially completed a restructuring and a
workforce reduction of approximately 200 employees to reduce our
operating expenses. All of our functional

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

areas were affected by the reduction. Included in
the restructuring charge was $0.6 million for professional
fees related primarily to job consultation services for
displaced employees. As a result of this workforce reduction, we
incurred a charge of $5.0 million. As of September 30,
2002, no amount remained outstanding as an accrued liability on
our balance sheet.

The following table sets forth an analysis of the
components of the fiscal 2001 third quarter restructuring charge
and the payments made against the accrual through
September 30, 2002 (in thousands):

|                                      |                             |           |        |         |       |       |        |     |       |   |        |       |       | 
|------------------------------------- | --------------------------- | --------- | ------ | ------- | ----- | ----- | ------ | --- | ----- | - | ------ | ----- | ----- | 
|                                      |                             | Severance |        | Other   |       |      
|                                      |                             | Related   |        | Charges |       | Total
|                                      |                             |           |        |         |       |      
|Restructuring provision:              |                             |           |        |         |       |       |        |     |       |   |        |      
|                                      | Severance related           |           | $      | 3,999   |       |       | $      |    |       |   | $      | 3,999 |      
|                                      | Professional fees           |           |        |        |       |       |        | 601 |       |   |        | 601   |      
|                                      | Committed excess facilities |           |        |        |       |       |        | 416 |       |   |        | 416   |      
|                                      |                             |           |        |         |       |       |        |     |       |   |        |      
|                                      |                             | Total     |        |         | 3,999 |       |        |     | 1,017 |   |        |       | 5,016 | 
|Cash paid                             |                             |           | (3,999 | )       |       |       | (1,017 | )   |       |   | (5,016 | )    
|                                      |                             |           |        |         |       |       |        |     |       |   |        |      
|Accrual balance at September 30, 2002 |                             | $         |       |         |       | $     |       |     |       | $ |       |      
|                                      |                             |           |        |         |       |       |        |     |       |   |        |      

(14) Parkside Lease Restructuring and
Termination

In April 2000, we entered into a lease agreement
commencing January 1, 2002 for 381,050 square feet of
office space in two mid-rise office buildings in Foster City,
California, known as Parkside Towers. Payments under the lease
commenced on January 1, 2002, when the property was
delivered to Inktomi by the developer and continue over the
lease term ending October 31, 2014 for one building and
October 31, 2016 for the second building.

In the quarter ending March 31, 2002, we
completed our assessment of our current and future anticipated
needs for operating facilities and adopted a plan to consolidate
our operating facilities. In accordance with this plan, we
recorded a lease termination charge of $74.6 million during
the quarter ended March 31, 2002 related to the abandonment
of our lease for 381,050 square feet of office space described
above. Of the $74.6 million charge, $62.3 related to the
expected loss on future subleases and $12.3 related to asset
write-offs. Lease abandonment costs for this facility were
estimated to include the remaining lease liabilities through the
term of the lease, impairment of leasehold improvements,
estimated future leasehold improvements and brokerage fees
offset by estimated sublease income. Estimates related to
sublease costs and income are based on assumptions regarding the
period required to locate sub-lessees and sublease rates which
were derived from market trend information provided by
commercial real estate brokers.

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INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth an analysis of the
components of the Parkside lease restructuring and termination
charge. As of September 30, 2002, all payments have been
made.

|                                                              |                                          |                                                                     |         |            |        |       |         |        |        |   |         |          |        | 
|------------------------------------------------------------- | ---------------------------------------- | ------------------------------------------------------------------- | ------- | ---------- | ------ | ----- | ------- | ------ | ------ | - | ------- | -------- | ------ | 
|                                                              |                                          | Abandoned                                                           |         | Asset      |        |      
|                                                              |                                          | Space                                                               |         | Write-offs |        | Total
|                                                              |                                          |                                                                     |         |            |        |      
|Parkside lease termination charges:                           |                                          |                                                                     |         |            |        |       |         |        |        |   |         |         
|                                                              | Remaining lease liabilities              |                                                                     | $       | 284,615    |        |       | $       |       |        |   | $       | 284,615  |       
|                                                              | Estimated future leasehold improvements  |                                                                     |         | 3,781      |        |       |         |       |        |   |         | 3,781    |       
|                                                              | Brokerage fees                           |                                                                     |         | 3,792      |        |       |         |       |        |   |         | 3,792    |       
|                                                              | Estimated sublease income                |                                                                     |         | (229,895   | )      |       |         |       |        |   |         | (229,895 | )     
|                                                              | Leasehold improvement impairment         |                                                                     |         |           |        |       |         | 12,315 |        |   |         | 12,315   |       
|                                                              |                                          |                                                                     |         |            |        |       |         |        |        |   |         |         
|                                                              |                                          | Total restructuring charge prior to lease
    termination agreement |         |            | 62,293 |       |         |        | 12,315 |   |         |          | 74,608 | 
|                                                              | Additional charges for lease termination |                                                                     |         | 5,378      |        |       |         |       |        |   |         | 5,378    |       
|                                                              |                                          |                                                                     |         |            |        |       |         |        |        |   |         |         
|Total Parkside lease restructuring and
    termination charge |                                          |                                                                     | 67,671  |            |        |       | 12,315  |        |        |   | 79,986  |         
|Cash paid                                                     |                                          |                                                                     | (67,671 | )          |        |       |        |        |        |   | (67,671 | )       
|Non-cash charges                                              |                                          |                                                                     |        |            |        |       | (12,315 | )      |        |   | (12,315 | )       
|                                                              |                                          |                                                                     |         |            |        |       |         |        |        |   |         |         
|Accrual balance at September 30, 2002.                        |                                          | $                                                                   |        |            |        | $     |        |        |        | $ |        |         
|                                                              |                                          |                                                                     |         |            |        |       |         |        |        |   |         |         

On September 5, 2002, we executed a Lease
Termination Agreement providing for the termination of Parkside
Towers. In exchange for the termination of the lease, we agreed
to pay the landlords certain consideration including the
following: (i) immediate surrender of the cash security
deposit of approximately $1.5 million, (ii) consent
for the landlords to immediately draw on a letter of credit with
Silicon Valley Bank in the amount of approximately
$16.5 million, (iii) immediate cash payment of
$12.0 million, a portion of which covered August rent and
the pro-rated rent for the month of September through the
effective date of the Lease Termination Agreement,
(iv) issuance of a $21.5 million promissory note,
including $0.2 million of imputed interest, of which
$5 million is payable on October 1, 2002 and
$16.5 million is paid the earlier of the sale of the
Bayside facilities or January 21, 2003, (v) payment of
50% of any amounts in excess of $50 million that Inktomi
realize upon the sale of the Bayside facilities,
(vi) issuance of five million shares of our common stock
valued at $2.3 million, (vii) the transfer of two HVAC
chillers, (viii) the relinquishment of Inktomis claim
to undisbursed portions of the landlords obligations to
contribute funds for tenant improvements in the amount of
$441,223, (ix) the granting of registration rights related
to the 5 million shares of common stock issued to the
Parkside landlords, and (x) the granting of deeds of trust
for the Bayside facilities to the landlords to secure the
$21.5 million promissory note.

Total value of the lease termination, including
cash and non-cash items, was $54.0 million. We recorded a
charge of $5.4 million in the fiscal 2002 fourth quarter
representing the cost in excess of the remaining lease
restructuring accrual initially recorded in the quarter ended
March 31, 2002.

