##### Table of Contents



---

---

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



---



Form 10-Q



---



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

Commission File Number 000-26365



---



OVERTURE SERVICES, INC.

(Exact name of Registrant as specified in its charter)


|                                                                        |  |                                                   
|----------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 95-4652060
(I.R.S. Employer
Identification Number)

74 North Pasadena Avenue 3rd Floor
Pasadena, California 91103
(Address of principal executive offices)

Telephone: (626) 685-5600
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [   ]

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.
58,358,157 shares of Common Stock,$0.0001 par value, as of March 31, 2002.



---

---





---

TABLE OF CONTENTS



|                             |                                                                                               |                                                      |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                             | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                             | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION  
|                             | ITEM 1. LEGAL PROCEEDINGS                                                                    
|Exhibit 3.3                 



---



##### Table of Contents



OVERTURE SERVICES, INC.

TABLE OF CONTENTS

|        |  |                                                                                                     |  |         
|------- |  | --------------------------------------------------------------------------------------------------- |  | --------
|        |  |                                                                                                     |  | PAGE NO.
|        |  |                                                                                                     |  |         
|PART I  |  | FINANCIAL INFORMATION                                                                               |  |         
|Item 1. |  | Financial Statements:                                                                               |  |         
|        |  | Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001                    |  | 3       
|        |  | Condensed Consolidated Statements of Operations for the three months ended
March 31, 2002  and 2001 |  | 4       
|        |  | Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2002  and 2001 |  | 5       
|        |  | Notes to Condensed Consolidated Financial Statements                                                |  | 6       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations               |  | 10      
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risks                                         |  | 26      
|PART II |  | OTHER INFORMATION                                                                                   |  |         
|Item 1. |  | Legal Proceedings                                                                                   |  | 26      
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                    |  | 27      

2



---



##### Table of Contents






PART I    FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS





OVERTURE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)

|                                                                |                                                                                                                                                                                                                  |   |             |          |              |   |         |          |  
|--------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | -------- | ------------ | - | ------- | -------- | -
|                                                                |                                                                                                                                                                                                                  |   | March 31,   |          | December 31,
|                                                                |                                                                                                                                                                                                                  |   | 2002        |          | 2001        
|                                                                |                                                                                                                                                                                                                  |   |             |          |             
|                                                                |                                                                                                                                                                                                                  |   | (unaudited) |          |              |   |        
|ASSETS                                                          |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|CURRENT ASSETS:                                                 |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|                                                                | Cash and cash equivalents                                                                                                                                                                                        |   | $           | 88,595   |              |   | $       | 61,974   |  
|                                                                | Short-term investments                                                                                                                                                                                           |   |             | 97,179   |              |   |         | 71,837   |  
|                                                                | Accounts receivable, net                                                                                                                                                                                         |   |             | 15,882   |              |   |         | 10,973   |  
|                                                                | Prepaid expenses and other                                                                                                                                                                                       |   |             | 7,802    |              |   |         | 1,920    |  
|                                                                | Prepaid traffic acquisition expense                                                                                                                                                                              |   |             | 9,261    |              |   |         | 8,590    |  
|                                                                |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|Total current assets                                            |                                                                                                                                                                                                                  |   | 218,719     |          |              |   | 155,294 |         
|Property and equipment, net                                     |                                                                                                                                                                                                                  |   | 35,643      |          |              |   | 27,966  |         
|Intangible assets, net                                          |                                                                                                                                                                                                                  |   | 1,750       |          |              |   | 2,042   |         
|Restricted investments                                          |                                                                                                                                                                                                                  |   |            |          |              |   | 5,744   |         
|Long-term investments                                           |                                                                                                                                                                                                                  |   | 40,533      |          |              |   | 36,476  |         
|Long-term prepaid traffic acquisition expenses and other assets |                                                                                                                                                                                                                  |   | 3,565       |          |              |   | 4,405   |         
|                                                                |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|Total assets                                                    |                                                                                                                                                                                                                  | $ | 300,210     |          |              | $ | 231,927 |         
|                                                                |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY                            |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|CURRENT LIABILITIES:                                            |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|                                                                | Accounts payable                                                                                                                                                                                                 |   | $           | 59,524   |              |   | $       | 38,111   |  
|                                                                | Accrued expenses                                                                                                                                                                                                 |   |             | 6,153    |              |   |         | 5,271    |  
|                                                                | Deferred revenue                                                                                                                                                                                                 |   |             | 11,202   |              |   |         | 8,949    |  
|                                                                | Current portion of capital lease obligations                                                                                                                                                                     |   |             | 18       |              |   |         | 89       |  
|                                                                |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|Total current liabilities                                       |                                                                                                                                                                                                                  |   | 76,897      |          |              |   | 52,420  |         
|Other long-term liabilities                                     |                                                                                                                                                                                                                  |   |            |          |              |   | 64      |         
|STOCKHOLDERS EQUITY:                                           |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|                                                                | Common stock, $0.0001 par value, 200,000
shares authorized as of March 31, 2002 and
December 31, 2001; shares issued and outstanding 58,358
and 57,616 as of March 31, 2002 and December 31, 2001,
respectively |   |             | 6        |              |   |         | 6        |  
|                                                                | Additional paid-in capital                                                                                                                                                                                       |   |             | 677,129  |              |   |         | 662,039  |  
|                                                                | Deferred compensation, net                                                                                                                                                                                       |   |             | (632     | )            |   |         | (763     | )
|                                                                | Accumulated deficit                                                                                                                                                                                              |   |             | (452,573 | )            |   |         | (481,863 | )
|                                                                | Accumulated other comprehensive income (loss)                                                                                                                                                                    |   |             | (617     | )            |   |         | 24       |  
|                                                                |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|Total stockholders equity                                      |                                                                                                                                                                                                                  |   | 223,313     |          |              |   | 179,443 |         
|                                                                |                                                                                                                                                                                                                  |   |             |          |              |   |         |         
|Total liabilities and stockholders equity                      |                                                                                                                                                                                                                  | $ | 300,210     |          |              | $ | 231,927 |         
|                                                                |                                                                                                                                                                                                                  |   |             |          |              |   |         |         

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

3



---



##### Table of Contents



OVERTURE SERVICES, INC.




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts; unaudited)


|                                                                            |                                                             |   |                    |        |      |   |        |        |  
|--------------------------------------------------------------------------- | ----------------------------------------------------------- | - | ------------------ | ------ | ---- | - | ------ | ------ | -
|                                                                            |                                                             |   | Three Months Ended
|                                                                            |                                                             |   | March 31,         
|                                                                            |                                                             |   |                   
|                                                                            |                                                             |   | 2002               |        | 2001
|                                                                            |                                                             |   |                    |        |     
|Revenue                                                                     |                                                             | $ | 142,845            |        |      | $ | 51,959 |       
|Operating expenses:                                                         |                                                             |   |                    |        |      |   |        |       
|                                                                            | Search serving                                              |   |                    | 5,993  |      |   |        | 4,713  |  
|                                                                            | Traffic acquisition                                         |   |                    | 77,003 |      |   |        | 34,681 |  
|                                                                            | Marketing, sales and service                                |   |                    | 11,429 |      |   |        | 6,894  |  
|                                                                            | General and administrative                                  |   |                    | 16,307 |      |   |        | 9,065  |  
|                                                                            | Product development                                         |   |                    | 4,367  |      |   |        | 3,699  |  
|                                                                            | Amortization of deferred compensation and
intangible assets |   |                    | 423    |      |   |        | 553    |  
|                                                                            |                                                             |   |                    |        |      |   |        |       
|                                                                            |                                                             |   | 115,522            |        |      |   | 59,605 |       
|                                                                            |                                                             |   |                    |        |      |   |        |       
|Income (loss) from operations                                               |                                                             |   | 27,323             |        |      |   | (7,646 | )     
|Other income:                                                               |                                                             |   |                    |        |      |   |        |       
|                                                                            | Interest income, net                                        |   |                    | 1,249  |      |   |        | 955    |  
|                                                                            | Other income, net                                           |   |                    | 718    |      |   |        | (8     | )
|                                                                            |                                                             |   |                    |        |      |   |        |       
|Income (loss) before income taxes                                           |                                                             |   | 29,290             |        |      |   | (6,699 | )     
|Provision for income taxes                                                  |                                                             |   |                   |        |      |   |       |       
|                                                                            |                                                             |   |                    |        |      |   |        |       
|Net income (loss)                                                           |                                                             | $ | 29,290             |        |      | $ | (6,699 | )     
|                                                                            |                                                             |   |                    |        |      |   |        |       
|Basic net income (loss) per share                                           |                                                             | $ | 0.51               |        |      | $ | (0.13  | )     
|                                                                            |                                                             |   |                    |        |      |   |        |       
|Diluted net income (loss) per share                                         |                                                             | $ | 0.48               |        |      | $ | (0.13  | )     
|                                                                            |                                                             |   |                    |        |      |   |        |       
|Weighted average shares used to compute basic net
income (loss) per share   |                                                             |   | 57,422             |        |      |   | 50,217 |       
|Weighted average shares used to compute diluted net
income (loss) per share |                                                             |   | 60,510             |        |      |   | 50,217 |       

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

4



---



##### Table of Contents



OVERTURE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)


