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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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

For the quarterly period ended June 30, 2002

Commission File Number 000-26365



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OVERTURE SERVICES, INC.

(Exact name of Registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 95-4652060                             
|(State or other jurisdiction of
incorporation or organization) |  | (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.

58,468,639 shares of Common Stock,$0.0001 par value, as of June 30, 2002.



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TABLE OF CONTENTS



|                             |                                                                                               |                                                      |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                             |                                                                                               | 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                                                                    
|                             | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                             | ITEM 5. OTHER INFORMATION                                                                    
|                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                  
|EXHIBIT INDEX               
|Exhibit 3.1                 
|Ex-3.2                      
|Exhibit 10.1                
|Exhibit 10.2                
|Exhibit 10.3                
|Exhibit 10.4                
|Exhibit 99.1                



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OVERTURE SERVICES, INC.

TABLE OF CONTENTS

|        |  |                                                                                                           |  |  |    |          |  | 
|------- |  | --------------------------------------------------------------------------------------------------------- |  |  | -- | -------- |  | 
|        |  |                                                                                                           |  |  |    | PAGE NO.
|        |  |                                                                                                           |  |  |    |         
|PART I  |  | FINANCIAL INFORMATION                                                                                     |  |  |    |         
|       
|       
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|Item 1. |  | Financial Statements:                                                                                     |  |  |    |         
|        |  | Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001                           |  |  | 3  |         
|        |  | Condensed
Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001 |  |  | 4  |         
|        |  | Condensed
Consolidated Statements of Cash Flows for the six months ended June 30, 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                     |  |  | 11 |         
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                |  |  | 30 |         
|       
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|PART II |  | OTHER INFORMATION                                                                                         |  |  |    |         
|       
|       
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|Item 1. |  | Legal Proceedings                                                                                         |  |  | 30 |         
|Item 4. |  | Submission of Matters To a Vote of Security Holders                                                       |  |  | 32 |         
|Item 5. |  | Other Information                                                                                         |  |  | 32 |         
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                          |  |  | 33 |         

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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

OVERTURE SERVICES, INC.

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

|                                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |          |  
|-------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | -------- | ------------ | - | ------- | -------- | -
|                                                               |                                                                                                                                                                                                                 |   | June 30,    |          | December 31,
|                                                               |                                                                                                                                                                                                                 |   | 2002        |          | 2001        
|                                                               |                                                                                                                                                                                                                 |   |             |          |             
|                                                               |                                                                                                                                                                                                                 |   | (unaudited) |          |              |   |        
|ASSETS                                                         |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|CURRENT ASSETS:                                                |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|                                                               | Cash and cash equivalents                                                                                                                                                                                       |   | $           | 50,222   |              |   | $       | 61,974   |  
|                                                               | Short-term investments                                                                                                                                                                                          |   |             | 125,388  |              |   |         | 71,837   |  
|                                                               | Accounts receivable, net                                                                                                                                                                                        |   |             | 20,818   |              |   |         | 10,973   |  
|                                                               | Prepaid expenses, deferred tax assets and other                                                                                                                                                                 |   |             | 14,573   |              |   |         | 1,920    |  
|                                                               | Prepaid traffic acquisition expense                                                                                                                                                                             |   |             | 11,024   |              |   |         | 8,590    |  
|                                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|Total current assets                                           |                                                                                                                                                                                                                 |   | 222,025     |          |              |   | 155,294 |         
|Property and equipment, net                                    |                                                                                                                                                                                                                 |   | 44,375      |          |              |   | 27,966  |         
|Intangible assets, net                                         |                                                                                                                                                                                                                 |   | 1,458       |          |              |   | 2,042   |         
|Restricted investments                                         |                                                                                                                                                                                                                 |   |            |          |              |   | 5,744   |         
|Long-term investments                                          |                                                                                                                                                                                                                 |   | 24,720      |          |              |   | 36,476  |         
|Long-term prepaid traffic acquisition expense and other assets |                                                                                                                                                                                                                 |   | 39,934      |          |              |   | 4,405   |         
|                                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|Total assets                                                   |                                                                                                                                                                                                                 | $ | 332,512     |          |              | $ | 231,927 |         
|                                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY                           |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|CURRENT LIABILITIES:                                           |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|                                                               | Accounts payable                                                                                                                                                                                                |   | $           | 54,033   |              |   | $       | 38,111   |  
|                                                               | Accrued expenses                                                                                                                                                                                                |   |             | 9,497    |              |   |         | 5,271    |  
|                                                               | Deferred revenue                                                                                                                                                                                                |   |             | 12,339   |              |   |         | 8,949    |  
|                                                               | Current portion of capital lease obligations                                                                                                                                                                    |   |             |         |              |   |         | 89       |  
|                                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|Total current liabilities                                      |                                                                                                                                                                                                                 |   | 75,869      |          |              |   | 52,420  |         
|Other long-term liabilities                                    |                                                                                                                                                                                                                 |   |            |          |              |   | 64      |         
|STOCKHOLDERS EQUITY:                                          |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|                                                               | Common stock, $0.0001 par value, 200,000
shares authorized as of June 30, 2002 and
December 31, 2001; shares issued and outstanding  58,469
and 57,616 as of June 30, 2002 and December 31, 2001,
respectively |   |             | 6        |              |   |         | 6        |  
|                                                               | Additional paid-in capital                                                                                                                                                                                      |   |             | 691,355  |              |   |         | 662,039  |  
|                                                               | Deferred compensation, net                                                                                                                                                                                      |   |             | (528     | )            |   |         | (763     | )
|                                                               | Accumulated deficit                                                                                                                                                                                             |   |             | (435,090 | )            |   |         | (481,863 | )
|                                                               | Accumulated other comprehensive income                                                                                                                                                                          |   |             | 900      |              |   |         | 24       |  
|                                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|Total stockholders equity                                     |                                                                                                                                                                                                                 |   | 256,643     |          |              |   | 179,443 |         
|                                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|Total liabilities and stockholders equity                     |                                                                                                                                                                                                                 | $ | 332,512     |          |              | $ | 231,927 |         
|                                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         