As part of the lease termination transaction, the
landlords of the Parkside facility (and their affiliates)
agreed, at Inktomis election, to purchase the Bayside
facilities (see Note 11 to the Financial Statements) for
$37.5 million. Inktomis right to require the
landlords to purchase the Bayside facilities commenced on
November 1, 2002 and ended on January 21, 2003. In
December 2002, we sold the building to a third party for
$41.6 million.



|     |                              
|---- | -----------------------------
|(15) | Commitments and Contingencies

We have entered into non-cancelable operating
leases for office space and equipment and capital leases for
equipment with original terms ranging from six months to
15 years. The capital leases are collateralized by

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INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

their respective underlying assets. The future
minimum lease payments under capital leases and non-cancelable
operating leases, and the future lease and sublease income under
non-cancelable lease and sublease agreements at
September 30, 2002 are as follows (in thousands):

|                                                |      |           |        |          |  |         |        |       |  |   |        |       | 
|----------------------------------------------- | ---- | --------- | ------ | -------- |  | ------- | ------ | ----- |  | - | ------ | ----- | 
|                                                |      |           |        | Lease &  |  |        
|                                                |      | Operating |        | Sublease |  | Capital
|                                                |      | Leases    |        | Income   |  | Leases 
|                                                |      |           |        |          |  |        
|Years ending September 30:                      |      |           |        |          |  |         |        |       |  |   |        |      
|                                                | 2003 |           | $      | 7,382    |  |         | $      | 6,270 |  |   | $      | 1,271 | 
|                                                | 2004 |           |        | 4,952    |  |         |        | 4,471 |  |   |        | 219   | 
|                                                | 2005 |           |        | 4,024    |  |         |        | 2,466 |  |   |        |      | 
|                                                | 2006 |           |        | 3,095    |  |         |        | 2,539 |  |   |        |      | 
|                                                | 2006 |           |        | 3,141    |  |         |        | 644   |  |   |        |      | 
|Thereafter                                      |      |           | 15,100 |          |  |         |       |       |  |   |       |      
|                                                |      |           |        |          |  |         |        |       |  |   |        |      
|Total minimum lease payments                    |      | $         | 37,694 |          |  | $       | 16,390 |       |  | $ | 1,490  |      
|                                                |      |           |        |          |  |         |        |       |  |   |        |      
|Amount representing interest                    |      |           |        |          |  |         |        |       |  |   | (64    | )    
|                                                |      |           |        |          |  |         |        |       |  |   |        |      
|Present value of minimum lease payments         |      |           |        |          |  |         |        |       |  |   | 1,426  |      
|Current portion                                 |      |           |        |          |  |         |        |       |  |   | (1,210 | )    
|                                                |      |           |        |          |  |         |        |       |  |   |        |      
|Capital lease obligations, less current portion |      |           |        |          |  |         |        |       |  | $ | 216    |      
|                                                |      |           |        |          |  |         |        |       |  |   |        |      

On December 20, 2002, we entered into a five
year lease commitment amounting to approximately
$9.8 million commitment net of costs (see Note 19)

In connection with our acquisition of
FastForward, we assumed operating leases on certain facilities
and equipment under non-cancelable operating leases, some of
which provide for periodic rent increases based on the general
rate of inflation.

Rent expense was approximately
$19.5 million, $16.1 million, and $10.0 million
for the years ended September 30, 2002, 2001, and 2000,
respectively.

On August 2, 2001, an amended complaint was
filed by Network Caching Technology, L.L.C. in the United States
District Court for the Northern District of California against
Inktomi as well as other providers of caching technologies
including Novell, Inc., Akamai Technologies, Inc., Volera, Inc.,
and Cacheflow, Inc. Plaintiff alleges that certain products
marketed by Inktomi and the other defendants violate one or more
patents owned by plaintiff. The complaint seeks compensatory and
other damages and injunctive relief. We were served the
complaint on August 7, 2001. We subsequently filed a
response denying the allegations and asserting a number of
defenses. At this time it is too early to estimate any potential
losses from this action and whether this action may have a
material impact on the results of operations. We are vigorously
defending against this action.

In October 2002 a complaint was served by
Teknowledge Corporation (see Note 19).



|     |                     
|---- | --------------------
|(16) | Stockholders Equity

In November 2001, we completed a public offering
of our Common Stock in which we sold approximately
13.2 million shares raising $52.8 million, net of
issuance costs and underwriters discounts.

On June 30, 2000, our Board of Directors
adopted a Shareholders Rights Plan. Under the plan, we
issued a dividend of one right for each share of our Common
Stock held by stockholders of record as of the close of business
on August 21, 2000. The plan was designed to assure
stockholders fair value in the event of a future

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INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

unsolicited business combination or similar
transaction we could become involved in. Each right entitles
stockholders to purchase a fractional share of our Preferred
Stock for $1,000. The rights are not immediately exercisable and
become exercisable only upon the occurrence of certain events.
Upon certain other events, unless redeemed for $0.001 per right,
the rights will become exercisable by holders, other than rights
held by an unsolicited third party acquirer, for shares of
Inktomi or of the third party acquirer having a value of twice
the rights then-current exercise price.

In fiscal 2002, we raised $5.8 million in
cash from issuance of approximately 3.6 million shares of
Common Stock associated with option and warrant exercises. In
fiscal 2001, we raised $3.9 million in cash from the
issuance of approximately 1.2 million shares of Common
Stock associated with option and warrant exercises.

We have authorized 10,000,000 shares of
Preferred Stock with none outstanding as of September 30,
2002 and 2001.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (the
ESPP) has reserved for issuance 2.0 million
shares of Common Stock plus an annual increase to be added on
each anniversary date of the adoption of the ESPP equal to the
lesser of (i) the number of shares needed to restore the
maximum aggregate number of shares available for purchase under
the ESPP to 2.0 million shares or (ii) a lesser amount
determined by the Board. The ESPP is administered over offering
periods of 24 months each, with each offering period
divided into four consecutive six month purchase periods
beginning November 1 and May 1 of each year. Eligible
employees may designate not more than 15 percent of their
cash compensation to be deducted each pay period for the
purchase of Common Stock under the ESPP, and participants may
not purchase more than $25,000 worth of stock in any one
calendar year. Shares of Common Stock are purchased with the
employees payroll deductions accumulated during the six
months, generally at a price per share of 85% of the market
price of the Common Stock on the employees entry date into
the applicable offering period or the last day of the applicable
purchase period, whichever is lower. As of September 30,
2002, there were 2.0 million shares of Common Stock
reserved for future issuance under the ESPP. Shares purchased
under the ESPP plan by employees were approximately
0.6 million and 0.2 million at a weighted average
price of $2.50 and $23.97 for fiscal 2002 and 2001, respectively.

Stock Option Plans

We have adopted various stock option plans and
assumed other stock option plans in connection with our
acquisitions (the Stock Option Plans). These Stock
Option Plans generally provide for the grant of stock options to
our employees, directors and consultants. Certain options
granted to our employees may qualify as incentive stock
options under applicable tax regulations. Options granted
under our Stock Option Plans are generally immediately
exercisable, provided however that the shares are subject to
repurchase at cost in the event the option ceases to be an
employee or provide service, as the case may be. The repurchase
right generally lapses over 36 to 50 months. For options
that are not exercisable immediately, they generally vest over
36 to 50 months. All options generally have a term of ten
years. At September 30, 2002, 32,141,595 shares of Common
Stock were reserved for issuance under our primary on-going
Stock Option Plans.