|                                                             |                                                                                          |                                                                                  |        |         |                    |   |        |         |        |   | 
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------ | ------- | ------------------ | - | ------ | ------- | ------ | - | 
|                                                             |                                                                                          |                                                                                  |        |         | Three Months Ended
|                                                             |                                                                                          |                                                                                  |        |         | March 31,         
|                                                             |                                                                                          |                                                                                  |        |         |                   
|                                                             |                                                                                          |                                                                                  |        |         | 2002               |   | 2001  
|                                                             |                                                                                          |                                                                                  |        |         |                    |   |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                                          |                                                                                  |        |         |                    |   |        |        
|                                                             | Net income (loss)                                                                        |                                                                                  | $      | 29,290  |                    |   | $      | (6,699  | )     
|                                                             | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                                                  |        |         |                    |   |        |         |       
|
|                                                             |                                                                                          | Tax benefits from stock options                                                  |        |         | 5,732              |   |        |         |       |  
|
|                                                             |                                                                                          | Loss from sale of property and equipment                                         |        |         | 468                |   |        |         |       |  
|                                                             |                                                                                          | Accretion of discounts from the purchase of short-term and
long-term investments |        |         | 267                |   |        |         | (185   | )
|                                                             |                                                                                          | Depreciation and amortization                                                    |        |         | 4,442              |   |        |         | 3,735  |  
|                                                             | Changes in operating assets and liabilities:                                             |                                                                                  |        |         |                    |   |        |         |       
|                                                             |                                                                                          | Accounts receivable                                                              |        |         | (4,909             | ) |        |         | (1,125 | )
|                                                             |                                                                                          | Prepaid expenses and other                                                       |        |         | (5,882             | ) |        |         | (11    | )
|                                                             |                                                                                          | Prepaid traffic acquisition expense                                              |        |         | 289                |   |        |         | 3,138  |  
|                                                             |                                                                                          | Accounts payable and accrued expenses                                            |        |         | 22,231             |   |        |         | 5,881  |  
|                                                             |                                                                                          | Deferred revenues                                                                |        |         | 2,253              |   |        |         | 1,717  |  
|                                                             |                                                                                          |                                                                                  |        |         |                    |   |        |        
|                                                             | Net cash provided by operating activities                                                |                                                                                  |        | 54,181  |                    |   |        | 6,451   |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                                          |                                                                                  |        |         |                    |   |        |        
|                                                             | Purchases of short-term and long-term investments, net                                   |                                                                                  |        | (24,484 | )                  |   |        | (2,437  | )     
|                                                             | Capital expenditures for property and equipment, and
other assets                        |                                                                                  |        | (12,284 | )                  |   |        | (9,008  | )     
|                                                             |                                                                                          |                                                                                  |        |         |                    |   |        |        
|                                                             | Net cash used in investing activities                                                    |                                                                                  |        | (36,768 | )                  |   |        | (11,445 | )     
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                                          |                                                                                  |        |         |                    |   |        |        
|                                                             | Proceeds from issuance of common stock, net                                              |                                                                                  |        | 9,358   |                    |   |        | 744     |       
|                                                             | Repayments under lease line                                                              |                                                                                  |        | (71     | )                  |   |        | (193    | )     
|                                                             |                                                                                          |                                                                                  |        |         |                    |   |        |        
|                                                             | Net cash provided by financing activities                                                |                                                                                  |        | 9,287   |                    |   |        | 551     |       
|Effect of exchange rate changes on cash and cash equivalents |                                                                                          |                                                                                  | (79    | )       |                    |   | 116    |        
|Net increase (decrease) in cash and cash equivalents         |                                                                                          |                                                                                  | 26,621 |         |                    |   | (4,327 | )      
|Cash and cash equivalents at beginning of period             |                                                                                          |                                                                                  | 61,974 |         |                    |   | 12,986 |        
|                                                             |                                                                                          |                                                                                  |        |         |                    |   |        |        
|Cash and cash equivalents at end of period                   |                                                                                          | $                                                                                | 88,595 |         |                    | $ | 8,659  |        
|                                                             |                                                                                          |                                                                                  |        |         |                    |   |        |        

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

5



---



##### Table of Contents



OVERTURE SERVICES, INC.




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY, BASIS OF PRESENTATION

Overture Services, Inc. (the Company or Overture) is the leader in
Pay-For-Performance search on the Internet. We introduce consumers and
businesses that search the Internet to advertisers who bid for placement in our
search results, which are ranked by the advertisers bid price. Advertisers pay
us when consumers and businesses click through to the advertisers search
listings, so we refer to our service as Pay-For-Performance search. We provide
consumers and businesses with relevant search results by charging advertisers
for each paid introduction, or clickthrough, and by requiring advertisers to
bid only on keywords that are relevant to their offering. We distribute our
search results to consumers and businesses through our affiliates, a network of
portals, Web browsers, Internet service providers and other Web properties, as
well as through our own Web site. We believe our service offers advertisers a
highly targeted, controllable and cost-effective marketing solution and
provides affiliates with incremental revenue and a relevant search service.

The Company was incorporated on September 15, 1997 in the state of
Delaware and officially launched its services on June 1, 1998. On October 8,
2001, GoTo.com, Inc. changed its corporate name from GoTo.com, Inc. to Overture
Services, Inc. and changed its Nasdaq Stock Market trading symbol to OVER.
The Company operates in one reportable business segment.

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, and the reported amounts of
revenues and expenses. Actual results could differ materially from those
estimates.

The accompanying unaudited condensed consolidated financial statements
have been prepared on the same basis as the annual financial statements and, in
the opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Companys financial
position, results of operations and cash flows for the periods shown. The
results of operations for such periods are not necessarily indicative of the
results expected for a full year or for any future period.

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

These financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2001.

2. COMPREHENSIVE INCOME (LOSS)

The Company accounts for comprehensive income (loss) using Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting comprehensive income (loss)
and its components in financial statements. Comprehensive income (loss), as
defined therein, refers to revenues, expenses, gains and losses that are not
included in net income (loss) but rather are recorded directly in stockholders
equity. The differences between total comprehensive income (loss) and net
income (loss) for the three months ended March 31, 2002 and March 31, 2001 were
approximately $(617,000) and $24,000, respectively.

3. EARNINGS (LOSS) PER SHARE COMPUTATION

Shares used in computing basic and diluted net income (loss) per share are
based on the weighted average shares outstanding in each period. Basic net
income (loss) per share is calculated by dividing net income (loss) by the
average number of outstanding shares during the period. Diluted net income
(loss) per share is calculated by adjusting the average number of outstanding
shares assuming conversion of all potentially dilutive stock options and
unvested stock under the treasury stock method. For the three months ended
March 31, 2001, potentially dilutive stock options and unvested stock were
excluded from the calculation of diluted net loss per share, as their effect
would be anti-dilutive.

Options to purchase approximately 7.9 million and 6.2 million shares of
common stock were outstanding as of March 31, 2002 and 2001, respectively. In
addition, as of March 31, 2002, there were approximately 374,000 shares of
unvested common stock outstanding, which are subject to repurchase by Overture.

6



---



##### Table of Contents



4. INCOME TAXES

Overture generated taxable income during the three months ended March 31,
2002, however a tax provision was not recorded due to the benefit resulting
from expected future utilization of deferred taxes and corresponding release of
the related valuation allowance. The primary basis for this release was the
expectation of future income from our ordinary and recurring operations
resulting in the assessment that utilization of available tax deductions was
more likely than not. Because the utilization of certain of these other
deferred tax assets relates to future years, the release is considered a
discrete event and the tax benefits are required to be recorded in the quarter
during which the valuation allowance is released. Further, The Job Creation
and Worker Assistance Act of 2002, which was signed by President Bush on March
9, 2002, temporarily suspends the limitation imposed regarding the use of net
operating losses for purposes of the alternative minimum tax for tax years
ending in 2001 and 2002. Consequently, the 2001 federal provision relating to
the alternative minimum tax was reversed as a discrete item during the three
months ended March 31, 2002.

We have deductions, other than those discussed above, which resulted from
the exercise of certain stock options or sale of certain related stock by
employees. Because no book charge is recorded upon the generation of these
deductions, the corresponding tax benefits are recorded directly to
stockholders equity. However, these deductions will offset taxable income, to
the extent available, upon filing the companys corporate income tax returns
resulting in a cash benefit.

The following is a reconciliation of the statutory federal income tax rate
to the Companys effective income tax rate:

|                                            |  |           |     |      |  |  |     |   
|------------------------------------------- |  | --------- | --- | ---- |  |  | --- | --
|                                            |  | March 31,
|                                            |  |          
|                                            |  | 2002      |     | 2001
|                                            |  |           |     |     
|Statutory federal rate                      |  |           | 35  | %    |  |  | (35 | )%
|State income taxes (net of federal benefit) |  |           |    |      |  |  |    |   
|Valuation allowance                         |  |           | (31 | )    |  |  | 35  |   
|Effect of tax law change                    |  |           | (2  | )    |  |  |    |   
|Non-deductible expense and other            |  |           | (2  | )    |  |  |    |   
|                                            |  |           |     |      |  |  |     |   
|                                            |  |           |    | %    |  |  |    | % 
|                                            |  |           |     |      |  |  |     |   

The provision for income taxes is composed of the following (in
thousands):

|          |         |                |   |           |        |      |   |   |   | 
|--------- | ------- | -------------- | - | --------- | ------ | ---- | - | - | - | 
|          |         |                |   | March 31,
|          |         |                |   |          
|          |         |                |   | 2002      |        | 2001
|          |         |                |   |           |        |     
|Current:  |         |                |   |           |        |      |   |  
|          | Federal |                | $ | 5,220     |        |      | $ |  |  
|          | State   |                |   | 560       |        |      |   |  |  
|          | Foreign |                |   |          |        |      |   |  |  
|          |         |                |   |           |        |      |   |  
|          |         | Total current  |   |           | 5,780  |      |   |   |  | 
|          |         |                |   |           |        |      |   |  
|Deferred: |         |                |   |           |        |      |   |  
|          | Federal |                |   | (4,800    | )      |      |   |  |  
|          | State   |                |   | (550      | )      |      |   |  |  
|          | Foreign |                |   | (430      | )      |      |   |  |  
|          |         |                |   |           |        |      |   |  
|          |         | Total deferred |   |           | (5,780 | )    |   |   |  | 
|          |         |                |   |           |        |      |   |  
|          |         | $              |  |           |        | $    |  |  
|          |         |                |   |           |        |      |   |  

7



---



##### Table of Contents



5. LITIGATION

The Company is party to routine claims and suits brought against it in
ordinary course of business. In the opinion of management, such routine claims
should not have any material adverse effect upon the results of operations,
cash flows or financial position of the Company.

On October 2, 2000, 800-JR-Cigar, Inc. (JR Cigar) served a complaint
against the Company in the United States District Court for the District of New
Jersey alleging that the Company has committed acts of trademark infringement,
trademark dilution, unfair competition, consumer fraud and deceptive
telemarketing. JR Cigars allegations are based on the Companys allowing
competitors to bid on the term JR CIGAR (and related terms) in order to obtain
priority when an Internet user searches for cigar related Web sites. The
Company denies that it has violated JR Cigars rights and is vigorously
contesting the lawsuit. The parties have filed motions for summary judgment,
which have been fully briefed and are pending before the court. A trial date
has not been scheduled.

On June 19, 2001, InternetFuel.com, Inc. filed a complaint against
Overture in the Superior Court of the State of California for the County of Los
Angeles. The complaint alleges that Overture wrongfully terminated an agreement
pursuant to which InternetFuel participated in Overtures affiliate program.
The complaint also alleges libel for messages allegedly placed by Overture on
an Internet forum, and it contains claims of unfair business practices. The
complaint seeks, among other remedies, monetary damages for the value of the
terminated agreement and for alleged harm to InternetFuels reputation,
punitive and exemplary relief and an injunction against alleged unfair business
practices. In December 2001, Overture successfully moved the court to transfer
the case to arbitration. The parties have selected an arbitrator and are in
the initial phase of the arbitration process. Overture believes that it has
meritorious defenses to the allegations and intends to contest the allegations
vigorously.

On July 12, 2001, the first of several purported securities class action
lawsuits was filed in the United States District Court, Southern District of
New York against certain underwriters involved in Overtures initial public
offering, Overture, and certain of Overtures current and former officers and
directors. The Court consolidated the cases against Overture into case number
01 Civ. 6339. Plaintiffs allege, among other things, violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934 involving
undisclosed compensation to the underwriters, and improper practices by the
underwriters and seek unspecified damages. Similar complaints were filed in
the same court against numerous public companies that conducted initial public
offerings of their common stock since the mid-1990s. All of these lawsuits
were consolidated for pretrial purposes before Judge Shira Scheindlin of the
United States District Court for the Southern District of New York. Judge
Scheindlin has ordered that the time for all defendants to respond to any
complaint be postponed until further order of the Court. Thus, Overture has
not been required to answer the complaint, and no discovery has been served.
Overture denies the allegations against it, believes that it has meritorious
defenses to the complaint, and intends to contest the allegations vigorously.