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

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OVERTURE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; unaudited)

|                                                                            |                                                             |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        | 
|--------------------------------------------------------------------------- | ----------------------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ------ | ------ | ---- | - | ------- | ------- |  | - | ------- | ------ | 
|                                                                            |                                                             |   | Three Months Ended |        | Six Months Ended
|                                                                            |                                                             |   | June 30,           |        | June 30,        
|                                                                            |                                                             |   |                    |        |                 
|                                                                            |                                                             |   | 2002               |        | 2001             |   | 2002   |        | 2001
|                                                                            |                                                             |   |                    |        |                  |   |        |        |     
|Revenue                                                                     |                                                             | $ | 152,496            |        |                  | $ | 62,463 |        |      | $ | 295,341 |         |  | $ | 114,422 |       
|Operating expenses:                                                         |                                                             |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |       
|                                                                            | Search serving                                              |   |                    | 8,701  |                  |   |        | 5,157  |      |   |         | 14,694  |  |   |         | 9,870  | 
|                                                                            | Traffic acquisition                                         |   |                    | 81,437 |                  |   |        | 36,929 |      |   |         | 158,440 |  |   |         | 71,610 | 
|                                                                            | Marketing, sales and service                                |   |                    | 12,438 |                  |   |        | 6,709  |      |   |         | 23,867  |  |   |         | 13,603 | 
|                                                                            | General and administrative                                  |   |                    | 17,324 |                  |   |        | 12,053 |      |   |         | 33,631  |  |   |         | 21,118 | 
|                                                                            | Product development                                         |   |                    | 5,005  |                  |   |        | 3,240  |      |   |         | 9,372   |  |   |         | 6,939  | 
|                                                                            | Amortization of deferred
compensation and intangible assets |   |                    | 396    |                  |   |        | 494    |      |   |         | 819     |  |   |         | 1,047  | 
|                                                                            | Loss on closure of GoTo Shopping                            |   |                    |       |                  |   |        | 1,499  |      |   |         |        |  |   |         | 1,499  | 
|                                                                            | Loss on disposition of GoTo Auctions                        |   |                    |       |                  |   |        | 2,112  |      |   |         |        |  |   |         | 2,112  | 
|                                                                            |                                                             |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |       
|                                                                            |                                                             |   | 125,301            |        |                  |   | 68,193 |        |      |   | 240,823 |         |  |   | 127,798 |       
|                                                                            |                                                             |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |       
|Income (loss) from operations                                               |                                                             |   | 27,195             |        |                  |   | (5,730 | )      |      |   | 54,518  |         |  |   | (13,376 | )     
|Other income:                                                               |                                                             |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |       
|                                                                            | Interest income, net                                        |   |                    | 588    |                  |   |        | 833    |      |   |         | 1,837   |  |   |         | 1,788  | 
|                                                                            | Other income, net                                           |   |                    | 129    |                  |   |        | 2,017  |      |   |         | 847     |  |   |         | 2,009  | 
|                                                                            |                                                             |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |       
|Income (loss) before income taxes                                           |                                                             |   | 27,912             |        |                  |   | (2,880 | )      |      |   | 57,202  |         |  |   | (9,579  | )     
|Provision for income taxes                                                  |                                                             |   | 10,429             |        |                  |   |       |        |      |   | 10,429  |         |  |   |        |       
|                                                                            |                                                             |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |       
|Net income (loss)                                                           |                                                             | $ | 17,483             |        |                  | $ | (2,880 | )      |      | $ | 46,773  |         |  | $ | (9,579  | )     
|                                                                            |                                                             |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |       
|Basic net income (loss) per share                                           |                                                             | $ | 0.30               |        |                  | $ | (0.06  | )      |      | $ | 0.81    |         |  | $ | (0.19   | )     
|                                                                            |                                                             |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |       
|Diluted net income (loss) per share                                         |                                                             | $ | 0.29               |        |                  | $ | (0.06  | )      |      | $ | 0.78    |         |  | $ | (0.19   | )     
|                                                                            |                                                             |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |       
|Weighted average shares used to
compute basic net income (loss) per
share   |                                                             |   | 58,078             |        |                  |   | 50,906 |        |      |   | 57,746  |         |  |   | 50,562  |       
|Weighted average shares used to
compute diluted net income (loss)
per share |                                                             |   | 60,159             |        |                  |   | 50,906 |        |      |   | 60,322  |         |  |   | 50,562  |       

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

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OVERTURE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)

|                                                             |                                                                                          |                                                                                                 |         |         |                  |   |        |         |        |   | 
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------- | ------- | ---------------- | - | ------ | ------- | ------ | - | 
|                                                             |                                                                                          |                                                                                                 |         |         | Six Months Ended
|                                                             |                                                                                          |                                                                                                 |         |         | June 30,        
|                                                             |                                                                                          |                                                                                                 |         |         |                 
|                                                             |                                                                                          |                                                                                                 |         |         | 2002             |   | 2001  
|                                                             |                                                                                          |                                                                                                 |         |         |                  |   |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                                          |                                                                                                 |         |         |                  |   |        |        
|                                                             | Net income (loss)                                                                        |                                                                                                 | $       | 46,773  |                  |   | $      | (9,579  | )     
|                                                             | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                                                                 |         |         |                  |   |        |         |       
|                                                             |                                                                                          | Tax benefits from stock options                                                                 |         |         | 10,429           |   |        |         |       |  
|                                                             |                                                                                          | Loss from sale of property and equipment                                                        |         |         | 1,059            |   |        |         |       |  
|                                                             |                                                                                          | Amortization (accretion) of discounts from the purchase of
short-term and long-term investments |         |         | 398              |   |        |         | (345   | )
|                                                             |                                                                                          | Non-cash portion of closure and disposition charges                                             |         |         |                 |   |        |         | 2,999  |  
|                                                             |                                                                                          | Depreciation and amortization                                                                   |         |         | 9,629            |   |        |         | 8,109  |  
|                                                             | Changes in operating assets and liabilities:                                             |                                                                                                 |         |         |                  |   |        |         |       
|                                                             |                                                                                          | Accounts receivable                                                                             |         |         | (9,845           | ) |        |         | (2,561 | )
|                                                             |                                                                                          | Prepaid expenses, deferred tax assets and other                                                 |         |         | (4,331           | ) |        |         | (1,418 | )
|                                                             |                                                                                          | Prepaid traffic acquisition expense                                                             |         |         | (37,885          | ) |        |         | 9,330  |  
|                                                             |                                                                                          | Accounts payable and accrued expenses                                                           |         |         | 20,084           |   |        |         | 6,438  |  
|                                                             |                                                                                          | Deferred revenues                                                                               |         |         | 3,390            |   |        |         | 2,193  |  
|                                                             |                                                                                          |                                                                                                 |         |         |                  |   |        |        
|                                                             | Net cash provided by operating activities                                                |                                                                                                 |         | 39,701  |                  |   |        | 15,166  |       
|                                                            
|                                                            
|                                                            
|                                                            
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                                          |                                                                                                 |         |         |                  |   |        |        
|                                                             | Purchases of short-term and long-term investments, net                                   |                                                                                                 |         | (36,201 | )                |   |        | (922    | )     
|                                                             | Capital expenditures for property and equipment, and
other assets                        |                                                                                                 |         | (26,356 | )                |   |        | (12,117 | )     
|                                                             |                                                                                          |                                                                                                 |         |         |                  |   |        |        
|                                                             | Net cash used in investing activities                                                    |                                                                                                 |         | (62,557 | )                |   |        | (13,039 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                                          |                                                                                                 |         |         |                  |   |        |        
|                                                             | Proceeds from issuance of common stock, net                                              |                                                                                                 |         | 10,565  |                  |   |        | 3,221   |       
|                                                             | Repayments under lease line                                                              |                                                                                                 |         | (89     | )                |   |        | (394    | )     
|                                                             |                                                                                          |                                                                                                 |         |         |                  |   |        |        
|                                                             | Net cash provided by financing activities                                                |                                                                                                 |         | 10,476  |                  |   |        | 2,827   |       
|Effect of exchange rate changes on cash and cash equivalents |                                                                                          |                                                                                                 | 628     |         |                  |   | (122   | )      
|Net increase (decrease) in cash and cash equivalents         |                                                                                          |                                                                                                 | (11,752 | )       |                  |   | 4,832  |        
|Cash and cash equivalents at beginning of period             |                                                                                          |                                                                                                 | 61,974  |         |                  |   | 12,986 |        
|                                                             |                                                                                          |                                                                                                 |         |         |                  |   |        |        
|Cash and cash equivalents at end of period                   |                                                                                          | $                                                                                               | 50,222  |         |                  | $ | 17,818 |        
|                                                             |                                                                                          |                                                                                                 |         |         |                  |   |        |        