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the activity under the Stock Option
Plans is set forth below (in thousands, except per share
amounts):

|                                  |           |        |        |                |   |                |                  |                  |  |   |           |            |   |   |       |       | 
|--------------------------------- | --------- | ------ | ------ | -------------- | - | -------------- | ---------------- | ---------------- |  | - | --------- | ---------- | - | - | ----- | ----- | 
|                                  |           |        |        |                |   |                |                  | Weighted        
|                                  |           |        |        | Exercise Price |   | Aggregate      |                  | Average         
|                                  |           | Shares |        | Per Share      |   | Exercise Price |                  | Exercise Price  
|                                  |           |        |        |                |   |                |                  |                 
|Outstanding at September 30, 1999 |           |        | 16,422 |                |   |                | $ 0.03  $ 63.9  |                  |  |   | 6 264,024 |            |   | $ | 16.08 |      
|                                  | Granted   |        |        | 13,567         |   |                |                  | $ 0.17  $211.00 |  |   |           | 1,139,103  |   |   | $     | 83.96 | 
|                                  | Exercised |        |        | (6,177         | ) |                |                  | $ 0.03  $115.06 |  |   |           | (65,952    | ) |   | $     | 10.68 | 
|                                  | Canceled  |        |        | (1,826         | ) |                |                  | $ 0.11  $211.00 |  |   |           | (63,042    | ) |   | $     | 34.52 | 
|                                  |           |        |        |                |   |                |                  |                  |  |   |           |            |   |   |       |      
|Outstanding at September 30, 2000 |           |        | 21,986 |                |   |                | $ 0.03  $211.00 |                  |  |   | 1,274,133 |            |   | $ | 57.95 |      
|                                  | Granted   |        |        | 25,534         |   |                |                  | $0.001  $106.69 |  |   |           | 240,463    |   |   | $     | 9.43  | 
|                                  | Exercised |        |        | (1,172         | ) |                |                  | $ 2.45  $106.69 |  |   |           | (3,854     | ) |   | $     | 3.25  | 
|                                  | Canceled  |        |        | (19,390        | ) |                |                  | $ 0.11  $211.00 |  |   |           | (1,348,329 | ) |   | $     | 68.71 | 
|                                  |           |        |        |                |   |                |                  |                  |  |   |           |            |   |   |       |      
|Outstanding at September 30, 2001 |           |        | 26,958 |                |   |                | $0.001  $137.13 |                  |  |   | 162,413   |            |   | $ | 6.06  |      
|                                  | Granted   |        |        | 12,382         |   |                |                  | $ 0.36  $  7.1  |  |   |           | 7 18,306   |   |   | $     | 1.48  | 
|                                  | Exercised |        |        | (1,883         | ) |                |                  | $0.001  $  6.43 |  |   |           | (5,719     | ) |   | $     | 3.04  | 
|                                  | Canceled  |        |        | (10,988        | ) |                |                  | $0.001  $137.13 |  |   |           | (67,670    | ) |   | $     | 6.19  | 
|                                  |           |        |        |                |   |                |                  |                  |  |   |           |            |   |   |       |      
|Outstanding at September 30, 2002 |           |        | 26,469 |                |   |                | $ 0.11  $107.94 |                  |  | $ | 107,330   |            |   | $ | 4.09  |      
|                                  |           |        |        |                |   |                |                  |                  |  |   |           |            |   |   |       |      

Utilizing the Black-Scholes Option Pricing Model,
the weighted average fair value of employee stock options
granted under the Stock Option Plans was $1.39, $9.00, and
$88.70 per share, respectively, and the weighted average fair
value shares purchased under the ESPP during fiscal 2002, 2001,
and 2000 was $2.93, $12.75, and $7.82 per share, respectively.

The following table summarizes information with
respect to stock options outstanding at September 30, 2002
(in thousands):

|                |  |                     |        |                             |  |                |      |                   |  |                |       |  |  |  |        |  |  |   |       | 
|--------------- |  | ------------------- | ------ | --------------------------- |  | -------------- | ---- | ----------------- |  | -------------- | ----- |  |  |  | ------ |  |  | - | ----- | 
|                |  |                     |        |                             |  |                |      |                  
|                |  |                     |        |                             |  |                |      | Options on Shares
|                |  |                     |        | Exercisable and Not Subject
|                |  | Options Outstanding |        | to Repurchase              
|                |  |                     |        |                            
|                |  |                     |        | Weighted Average            |  | Weighted       |      |                   |  | Weighted      
|Range of        |  | Number              |        | Remaining Contractual       |  | Average        |      | Number            |  | Average       
|Exercise Prices |  | Outstanding         |        | Life (Years)                |  | Exercise Price |      | Exercisable       |  | Exercise Price
|                |  |                     |        |                             |  |                |      |                   |  |               
|$0.11-$0.43     |  |                     | 5,209  |                             |  |                | 7.57 |                   |  | $              | 0.28  |  |  |  | 2,067  |  |  | $ | 0.12  | 
|$0.45-$1.41     |  |                     | 4,538  |                             |  |                | 9.73 |                   |  | $              | 0.67  |  |  |  | 956    |  |  | $ | 0.54  | 
|$1.47-$2.25     |  |                     | 4,903  |                             |  |                | 9.25 |                   |  | $              | 2.24  |  |  |  | 2,084  |  |  | $ | 2.25  | 
|$2.58-$3.71     |  |                     | 614    |                             |  |                | 8.78 |                   |  | $              | 3.06  |  |  |  | 243    |  |  | $ | 3.17  | 
|$3.79-$4.21     |  |                     | 6,281  |                             |  |                | 8.93 |                   |  | $              | 4.20  |  |  |  | 4,206  |  |  | $ | 4.21  | 
|$4.25-$107.94   |  |                     | 4,924  |                             |  |                | 7.74 |                   |  | $              | 13.06 |  |  |  | 3,104  |  |  | $ | 13.27 | 
|                |  |                     |        |                             |  |                |      |                   |  |                |       |  |  |  |        |  |  |   |       | 
|$0.11-$107.94   |  |                     | 26,469 |                             |  |                | 8.63 |                   |  | $              | 4.09  |  |  |  | 12,660 |  |  | $ | 5.14  | 

The options exercisable in the table above are
only those options that if exercised, the shares would not be
subject to repurchase. Options to purchase approximately
12.6 million shares, 8.2 million shares, and
5.5 million shares were exercisable as of
September 30, 2002, 2001 and 2000, respectively. The
weighted average exercise prices per share for options
exercisable as of September 30, 2002, 2001 and 2000 were
$5.14, $5.37, and $22.06, respectively.

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At September 30, 2002, 2001, and 2000 there
were 251,602, 586,960 and 3,043,061 shares of outstanding
Common Stock that were subject to repurchase. The weighted
average exercise price of shares subject to repurchase was
$0.53, $0.53, and $0.39 per share as of September 30, 2002,
2001 and 2000, respectively.