On January 25, 2002, the Company filed a complaint for patent infringement
against FindWhat.com (FindWhat) in the United States Federal Court in Los
Angeles. The lawsuit charges FindWhat with infringement of the Companys U.S.
Patent No. 6,269,361 (the 361 patent), entitled System And Method For
Influencing A Position On A Search Result List Generated By A Computer Network
Search Engine. The 361 patent protects various features and innovations
relating to bid-for-placement products and Overtures Pay-For-Performance
search technologies including our DirecTraffic Center account management system
and tools. The Company also seeks a permanent injunction against FindWhat, an
award of increased damages, and an award of attorneys fees, costs and
expenses. Also on January 25, 2002, FindWhat served the Company with an
amended complaint filed in Federal Court in New York for declaratory judgment
of invalidity, unenforceability and non-infringement relating to the Companys
361 patent. (The original complaint was never served on the Company). The
Company has moved to dismiss FindWhats New York action in favor of the
Companys California action.

On January 28, 2002, Mark Nutritionals, Inc. (MNI) filed a complaint
against the Company in the United States District Court for the Western
District of Texas. The initial complaint was never served on the Company. An
amended complaint was served on the Company on February 6, 2002. The amended
complaint alleges that the Company has committed acts of trademark
infringement, trademark dilution, unfair competition, misappropriation and
tortious interference with prospective economic advantage. MNIs allegations
are based on the Companys allowing competitors to bid on the term body
solutions in order to obtain priority when an Internet user searches for
diet-related Web sites. The Company is indemnifying and defending an
affiliate, who has been named a defendant in a related action. The Company
denies that it has violated MNIs rights and will vigorously contest the
lawsuit.

8



---



##### Table of Contents



On January 31, 2002, a complaint was filed against the Company as a result
of its acquisition in May 2000 of AuctionRover.com, Inc., and other defendants
in North Carolina Superior Court by an individual, Paul Rony, relating to
alleged trade secrets concerning interaction with Internet auction Web sites.
The causes of action alleged against the Company include misappropriation of
trade secrets, quantum meruit, and constructive trust. The Company denies
liability and will vigorously contest the lawsuit.

On April 23, 2002, PlasmaNet, Inc. filed a complaint against the Company
in the United States District Court for the Southern District of New York. The
complaint alleges that the Company has committed acts of trademark
infringement, trademark dilution, unfair competition, misappropriation and
tortious interference with prospective economic advantage. PlasmaNets
allegations are based on the Company allowing competitors to bid on the term
freelotto in order to obtain priority when an Internet user searches for free
lotto related Web sites. The Company denies that it has violated PlasmaNets
rights and will vigorously contest the lawsuit.

On April 23rd, 2002, Overture filed a patent infringement lawsuit against
Google Inc. in the United States Federal Court in Northern California. The
lawsuit charges Google with willful infringement of Overtures U.S. Patent No.
6,269,361. Googles response to the Complaint is due on June 7, 2002.

6. RELATED PARTY TRANSACTIONS

In January 2000, Overture entered into an arrangement to lease
approximately 58,000 square feet of office space from Idealab. Overture is
obligated to make total lease payments of approximately $7.1 million commencing
on January 15, 2000 and terminating on October 31, 2004. In March 2002,
Overture entered into an arrangement with Parfinco EWA, LLC and Idealab whereby
Idealab assigned their lease with Parfinco to Overture for the 58,000 square
feet of office space and Overture entered into an arrangement with Parfinco for
an additional 29,000 square feet of office space. Overture is obligated to make
lease payments on this additional office space of approximately $1.9 million
commencing in March 2002 and expiring at the same time as our existing 58,000
square feet of office space, in October 2004. Overture has an option to extend
both leases for 5 more years beyond October 2004. Total payments for the lease
to Idealab were approximately $422,000 and $528,000 for the three months ended
March 31, 2002 and 2001, respectively. Management believes these amounts were
materially representative of the fair value of the lease.

During the three months ended March 31, 2002 and 2001, Overture recorded
approximately $273,000 and $54,000, respectively, of search listing advertising
revenue from Idealab, which with its affiliate, idealab! Holdings, L.L.C., is a
significant stockholder of Overture. Management believes these amounts are
materially representative of the fair value of advertising services provided.

7. AFFILIATE COMMITMENTS

The Company is obligated to make guaranteed payments totaling
approximately $125.0 million, $135.0 million, $141.3 million and $7.4 million
for the remainder of 2002, 2003, 2004 and 2005, respectively, under contracts
to provide search services to its affiliates, which includes our extended
agreement with Yahoo signed in April 2002 (see Note 9). Some of these
guaranteed payments are subject to change based on the affiliate or
Overture meeting certain performance metrics.

8. SHAREHOLDERS RIGHTS PLAN

On March 8, 2002, the Board of Directors of Overture Services, Inc.,
declared a dividend of one preferred share purchase right for each outstanding
share of common stock, par value $0.0001 per share. Each right entitles the
holder to purchase one unit consisting of one one-thousandth of a share of our
Series A Junior Participating Preferred Stock for $200 per unit. Under certain
circumstances, if a person or group acquires 15% or more of our outstanding
common stock, holders of the rights (other than the person or group triggering
their exercise) will be able to purchase, in exchange for the $200 exercise
price, shares of our common stock or of any company into which we are merged
having a value of $400. The rights expire on March 29, 2012 unless extended by
our Board of Directors. Because the rights may substantially dilute the stock
ownership of a person or group attempting to take us over without the approval
of our Board of Directors, our rights plan could make it more difficult for a
third party to acquire us (or a significant percentage of our outstanding
capital stock) without first negotiating with our Board of Directors regarding
such acquisition.

9



---



##### Table of Contents



9. SUBSEQUENT EVENTS

On April 25, 2002, the Company and Yahoo extended their relationship with
a three-year agreement to distribute Overtures search listings through Yahoos
Sponsor Matches.

On May 1, 2002, our U.S. search distribution relationship with America
Online ended, including AOL, AOL.com, CompuServe and Netscape Premier Provider
(which is scheduled to phase out by August).




ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

IN ADDITION TO HISTORICAL INFORMATION, THIS FORM 10-Q CONTAINS
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS RELATED TO THE EXPECTED GROWTH
OF OUR AFFILIATE PROGRAM, THE AMOUNT OF TRAFFIC THAT WILL BE DIRECTED TO US
FROM OUR AFFILIATES IN THE FUTURE, THE TIMING AND AMOUNT OF ANY INCREASE IN OUR
AVERAGE PRICE PER PAID INTRODUCTION, CONTINUED PROFITABILITY, THE TIMING AND
AMOUNT OF OUR NUMBER OF PAID INTRODUCTIONS, THE AMOUNT OF FUTURE ADVERTISER
SPENDING WITH OVERTURE, FLUCTUATION IN THE PRICE OF OUR COMMON STOCK, CHANGES
IN OUR QUARTER-TO-QUARTER FINANCIAL RESULTS AND FUTURE COMPETITION. WE USE
WORDS SUCH AS ANTICIPATES, BELIEVES, PLANS, EXPECTS, FUTURE,
INTENDS AND SIMILAR EXPRESSION TO IDENTIFY THESE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, AS WELL AS ASSUMPTIONS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE REFLECTED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MIGHT CAUSE ACTUAL RESULTS TO DIFFER INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN THE SECTIONS ENTITLED MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND RISKS THAT COULD AFFECT
OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. READERS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT
MANAGEMENTS OPINIONS ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO
OBLIGATION TO REVISE OR PUBLICLY RELEASE THE RESULTS OF ANY REVISION TO THESE
FORWARD-LOOKING STATEMENTS.

OVERVIEW

Overture is the leader in Pay-For-Performance search on the Internet. We
introduce consumers and businesses that search the Internet to advertisers who
bid for placement in our search results, which are ranked by the advertisers
bid price. Advertisers pay us when consumers and businesses click through to
the advertisers search listings, so we refer to our service as
Pay-For-Performance search. We provide consumers and businesses with relevant
search results by charging advertisers for each paid introduction, or
clickthrough, and by requiring advertisers to bid only on keywords that are
relevant to their offering. We distribute our search results to consumers and
businesses through our affiliates, a network of portals, Web browsers, Internet
service providers and other Web properties, as well as through our own Web
site. We believe our service offers advertisers a highly targeted, controllable
and cost-effective marketing solution and provides affiliates with incremental
revenue and a relevant search service.

Overture was incorporated in September 1997 and has approximately a
four-year operating history. We launched a proof-of-concept version of our
search service in the fiscal year ended December 31, 1997. Our
Pay-For-Performance service was announced in February 1998, and following
further proof-of-concept testing, was officially launched in June 1998.
Overture has devoted significant resources to launching and expanding its
search service, including developing an infrastructure and building a
management team. On October 8, 2001, GoTo.com, Inc. changed its name to
Overture Services, Inc.

A significant component of our expenses consist of costs incurred to
attract consumers and businesses to our service through our affiliate network.
We expect to continue to rely upon these sources for the majority of searches
conducted on our service. Our future success is dependent upon increasing the
revenue we derive from this traffic. A significant portion of the Companys
traffic is and has been generated from a small number of the Companys larger
affiliates. If we are not successful in renewing any of these agreements, or if
they are renewed, but on less favorable terms, it could harm our business and
revenue.

10



---



##### Table of Contents



International Expansion

We launched our service in the United Kingdom in November 2000 and
launched our German-speaking search service in February 2002. We plan to launch
our service in France in the second half of 2002 and continue to explore our
approach to entering the Japanese market. We expect our international expansion
will require continued investment to build internal infrastructure and grow our
advertiser and affiliate bases overseas.

RESULTS OF OPERATIONS

Revenue. Revenue is generated primarily through paid introductions, that
is, Overture generates revenue when a user clicks on an advertisers listings
after an advertiser has bid for priority placement in search results by making
a payment based on this clickthrough. Revenue is recognized when earned based
on click-through activity to the extent that the advertiser has deposited
sufficient funds with us or collection is probable. Revenue also consists of
banner advertising, and our Full Serve and Full Serve Advantage programs,
whereby the Company charges a service fee for listing services. Banner
advertising, Full Serve and Full Serve Advantage constitute less than 1% and 2%
of our revenue for the three months ended March 31, 2002 and 2001,
respectively. Banner advertisement revenue is recognized when earned under the
terms of the contractual arrangement with the advertiser or advertising agency,
provided that collection is probable. Full Serve and Full Serve Advantage
revenue is recognized when Overture has provided all of the services under the
terms of the arrangement. Overture has no barter transactions. Revenue was
approximately $142.8 million for the three months ended March 31, 2002 compared
to approximately $52.0 million for the three months ended March 31, 2001. The
increase was the result of continued growth of our marketplace and the
corresponding participants, our affiliates and advertisers. We do not
anticipate our historical revenue growth rate to continue as a percentage of
growth as expressed on a quarter-to-quarter basis.