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

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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 on 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 (paid click), 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 six months ended June 30, 2002 and June 30, 2001 were
approximately $900,000 and $(122,000), 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 and six months
ended June 30, 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 8.2 million and 7.8 million shares of
common stock were outstanding as of June 30, 2002 and 2001, respectively. In
addition, as of June 30, 2002, there were approximately 252,000 shares of
unvested common stock outstanding, which are subject to repurchase by Overture.

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4. INCOME TAXES

Overture generated taxable income during the six months ended June 30,
2002, however a tax provision was recorded that was less than the statutory
rate due to the benefit from the release of valuation allowance from deferred
tax assets. As of December 31, 2001, Overture had net operating loss (NOL)
carryforwards available to reduce future federal and state taxable income. These NOLs and temporary differences (difference between timing
of the recognition on a Generally Accepted Accounting Principle basis versus a
tax basis) were carried on the balance sheet as deferred tax assets. 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. Due to the uncertainty regarding if and when these NOLs would be
utilized and temporary differences would reverse, a full valuation allowance
was set up against the related deferred tax asset, resulting in a net zero
balance for deferred tax assets as of December 31, 2001. The primary basis for
the release of the related valuation allowance was due to 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 other deferred tax assets related to future
years, the release of the related valuation allowance was considered a discrete
event and the tax benefits were required to be recorded during the three months
ended March, 31, 2002. Therefore, no tax provision was recorded in the three
months ended March 31, 2002. There were remaining NOL benefits, of which 100%
are expected to be taken as a benefit against projected income before taxes for
2002. As a result, the Company had a tax provision of approximately $10.4
million for the three months ended June 30, 2002, which was lower than federal
and state statutory rates.

We have deductions,
other than the NOL carryforwards and temporary differences discussed above, which resulted from
the exercise of certain stock options and 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:

|                                                    |  |                  |     |      |  |  |     |   
|--------------------------------------------------- |  | ---------------- | --- | ---- |  |  | --- | --
|                                                    |  | Six Months Ended
|                                                    |  | June 30,        
|                                                    |  |                 
|                                                    |  | 2002             |     | 2001
|                                                    |  |                  |     |     
|Statutory federal rate                              |  |                  | 35  | %    |  |  | (35 | )%
|State income taxes (net of federal benefit)         |  |                  | 4   |      |  |  |    |   
|Valuation allowance                                 |  |                  | (23 | )    |  |  | 35  |   
|Effect of foreign losses benefited at varying rates |  |                  | 5   |      |  |  |    |   
|Non-deductible expense and other                    |  |                  | (3  | )    |  |  |    |   
|                                                    |  |                  |     |      |  |  |     |   
|                                                    |  |                  | 18  | %    |  |  |    | % 
|                                                    |  |                  |     |      |  |  |     |   

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

|          |         |                |        |                    |        |                  |   |      |   |      |        |        |        |   |   |   |   | 
|--------- | ------- | -------------- | ------ | ------------------ | ------ | ---------------- | - | ---- | - | ---- | ------ | ------ | ------ | - | - | - | - | 
|          |         |                |        | Three Months Ended |        | Six Months Ended
|          |         |                |        | June 30,           |        | June 30,        
|          |         |                |        |                    |        |                 
|          |         |                |        | 2002               |        | 2001             |   | 2002 |   | 2001
|          |         |                |        |                    |        |                  |   |      |   |     
|Current:  |         |                |        |                    |        |                  |   |      |   |      |        |        |        |   |   |  
|          | Federal |                | $      | 11,198             |        |                  | $ |     |   |      | $      | 16,418 |        |   | $ |  |  
|          | State   |                |        | 1,324              |        |                  |   |     |   |      |        | 1,884  |        |   |   |  |  
|          | Foreign |                |        |                   |        |                  |   |     |   |      |        |       |        |   |   |  |  
|          |         |                |        |                    |        |                  |   |      |   |      |        |        |        |   |   |  
|          |         | Total current  |        |                    | 12,522 |                  |   |      |  |      |        |        | 18,302 |   |   |   |  | 
|          |         |                |        |                    |        |                  |   |      |   |      |        |        |        |   |   |  
|Deferred: |         |                |        |                    |        |                  |   |      |   |      |        |        |        |   |   |  
|          | Federal |                |        |                   |        |                  |   |     |   |      |        | (4,800 | )      |   |   |  |  
|          | State   |                |        |                   |        |                  |   |     |   |      |        | (550   | )      |   |   |  |  
|          | Foreign |                |        | (2,093             | )      |                  |   |     |   |      |        | (2,523 | )      |   |   |  |  
|          |         |                |        |                    |        |                  |   |      |   |      |        |        |        |   |   |  
|          |         | Total deferred |        |                    | (2,093 | )                |   |      |  |      |        |        | (7,873 | ) |   |   |  | 
|          |         |                |        |                    |        |                  |   |      |   |      |        |        |        |   |   |  
|          |         | $              | 10,429 |                    |        | $                |  |      |   | $    | 10,429 |        |        | $ |  |  
|          |         |                |        |                    |        |                  |   |      |   |      |        |        |        |   |   |  

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5. LITIGATION

The Company is subject to litigation brought against it in the ordinary
course of business. The Company is a defendant in three trademark infringement
actions (JR Cigar, Mark Nutritionals (MNI) and PlasmaNet). The plaintiffs in
these cases allege that they have trademark rights in certain search terms and
that the Company violates these rights by allowing competitors of the
plaintiffs to bid on these search terms. While the amount of damages that are
claimed and that in the worst case conceivably could be awarded in one or more
of these lawsuits might have a material effect on the results of the Companys
operations, cash flow or financial position, the Company believes that it has
meritorious defenses to liability and damages in each of these lawsuits and it
is contesting them vigorously. If the Company were to incur one or more
unfavorable judgments that in themselves are not material, or if there was a
development in the law in a similar case to which the Company is not a party
that was negative to the Companys position, the Company might as a result
decide to change the general manner in which it accepts bids on certain search terms and this change might have a material adverse effect upon
the results of operations, cash flows or financial positions of the Company.

The Company is also currently in separate litigations with Google and
FindWhat in which the Company is alleging that these parties infringe 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. In each litigation, the defendants have
alleged invalidity and unenforceability of the 361 patent. When the validity
and enforceability of the 361 patent is determined, in either litigation, that
determination may have a material effect on the Companys competitive position.