In connection with the completion of our public
offerings, stock option grants, Stock Exchange Program, and
certain prior acquisitions, certain options granted in 2002,
2001, and 2000 have been considered to be compensatory.
Compensation expense was $5.1 million, $10.6 million
and $7.3 million in 2002, 2001 and 2000, respectively. The
expected future annual amortization for stock options granted
through September 30, 2002, (assuming no cancellations) is
as follows:

|     |                             |   |        |        |  
|---- | --------------------------- | - | ------ | ------ | -
|2003 |                             | $ | (1,397 | )     
|2004 |                             |   | (642   | )     
|     |                             |   |        |       
|     | Total deferred compensation |   | $      | (2,039 | )
|     |                             |   |        |       

Stock Option Exchange Program

In February 2001, the Inktomi Board of Directors
approved a stock option exchange program. Under this program,
all employees (including executive officers and outside
directors) were given the opportunity to cancel one or more
stock options previously granted to them in exchange for one or
more new stock options to be granted at least six months and one
day from the date the old options are cancelled, provided the
individual is still employed or providing service on such date.
The participation deadline for the program was February 28,
2001. The number of shares subject to the new options were equal
to the number of shares subject to the old options, and the
exercise price of the new options was the fair market value of
Inktomi Common Stock on the date they were granted. The new
options have the same vesting schedule as the old options and
will be immediately exercisable as to vested shares when granted
(however, new options granted to executive officers and outside
directors will lose three months of vesting and be subject to a
trading blackout of three months following the grant). The
exchange resulted in the voluntary cancellation of options to
purchase approximately 12.8 million shares of Common Stock
with exercise prices ranging from $12.25 to $211.0 per share in
exchange for the same number of replacement options.
Approximately 10.6 million replacement options were granted
on August 29, 2001 at an exercise price of $4.21 per share
of Common Stock. Under SFAS Interpretation No. 44,
Accounting for Certain Transactions involving Stock
Compensation, stock options granted to participants of the
option exchange program during the six month period prior to
implementation of the option exchange program that were not
cancelled as part of the program, and during the six month
period following implementation of the option exchange program,
are subject to variable plan accounting beginning in the fiscal
quarter when the grant occurred. Accordingly, the
10.6 million replacement options that were granted outside
the six month period following the implementation of the option
exchange program, were subject to fixed plan accounting.

Stock options granted during the six month period
prior to implementation of the option exchange program that are
not canceled as part of the program are subject to variable plan
accounting beginning in the fiscal quarter ended March 31,
2001. During the six months prior to implementation of the
program, Inktomi granted approximately 2.8 million options,
of which 0.9 million are outstanding as of
September 30, 2002 at an average price of $17.95 per
option, that are subject to variable plan accounting. Other
stock options that are granted to participants of the program in
the six months following implementation of the program will also
be accounted for in this manner. 1.4 million such options
were granted during the six months following implementation of
the program, of which 0.6 million are outstanding as of
September 30, 2002, and an average price of $7.18 per
option, and are subject to variable plan accounting. Under
variable plan accounting, we are required to record a non-cash
compensation charge for the options until the options are
exercised, forfeited or cancelled without replacement. The
compensation charge will be based on any excess of the closing
stock price at the end of the reporting period or date of
exercise, forfeiture or cancellation without replacement, if

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

earlier, over the fair market value of our Common
Stock on the options issuance date. The resulting
compensation charge to earnings will be recorded as the
underlying options vest. Depending upon movements in the market
value of our Common Stock, this accounting treatment may result
in significant compensation charges in future periods. As of
September 30, 2002, we have recorded no compensation
charges related to this program.

Warrants

At September 30, 2001 the following warrant
was outstanding:

|             |  |        |           |           |  |            |         |  |  |  |            | 
|------------ |  | ------ | --------- | --------- |  | ---------- | ------- |  |  |  | ---------- | 
|             |  |        |           | Aggregate |  |           
|             |  | Common |           | Exercise  |  | Expiration
|             |  | Stock  |           | Price     |  | Date      
|             |  |        |           |           |  |           
|Common Stock |  |        | 1,670,804 |           |  | $          | 137,841 |  |  |  | April 2002 | 

At September 30, 2001, the outstanding
warrant was exercisable. We issued this warrant in April 1997 in
connection with the forgiveness of a note payable to certain
founders who provided the initial technology to our company. The
warrant for common stock was recorded at fair value of $68,000.
The Black-Scholes method of valuation was used to determine fair
value of the warrants using the following assumptions:
50% volatility, no dividends, 5% risk free rate of
interest, contractual term of five years and an $0.08 (adjusted
for splits) per share value of the underlying common stock. The
warrant provided no rights to the holder as a shareholder of the
Company prior to exercise. This warrant was cash-less exercised
on a net issuance basis in January 2002, accordingly, there are
no warrants outstanding at September 30, 2002.

Fair Value Disclosures

The following information concerning both the
Stock Option Plans and the ESPP (together, The
Plans) is provided in accordance with SFAS No. 123.
We account for all Plans in accordance with APB No. 25 and
related interpretations; accordingly, compensation expense is
recorded for options awarded to employees and directors to the
extent that the exercise prices are less than the Common
Stocks fair market value on the date of grant, where the
number of options and exercise price are fixed. The difference
between the fair value of our Common Stock and the exercise
price of the stock option is recorded as deferred stock
compensation, and is amortized to compensation expense over the
vesting period of the underlying stock option.

The fair value of each employee and director
stock option grant and shares purchased under the ESPP have been
estimated using the Black-Scholes Option Pricing Model. The
Black-Scholes Option Pricing Model was developed for use in
estimating the fair value of traded options and warrants that
have no vesting restrictions and are fully transferable in
addition to shares purchased under the ESPP. In addition,
valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Our
options and shares purchased under the ESPP have characteristics
significantly different from those of traded options and shares,
and changes in the subjective input assumptions can materially
affect the fair value estimate. The following assumptions were
used in determining the fair value of options granted under the
Stock Option Plans:

|                         |  |               |             |      |  |      |             |  |  |  |             | 
|------------------------ |  | ------------- | ----------- | ---- |  | ---- | ----------- |  |  |  | ----------- | 
|                         |  |              
|                         |  | September 30,
|                         |  |              
|                         |  | 2002          |             | 2001 |  | 2000
|                         |  |               |             |      |  |     
|Risk-free interest rates |  |               | 3.28%-4.49% |      |  |      | 4.57%-5.69% |  |  |  | 5.85%-6.83% | 
|Expected life            |  |               | 5 years     |      |  |      | 5 years     |  |  |  | 5 years     | 
|Dividends                |  |               | 0%          |      |  |      | 0%          |  |  |  | 0%          | 
|Volatility               |  |               | 139%        |      |  |      | 140%        |  |  |  | 104%        | 

F-37



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following assumptions were used in
determining the fair value of shares purchased under the ESPP:

|                         |  |               |             |      |  |      |             |  |  |  |             | 
|------------------------ |  | ------------- | ----------- | ---- |  | ---- | ----------- |  |  |  | ----------- | 
|                         |  |              
|                         |  | September 30,
|                         |  |              
|                         |  | 2002          |             | 2001 |  | 2000
|                         |  |               |             |      |  |     
|Risk-free interest rates |  |               | 3.66%-4.53% |      |  |      | 4.83%-5.73% |  |  |  | 4.83%-6.56% | 
|Expected life            |  |               | 5 years     |      |  |      | 5 years     |  |  |  | 5 years     | 
|Dividends                |  |               | 0%          |      |  |      | 0%          |  |  |  | 0%          | 
|Volatility               |  |               | 139%        |      |  |      | 140%        |  |  |  | 104%        | 