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

|                             |  |                       |  | 
|---------------------------- |  | --------------------- |  | 
|NUMBER OF PAID INTRODUCTIONS |  | FOR THE QUARTER ENDED
|                             |  |                      
|587 million                  |  | March 31, 2002       
|442 million                  |  | December 31, 2001    
|338 million                  |  | September 30, 2001   
|327 million                  |  | June 30, 2001        
|318 million                  |  | March 31, 2001       
|228 million                  |  | December 31, 2000    
|114 million                  |  | September 30, 2000   
|93 million                   |  | June 30, 2000        
|88 million                   |  | March 31, 2000       

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

|                                    |  |                       |  | 
|----------------------------------- |  | --------------------- |  | 
|AVERAGE PRICE PER PAID INTRODUCTION |  | FOR THE QUARTER ENDED
|                                    |  |                      
|$0.24                               |  | March 31, 2002       
|0.23                                |  | December 31, 2001    
|0.21                                |  | September 30, 2001   
|0.19                                |  | June 30,2001         
|0.16                                |  | March 31, 2001       
|0.17                                |  | December 31, 2000    
|0.21                                |  | September 30, 2000   
|0.21                                |  | June 30, 2000        
|0.19                                |  | March 31, 2000       

We believe the increase in the worldwide number of paid introductions from
December 31, 2001 to March 31, 2002 was primarily due to the addition of our
new large affiliate partner, MSN, and a full quarter of Yahoo. During the
quarter ended March 31, 2002, approximately 50% of Overtures total traffic
came from portals, including Alta Vista, AOL, Excite.com, go.com, iWon, MSN,
Terra Lycos and Yahoo; approximately 20% of the total traffic came from the
browsers, including Microsoft Internet Explorer and Netscape; and approximately
30% of the total traffic came from other affiliates including Ask Jeeves,
InfoSpace (including MetaCrawler and Dogpile) and our Web site. On May 1, 2002,
our U.S. search distribution relationship with America Online ended; the
America Online relationship included AOL, AOL.com, CompuServe and Netscape
Premier Provider (which is scheduled to phase out by August). If we do not
renew our affiliate agreements or replace traffic lost from terminated
affiliate agreements with other sources and grow our advertising base, our
revenue may be materially, adversely affected. We believe that the worldwide
average

11



---



##### Table of Contents



price per paid introduction increased as a result of advertisers
increasing their budgets with Overture, as the average spend per advertiser in
the three months ended March 31, 2002 rose by 28% over the previous three
months and by 31% in the three months ended December 31, 2001 compared to the
three months ended September 30, 2001. We believe the quarterly number of paid
introductions and average price per paid introduction listed above are not
necessarily indicative of future results. It is difficult to forecast the
future growth of the average price per paid introduction, as advertisers,
rather than Overture, determine the price paid. We cannot assure you that the
average price per click will continue to increase and if it does increase, at
what rate, or that it will not decrease from historical levels. Our growth
rate and results depend on our ability to continue to increase the number of
advertisers who use our service, the amount our advertisers spend on our
service and the number of consumers who use our service. Traffic from
affiliates varies as we enter into new agreements and existing agreements are
renewed or expire. We anticipate these variables to fluctuate, affecting our
growth rate and results.

Search Serving.Search serving costs consist primarily of costs associated
with serving our search results, maintaining our Web site and fees paid to
outside service providers that provide and manage our unpaid listings. Costs
associated with serving our search results and maintaining our Web site include
depreciation of Web site equipment, co-location charges for our Web site
equipment bandwidth, software license fees and salaries of related personnel.
Search serving costs were approximately $6.0 million for the three months ended
March 31, 2002 compared to approximately $4.7 million for the three months
ended March 31, 2001. The increase was primarily due to the increased database
and hardware capacity requirements as a result of an increase in our affiliate
base and corresponding number of searches, an increase in the number of
personnel required to support our services and increased fees paid to outside
service providers. We are in the process of implementing a comprehensive
disaster recovery plan, which will involve implementing fully redundant systems
for our services at an alternative site. We expect the implementation of the
redundant systems to be completed in the second quarter of 2002. We anticipate
search serving costs to continue to increase primarily due to the additional
depreciation from these systems.

Traffic Acquisition.Traffic acquisition costs relate to payments made to
our affiliates that have integrated the Overture search service into their
sites or that direct consumer and business traffic to the Overture Web site.
There are generally three ways that economic terms of affiliate agreements are
structured, 1) fixed payments based on a guaranteed minimum amount of traffic
delivered, 2) variable payments based on a percentage of our revenue or based
on a certain metric, such as number of searches or paid clicks, or 3) a
combination of the above. Traffic acquisition costs were approximately $77.0
million for the three months ended March 31, 2002 compared to approximately
$34.7 million for the three months ended March 31, 2001. The increase was due
to increased distribution of our search service.

As we open new territories internationally, traffic acquisition costs
could be disproportionately higher in the early stages of that territorys
development as revenue increase over time. Therefore, the rate of growth and
pace of expansion may also cause traffic acquisition costs expressed as a
percentage of revenue to be higher relative to the U.S. market. Because
Overture has only recently entered into overseas markets, we expect traffic
acquisition costs as a percentage of revenue to initially be higher in those
markets as we expand overseas.

The following are Overtures current significant affiliate agreements:

|                          |  |               |  |                
|------------------------- |  | ------------- |  | ---------------
|Affiliate                 |  | Commencement  |  | Expiration Date
|                          |  |               |  |                
|AltaVista                 |  | November 2000 |  | May 2002       
|Microsoft Panel           |  | July 2001     |  | June 2002      
|Netscape Premier Provider |  | July 2001     |  | August 2002    
|Freeserve (UK)            |  | November 2000 |  | November 2002  
|Infoseek (go.com)         |  | March 2002    |  | March 2003     
|Ask Jeeves                |  | July 2001     |  | July 2003      
|Terra Lycos               |  | November 2000 |  | November 2003  
|msn.com                   |  | February 2002 |  | December 2003  

12



---



##### Table of Contents



|                                    |  |               |  |                
|----------------------------------- |  | ------------- |  | ---------------
|Affiliate                           |  | Commencement  |  | Expiration Date
|                                    |  |               |  |                
|InfoSpace                           |  | November 2001 |  | February 2004  
|United Online                       |  | March 2002    |  | March 2004     
|T-Online                            |  | February 2002 |  | May 2004       
|AOL Europe
(UK, Germany and France) |  | January 2002  |  | March 2005     
|Yahoo                               |  | May 2002      |  | April 2005     

We do not anticipate the renewal of our agreement with Netscape Premier
Provider past its expiration date.

The amount of traffic from each of our affiliates has varied, and we
expect it will continue to vary, from quarter to quarter, sometimes
significantly, and in any single quarter we have been and could continue to be
significantly dependent on traffic from a single or limited number of portal or
browser affiliates. Certain of Overtures affiliate agreements do not require
the affiliate to display Overtures search results and may allow the affiliate
to stop displaying Overtures search results after a short notice period. If we
are unable to replace traffic from any portal or browser affiliate after
expiration of our contract with it or if an affiliate upon which we depend
stops displaying Overtures search results, it would seriously harm our
business, financial condition and results of operations, particularly if we are
significantly dependent on that affiliate at the time. Overtures agreements
with its affiliates vary in initial duration from three months to three years,
and depending on the agreement, may be terminable upon the occurrence of
certain events, including for our failure to meet certain service levels, for
general breaches of agreement terms, for changes in control or in some
instances, at will. If any of these termination events occur, the related
agreement could terminate earlier then the expiration date, and/or we may incur
additional obligations. We may not be successful in renewing any of these
agreements, or if they are renewed, any new agreement may not be on as
favorable terms. We may not be successful in entering into distribution
agreements with new affiliates on commercially acceptable terms. In addition,
several of these affiliates may be considered potential competitors. Our affiliate agreements provide varying levels of discretion to the
affiliate in the implementation of our service. As a result, changes in the
implementation of our search results by these affiliates, over which we may
have little or no control, may impact our revenues and profitability.

Traffic acquisition costs as a percentage of revenue were approximately
54% and 67% for the three months ended March 31, 2002 and 2001, respectively.
The decrease was primarily due to better margins on new or renegotiated
agreements, and in cases where traffic acquisition costs were fixed and
payments were guaranteed, revenue increases, which were proportionately more
than the respective traffic acquisition costs, resulted in better margins.
Expressed as a percentage of revenue, we expect traffic acquisition costs to be
slightly higher in the upcoming quarters. We are obligated to make guaranteed
payments to affiliates, including Yahoo, in the future, as described below in
Liquidity and Capital Resources.

Marketing, Sales and Service. Marketing, sales and service expenses
consist primarily of payroll and related expenses for personnel engaged in
marketing, customer service and sales functions; advertising and promotional
expenditures; and cost of systems used to sell and serve advertisers.
Marketing, sales and service expenses were approximately $11.4 million for the
three months ended March 31, 2002 compared to approximately $6.9 million for
the three months ended March 31, 2001. The increase was primarily the result of
increased costs associated with advertiser development and an increase in
payroll for customer service and sales functions. We expect marketing, sales
and service expenses to be relatively flat for the remainder of 2002.

General and Administrative.General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; facilities; professional services, including legal; and insurance
and other general corporate expenses. General and administrative expenses were
approximately $16.3 million for the three months ended March 31, 2002 compared
to approximately $9.1 million for the three months ended March 31, 2001. The
increase was primarily the result of costs for outside services associated with
our strategic investment in product quality, increased credit card processing
fees from prepaid accounts resulting from increased revenue, and international
expansion. We expect general and administrative expenses to be relatively flat
for the remainder of 2002.

13



---



##### Table of Contents



Product Development.Product development expenses consist primarily of
payroll and related expenses for personnel responsible for development of
features and functionality for our service, as well as costs incurred in the
preliminary project and post-implementation stage of computer software
developed for internal use. Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1)
requires that costs incurred in the preliminary project and post-implementation
stages of an internal use software project be expensed as incurred and that
certain costs incurred in the application development stage of a project be
capitalized. Product development expenses were approximately $4.4 million for
the three months ended March 31, 2002 compared to approximately $3.7 million
for the three months ended March 31, 2001. The increase was primarily the
result of our international expansion and investment in product quality. We
expect product development expenses to increase throughout the remainder of
2002 due to continuing international expansion and investment in product
quality.

Interest Income, Net.Interest income consists primarily of earnings on
our cash, cash equivalents and short-term and long-term investments, net of
interest expense attributable to leased equipment. Interest income was
approximately $1.2 million for the three months ended March 31, 2002 compared
to approximately $1.0 million for the three months ended March 31, 2001. The
increase was primarily due to earnings from additional cash proceeds from our
follow-on offering of approximately $58.2 million received in July 2001 and
cash generated from operations partially offset by lower interest rates and
lower returns from our investments in treasury securities and commercial paper.

Other Income, Net. Other income, net of approximately $718,000 for the
three months ended March 31, 2002 consisted primarily of proceeds from a
settlement with MTI Technology Corp.

Provision For Income Taxes.Overture generated taxable income during the
three months ended March 31, 2002, however a tax provision was not recorded due
to the benefit resulting from expected future utilization of deferred taxes and
corresponding release of the related valuation allowance. The primary basis for
this release was the expectation of future income from our ordinary and
recurring operations resulting in the assessment that utilization of available
tax deductions was more likely than not. Because the utilization of certain of
these other deferred tax assets relates to future years, the release is
considered a discrete event and the tax benefits are required to be recorded in
the quarter during which the valuation allowance is released. Further, The Job
Creation and Worker Assistance Act of 2002, which was signed by President Bush
on March 9, 2002, temporarily suspends the limitation imposed regarding the use
of net operating losses for purposes of the alternative minimum tax for tax
years ending in 2001 and 2002. Consequently, the 2001 federal provision
relating to the alternative minimum tax was reversed as a discrete item during
the three months ended March 31, 2002.