The following sets
forth details regarding the above-described litigation and other litigation which may be material to 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 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. Overture believes that it has meritorious defenses to
the allegations and is contesting the allegations vigorously.

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 and
that Overture did not properly account for monies owed under that agreement.
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. Arbitration
is scheduled for September 2002. Overture believes that it has meritorious
defenses to the allegations and is contesting 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. On
April 19, 2002, plaintiffs filed an amended complaint, alleging Rule 10b-5
claims of fraud. Overture continues to deny the allegations against it,
believes that it has meritorious defenses to the amended complaint, and intends
to contest the allegations vigorously. On July 15, 2002, the issuers filed an
omnibus motion to dismiss for failure to comply with applicable pleading
standards and the remainder of the briefing is expected to take place over the
next several months. Discovery has been and remains stayed in the case.
Overture believes that it has meritorious defenses to the allegations and
intends to contest the allegations vigorously.

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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 willful infringement of the 361 patent.
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. Discovery is stayed in both cases pending a ruling by the New York
court on the motion.

On January 28,
2002, 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 (and
related terms) 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. Overture believes that it has meritorious defenses to the
allegations and is contesting the allegations vigorously.

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. Overture believes that
it has meritorious defenses to the allegations and is contesting the
allegations vigorously. The parties are in the early phase of the discovery
process.

On February 20, 2002, Overture filed a complaint against Did-It.com, Inc.
for trespass, unfair competition and violations of the Computer Fraud and Abuse
Act. In response to Overtures complaint, on June 14, 2002, Did-It filed a
counterclaim against Overture alleging federal and state antitrust violations,
violations of the Unfair Trade Practices Act, fraud and deceit, negligent
misrepresentation, false and misleading advertising, unfair competition,
interference with contract and prospective economic advantage and violations of
California Civil Code Section 1812.600, et.seq. Overture believes that it has
meritorious defenses to the allegations and is contesting the allegations
vigorously.

On April 23, 2002, PlasmaNet, Inc. filed a complaint against the Company
in the United States District Court for the Northern District of California.
An amended complaint was served on August 9, 2002. The amended complaint alleges that the Company has committed acts of trademark
infringement, trademark dilution, unfair competition, and false advertising and
tortious interference with prospective economic advantage. PlasmaNets
allegations are based on the Company allowing competitors to bid on
the terms freelotto and free lotto (and related terms) in order to obtain priority when an Internet user searches for free
lotto related Web sites. Overture believes that it has meritorious defenses to
the allegations and is contesting the allegations vigorously.

On April 23rd, 2002, Overture filed a patent infringement lawsuit against
Google Inc. in the United States District Court for the Northern
District of California. The
lawsuit charges Google with willful infringement of the 361 Patent. The
Company also seeks permanent injunction against Google, an award of increased
damages, and an award of attorneys fees, costs and expenses. On June 7, 2002,
Google filed its answer to the Overture complaint, denying that it infringes
the 361 Patent and alleging counterclaims of non-infringement, invalidity and
unenforceability relating to the 361 Patent. The parties are in the initial
phase of the discovery process, which began on August 5, 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, which terminates
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, which expires at the same time as its 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. As a result of the assignment by
Idealab to Parfinco in March 2002, Overture no longer has any obligation to
make lease payments to Idealab. Overture also subleased office space in the
U.K. from Idealab, which ended June 30, 2002. Total payments for the lease for
both the U.S. and U.K. office space to Idealab were approximately $87,000 and
$472,000 for the three months ended June 30, 2002 and 2001, respectively and
$509,000 and $1.0 million for the six months ended June 30, 2002 and 2001,
respectively. Management believes these amounts were materially representative
of the fair value of the lease.

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During the three months ended June 30, 2002 and 2001, Overture recorded
approximately $189,000 and $92,000, respectively and for the six months ended
June 30, 2002 and 2001, Overture recorded approximately $462,000 and $146,000,
respectively, of search listing advertising revenue from affiliates of 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

As of June 30, 2002, the Company was obligated to make guaranteed payments
totaling approximately $109.3 million, $137.4 million, $144.3 million and $8.1
million for the remainder of 2002, 2003, 2004 and 2005, respectively, under
contracts to provide search services to its affiliates. Some of these
guaranteed payments are subject to adjustment based on the performance of the
affiliate or Overture relative to certain 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
the Board of Directors. Because the rights may substantially dilute the stock
ownership of a person or group attempting to take over Overture without the
approval of the 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.

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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, SEASONALITY AND
FUTURE COMPETITION. WE USE WORDS SUCH AS ANTICIPATES, BELIEVES, PLANS,
EXPECTS, FUTURE, INTENDS AND SIMILAR EXPRESSIONS 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 on
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, we changed our name from GoTo.com, Inc. to
Overture Services, Inc.

A significant component of our expenses consists of costs incurred to
attract consumers and businesses to our service through our affiliate network.
We expect to continue to rely upon our affiliate network for the
substantial majority of searches
conducted on our service. A significant portion of the
Companys searches and revenue is and has been generated from a small number of the
Companys affiliates. If we are not successful in renewing our
agreements with these affiliates, or if they are renewed on less favorable terms, or if our
affiliates search businesses are adversely affected, it could harm
our business, ability to generate revenue and operating results.

International Expansion

We launched our service in the United Kingdom in November 2000 and
launched our German-language search service in February 2002. We plan to launch
our service in France in the third quarter of 2002 and Japan in the first
quarter of 2003. We expect our international expansion will require continued
investment to build internal infrastructure and grow our advertiser and
affiliate bases overseas. We expect to incur losses from our international
operations of approximately $20 million to $25 million for the full year
2002.

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RESULTS OF OPERATIONS

Revenue. Overture generates
revenue primarily by introducing
consumers and businesses that search the Internet to advertisers that bid for priority
placement in search results displayed primarily at the Web sites of our affiliates.
More specifically, Overture generates revenue, in the amount paid by the advertiser,
when a user clicks on an advertisers listing.
(Overture refers to these clicks as paid introductions.) 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
listing service fees and banner advertising, which together constituted less than 1% and 5%
of our revenue for the six months ended June 30, 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. Listing service 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 $152.5 million for the three months ended June 30, 2002 compared
to approximately $62.5 million for the three months ended June 30, 2001.
Revenue was approximately $295.3 million for the six months ended June 30, 2002
compared to approximately $114.4 million for the six months ended June 30,
2001. The growth was the result of increased participation of our affiliates and
advertisers, driving the number of paid introductions and average price per paid
introduction. We do not anticipate our historical revenue growth rate,
expressed as a percentage, to continue on a quarter-to-quarter basis.