The following comprises the pro forma information
pursuant to the provisions of SFAS No. 123 (in thousands):

|                                                      |  |               |          |      |  |      |          |   |  |   |          |  
|----------------------------------------------------- |  | ------------- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                      |  |              
|                                                      |  | September 30,
|                                                      |  |              
|                                                      |  | 2002          |          | 2001 |  | 2000
|                                                      |  |               |          |      |  |     
|Net loss  historical                                 |  | $             | (500,795 | )    |  | $    | (296,482 | ) |  | $ | (27,340  | )
|Net loss  pro forma                                  |  | $             | (564,728 | )    |  | $    | (624,976 | ) |  | $ | (275,163 | )
|Basic and diluted net loss per share 
    historical |  | $             | (3.51    | )    |  | $    | (2.36    | ) |  | $ | (0.24    | )
|Basic and diluted net loss per share 
    pro forma  |  | $             | (3.96    | )    |  | $    | (4.98    | ) |  | $ | (2.43    | )

These pro forma amounts may not be representative
of the effects on pro forma net loss for future years as options
vest over several years and additional awards are generally made
each year.

(17) Related Party Transactions

In August and October 1999, we provided a
relocation loan to a management employee totaling
$2.2 million. The loan was repaid in full in September 2000.

In March 2000, we provided a relocation loan to
an officer of the Company totaling $1.5 million. The
officer left the Company in June 2001 and the loan was repaid in
full in March 2002. This note bore interest of 6.8% per annum.

In April 2001, we provided a relocation loan to
an officer of the Company totaling $1.7 million. The note
had an interest rate of 4.94% per annum. In March 2002 we began
separation and severance discussions with this officer. As of
March 31, 2002, we had accrued $3.1 million related to
this severance as a general and administrative expense. The
severance agreement totaling $3.1 million, which was
executed by the parties in April 2002, provides for a general
release of the Company in exchange for, among other things, the
release of the officers loan obligation of
$1.7 million. Any proceeds, up to $1.0 million, from
the sale of Company stock by the officer in calendar year 2002
will offset the final amount owed to the officer.

In December 2001, our Board of Directors approved
a $5 million revolving line of credit to our Chief
Executive Office. In December 2001, we provided loans to our
Chief Executive Officer totaling $4.7 million of which
$2.7 million was repaid prior to December 31, 2001.
During the quarter ended March 31, 2002, we provided loans
to our Chief Executive Officer totaling $0.9 million of
which $0.1 was repaid prior to March 31, 2002. During the
quarter ended June 30, 2002, we provided loans to our Chief
Executive Officer totaling $2.1 million. As of
September 30, 2002, total loans outstanding and total
accrued interest to our Chief Executive Officer were
approximately $4.9 million and $160,000, respectively.
These loans are unsecured and are represented by full recourse
promissory notes accruing interest at the rate of 6% per annum.
Each loan, plus any accrued unpaid interest, will become due the
earlier of either two years from the grant date of the
individual loan or the date that our Chief Executive Officer
leaves the Company. All after tax proceeds of compensatory
bonuses and 50% of after tax proceeds from sales of Company
stock must be used to pay down the loans outstanding. The first
loans will become due in December 2003.

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In January 2001, we provided a relocation loan to
a management employee totaling $900,000. This notes bears
interest at 5.61% per annum and is secured by a deed of trust in
the employees residence. The loan is due December 2003.
The employee left the Company in August 2001. The company have
accrued a valuation allowance of $200,000 against the loan based
on an estimate of the current value of the security interest.

We held investments in equity securities in
certain customers at September 30, 2002, 2001 and 2000.
These customers comprised $4.5 million, $29.5 million,
and $31.3 million of revenue, respectively. These customers
did not have any accounts receivable balances as of
September 30, 2002. These customers also accounted for
$0.2 million, $4.0 million and $13.5 million of
accounts receivable as of 2002, 2001 and 2000, respectively.

(18) Segment and Geographic
Information

Effective September 30, 1999, we adopted
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131
established standards for reporting information about operating
segments in annual financial statements and requires selected
information about operating segments in interim financial
reports issued to stockholders. It also established standards
for related disclosures about products and services, and
geographic areas. Operating segments are defined as components
of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. Our chief
operating decision-maker is our Chief Executive Officer. Our
reportable segments are organized primarily by technology. Each
of these segments is managed separately because they offer and
distribute distinct technologies and services with different
methods of delivery and customer bases.

We have two reportable operating segments:
Software Products and Portal Services. Software Products
revenues are composed of license, consulting, support and
upgrade fees in connection with the Traffic Server network cache
platform and its associated product family, Content Delivery
Suite software solutions, Media Products, enterprise search
products, Traffic Core, Traffic Edge, Traffic Controller and
Inktomi Media Publisher. Portal Services revenues are composed
of revenues generated through our Web search services and
Commerce Engine. We completed the sale of our Commerce Division
in March 2001 and therefore, Portal Services revenues for fiscal
2002 consisted of only Web search services revenues.

In our financial statement filed on
form 10-K for the year ended September 30, 2001,
revenues from our enterprise search products were included in
Portal Services. In this years financial statements and
future financial statements, revenues from our enterprise search
products are recorded for this year and all prior years under
Software Products. We believe this change in recording the
enterprise search revenues better reflects the nature of the
product as a software offering and mirrors how the product line
is managed within our organization following our October 2001
restructuring.

The Software Products segment consist only of two
product groups: the content networking products and enterprise
search products. In July 2002, we announced we would be reducing
our investment in our content networking products group included
our Software Products segment (See Note 1). In December
2002, we sold to Verity, Inc. our enterprise search software
business included our Software Products segment (See
Note 19).

We evaluate performance and allocate resources to
our operating segments based on a variety of factors, including
revenues, operating profit, market potential, customer
commitments and strategic direction.

Acquisition-related costs, purchased in-process
research and development, amortization of intangibles and other
assets, impairment of intangibles and other assets,
restructuring, impairment of investments and amortization of
deferred compensation expense are not included in
managements evaluation of performance by the operating
divisions, as they are primarily organizational in nature. The
accounting policies of the reportable segments are the same as
those described in Note 2. We do not track assets by
operating segments.