We expect to have an income tax provision for the remainder of 2002. We
expect this provision to be lower than statutory rates due to the expected
utilization of net operating losses and other deferred tax assets previously
not benefited.

We have deductions, other than those discussed above, which resulted from
the exercise of certain stock options or sale of certain related stock by
employees. Because no book charge is recorded upon the generation of these
deductions, the corresponding tax benefits are recorded directly to
stockholders equity. However, these deductions will offset taxable income, to
the extent available, upon filing the companys corporate income tax returns
resulting in a cash benefit.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities totaled approximately $54.2
million and net cash used in operating activities totaled approximately $6.5
million for the three months ended March 31, 2002 and 2001, respectively. The
change was due primarily to operating income and increased accounts payable and
accrued expenses during the three months ended March 31, 2002. Net cash used
in investing activities totaled approximately $36.8 million and $11.4 million
for the three months ended March 31, 2002 and 2001, respectively. The change
resulted primarily from the investment of cash generated by operating
activities in short-term and long-term investments and increased capital
spending in the three months ended March 31, 2002. Net cash provided by
financing activities totaled approximately $9.3 million and $551,000 for the
three months ended March 31, 2002 and 2001, respectively. The increase was due
primarily to proceeds from the exercise of stock options and issuance of
employee stock purchase plan shares during the three months ended March 31,
2002.

Our principal sources of liquidity consisted of cash, cash equivalents,
short-term investments and long-term investments of approximately $226.3
million as of March 31, 2002 and approximately $170.3 million as of December
31, 2001. We believe that our cash and liquid investment reserves are
sufficient to sustain operations through the foreseeable future. The Company is
obligated to make guaranteed payments totaling approximately $125.0 million,
$135.0 million, $141.3 million and $7.4 million for the remainder

14



---



##### Table of Contents



of 2002, 2003, 2004 and 2005, respectively, under contracts to provide
search services to its affiliates, which includes our extended agreement with
Yahoo signed in April 2002 (see Note 9). Some of these
guaranteed payments are subject to change based on the affiliate or
Overture meeting certain performance metrics. In April 2002, the Company and Yahoo
extended their relationship with a three-year agreement to distribute
Overtures search listings through Yahoos Sponsor Matches. The Company leases
office space under operating lease agreements expiring in October 2004. In
March 2002, Overture entered into an arrangement with Parfinco EWA, LLC and
Idealab whereby Idealab assigned their lease with Parfinco to Overture for the
existing 58,000 square feet of office space in Pasadena, California and
Overture entered into an arrangement with Parfinco for an additional 29,000
square feet of office space in Pasadena, California. The additional office
space lease expires at the same time as our existing 58,000 square feet of
office space, in October 2004. As of March 31, 2002, Overture is obligated to
make total remaining office lease payments of approximately $6.0 million.

ACCOUNTING POLICIES SUBJECT TO ESTIMATION AND JUDGMENT

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to allowance for doubtful accounts, long-term contracts,
intangible assets, income tax, restructuring and litigation. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.

Note 1 to the Notes of the Consolidated Financial Statements of our 2001
Form 10-K describes our significant accounting policies. We believe the
following accounting policies are more subject to managements estimates and
judgments.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required which would result in an additional general and administrative expense
in the period such determination was made.

Income Tax

As of December 31, 2001, the Company had net operating loss (NOL)
carryforwards of approximately $76.1 million and $54.7 million available to
reduce future federal and state taxable income, respectively. A portion of
these NOLs is attributable to employee stock option deductions (stock option
NOLs), the benefit from which will be allocated to additional paid in capital,
if and when subsequently realized. The tax benefits associated with the
remaining portion of the NOLs not attributable to stock option deductions
(regular NOLs) will be recorded against the provision for income taxes, if
and when subsequently realized.

These NOLs (both regular and stock option) constitute a deferred tax
asset. Financial Accounting Statement Standard No. 109, Accounting for Income
Taxes (SFAS 109) requires that a valuation allowance be set up to reduce a
deferred tax asset to the extent it is more likely than not that the related
tax benefits will not be realized. At December 31, 2001, due to the
uncertainty regarding if and when these NOLs would be utilized, a full
valuation allowance was set up against the related deferred tax asset.

SFAS 109 indicates that all available evidence, both positive and
negative, should be identified and considered in making a determination as to
whether it is more likely than not that all or some portion of the deferred tax
asset will not be realized. Examples of positive evidence include:



| |  |  | Strong earnings history                         
| | - |  | ------------------------------------------------
|
| |  |  | Existing contracts or backlog; and              
|
| |  |  | Assets with net built in gains for tax purposes.

15



---



##### Table of Contents



Examples of negative evidence include but are not limited to the following:



| |  |  | A pretax loss for financial reporting purposes for the current or a recent preceding year;
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | A deficit in stockholders equity;                                                        
|
| |  |  | A history of operating loss or tax credit carryforwards expiring unused; and              
|
| |  |  | Cumulative losses in recent years.                                                        

Currently, we believe that our income in recent quarters and available tax
planning strategies indicate that it is more likely than not that our deferred
tax assets will be realized. Therefore, we have determined that a valuation
allowance to reduce the deferred tax asset associated with the regular and
stock option NOLs, as well as the valuation allowance associated with other
deferred tax assets should not be maintained. If we do not continue to generate
taxable income throughout the remainder of 2002, this would be negative
evidence that could require us to re-evaluate this position.

In calculating our provision for income taxes for the three months ended
March 31, 2002, we considered the release of the valuation allowance
attributable to the regular NOLs in calculating our annual estimated tax rate
in accordance with Accounting Principles Board (APB) 28 and other deferred
tax assets recorded as discrete items during the three months ended March 31,
2002. In subsequent quarters, to the extent our position changes with respect
to releasing the valuation allowance attributable to the regular NOLs as well
as other deferred tax assets, this could have an impact on the effective tax
rate for the current year as well as the provision or benefit recorded in a
subsequent quarter.

Affiliate Prepayments and Commitments

The Companys agreements with some of its affiliates may include
prepayments or commitments for future minimum payments to these affiliates.
The recoverability of prepayments and profitability related to future minimum
payments and commitments are subject to the judgment of management.
Periodically, the Company assesses affiliate prepayments and commitments on a
per agreement basis, considering historical margins, price per click and other
financial trends, the development stage of the market, and any other relevant
factors to determine realizability. Negative results from these assessments
could result in additional one-time charges to traffic acquisition expense
resulting from the impairment write-down of prepayments or accrual of losses.

RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

We believe that quarter-to-quarter comparisons of our operating results
are not a good indication of our future performance. It is likely that, in some
future quarter, our operating results may be below historical levels, and/or
the expectations of public market analysts and investors and, as a result of
these or other factors, the price of our common stock may fall and/or
significantly fluctuate. The price of our common stock may decline or may be
extremely volatile. Since our initial public offering in June 1999, the per
share trading price of our common stock has ranged from an intra-day high of
$114.50 on November 15, 1999 to an intra-day low of $4.81 on December 21, 2000.
Our operating results have varied widely in the past, and we expect that they
will continue to vary widely from quarter to quarter due to a number of
factors, including:



| |  |  | demand for our services by advertisers, consumers and businesses,
including the number of searches performed by consumers and businesses
and the rate at which they click through to paid search results;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | prices paid by advertisers using the Overture services, which are not
determined by Overture;                                                                                                            
|
| |  |  | decrease in traffic from our affiliates for any reason, including
loss of our agreements with affiliates or demand for the services of
affiliates;                                                       
|
| |  |  | our costs of attracting consumers and businesses to use Overtures
services, including costs of exposure on affiliate Web sites;                                                                         
|
| |  |  | costs related to agreements with affiliates;                                                                                                                                                             

16



---



##### Table of Contents





| |   |  |  ability to protect our business model from competitors;                                                                                                                        
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the percentage of Overtures search listings that are bidded listings;                                                                                                           
|
| |  |  | our ability to maintain and grow our affiliate program including amendments, extensions or new affiliate agreements;                                                             
|
| |  |  | implementation of our search results by our affiliates, over which we may have limited or no control;                                                                            
|
| |  |  | seasonal fluctuations in the use of our service, typical of our
industry, in which online traffic has typically been lower in the second
and third quarters of the calendar year;
|
| |  |  | the amount and timing of operating costs and capital expenditures relating to expansion of our operations;                                                                       
|
| |  |  | costs and delays in introducing any new Overture services and improvements to existing services;                                                                                 
|
| |  |  | our ability to successfully introduce new products or services;                                                                                                                  
|
| |  |  | changes in the growth rate of Internet usage and acceptance by consumers of e-commerce;                                                                                          
|
| |  |  | technical difficulties, system failures, system security breaches, or Internet downtime;                                                                                         
|
| |  |  | government regulations related to the Internet;                                                                                                                                  
|
| |  |  | our ability to upgrade and develop our information technology systems and infrastructure;                                                                                        
|
| |  |  | costs related to any acquisitions or dispositions of technologies or businesses;                                                                                                 
|
| |  |  | general economic conditions, as well as those specific to the Internet and related industries; and                                                                               
|
| |  |  | ability to expand and compete internationally.                                                                                                                                   

As a result of our limited operating history, it is difficult to
accurately forecast our revenue, and we have limited meaningful historical
financial data upon which to base planned operating expenses. We plan to
significantly increase our operating expenses to expand our marketing and sales
operations and broaden our customer support capabilities. We base our current
and future expense levels on our operating plans and estimates of future
revenue. Other than a portion of our affiliate costs, our expenses are
relatively fixed. Revenue and operating results are difficult to forecast
because they generally depend upon the volume of the searches conducted on our
service, the amounts bid by advertisers for search listings on the service and
the number of advertisers that bid on the service, each of which we cannot
control directly. As a result, we may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfall. We also may
be unable to increase our spending and expand our operations in a timely manner
to adequately meet user demand, to the extent such demand exceeds our
expectations.

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

The consumers and businesses who conduct searches on our service come
primarily from a limited number of sources. Our sources for consumers and
businesses conducting searches are members of our affiliate network, including
portals such as Alta Vista, Excite.com, go.com, iWon, MSN, Terra Lycos and
Yahoo; providers of Internet browsers such as Microsoft Internet Explorer and
Netscapes browser product; aggregators of search offerings of various
providers including Ask Jeeves, InfoSpace (including MetaCrawler and Dogpile)
and from Overtures Web site. In any given month, we typically depend upon one
or a few of these sources for a significant amount of traffic and searches
conducted on our service. Revenue is generated from clickthroughs that users
make on advertisers listings and, generally, the more traffic from any given
source, the greater number of clickthroughs we will generate. Of

17



---



##### Table of Contents



Overtures total traffic, for the three months ended December 31, 2001,
approximately 50% came from our portal affiliates; approximately 20% came from
our browser affiliates; and approximately 30% came from other affiliates and
our Web site. On May 1, 2002, our U.S. search distribution relationship with
America Online ended; the America Online relationship included AOL, AOL.com,
CompuServe and Netscape Premier Provider (which is scheduled to phase out by
August). If we do not renew our affiliate agreements or replace traffic lost
from terminated affiliate agreements with other sources and grow our
advertising base, our revenue may be materially, adversely affected.