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

|                             |  |                      
|---------------------------- |  | ---------------------
|NUMBER OF PAID INTRODUCTIONS |  | FOR THE QUARTER ENDED
|                             |  |                      
|515 million                  |  | June 30, 2002        
|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 ten fiscal quarters is as follows:

|                                    |  |                      
|----------------------------------- |  | ---------------------
|AVERAGE PRICE PER PAID INTRODUCTION |  | FOR THE QUARTER ENDED
|                                    |  |                      
|$0.30                               |  | June 30, 2002        
|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
decrease in the worldwide number of paid introductions from the three
months ended March 31, 2002 compared to the three months ended
June 30, 2002 was primarily due to seasonality and the inclusion of America Online
and related properties as our affiliate for just one month during the three months ended June 30, 2002
compared to the entire quarter during the three months ended March 31, 2002.
During the quarter ended June 30, 2002, approximately 51%, 18% and 31% of Overtures total
paid introductions came from portals, browsers, and other affiliates
and
our Web site, respectively. In addition, during the three months ended June 30, 2002,
Microsoft (primarily msn.com and Microsoft Internet Explorer Panel) and Yahoo
supplied approximately 53% of our total paid introductions and we earned approximately

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57% of our total revenue from advertisers who
received paid introductions through
Overture as supplied by Microsoft (primarily msn.com and Microsoft
Internet Explorer
Panel) and Yahoo. Our top 10 affiliates, based on revenue that we
earned during the three months ended June 30, 2002 from our
advertisers, who received paid introductions through Overture as
supplied by these affiliates, represented approximately 75% of total
revenue.

Several new or renewed affiliate relationships of note were signed during
the three months ended June 30, 2002 and up to the date of this filing. The
U.S. agreements include AltaVista, CNET, Hewlett-Packard Company, Netscape
Premier Provider, United Online (NetZero and Juno) and Yahoo. In addition, we
also signed several international agreements.

On May 1, 2002, our U.S. search relationship with America
Online ended; the America Online relationship included AOL, AOL.com,
CompuServe and Netscape.com. In July 2002, Ask Jeeves announced that it will end the search
agreement with Overture on September 1, 2002. Our growth rate
depends, in part, on increasing the number of users who use our
service, especially through our affiliates. If we do not renew
our affiliate agreements or replace traffic lost from terminated affiliate
agreements with other sources or if our affiliates search businesses
are adversely affected, our revenue and
results from operations may be materially and adversely affected.

We believe that the worldwide average price per paid introduction
increased as a result of advertiser acquisition, account management
and other product quality initiatives. As a result of the large increase in the number of advertisers (from
approximately 60,000 in March 2002 to approximately 67,000 in June 2002) and
the decrease in the number of paid clicks, the average spend per advertiser
decreased by 5% compared to the previous three months. 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 average spend per advertiser, and the future growth of the
average price per paid introduction, as advertisers, rather than Overture,
primarily 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 prior levels. Our growth rate and results depend on our
ability to increase the price per paid introduction, the number of advertisers
who use our service and the amount our advertisers spend on our service. In addition, we believe we will
experience seasonality, whereby the second and third quarters of the calendar
year experience relatively lower traffic than the first and fourth quarters.
Seasonality is difficult to predict, but we believe what we experience is
typical of our industry. 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 $8.7 million for the three months ended
June 30, 2002 compared to approximately $5.2 million for the three months ended
June 30, 2001. The search serving costs were approximately $14.7 million for
the six months ended June 30, 2002 compared to $9.9 million for the six months ended
June 30, 2001. The increase was primarily due to an increase in the number of
personnel required to support our services and increased hardware and software
costs as a result of the implementation of a disaster recovery plan, which
involved implementing fully redundant hardware and software systems at
alternative sites. We anticipate search serving costs to increase for the
remainder of 2002 as we expand internationally and continue to invest in
product quality.

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 $81.4
million for the three months ended June 30, 2002 compared to approximately
$36.9 million for the three months ended June 30, 2001. Traffic acquisition
costs were approximately $158.4 million for the six months ended June 30, 2002,
compared to $71.6 for the six months ended June 30, 2001. The increase was
primarily due to an increase in the number of paid introductions.

The following represents our top 10 affiliates based on revenue (which was
approximately 75% of total revenue) that we earned during the three months
ended June 30, 2002 from our advertisers, who received paid
introductions through Overture
as supplied by these affiliates. The table that follows is in order of
expiration date; Microsoft agreements are combined. The table includes those
agreements, which continue, at minimum, through the quarter ending September
30, 2002.

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|                                            |  |                         |  |                             
|------------------------------------------- |  | ----------------------- |  | ----------------------------
|Affiliate                                   |  | Commencement            |  | Expiration Date             
|                                            |  |                         |  |                             
|Microsoft Internet Explorer Panel
msn.com   |  | July 2001
February 2002 |  | September
2002
December 2003
|                                           
|Freeserve (U.K.)                            |  | November 2000           |  | November 2002               
|                                           
|Oingo.com                                   |  | May 2001                |  | May 2003                    
|                                           
|AltaVista                                   |  | May 2002                |  | May 2003                    
|                                           
|Netscape Premier Provider                   |  | July 2002               |  | June 2003                   
|                                           
|Comet Systems                               |  | July 2002               |  | July 2003                   
|                                           
|Terra Lycos                                 |  | September 2001          |  | November 2003               
|                                           
|InfoSpace:
(Excite, Dogpile and Webcrawler) |  | November 2001           |  | February 2004               
|                                           
|CNET                                        |  | May 2002                |  | May 2004                    
|                                           
|Yahoo                                       |  | May 2002                |  | April 2005                  

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. Moreover, while we seek to align economic incentives,
most of Overtures affiliate agreements contain limitations and provide varying levels of discretion to the affiliate in the
implementation of our service. In addition, we have been and are likely to be dependent on searches from a limited number of affiliates. If we are unable to
replace traffic from any of our large affiliates after expiration of our
contract with them or if our relationship with any of our larger
affiliates deteriorates, it could seriously harm our business, financial
condition and results of operations. 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. Both Microsoft and Yahoo may terminate their agreements with Overture
upon a change of control in the ownership of Overture. If any of the foregoing
termination events occur, the related agreement could terminate earlier than
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 agreements with new affiliates on commercially
acceptable terms. In addition, several of these affiliates may be considered potential
competitors.

Traffic acquisition costs as a percentage of revenue were approximately
53% and 59% for the three months ended June 30, 2002 and 2001, respectively,
and 54% and 63% for the six months ended June 30, 2002 and 2001, respectively.
The decrease was primarily due to lower cost as a percentage of
revenue from revenue share arrangements, as well as, increased revenue in cases where traffic acquisition costs were fixed due to guaranteed payments. As we open new territories internationally, traffic acquisition
costs as a percentage of revenue are likely to be higher in the
early stages of development than the Companys consolidated average. In addition, we also expect increased competition
and industry consolidation to drive up these costs. We anticipate these costs
to be approximately 60% of revenue for the remainder of 2002. We may be
obligated to make guaranteed payments to affiliates, in the future, as
described below in Liquidity and Capital Resources which are subject to
adjustment based on the performance of the affiliate or Overture relative to
certain metrics.

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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 $12.4 million for the
three months ended June 30, 2002 compared to approximately $6.7 million for the
three months ended June 30, 2001. Marketing, sales and services expenses were
approximately $23.9 million for the six months ended June 30, 2002 compared to
approximately $13.6 million for the six months ended June 30, 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 increase for the
remainder of 2002 due to continuing international expansion and continued
investment in product quality.