F-39



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Financial information about segments (in
thousands):

|                        |  |                                       |         |               |  |             |        |              |  |           |          |              |  |          |         |           |  |       |          |   |  |   |        |   |  |   |         |   |  |   |        |   |  |   |          |  
|----------------------- |  | ------------------------------------- | ------- | ------------- |  | ----------- | ------ | ------------ |  | --------- | -------- | ------------ |  | -------- | ------- | --------- |  | ----- | -------- | - |  | - | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | -------- | -
|                        |  |                                      
|                        |  | For the Year Ended September 30, 2002
|                        |  |                                      
|                        |  |                                       |         | Amort. &      |  |            
|                        |  |                                       |         | Impairment of |  |             |        | Impairment   |  |           |          | Loss on      |  |         
|                        |  |                                       |         | Goodwill and  |  | Parkside    |        | of Property, |  | Amort. of |          | Restruct-    |  | Residual |         |          
|                        |  | Software                              |         | Portal        |  | Other       |        | Lease        |  | Plant &   |          | Deferred     |  | uring    |         | Value     |  |      
|                        |  | Products                              |         | Services      |  | Intangibles |        | Termination  |  | Equipment |          | Compensation |  | Charges  |         | Guarantee |  | Total
|                        |  |                                       |         |               |  |             |        |              |  |           |          |              |  |          |         |           |  |      
|Revenues                |  | $                                     | 65,621  |               |  | $           | 47,084 |              |  | $         |         |              |  | $        |        |           |  | $     |         |   |  | $ |       |   |  | $ |        |   |  | $ |       |   |  | $ | 112,705  |  
|Operating income (loss) |  | $                                     | (56,673 | )             |  | $           | 13,025 |              |  | $         | (252,821 | )            |  | $        | (79,986 | )         |  | $     | (102,982 | ) |  | $ | (5,108 | ) |  | $ | (19,869 | ) |  | $ | (2,225 | ) |  | $ | (506,639 | )

|               |  |                                       |         |               |  |             |         |              |  |           |          |              |  |         |         |       |  |   |      |   |  |   |         |   |  |   |         |   |  |   |          |  
|-------------- |  | ------------------------------------- | ------- | ------------- |  | ----------- | ------- | ------------ |  | --------- | -------- | ------------ |  | ------- | ------- | ----- |  | - | ---- | - |  | - | ------- | - |  | - | ------- | - |  | - | -------- | -
|               |  |                                      
|               |  | For the Year Ended September 30, 2001
|               |  |                                      
|               |  |                                       |         | Amort. &      |  |            
|               |  |                                       |         | Impairment of |  | Acquisition |         | Impairment   |  |          
|               |  |                                       |         | Goodwill and  |  | Related     |         | of Property, |  | Amort. of |          | Restruct-    |  |        
|               |  | Software                              |         | Portal        |  | Other       |         | Costs and    |  | Plant &   |          | Deferred     |  | uring   |         |      
|               |  | Products                              |         | Services      |  | Intangibles |         | IPRD         |  | Equipment |          | Compensation |  | Charges |         | Total
|               |  |                                       |         |               |  |             |         |              |  |           |          |              |  |         |         |      
|Revenues       |  | $                                     | 140,213 |               |  | $           | 58,349  |              |  | $         |         |              |  | $       |        |       |  | $ |     |   |  | $ |        |   |  | $ |        |   |  | $ | 198,562  |  
|Operating loss |  | $                                     | (66,133 | )             |  | $           | (15,412 | )            |  | $         | (115,341 | )            |  | $       | (19,927 | )     |  | $ | (904 | ) |  | $ | (10,645 | ) |  | $ | (11,627 | ) |  | $ | (239,989 | )

|                        |  |                                       |         |             |  |            |         |              |  |             |        |              |  |           |        |       |  |   |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|----------------------- |  | ------------------------------------- | ------- | ----------- |  | ---------- | ------- | ------------ |  | ----------- | ------ | ------------ |  | --------- | ------ | ----- |  | - | ------- | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                        |  |                                      
|                        |  | For the Year Ended September 30, 2000
|                        |  |                                      
|                        |  |                                       |         | Acquisition |  | Purchased  |         | Amort. of    |  |             |        | Impairment   |  |          
|                        |  |                                       |         | Related     |  | In-Process |         | Goodwill     |  | Amort. of   |        | of Property, |  |          
|                        |  | Software                              |         | Portal      |  | Costs and  |         | Research and |  | and Other   |        | Deferred     |  | Plant &   |        |      
|                        |  | Products                              |         | Services    |  | IPRD       |         | Development  |  | Intangibles |        | Compensation |  | Equipment |        | Total
|                        |  |                                       |         |             |  |            |         |              |  |             |        |              |  |           |        |      
|Revenues                |  | $                                     | 156,447 |             |  | $          | 67,770  |              |  | $           |       |              |  | $         |       |       |  | $ |        |   |  |   |       |   |  |   |       |   |  | $ | 224,217 |  
|Operating income (loss) |  | $                                     | 14,328  |             |  | $          | (25,561 | )            |  | $           | (3,999 | )            |  | $         | (4,400 | )     |  | $ | (13,182 | ) |  | $ | (8,606 | ) |  | $ | (1,045 | ) |  | $ | (42,465 | )

For the year ended September 30, 2002, two
customers represented 21% and 18% of all Portal Services
revenue, and one customer represented 26% of all Software
Products revenue generated. For the year ended
September 30, 2001, one customer represented 20% of all
Portal Services revenue generated, and no customers represented
over 10% of all Software Products revenue generated. For the
year ended September 30, 2000, no customers represented
over 10% of all Portal Services or Network Products revenue
generated.

At September 30, 2002 and 2001, less than
10% of our tangible long-term assets were located outside the
United States.

The following table sets forth revenue
information for geographic areas: (in thousands):

|              |  |               |         |      |  |      |         |  |  |   |         | 
|------------- |  | ------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|              |  |              
|              |  | September 30,
|              |  |              
|              |  | 2002          |         | 2001 |  | 2000
|              |  |               |         |      |  |     
|United States |  | $             | 93,314  |      |  | $    | 159,305 |  |  | $ | 173,701 | 
|Europe        |  |               | 10,336  |      |  |      | 25,449  |  |  |   | 40,944  | 
|Asia          |  |               | 9,055   |      |  |      | 13,808  |  |  |   | 9,572   | 
|              |  |               |         |      |  |      |         |  |  |   |         | 
|Total Revenue |  | $             | 112,705 |      |  | $    | 198,562 |  |  | $ | 224,217 | 

(19) Subsequent Events

On October 1, 2002, we paid $5 million
for the note payable payment due associated with our Parkside
lease termination.

F-40



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In October 2002, in light of continuing economic
slowdown, we announced and substantially completed a
restructuring and workforce reduction of approximately 85
employees to reduce our operating expenses to adjust to lower
revenue levels. Headcount in all functional area were affected
by the reduction.

As a result of the reduction, we incurred a
charge of $9.0 million comprised of cash-related severance
and abandonment of underutilized space. As of December 27,
2002, $2.5 million of cash-related charges have been paid, with
the remaining $6.5 million to be paid over the next six to
nine months.

In October 2002, a complaint was served by
Teknowledge Corporation in the United States District Court for
Delaware against Inktomi, Akamai Technologies, Inc. and
Cable & Wireless Services, Inc. The plaintiff alleges
that Inktomi products, including Traffic Server, infringe a
patent owned by the plaintiff. The complaint seeks compensatory
and other damages and injunctive relief. In November 2002, the
Judge assigned to the case in Delaware transferred jurisdiction
of the case to the Northern District of California. Inktomi
intends to vigorously defend the against the allegations made by
the plaintiff.

In November 2002, in connection with the sale of
our Enterprise Search division, we announced a workforce
reduction of approximately 58 employees. This restructuring was
substantially completed in December 2002. Headcount was mainly
effected in the areas of corporate and business services, and
our Enterprise Search Division.