The following are Overtures current significant affiliate agreements:

|                                    |  |               |  |                
|----------------------------------- |  | ------------- |  | ---------------
|Affiliate                           |  | Commencement  |  | Expiration Date
|                                    |  |               |  |                
|AltaVista                           |  | November 2000 |  | May 2002       
|Microsoft Panel                     |  | July 2001     |  | June 2002      
|Netscape Premier Provider           |  | July 2001     |  | August 2002    
|Freeserve (UK)                      |  | November 2000 |  | November 2002  
|Infoseek (go.com)                   |  | March 2002    |  | March 2003     
|Ask Jeeves                          |  | July 2001     |  | July 2003      
|Terra Lycos                         |  | November 2000 |  | November 2003  
|msn.com                             |  | February 2002 |  | December 2003  
|InfoSpace                           |  | November 2001 |  | February 2004  
|United Online                       |  | March 2002    |  | March 2004     
|T-Online                            |  | February 2002 |  | May 2004       
|AOL Europe
(UK, Germany and France) |  | January 2002  |  | March 2005     
|Yahoo                               |  | May 2002      |  | April 2005     

We do not anticipate the renewal of our agreement with Netscape Premier
Provider past its expiration date.

If we do not renew our affiliate agreements or replace this traffic with
other sources and grow our advertising base, our revenue may be materially,
adversely affected. We depend on each of our portal and browser affiliates and
the loss of any of these affiliates could harm our business and ability to
generate revenue.

The amount of traffic from each of our affiliates has varied, and we
expect it will continue to vary, from quarter to quarter, sometimes
significantly, and in any single quarter we have been and could continue to be
significantly dependent on traffic from a single or limited number of portal or
browser affiliates. Certain of Overtures affiliate agreements do not require
the affiliate to display Overtures search results and may allow the affiliate
to stop displaying Overtures search results after a short notice period. If we
are unable to replace traffic from any portal or browser affiliate after
expiration of our contract with it or if an affiliate upon which we depend
stops displaying Overtures search results, it would seriously harm our
business, financial condition and results of operations, particularly if we are
significantly dependent on that affiliate at the time. Overtures agreements
with its affiliates vary in initial duration from three months to three years,
and depending on the agreement, may be terminable upon the occurrence of
certain events, including for our failure to meet certain service levels, for
general breaches of agreement terms, for changes in control or in some
instances, at will. If any of these termination events occur, the agreement
could terminate earlier then the expiration date, and/or we may incur
additional obligations. We may not be successful in renewing any of these
agreements, or if they are renewed, any new agreement may not be on as
favorable terms. We may not be successful in entering into distribution
agreements with new affiliates on

18



---



##### Table of Contents



commercially acceptable terms. In addition, several of these affiliates
may be considered potential competitors. Our affiliate agreements
provide varying levels of discretion to the affiliate in the implementation of
our service. As a result, changes in the implementation of our search results
by these affiliates, over which we may have little or no control, may impact
our revenues and profitability.

OUR SUCCESS IS DEPENDENT UPON FURTHER DEVELOPING AND MAINTAINING THE AFFILIATE NETWORK

We believe that our success in penetrating our target markets depends in
part on our ability to further develop and maintain relationships with
affiliates, which provide their users with Overture services on their sites or
direct their traffic to our Web site. We believe these relationships are
important to facilitate broad market acceptance of our services and enhance our
sales. Our ability to attract consumers to our services is dependent upon the
growth of our affiliate network, which is new and unproven. Our success depends
in part on the success of our affiliates and our relationships with our
affiliates. In addition, our affiliates may not regard us as significant for
their own businesses. Therefore, they could reduce their commitment to us or
terminate their respective relationships with us, pursue other partnerships or
relationships, or attempt to develop or acquire products or services that
compete with our services. If we are unable to successfully develop and
maintain relationships with affiliates, our business, operating results and
financial condition will be materially and adversely affected.

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

Our ability to increase the volume of transactions on our service and the
amounts bid by our advertisers is dependent upon achieving market acceptance by
having more advertisers, consumers and businesses using our services. Most
potential advertisers have only limited experience advertising on the Internet
and have not devoted a significant portion of their advertising expenditures to
Internet advertising. Advertising through priority placement on our services in
particular has been introduced only recently, and we cannot predict the level
of its acceptance as an advertising medium. Our services may not achieve
significant acceptance by consumers and businesses. Among other things, because
our services prioritize search results based on advertising bids associated
with keywords rather than on algorithmic or other traditional search and
retrieval technologies, consumers and businesses may not use our service
because they perceive our results to be less objective than those provided by
traditional search methods. Failure to achieve and maintain a large and active
base of advertisers and of consumers and businesses could have a material
adverse effect on our business, operating results and financial condition.

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

If our major advertisers were to substantially cut back their advertising
or stop using our services, our business would be seriously harmed. Although no
one advertiser accounts for a material portion of our revenue during any given
period, a majority of our total revenue is derived from a small proportion of
our advertisers. We believe that a substantial amount of revenue from
advertising sales in any given future period may come from a relatively small
number of advertisers. We do not have formal contractual relationships with
many of our advertisers, and when we do have contracts, all are terminable at
any time by the advertiser. As a result, our advertisers are not obligated to
purchase advertising from us in the future.

WE HAVE A LIMITED OPERATING HISTORY, SO WE CANNOT BE SURE THAT WE WILL BE SUCCESSFUL IN IMPLEMENTING OUR BUSINESS STRATEGY

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



| |  |  | complete dependence on online advertising and consumer search
services with only limited market acceptance;                                                              
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | need to continually develop and upgrade our infrastructure, including
internal controls, transaction processing systems, data storage and
retrieval systems and Web site;

19



---



##### Table of Contents





| |  |  | reliance on affiliates to direct consumers and businesses to our service to conduct searches;
| | - |  | ---------------------------------------------------------------------------------------------
|
| |  |  | need to manage changing operations; and                                                      
|
| |  |  | dependence upon and need to hire and retain key personnel.                                   

The Overture service may not retain its existing, or attract new,
advertisers, consumers and businesses, and affiliates, which are Web sites that
include Overtures Pay-For-Performance search services on their sites or that
direct consumer traffic to the Overture Web site. Overture may not achieve
additional revenues or maintain operating margins in future periods. Overtures
services may not continue to achieve commercial acceptance and, if they do not,
our business, operating results and financial condition may be materially and
adversely affected.

OUR INABILITY TO CONTINUE TO GROW AND MAINTAIN OUR ADVERTISER, CONSUMER AND
BUSINESS, AND AFFILIATE CONSTITUENCIES COULD ADVERSELY AFFECT OUR REVENUES AND
BUSINESS

Our growth depends, in part, on the maintenance of a critical mass of
advertisers, consumers and businesses, and affiliates, and the continued growth
of these constituencies, which encourages increased participation by each of
the constituencies. To the extent that we experience a decline in the growth or
number of any one constituency, the value of our service to one or more of our
other constituencies could be harmed, and our revenues or business could be
adversely affected. A continued decline could seriously harm our revenues and
business.

WE CANNOT ASSURE YOU WE WILL NOT INCUR NET LOSSES IN ANY PARTICULAR FUTURE PERIOD

Prior to the three months ended September 30, 2001, we had a history of
losses and we cannot assure you we will not incur net losses again in any
particular future period. Although we had net income of approximately $29.3
million in the three months ended March 31, 2002 and net income of
approximately $20.2 million for the year ended December 31, 2001, we had net
losses of approximately $458.6 million for the year ended December 31, 2000.
Because our expense levels are relatively fixed in the short term, if our
revenues do not keep pace with our expense levels, we may not sustain or
increase profitability in any particular quarter or we may incur losses again.
We expect to continue to increase our marketing, sales and service and general
and administrative expenses and we cannot be certain that revenue growth will
continue to grow. If our revenue growth does not continue, we may experience a
loss in one or more future periods and it may as a result cause our stock price
to decline. This may in turn impact our ability to implement our business
strategy.

OUR INDUSTRY IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY

Overture competes with online services, other Web sites and advertising
networks such as DoubleClick Inc. and 24/7 Media, Inc., as well as traditional
offline media such as television, radio and print, for a share of advertisers
total advertising budgets. We believe that the number of companies selling
Web-based advertising and the available inventory of advertising space has
recently increased. Accordingly, Overture may face increased pricing pressure
for the sale of advertisements and direct marketing opportunities, which could
have a material adverse effect on our business, operating results and financial
condition.

Overture also competes with providers of Web directories, search, and
information services, all of which offer search services competitive to those
provided by Overture, including, among others, AltaVista, AOL, Ask Jeeves,
Inc., CNET, Inc., Fast Search &Transfer ASA, Google, Inc., Inktomi Corporation,
LookSmart, Ltd., Microsoft Corporation (LinkExchange, Inc. and msn.com), Terra
Lycos (including HotBot) and Yahoo!, Inc. In addition, Espotting Media, Inc.,
FindWhat.com, Inc., Google and PRIMEDIA, through its About.com Sprinks product,
each offer a search-based pay-per-click advertising service. There are also
other companies that offer directly competing services. We have affiliate
arrangements with companies that currently provide other search and advertising
services, which may indirectly compete with our offerings, and may in the
future offer their own pay-per-click search service.

Recently, some of our search service competitors, such as Google and Terra
Lycos, have introduced pay-per-click advertising services that are similar to
ours. Although we believe that our large network of affiliates, number of
advertisers and proprietary technology differentiate our service from those of
these competitors, we cannot assure you that another search service will not
successfully offer a competitive pay-per-click advertising product. We believe
it is likely that there will be additional entrants to the pay-per-click search
market. These new competitors will likely compete against us for affiliate
arrangements and therefore may

20



---



##### Table of Contents



require us to enter into affiliate agreements with less favorable terms or
we may lose traffic from some affiliates. These new competitors will also
compete with us for users, which could reduce our number of clickthroughs and
total revenues. These new competitors could therefore have a material adverse
effect on our business, operating results and financial condition.

In addition, some of our competitors, as well as potential entrants into
our market, have longer operating histories, larger customer or user bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we do. Many of these current and potential competitors can
devote substantially greater resources to promotion and Web site and systems
development than we can. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with providers of Web
directories, search and information services or advertising solutions, and
existing providers of Web directories, search and information services or
advertising solutions may continue to consolidate. In addition, providers of
Internet browsers and other Internet products and services who are affiliated
with providers of Web directories and information services in competition with
the Overture service may more tightly integrate these affiliated offerings into
their browsers or other products or services. Any of these trends would
increase the competition we face and could have a material adverse effect on
our business, operating results and financial condition.