General and Administrative.General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; credit card processing fees; facilities; professional services,
including legal; and insurance and other general corporate expenses. General
and administrative expenses were approximately $17.3 million for the three
months ended June 30, 2002 compared to approximately $12.1 million for the
three months ended June 30, 2001. General and administrative expenses were
approximately $33.6 million for the six months ended June 30, 2002 compared to
approximately $21.1 million for the six months ended June 30, 2001. The
increase was primarily the result of increased professional fees, higher
insurance costs, increased credit card processing fees from prepaid accounts
due to increased revenue, and international expansion. We expect general and
administrative expenses to increase for the remainder of 2002 due
to continuing
international expansion and credit card processing fees (as a result of an increase in revenue), as well as an
increase in legal and insurance costs.

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. The Company capitalized internally developed software costs of
approximately $0.6 million during the three months ended June 30, 2002 and
approximately $0.8 million for the six months ended June 30, 2002. Product
development expenses were approximately $5.0 million for the three months ended
June 30, 2002 compared to approximately $3.2 million for the three months ended
June 30, 2001. Product development expenses were approximately $9.4 million for
the six months ended June 30, 2002 compared to approximately $6.9 million for
the six months ended June 30, 2001. The increase was primarily the result of
our international expansion and investment in product quality. We expect
product development expenses to be relatively flat for the remainder of 2002.

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 $0.6 million for the three months ended June 30, 2002 compared to
approximately $0.8 million for the three months ended June 30, 2001. Interest
income was approximately $1.8 million for the six months ended June 30, 2002
and June 30, 2001.

Other Income, Net. Other income, net was approximately $129,000 for the
three months ended June 30, 2002 compared to $2.0 million for the three months
ended June 30, 2001. Other income, net was approximately $0.8 million for the
six months ended June 30, 2002 compared to $2.0 million for the six months
ended June 30, 2001.

Provision For
Income Taxes.Provision for income taxes was approximately
$10.4 million for the three months and six months ended June 30, 2002 compared
to zero expense for the three months and six months ended June 30, 2001.
Overture generated taxable income during the six months ended June 30, 2002,
however a tax provision was recorded that was less than the statutory rate due
to the benefit from the release of valuation allowance from deferred tax
assets. As of December 31, 2001, Overture had net operating loss (NOL)
carryforwards available to reduce future federal and state taxable income. These NOLs and temporary differences (difference between timing
of the recognition on a Generally Accepted Accounting Principle basis versus a
tax basis) were carried on the balance sheet as deferred tax assets. 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. Due to the uncertainty regarding if and when these NOLs would be
utilized and temporary differences would reverse, a full valuation allowance
was set up against the related deferred tax asset, resulting in a net zero
balance for deferred tax assets, as of December 31, 2001. The primary basis for
the release of the related valuation allowance was due to 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.

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Because the utilization of other deferred tax assets related to future
years, the release of the related valuation allowance was considered a discrete
event and the tax benefits were required to be recorded during the three months
ended March, 31, 2002. Therefore, no tax provision was recorded in the three
months ended March 31, 2002. There were remaining NOL benefits, of which 100%
are expected to be taken as a benefit against expected income before taxes for
2002. As a result, the Company had a tax provision of approximately $10.4
million for the three months ended June 30, 2002, which was lower than federal
and state statutory rates.

We have deductions,
other than the NOL carryforwards and temporary differences discussed above, which resulted from
the exercise of certain stock options and 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.

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 expect to incur a full statutory tax rate in subsequent years
for U.S. operations and the consolidated effective rate may be slightly higher
due to international expansion costs for which no benefit or lower benefit
would be recorded.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by
operating activities totaled approximately $39.7
million and $15.2 million for the six months ended June 30, 2002 and 2001,
respectively. The change was due primarily to operating income, tax benefit
from stock options and increased accounts payable and accrued expenses
partially offset by increase in accounts receivable, prepaid expenses and other
prepaid traffic acquisition expense during the six months ended June 30, 2002.
Net cash used in investing activities totaled approximately $62.6 million and
$13.0 million for the six months ended June 30, 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 six months ended June 30, 2002. Net cash provided by
financing activities totaled approximately $10.5 million and $2.8 million for
the six months ended June 30, 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 six months ended June 30, 2002.

Our principal sources of liquidity consisted of cash, cash equivalents,
short-term investments and long-term investments of approximately $200.3
million as of June 30, 2002 compared to $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. As of June 30, 2002, the
Company was obligated to make guaranteed payments totaling
approximately $109.3 million, $137.4 million, $144.3 million and $8.1 million for the remainder of
2002, 2003, 2004 and 2005, respectively, under contracts to provide search
services to its affiliates. The Company leases 87,000 square feet of office
space for its corporate office in Pasadena, California under operating lease
agreements expiring in October 2004 with an option to extend the lease for 5
years. The Company also leases office space in San Mateo, California; New York;
London; Germany; France; Ireland; and Japan. As of June 30, 2002, Overture is
obligated to make total remaining office lease payments of approximately $7.6
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.

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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 performances, 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.

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 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 be realized. Examples of positive evidence include:



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

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



| |  |  | A pretax loss for financial reporting purposes for the current 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 the 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. A portion of the valuation
allowance relating to deferred tax assets expected to be realized in future
years was released as a discrete event during the quarter ended March 31, 2002.
The remaining valuation allowance relating to net operating losses as well as
stock option deductions is being released ratably throughout the year. If we
do not continue to generate taxable income in the future, this would be
negative evidence that could require us to re-evaluate this position.

In calculating our provision for income taxes for the three and six months
ended June 30, 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 other
deferred tax assets, and expected results for the remainder of the year. Our
effective tax rate for the current year as well as the provision or benefit
recorded in a subsequent quarter could be impacted.

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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.

Marketing-Related Agreements with our Affiliates

Overture has arrangements with two affiliates to obtain additional
marketing-related services from these affiliates. Overture believes that the
pricing of the marketing-related services were determined at arms-length and
represent the fair value of the services received by Overture and therefore the
costs are appropriately recorded as marketing costs in the line item,
Marketing, Sales and Service in the Statements of Operations. If it was
determined that the fair value of these marketing-related services were less
than the amounts paid by Overture and these costs were more closely related to
traffic provided by affiliates, these costs would be considered an expense paid
to affiliates and therefore recorded on the line item, Traffic Acquisition in
the Statements of Operations. If 100% of these marketing expenses were deemed
traffic acquisition costs, this would increase traffic acquisition costs as a
percentage of revenue by approximately 1% for the three months ended June 30,
2002 and would have a similar effect for the remaining six months of 2002.

RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS BECAUSE
OF MANY FACTORS

We believe that quarter-to-quarter comparisons of our operating results
are not a good indication of our future performance. 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 in large part are not determined by Overture;                                                                                              
|
|
|
| |  |  | decrease in traffic from our affiliates for any reason, including
loss of our agreements with affiliates or reduction in 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;                                                                                                                                                             
|
| |  |  | 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;                                                                                                         

18



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| |  |  | 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.                                                    

OUR STOCK HAS BEEN VOLATILE AND MAY CONTINUE TO BE VOLATILE IN THE FUTURE,
WHICH MAY LIMIT OUR OPERATING FLEXIBILITY

Historically, our stock price has been extremely volatile and we cannot
assure that the price of our common stock will not decline or be extremely
volatile in the future. 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.

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 stock
price may change due to a variety of factors, including those described above
in the risk factor entitled Our Quarterly Financial Results Are Subject To
Significant Fluctuations Because Of Many Factors. In addition, short-term
changes in our stock price may have little relationship to our financial
results. We have in the past experienced significant declines in our stock
price following announcements of changes in affiliate relationships, even when
the particular affiliate relationship did not provide significant paid
introductions or result in a significant amount of revenue from advertisers who
received paid introductions through Overture as supplied by such affiliates. If our stock
price is low, it may limit our ability to raise capital or pursue strategic
opportunities, such as acquisitions. In addition, it may reduce the incentive
value of our stock options and harm employee morale.

OUR LIMITED OPERATING HISTORY MAKES PLANNING FOR OUR FUTURE OPERATIONS MORE
DIFFICULT

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
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.

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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, browsers, and other affiliates and
our Web site. In any given month, we typically depend upon one or a
few of these sources for a significant amount of 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 Overtures
total paid introductions, for the three months ended June 30,
2002, approximately 51%, 18% and 31% came from our portal, browser, and other
affiliates and our Web site, respectively. In addition, during the three months ended June 30,
2002, Microsoft (primarily msn.com and Microsoft Internet Explorer Panel) and Yahoo
supplied approximately 53% of our total paid introductions and we
earned approximately 57% of our total revenue from advertisers who received
paid introductions through Overture as supplied by Microsoft
(primarily msn.com and Microsoft Internet Explorer Panel) and Yahoo. Unfavorable changes to either
agreement (including, but not limited to a change in implementation) or loss of
either relationship would materially and adversely affect
our revenue and results of operations.

The following represents our top 10 affiliates based on revenue (which was
approximately 75% of total revenue) that we earned during the three months
ended June 30, 2002 from our advertisers, who received paid introductions through Overture
as supplied by these affiliates. The table that follows is in order of
expiration date; Microsoft agreements are combined. The table includes those
agreements, which continue, at minimum, through the quarter ending September
30, 2002.

|                                            |  |                         |  |                             
|------------------------------------------- |  | ----------------------- |  | ----------------------------
|Affiliate                                   |  | Commencement            |  | Expiration Date             
|                                            |  |                         |  |                             
|Microsoft Internet Explorer Panel
msn.com   |  | July 2001
February 2002 |  | September
2002
December 2003
|                                           
|Freeserve (U.K.)                            |  | November 2000           |  | November 2002               
|                                           
|Oingo.com                                   |  | May 2001                |  | May 2003                    
|                                           
|AltaVista                                   |  | May 2002                |  | May 2003                    
|                                           
|Netscape Premier Provider                   |  | July 2002               |  | June 2003                   
|                                           
|Comet Systems                               |  | July 2002               |  | July 2003                   
|                                           
|Terra Lycos                                 |  | September 2001          |  | November 2003               
|                                           
|InfoSpace:
(Excite, Dogpile and Webcrawler) |  | November 2001           |  | February 2004               
|                                           
|CNET                                        |  | May 2002                |  | May 2004                    
|                                           
|Yahoo                                       |  | May 2002                |  | April 2005                  

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If we do not renew
our affiliate agreements or replace these searches 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, ability to
generate revenue and operating results.

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. Moreover, while we seek to align economic incentives, most of
Overture's affiliate agreements contain limitations and provide
varying levels of discretion to the affiliate in the
implementation of our service. In addition, we have been and are
likely to be dependent on searches from a limited number of
affiliates. If we are unable to
replace traffic from any of our large affiliates after expiration of our
contract with them or if our relationship with any of our larger
affiliates deteriorates, it could seriously harm our business, financial
condition and results of operations. 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. Both Microsoft and Yahoo may terminate their agreements with Overture
upon a change of control in the ownership of Overture. If any of the
foregoing termination events occur, the related agreement could terminate earlier than 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 agreements with new affiliates on commercially
acceptable terms. In addition, several of these affiliates may be considered
potential competitors.

OUR SUCCESS IS DEPENDENT UPON FURTHER DEVELOPING AND MAINTAINING OUR 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.

Since we rely on a
limited number of affiliates for our paid introductions,
consolidation among affiliates or potential affiliates, or an acquisition by an
affiliate of a competitor, could harm our operating results and reduce our
competitive position. For example, if a third party that has pre-existing
relationship with one of our search competitors acquires one of our affiliates,
we may lose our relationship with our affiliate in favor of the competitor. In
some cases, these third parties have exclusive relationships with our
competitors that would prohibit our affiliate from continuing a relationship
with us after they are acquired. If one of our existing affiliates were to
combine with another one of our affiliates, it would likely increase the
negotiating power of these affiliates relative to us, and as a result, our
financial results may suffer. We believe that consolidation among Internet
sites will continue in the future, particularly as smaller firms have
difficulty raising capital in the current environment. In addition, if an
affiliate were to acquire one of our competitors, we could lose our
relationship with that affiliate.

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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 SMALL PORTION 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;
|
| |  |  | 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.

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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. 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 and pay-per-click
advertising services competitive to those
provided by Overture, including, among others, AltaVista, AOL, Ask Jeeves,
Inc., CNET, Inc., Espotting Media, Inc., Fast Search &Transfer ASA, FindWhat.com, Inc., Google, Inc., Inktomi Corporation,
LookSmart, Ltd., Microsoft Corporation (LinkExchange, Inc. and
msn.com), PRIMEDIA (through its About.com Sprinks product), Terra
Lycos (including HotBot) and Yahoo! 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 Espotting,
FindWhat, 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 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 ARE DEPENDENT UPON OUR COMPUTER AND COMMUNICATION SYSTEMS

Our business depends on our ability to provide high capacity data
transmission without system downtime and upon our transaction processing
systems and network infrastructure. Furthermore, we rely on many different
software applications, some of which have been developed internally. If these
hardware and software systems fail, it would adversely affect our business
and results of operations. If we receive a significant unexpected increase in
usage and are not able to rapidly expand our transaction-processing systems and
network infrastructure without any systems interruptions in order to
accommodate this increase, it could seriously harm our business. We have
experienced occasional systems interruptions in the past as we grew, and we
cannot assure you we will not incur any such interruption in the future.

OUR BUSINESS COULD BE SIGNIFICANTLY HINDERED BY THE OCCURRENCE OF NATURAL
DISASTERS AND OTHER CATASTROPHIC EVENTS

Our business is susceptible to natural disasters and other catastrophic events.
We have a redundant hardware and software system for our services at an
alternate site, which is part of our disaster recovery plan. A disaster
recovery plan is intended to prevent interruptions for an indeterminate length of time
due to natural disasters and other catastrophic events such as fire, flood,
earthquake, power loss, telecommunications failure, break-in, sabotage or a
similar event.
Despite these redundant systems, we believe that no system can fully prevent
outages and downtime, which could severely damage our business and
adversely affect results of operations. 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, Colorado and Ireland.