As a result of the reduction, we expect to incur
a charge of approximately $14.5 million comprised of
cash-related severance, long-lived asset impairment and
underutilized space. As of December 2002, $0.7 million of
cash-related charges have been paid, $0.8 million are
non-cash related charges, and the remaining $13.0 million
is expected to be paid over the next six to nine months. As a
result of the restructuring, we expect to reduce compensation
related expenses by approximately $2.5 million per quarter.
We also expect to reduce facility related operating expenses by
approximately $1.6 million per quarter through the end of
the lease terms, and other costs by approximately
$0.8 million per quarter through June of 2003, and
approximately $0.1 million per quarter thereafter.

In November 2002, we signed an agreement with
Satyam Computer Services Ltd. (Satyam) to assign
and, in some cases, subcontract the support for the remaining
content networking software customers. Satyam is a provider of
professional services employees in offices worldwide. In
exchange, we pay Satyam a one time fee of $1 million,
provide initial training and transfer certain computer
infrastructure components to allow for customer support.

On December 17, 2002, we completed the sale
of our Enterprise Search Division to Verity, Inc.
(Verity). As part of the sale Verity will pay
$25.0 million in cash subject to certain adjustments, and
the assumption of certain of our obligations under existing
enterprise search business contracts, including customer support
obligations. The transaction is structured as an asset sale.
Verity acquired from us the assets relating to our enterprise
search software business, which includes basic search,
categorization and content refinement capabilities, as well as
our XML technology assets. Of the consideration payable by
Verity, $22.0 million has been paid. $3.0 million plus
interest will be paid 18 months following the closing of
the sale, subject to reduction for any indemnification claims
made by Verity during such 18 month period. In connection
with the transaction, Verity extended offers of employment to
approximately 40 of our enterprise

F-41



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

search software business employees. The employees
of our enterprise search business who are not offered or who do
not accept employment by Verity will be terminated. We have also
agreed not to compete with Verity in the enterprise search
software business for a period of up to three years.

On December 20, 2002, we completed the sale
of our Bayside corporate headquarters for $41.5 million of
cash which is expected to result in a loss of approximately
$3.0 million to $4.0 million. As stipulated on our
note payable in connection with the Parkside lease termination
on December 20, 2002, we paid the remaining
$16.5 million due on the note upon closing of the sale of
our Bayside corporate headquarters. We also entered into a
five-year lease with the facilities new owner for the
portion of the property that we occupy for an aggregate lease
commitment of $9.8 million net costs.

On December 22, 2002, we entered into a
definitive merger agreement with Yahoo! Inc. Under the
agreement, a newly incorporated wholly-owned subsidiary of
Yahoo! will merge with and into Inktomi, with Inktomi remaining
as the surviving legal entity and a wholly-owned subsidiary of
Yahoo! Under the terms of the merger agreement, upon completion
of the merger, Yahoo! will pay to Inktomis stockholders
$1.65 per share of Inktomi common stock outstanding and will
assume any options to purchase Inktomi common stock outstanding.

The merger is subject to a number of conditions
including, among other things, approval of Inktomis
stockholders and regulatory approvals and clearances, including
under the Hart-Scott Rodino Antitrust Improvements Act of 1976,
as amended. We currently expect the merger to be completed in
the quarter ending March 31, 2003. There can be no
assurance that the merger will be consummated. In the event that
the proposed merger fails to close, under certain circumstances
we will be required to pay Yahoo! a termination fee of
$11.2 million.

We violated the minimum cash balance convents for
the months ending October and November 2002. The bank waived the
covenant violations on December 27, 2002. The Company is
currently negotiating to restructure its loan covenants, as it
is probable that it will be in violation of the maximum GAAP
loss covenants for the quarter ended December 31, 2002. In
December 2002, the bank prospectively waived the maximum GAAP
loss covenant for the quarter ended December 31, 2002.
Accordingly, we have classified all amounts due as current under
this facility at September 30, 2002. If we were required to
repay the amounts borrowed under these loan arrangements, it
would reduce the amount of cash we have available for our
operations.

F-42



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS ON

FINANCIAL STATEMENT SCHEDULE


To the Board of Directors and Shareholders of
Inktomi Corporation:

Our audits of the consolidated financial
statements referred to in our report dated October 23,
2002, except as to recently issued accounting pronouncements in
Note 2 and as to the subsequent events listed in
Note 19 which are as of December 27, 2002, which
report and consolidated financial statements are included in
this Annual Report Form 10-K, also included an audit of the
financial statement schedule listed in Item 15(a)(2) of
this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.

PricewaterhouseCoopers LLP

San Jose, California


October 23, 2002 except as to recently
issued accounting pronouncements in Note 2 and as to the
subsequent events listed in Note 19 which are as of
December 27, 2002


F-43



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##### Table of Contents



EXHIBIT INDEX

|        |    |             |  |                                                                                                                                                                    
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .2(3)       |  | Amended and Restated Certificate of Incorporation
    of Inktomi.                                                                                                  
|        | 3  | .2a(6)      |  | Amendment to Amended and Restated Certificate of
    Incorporation of Inktomi.                                                                                     
|        | 3  | .2b(11)     |  | Amendment to Amended and Restated Certificate of
    Incorporation of Inktomi.                                                                                     
|        | 3  | .4(3)       |  | Bylaws of Inktomi.                                                                                                                                                 
|        | 4  | .1(3)       |  | Specimen Common Stock Certificate.                                                                                                                                 
|        | 10 | .1(3)       |  | Form of Indemnification Agreement between Inktomi
    and each of its directors and officers.                                                                      
|        | 10 | .2(14)      |  | 1998 Stock Plan and form of agreement thereunder.                                                                                                                  
|        | 10 | .3(3)       |  | 1998 Employee Stock Purchase Plan and form of
    agreements thereunder.                                                                                           
|        | 10 | .4(3)       |  | 1996 Equity Incentive Plan and form of agreement
    thereunder.                                                                                                   
|        | 10 | .5(3)       |  | Fifth Amended and Restated Investors Rights
    Agreement dated as February 13, 1998 among Inktomi and
    certain of its security holders named therein.         
|        | 10 | .6(3)       |  | Executive Employment Agreement dated as of
    July 1, 1996 between Inktomi and David C. Peterschmidt.                                                             
|        | 10 | .7(10)      |  | Agreement of Sublease dated July 1, 1998 by
    and between Designs, Inc. and Atreve Software, Inc.                                                                
|        | 10 | .9(12)      |  | Ultraseek Stock Option Plan and form of agreement
    thereunder.                                                                                                  
|        | 10 | .10(11)     |  | Preferred Stock Rights Agreement dated as of
    August 10, 2000 between Inktomi and Wells Fargo Shareowners
    Services.                                         
|        | 10 | .11(4)      |  | C2B Technologies Inc. (formerly BeyondNews, Inc.)
    1997 Stock Plan and form of agreement thereunder.                                                            
|        | 10 | .12(2)      |  | Registration Rights Agreement dated
    September 25, 1998 between Inktomi and former stockholders
    of C2B Technologies Inc. (included in Exhibit 2.1).         
|        | 10 | .13(14)     |  | 1998 Nonstatutory Stock Option Plan and form of
    agreement thereunder.                                                                                          
|        | 10 | .14(5)      |  | Declaration of Registration Rights dated
    April 30, 1999 for the benefit of former Impulse! Buy
    Network, Inc. stockholders (included in Exhibit 2.2).       
|        | 10 | .15(1)      |  | Amended and Restated Loan and Security agreement
    dated as of September 2, 1998 between Inktomi and Silicon
    Valley Bank.                                    
|        | 10 | .16(6)      |  | Amendment dated January 28, 1999 to Amended
    and Restated Loan and Security Agreement dated as of
    September 2, 1998 between Inktomi and Silicon Valley Bank.
|        | 10 | .17(8)      |  | Impulse! Buy Network, Inc. 1997 Stock Plan and
    form of agreement thereunder.                                                                                   
|        | 10 | .18(9)      |  | WebSpective Software, Inc. (formerly Atreve
    Software, Inc.) 1997 Stock Option Plan and form of agreement
    thereunder.                                       
|        | 10 | .19(7)      |  | Declaration of Registration Rights dated
    October 1, 1999 for the benefit of former WebSpective
    Software, Inc. stockholders (included in Exhibit 2.3).      
|        | 10 | .20(14)     |  | Amendment to 1996 Equity Incentive Plan.                                                                                                                           
|        | 10 | .21(14)     |  | Amendment to C2B Technologies 1997 Stock Plan                                                                                                                      
|        | 10 | .22(14)     |  | Amendment to Impulse! Buy Network, Inc. 1997
    Stock Plan.                                                                                                       
|        | 10 | .23(14)     |  | Amendment to WebSpective Software, Inc. 1997
    Stock Plan.                                                                                                       
|        | 10 | .24(13)     |  | FastForward Networks, Inc. 1998 Stock Plan and
    form of agreement thereunder.                                                                                   
|        | 10 | .25(15)     |  | Amendment to the Ultraseek Stock Option Plan.                                                                                                                      
|        | 10 | .26(15)     |  | Amendment to the FastForward Networks, Inc. 1998
    Stock Plan.                                                                                                   
|        | 10 | .27(16)     |  | Promissory Note dated December 10, 2001
    executed by David Peterschmidt for the benefit of Inktomi
    Corporation.                                             
|        | 10 | .28(17)     |  | Registration Rights Agreement dated
    September 5, 2002 for the benefit of the landlords of our
    Parkside Towers office facility.                             