WE FACE THE RISKS OF SYSTEM FAILURES

We do not currently have fully redundant systems for our services at an
alternate site, but are in the process of implementing a comprehensive disaster
recovery plan, which will involve implementing fully redundant systems for our
services at an alternative site. We expect the implementation of the redundant
systems to be completed in the second quarter of 2002. Until a comprehensive
disaster recovery plan is in place, a disaster such as fire, flood, earthquake,
power loss, telecommunications failure, break-in, sabotage or a similar event
could severely damage our business and results of operations, because our
services could be interrupted for an indeterminate length of time. Our
operations depend upon our ability to maintain and protect our computer
systems, which are located in Pasadena, California and at other offsite
locations. These offsite locations are managed by third parties in California,
Virginia, Washington State and Ireland.

Any system failure, including network or hardware failure, that causes an
interruption in our service or our affiliates service or the security of any
other internet provider or a decrease in responsiveness could result in reduced
traffic and reduced revenue. Although we believe that our current back-up
methods are adequate, the back-up servers could fail or cause interruptions in
our service.

Our California and Washington State sites exist on or near known
earthquake fault zones. The occurrence of a natural disaster or unanticipated
problems at our principal headquarters or at a third-party facility could cause
interruptions or delays in our business, limited loss of data or could render
us unable to provide some services. In addition, failure by the third-party
facility to provide the data communications capacity required by us, as a
result of human error, natural disaster or other operational disruptions, could
cause interruptions in our service. The occurrence of any or all of these
events could adversely affect our reputation, brand and business, which could
have a material adverse effect on our business, operating results and financial
condition.

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

The failure of the Internet to continue to develop as a commercial and
business medium could have a material adverse effect on our business, operating
results and financial condition. The widespread acceptance and adoption of the
Internet by traditional businesses for conducting business and exchanging
information is likely only if the Internet provides these businesses with
greater efficiencies and improvements.

FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT OUR FUTURE GROWTH

The growth in Internet traffic has caused frequent periods of decreased
performance, and if Internet usage continues to grow rapidly, the Internets
infrastructure may not be able to support these demands, and its performance
and reliability may decline. Consequently, the emergence and growth of the
market for our services depend upon improvements being made to the entire
Internet, as well as to the individual networking infrastructures of our
advertisers, consumers and businesses, and affiliates to alleviate overloading
and congestion.

21



---



##### Table of Contents



INCREASED SECURITY RISKS OF ONLINE COMMERCE MAY DETER FUTURE USE OF OUR SERVICES

Concerns over the security of transactions conducted on the Internet and
the privacy of consumers may also inhibit the growth of the Internet and other
online services generally, and online commerce in particular. Our failure to
prevent security breaches could significantly harm our business and results of
operations. Anyone who is able to circumvent our security measures could
misappropriate proprietary information, including advertiser credit card data,
cause interruptions in our operations or damage our brand and reputation. We do
not believe that our data repositories, financial systems and other technology
resources are completely secure from security breaches or sabotage, and we
occasionally experience attempts at hacking or security breaches. We may be
required to incur significant costs to protect against security breaches or to
alleviate problems caused by breaches. Any well-publicized compromise of our
security or the security of any other Internet provider could deter people from
using our services or the Internet to conduct transactions that involve
transmitting confidential information or downloading sensitive materials, which
would adversely affect the business of our advertisers and, accordingly, our
business.

WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS, AND ANY FAILURE TO MANAGE THIS GROWTH COULD DAMAGE OUR BUSINESS

Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations. These expansion efforts could be expensive and put a
strain on management, and, if we do not manage growth properly, it could
adversely affect our business. We will need to expand our infrastructure, which
will include hiring certain key employees and continuing to increase our
headcount. Hiring key employees, in particular, has historically been
difficult, and we cannot assure you that we will be able to successfully
attract and retain a sufficient number of qualified personnel.

OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS,
AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE

Our future success depends upon the continued service of our executive
officers and other key technology, marketing, sales and support personnel. None
of our officers or key employees is bound by an employment agreement for any
specific term. If we lost the services of one or more of our key employees, or
if one or more of our executive officers or employees decided to join a
competitor or otherwise compete directly or indirectly with us, this could have
a material adverse effect on our business, operating results and financial
condition.

WE MAY BE UNABLE TO EXECUTE OUR BUSINESS MODEL IN INTERNATIONAL MARKETS

One component of our strategy is to expand our operations into selected
international markets. For example, we launched our service in the United
Kingdom in November 2000 and launched our German-speaking search service in
February 2002. We plan to launch our service in France in the second half of
2002 and continue to explore our approach to entering the Japanese market. To
date, we have only operated internationally in a few countries, and we may be
unable to execute our business model in this market or new markets. Further,
foreign providers of competing online services may have a substantial advantage
over us in attracting users in their country due to earlier established
businesses in that country, greater knowledge with respect to the cultural
differences of users residing in that country and/or their focus on a single
market. We expect to continue to experience higher costs as a percentage of
revenues in connection with the development and maintenance of international
online services. International markets we have selected may not develop at a
rate that supports our level of investment. In particular, international
markets typically have been slower than domestic markets in adopting the
Internet as an advertising and commerce medium.

In pursuing our international expansion strategy, we face several
additional risks, including:



| |  |  | lower per capita Internet usage in many countries abroad, due to a
variety of causes such as lower disposable incomes, lack of
telecommunications and computer infrastructure and questions regarding
adequate online security for e-commerce transactions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | relatively small Internet markets in some countries, which may
prevent us from aggregating sufficient traffic and advertising revenues
and scaling our business model in those countries;                                                                  
|
| |  |  | entering into affiliate agreements with margins not as favorable as
in the U.S.;                                                                                                                                                                           

22



---



##### Table of Contents





| |  |  | our potential inability to aggregate a large amount of Internet
traffic and find and develop relationships with international
advertisers, consumers and businesses, and affiliates;                                                                                  
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | competition in international markets from a broad range of
competitors, including Alta Vista, Espotting, LookSmart, Yahoo and other
United States and foreign search engines, content aggregators and
portals, some of which have greater local experience than we do;
|
| |  |  | difficulties in recruiting qualified and knowledgeable staff and in
building locally relevant products and services, which could prevent us
from aggregating a large advertiser base;                                                                                 
|
| |  |  | higher costs of doing business in foreign countries, including
different employment laws;                                                                                                                                                                             
|
| |  |  | trade barriers and unexpected changes and differences in regulatory,
tax and legal requirements applicable to Internet services; and                                                                                                                                  
|
| |  |  | longer payment cycles and foreign currency fluctuations.                                                                                                                                                                                                              

One or more of these factors could have a material adverse effect on our
future international operations and, consequently, on our business, operating
results and financial condition.

WE ARE EXPOSED TO RISKS ASSOCIATED WITH CREDIT CARD FRAUD, CREDIT PAYMENT AND SUDDEN LOSS OF ADVERTISERS

We have suffered losses and may continue to suffer losses as a result of
orders placed with fraudulent credit card data, even though the associated
financial institution approved payment of the orders. Under current credit card
practices, a merchant is liable for fraudulent credit card transactions when,
as is the case with the transactions we process, that merchant does not obtain
a cardholders signature. A failure to adequately control fraudulent credit
card transactions would result in significantly higher credit card-related
costs and may ultimately result in advertisers inability to use credit cards
as a means of payment, which would have a material adverse effect on our
business, operating results and financial condition.

Some of our advertisers have limited operating histories, are operating at
a loss, have limited cash reserves or have limited access to capital. If an
advertiser experiences financial difficulties, the advertiser may stop
advertising suddenly. In addition, in some instances we extend credit to
advertisers who may default on their accounts receivable. If any significant
part of our advertiser base experiences financial difficulties, is not
commercially successful or is unable to pay our advertising fees for any other
reason, our business, operating results and financial condition will be
materially and adversely affected.

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

Our services operate in part by making Internet services and content
available to our users. This creates the potential for claims to be made
against us, either directly or through contractual indemnification provisions
with third parties. These claims might, for example, be made for defamation,
negligence, copyright, trademark or patent infringement, personal injury,
invasion of privacy or other legal theories. Allegations are made against us
from time to time concerning these types of claims. For example, we are in
litigation with companies that have alleged that allowing advertisers to bid on
certain search terms may constitute trademark infringement. Although we deny
such allegations, any claims could result in costly litigation and be time
consuming to defend, divert managements attention and resources, cause delays
in releasing new or upgrading existing services or require us to enter into
royalty or licensing agreements. Royalty or licensing agreements, if required,
may not be available on acceptable terms, if at all. If a court were to
determine that the sale of advertising related to certain search terms
constitutes trademark infringement, it could negatively impact our revenues and
business. There can be no assurance that our services do not infringe the
intellectual property rights of third parties. A successful claim of
infringement against us and our failure or inability to license the infringed
or similar technology could have a material adverse effect on our business,
operating results and financial condition.

23



---



##### Table of Contents



WE MAY NOT BE ABLE TO PROTECT OUR INTERNET DOMAIN NAME OR INTELLECTUAL PROPERTY RIGHTS UPON WHICH OUR BUSINESS RELIES

Our success and ability to compete also are substantially dependent upon
our internally developed technology and data resources, which we protect
through a combination of copyright, trade secret, patent and trademark law. We
also depend on our trade name and domain name. We may not be able to adequately
protect our technology and data resources. In addition, intellectual property
laws vary from country to country, and it may be more difficult to protect our
intellectual property in some foreign jurisdictions.

Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our services,
technology and other intellectual property, and we cannot be certain that the
steps we have taken will prevent any misappropriation or confusion among
consumers and advertisers.

WE MAY NEED ADDITIONAL CAPITAL, WHICH COULD DILUTE THE OWNERSHIP INTEREST OF INVESTORS

We require substantial working capital to fund our business. If we raise
additional funds through the issuance of equity, equity-related or convertible
debt securities, these securities may have rights, preferences or privileges
senior to those of the rights of our common stock, and our stockholders may
experience additional dilution. We cannot be certain that additional financing
will be available to us on favorable terms when required, or at all. We
experienced negative cash flow from operations from our inception through the
first quarter of 2001, and we could experience negative cash flow from
operations in the future. We currently anticipate that our available funds will
be sufficient to meet our anticipated needs for working capital and capital
expenditure through the foreseeable future. However, we may choose to raise
additional funds in the future.

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

We may make investments in or acquire complementary products, technologies
and businesses. These acquisitions and investments could disrupt our ongoing
business, distract our management and employees and increase our expenses. If
we acquire a company, we could face difficulties in assimilating that companys
personnel and operations. In addition, the key personnel of the acquired
company may decide not to work for us. Acquisitions of additional services or
technologies also involve risks of incompatibility and the need for integration
into our existing services and marketing, sales and support efforts. If we
finance the acquisitions by issuing equity securities, this could dilute our
existing stockholders. Any amortization of intangible assets, or other charges
resulting from the costs of these acquisitions could have a material adverse
effect on our business, operating results and financial condition. In addition,
we may pay more for an acquisition than an acquired product, technology or
business is ultimately worth. We also ceased operations of GoTo Shopping, and
we completed a management buyout of GoTo Auctions, whereby the operating
management of GoTo Auctions purchased GoTo Auctions assets from Overture. We
have incurred charges related to the impairment of the assets acquired in
connection with our exit from the auctions operations and comparison shopping
operations, and incurred approximately $2.0 million and $1.0 million in net
charges relating to our exit from the GoTo Auctions and GoTo Shopping
operations, respectively in the year ending December 31, 2001.

OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE AND OUR FUTURE SUCCESS WILL
DEPEND ON OUR ABILITY TO MEET THE CHANGING NEEDS OF OUR INDUSTRY

If new industry standards and practices emerge in the Internet and online
advertising industry, our existing services, technology and systems may become
obsolete. Our future success will depend on our ability to:



| |  |  | license and internally develop leading technologies useful in our business;                                                                                 
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | enhance our existing services;                                                                                                                              
|
| |  |  | develop new services and technologies that address the increasingly
sophisticated and varied needs of prospective advertisers, consumers and
businesses; and
|
| |  |  | respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.                                       

24



---



##### Table of Contents



GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY DAMAGE OUR BUSINESS

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

WE MAY INCUR LIABILITIES FOR THE ACTIVITIES OF USERS OF OUR SERVICE

The law relating to the liability of providers of online services for
activities of their users is currently unsettled and could damage our business.
Our insurance policies may not provide coverage for liability for activities of
our users. Overture may not successfully avoid civil or criminal liability for
unlawful activities carried out by users of our service. The imposition upon
Overture of potential liability for unlawful activities of users of our service
could require us to implement measures to reduce our exposure to such
liability, which may require us, among other things, to spend substantial
resources or to discontinue certain service offerings. Any costs incurred as a
result of such liability or asserted liability could have a material adverse
effect on our business, operating results and financial condition.

OUR CHARTER DOCUMENTS, CHANGE OF CONTROL SEVERANCE AGREEMENTS WITH OUR
MANAGEMENT AND TERMS OF OUR AFFILIATE AGREEMENTS MAY MAKE IT MORE DIFFICULT TO
ACQUIRE US

We have adopted a stockholder rights plan and declared a dividend
distribution of one right for each outstanding share of common stock to
stockholders of record as of March 29, 2002. Each right entitles the holder to
purchase one unit consisting of one one-thousandth of a share of our Series A
Junior Participating Preferred Stock for $200 per unit. Under certain
circumstances, if a person or group acquires 15% or more of our outstanding
common stock, holders of the rights (other than the person or group triggering
their exercise) will be able to purchase, in exchange for the $200 exercise
price, shares of our common stock or of any company into which we are merged
having a value of $400. The rights expire on March 29, 2012 unless extended by
our Board of Directors. Because the rights may substantially dilute the stock
ownership of a person or group attempting to take us over without the approval
of our Board of Directors, our rights plan could make it more difficult for a
third party to acquire us (or a significant percentage of our outstanding
capital stock) without first negotiating with our Board of Directors regarding
such acquisition.

In addition, provisions of our certificate of incorporation and bylaws
could also make it more difficult for a third party to acquire us, even if
doing so would be beneficial to our stockholders. For example, our board of
directors is divided into three classes, with one class being elected each year
by our stockholders, which generally makes it more difficult for stockholders
to replace a majority of directors and obtain control of our board. In
addition, stockholder meetings may be called only by our board of directors,
the chairman of the board and the president, advanced notice is required prior
to stockholder proposals, and stockholders may not act by written consent.
Further, we have authorized preferred stock that is undesignated, making it
possible for the board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of Overture. Delaware law also could make it more difficult for
a third party to acquire us. Specifically, Section 203 of the Delaware General
Corporation Law may have an anti-takeover effect with respect to transactions
not approved in advance by the board of directors, including discouraging
attempts that might result in a premium over the market price for the shares of
common stock held by our stockholders.

We have entered into change of control severance agreements with members
of our senior management and certain other key employees. These agreements
provide for certain benefits, including acceleration of option vesting, to
these persons if they are terminated other than for cause following an
acquisition of Overture. These agreements could make us less attractive to a
third party who may want to acquire us, because they will make any replacement
of management and other personnel more expensive.

Agreements with some of our affiliates permit termination at the election
of the affiliate in the event of a change of control and, in some cases, my
require us to incur additional obligations. The existence of these termination
rights could make us less attractive and/or more costly to a third party who
may want to acquire us.

25



---



##### Table of Contents






ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

Overtures international business is subject to risks typical of an
international business, including, but not limited to differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility.
Accordingly, the impact of changes in these or other factors could have a
material adverse effect on our business, operating results and financial
condition.

Overtures exposure to foreign exchange rate fluctuations arises in part
from intercompany accounts in which costs incurred in the United States are
charged to Overtures foreign sales subsidiaries. Overture is also exposed to
foreign exchange rate fluctuations as the financial results of foreign
subsidiaries are translated into U.S. dollars in consolidation. As exchange
rates vary, these results, when translated, may vary from expectations and
adversely impact overall expected profitability. The effect of foreign exchange
rate fluctuations on Overtures results for the three months ended March 31,
2002 was not material.




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

The Company is party to routine claims and suits brought against it in
ordinary course of business. In the opinion of management, such routine claims
should not have any material adverse effect upon the results of operations,
cash flows or financial position of the Company.

On October 2, 2000, 800-JR-Cigar, Inc. (JR Cigar) served a complaint
against the Company in the United States District Court for the District of New
Jersey alleging that the Company has committed acts of trademark infringement,
trademark dilution, unfair competition, consumer fraud and deceptive
telemarketing. JR Cigars allegations are based on the Companys allowing
competitors to bid on the term JR CIGAR (and related terms) in order to obtain
priority when an Internet user searches for cigar related Web sites. The
Company denies that it has violated JR Cigars rights and is vigorously
contesting the lawsuit. The parties have filed motions for summary judgment,
which have been fully briefed and are pending before the court. A trial date
has not been scheduled.

On June 19, 2001, InternetFuel.com, Inc. filed a complaint against
Overture in the Superior Court of the State of California for the County of Los
Angeles. The complaint alleges that Overture wrongfully terminated an agreement
pursuant to which InternetFuel participated in Overtures affiliate program.
The complaint also alleges libel for messages allegedly placed by Overture on
an Internet forum, and it contains claims of unfair business practices. The
complaint seeks, among other remedies, monetary damages for the value of the
terminated agreement and for alleged harm to InternetFuels reputation,
punitive and exemplary relief and an injunction against alleged unfair business
practices. In December 2001, Overture successfully moved the court to transfer
the case to arbitration. The parties have selected an arbitrator and are in
the initial phase of the arbitration process. Overture believes that it has
meritorious defenses to the allegations and intends to contest the allegations
vigorously.

On July 12, 2001, the first of several purported securities class action
lawsuits was filed in the United States District Court, Southern District of
New York against certain underwriters involved in Overtures initial public
offering, Overture, and certain of Overtures current and former officers and
directors. The Court consolidated the cases against Overture into case number
01 Civ. 6339. Plaintiffs allege, among other things, violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934 involving
undisclosed compensation to the underwriters, and improper practices by the
underwriters and seek unspecified damages. Similar complaints were filed in
the same court against numerous public companies that conducted initial public
offerings of their common stock since the mid-1990s. All of these lawsuits
were consolidated for pretrial purposes before Judge Shira Scheindlin of the
United States District Court for the Southern District of New York. Judge
Scheindlin has ordered that the time for all defendants to respond to any
complaint be postponed until further order of the Court. Thus, Overture has
not been required to answer the complaint, and no discovery has been served.
Overture denies the allegations against it, believes that it has meritorious
defenses to the complaint, and intends to contest the allegations vigorously.

26



---



##### Table of Contents



On January 25, 2002, the Company filed a complaint for patent infringement
against FindWhat.com (FindWhat) in the United States Federal Court in Los
Angeles. The lawsuit charges FindWhat with infringement of the Companys U.S.
Patent No. 6,269,361 (the 361 patent), entitled System And Method For
Influencing A Position On A Search Result List Generated By A Computer Network
Search Engine. The 361 patent protects various features and innovations
relating to bid-for-placement products and Overtures Pay-For-Performance
search technologies including our DirecTraffic Center account management system
and tools. The Company also seeks a permanent injunction against FindWhat, an
award of increased damages, and an award of attorneys fees, costs and
expenses. Also on January 25, 2002, FindWhat served the Company with an
amended complaint filed in Federal Court in New York for declaratory judgment
of invalidity, unenforceability and non-infringement relating to the Companys
361 patent. (The original complaint was never served on the Company). The
Company has moved to dismiss FindWhats New York action in favor of the
Companys California action.

On January 28, 2002, Mark Nutritionals, Inc. (MNI) filed a complaint
against the Company in the United States District Court for the Western
District of Texas. The initial complaint was never served on the Company. An
amended complaint was served on the Company on February 6, 2002. The amended
complaint alleges that the Company has committed acts of trademark
infringement, trademark dilution, unfair competition, misappropriation and
tortious interference with prospective economic advantage. MNIs allegations
are based on the Companys allowing competitors to bid on the term body
solutions in order to obtain priority when an Internet user searches for
diet-related Web sites. The Company is indemnifying and defending an
affiliate, who has been named a defendant in a related action. The Company
denies that it has violated MNIs rights and will vigorously contest the
lawsuit.

On January 31, 2002, a complaint was filed against the Company as a result
of its acquisition in May 2000 of AuctionRover.com, Inc., and other defendants
in North Carolina Superior Court by an individual, Paul Rony, relating to
alleged trade secrets concerning interaction with Internet auction Web sites.
The causes of action alleged against the Company include misappropriation of
trade secrets, quantum meruit, and constructive trust. The Company denies
liability and will vigorously contest the lawsuit.

On April 23, 2002, PlasmaNet, Inc. filed a complaint against the Company
in the United States District Court for the Southern District of New York. The
complaint alleges that the Company has committed acts of trademark
infringement, trademark dilution, unfair competition, misappropriation and
tortious interference with prospective economic advantage. PlasmaNets
allegations are based on the Company allowing competitors to bid on the term
freelotto in order to obtain priority when an Internet user searches for free
lotto related Web sites. The Company denies that it has violated PlasmaNets
rights and will vigorously contest the lawsuit.

On April 23rd, 2002, Overture filed a patent infringement lawsuit against
Google Inc. in the United States Federal Court in Northern California. The
lawsuit charges Google with willful infringement of Overtures U.S. Patent No.
6,269,361. Googles response to the Complaint is due on June 7, 2002.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits.

|        |  |                                                                                                        
|------- |  | -------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                        
|Number  |  |                                                                                                        
|        |  |                                                                                                        
|3.3     |  | Certificate of Designations of Series A Junior Participating
Preferred Stock of Overture Services, Inc.

(b)  Reports on Form 8-K.

The Company filed a Current Report on Form 8-K dated March 8, 2002 to
report under Item 5 thereof that the Board of Directors of Overture Services,
Inc., a Delaware corporation, declared a dividend of one preferred share
purchase right for each outstanding share of common stock, par value $0.0001
per share. The dividend is payable on March 29, 2002 to the stockholders of
record on March 29, 2002.

27



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements 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.

|                   |  |                         |  |                                                                                              
|------------------ |  | ----------------------- |  | ---------------------------------------------------------------------------------------------
|Date: May 15, 2002 |  | OVERTURE SERVICES, INC.
|                  
|                   |  | By                      |  | /s/ Todd Tappin                                                                              
|                   |  |                         |  |                                                                                              
|                   |  |                         |  | Todd Tappin
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)

28