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                          
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .29(18)     |  | Loan Modification Agreement dated
    September 30, 2002 between Inktomi and Silicon Valley Bank.                                                                                                                                                                        
|        | 10 | .30(18)     |  | Registration Rights Agreement dated
    August 13, 2002 for the benefit of the former stockholders
    of Quiver, Inc.                                                                                                                                                   
|        | 10 | .31         |  | Portal Services Agreement between Inktomi
    Corporation and Microsoft Corporation dated October 28,
    1999 with amendments thereto dated June 1, 2000,
    January 17, 2001, May 1, 2001, June 13, 2001,
    March 5, 2002, October 1, 2002 and December 10,
    2002
|        | 10 | .32         |  | Severance Agreement and Release dated
    December 17, 2002 between Inktomi and Dominic Gattuso.                                                                                                                                                                         
|        | 10 | .33         |  | Office Lease Agreement dated December 19,
    2002 between Walton Bayside Investors IV, L.L.C. and Inktomi
    Corporation.                                                                                                                                              
|        | 10 | .34         |  | Severance Agreement and Release dated
    December 17, 2002 between Inktomi and Keyor Patel                                                                                                                                                                              
|        | 10 | .35         |  | Termination Letter dated April 9, 2002
    between Inktomi Corporation and Ted Hally                                                                                                                                                                                     
|        | 10 | .36(19)     |  | Merger Agreement dated December 23, 2002
    between Inktomi, Yahoo! Inc. and a wholly owned subsidiary of
    Yahoo! Inc.                                                                                                                                               
|        | 21 | .1          |  | Subsidiaries                                                                                                                                                                                                                                                             
|        | 23 | .1          |  | Consent of PricewaterhouseCoopers, LLP                                                                                                                                                                                                                                   
|        | 99 | .1          |  | Certification of David C. Peterschmidt, Chief
    Executive Officer, pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                       
|        | 99 | .2          |  | Certification of Randy Gottfried, Chief Financial
    Officer, pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002                                                                                                                                             



---



|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference from Inktomis
    Registration Statement on Form S-1 (Reg.
    No. 333-66661), as amended.                                  
|   
|(2) | Incorporated by reference from Inktomis
    Current Report on Form 8-K filed with the Commission on
    October 9, 1998, as amended November 2, 1998. 
|   
|(3) | Incorporated by reference from Inktomis
    Registration Statement on Form S-1 (Reg.
    No. 333-50247), as amended.                                  
|   
|(4) | Incorporated by reference from Inktomis
    Registration Statement on Form S-8 (Reg.
    No. 333-71037).                                              
|   
|(5) | Incorporated by reference from Inktomis
    Current Report on Form 8-K filed with the Commission on
    May 13, 1999.                                 
|   
|(6) | Incorporated by reference from Inktomis
    Quarterly Report on Form 10-Q filed with the Commission on
    May 17, 1999.                              
|   
|(7) | Incorporated by reference from Inktomis
    Current Report on Form 8-K filed with the Commission on
    October 15, 1999, as amended November 5, 1999.
|   
|(8) | Incorporated by reference from Inktomis
    Registration Statement on Form S-8 (Reg.
    No. 333-80195).                                              
|   
|(9) | Incorporated by reference from Inktomis
    Registration Statement on Form S-8 (Reg.
    No. 333-89581).                                              



|     |                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference from Inktomis
    Quarterly Report on Form 10-Q filed with the Commission on
    February 14, 2000.
|    
|(11) | Incorporated by reference from Inktomis
    Current Report on Form 8-A filed with the Commission on
    August 11, 2000.     
|    
|(12) | Incorporated by reference from Inktomis
    Registration Statement on Form S-8 (Reg.
    No. 333-42102).                     
|    
|(13) | Incorporated by reference from Inktomis
    Registration Statement on Form S-8 (Reg.
    No. 333-49874).                     
|    
|(14) | Incorporated by reference from Inktomis
    Annual Report on Form 10-K/ A filed with the Commission on
    January 2, 2001.  



---



##### Table of Contents





|     |                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------
|(15) | Incorporated by reference from Inktomis
    Quarterly Report on Form 10-Q filed with the Commission on
    February 14, 2001.
|    
|(16) | Incorporated by reference from Inktomis
    Quarterly Report on Form 10-Q filed with the Commission on
    August 14, 2002.  
|    
|(17) | Incorporated by reference from Inktomis
    Registration Statement on Form S-3 (Reg.
    No. 333-101258).                    
|    
|(18) | Incorporated by reference from Inktomis
    Registration Statement on Form S-3 (Reg.
    No. 333-98551).                     
|    
|(19) | Incorporated by reference from Inktomis
    Current Report on Form 8-K filed with the Commission on
    December 26, 2002.   

(b)     Reports on
Form 8-K

On September 6, 2002 we filed a Current
Report on Form 8-K in connection with the restructuring of
certain of Inktomis properties.

On November 15, 2002 we filed a Current
Report on Form 8-K announcing the sale of Inktomis
enterprise search software business to Verity, Inc.

On December 22, 2002 we filed a Current
Report on Form 8-K announcing the execution of a merger
agreement between Inktomi, Yahoo! Inc. and a wholly owned
subsidiary of Yahoo! Inc.

On December 26, 2002 we filed a Current
Report on Form 8-K which included the merger agreement
entered into between Inktomi, Yahoo! Inc. and a wholly owned
subsidiary of Yahoo! Inc.