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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 the redundant systems 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. A catastrophe in any of our business centers, in
particular, in Pasadena, California could cause interruption to our service,
including but not limited to, the services requiring customer service,
editorial, data processing and other managerial functions as a result of
incapacitation to people, processes or systems. We do not have multiple sites
for our call center and editorial department which are both located at our
Pasadena, California office. An interruption in our ability to provide customer
support and editorial services would adversely affect our business. 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, 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.

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-language search service in
February 2002. We plan to launch our service in France in the third quarter of
2002 and Japan in the first quarter of 2003. To date, we have only operated
internationally in a few countries, and we may be unable to execute our
business model in these markets 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

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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;
therefore we expect to continue to incur losses in the near term. 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;                                                                                                                 
|
| |  |  | lower usage of the Internet for e-commerce transactions; thus
limiting the number of advertisers that uses our service;                                                                                                                                                                                   
|
| |  |  | entering into affiliate agreements with traffic acquisition cost as a
percentage of revenue that is not as favorable as in the U.S. during the
initial stage of the markets development;                                                                                                                 
|
| |  |  | 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 but not limited to, Espotting, Google, LookSmart
and other United States and foreign search engines, content aggregators
and portals, some of which have greater local experience than we do;                           
|
| |  |  | clickthrough rates in international markets may differ from U.S.
rates;                                                                                                                                                                                                                                   
|
| |  |  | 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;                                                                                                                     
|
| |  |  | price per paid introduction in international markets may vary from the U.S.;                                                                                                                                                                                                                              
|
| |  |  | 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                                                                                                                                                                      
|
| |  |  | the application of transfer pricing regulations by taxing authorities
in various jurisdictions worldwide, who may disagree with our
determinations as to the income and expenses attributable to specific
jurisdictions, which could result in Overtures paying additional taxes,
interest and penalties;
|
| |  |  | technological differences that vary by marketplace, which we may not be able to support;                                                                                                                                                                                                                  
|
| |  |  | 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.

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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 or may lack the ability to pay amounts owed. 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 constitutes trademark infringement. Although we deny such
allegations, these and other 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 via our business model constitutes trademark infringement
or some other form of liability, it could negatively impact our revenues and
business and the Company might as a result decide to change the general manner
in which it accepts bids on certain search terms or change other
practices, and this change might have a material adverse effect upon the
results of operations, cash flows or financial position of the Company.

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.

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

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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. Previous
acquisitions have not been successful. 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 ceased operations of GoTo Shopping, a business we acquired, and
we completed a management buyout of GoTo Auctions, a business we acquired,
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 charges relating to our exit
from the GoTo Auctions and GoTo Shopping operations, 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.                                       

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. The Federal Trade Commission (FTC), in
response to a petition from a private organization, has been reviewing the way
in which the search engine industry discloses paid placement or paid inclusion
practices to the user. Recently, the FTC staff issued guidance on the matter in
the form of letters to the petitioner and to members of the industry, including
Overture. The letters stated the staffs position on what disclosures are
necessary to avoid misleading users about the effect payments to the search
engine may have on the inclusion or ranking of listings in the search results.
This guidance may differ from the existing practices of some in the industry,
including our practices and those of some of our affiliates. The FTC has not
yet taken any enforcement action to date against us or any of our affiliates.
If the FTC were to take such enforcement action that resulted in
changes in the labeling or other disclosure of our Pay-For-Performance listings, it
may reduce the desirability of our services, and our business and the business
of some of our affiliates could be harmed. In addition, we and some of our
affiliates have recently adjusted the nature of the disclosures on a voluntary
basis, or are likely to do so in the future, and such disclosures may reduce
the desirability of our service, which could adversely affect our business.

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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.

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 would 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.

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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.

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 $46.8
million in the six months ended June 30, 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.

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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.

Investments in both fixed rate and floating rate interest earning
instruments carry varying degrees of interest rate risk. Fixed rate
securities may have their fair market value adversely impacted due to a rise
in interest rates. In general, securities with longer maturities are subject
to greater interest rate risk than those with shorter maturities. While
floating rate securities generally are subject to less interest rate risk
than fixed rate securities, floating rate securities may produce less income
than expected if interest rates decrease. Due in part to these factors, our
investment income may fall short of expectations or we may suffer losses in
principal if securities are sold that have declined in market value due to
changes in interest rates. As of June 30, 2002, our fixed income investments
had an unrealized gain of $0.3 million. Assuming an average
investment balance of $183 million, if rates were to increase (decrease) by
100 basis points, this would translate to an increase (decrease) in interest
income of approximately $1.8 million annually.

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 six months ended June 30, 2002
was not material.




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

The Company is subject to litigation brought against it in the ordinary
course of business. The Company is a defendant in three trademark infringement
actions (JR Cigar, Mark Nutritionals (MNI) and PlasmaNet). The plaintiffs in
these cases allege that they have trademark rights in certain search terms and
that the Company violates these rights by allowing competitors of the
plaintiffs to bid on these search terms. While the amount of damages that are
claimed and that in the worst case conceivably could be awarded in one or more
of these lawsuits might have a material effect on the results of the Companys
operations, cash flow or financial position, the Company believes that it has
meritorious defenses to liability and damages in each of these lawsuits and it
is contesting them vigorously. If the Company were to incur one or more
unfavorable judgments that in themselves are not material, or if there was a
development in the law in a similar case to which the Company is not a party
that was negative to the Companys position, the Company might as a result
decide to change the general manner in which it accepts bids on
certain search terms, and this change might have a material adverse effect upon
the results of operations, cash flows or financial positions of the Company.

The Company is also currently in separate litigations with Google and
FindWhat in which the Company is alleging that these parties infringe 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. In each litigation, the defendants have
alleged invalidity and unenforceability of the 361 patent. When the validity
and enforceability of the 361 patent is determined, in either litigation, that
determination may have a material effect on the Companys competitive position.

The following sets
forth details regarding the above-described litigation and other
litigation which may be material to 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 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. Overture believes that
it has meritorious defenses to the allegations and is contesting the
allegations vigorously.

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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 and
that Overture did not properly account for monies owed under that agreement.
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. Arbitration
is scheduled for September 2002. Overture believes that it has meritorious
defenses to the allegations and is contesting 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. On
April 19, 2002, plaintiffs filed an amended complaint, alleging Rule 10b-5
claims of fraud. Overture continues to deny the allegations against it and
believes that it has meritorious defenses to the amended complaint, and intends
to contest the allegations vigorously. On July 15, 2002, the issuers filed an
omnibus motion to dismiss for failure to comply with applicable pleading
standards and the remainder of the briefing is expected to take place over the
next several months. Discovery has been and remains stayed in the case.

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 willful infringement of the 361 patent.
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. Discovery is stayed in both cases pending a ruling by the New York
court on the motion.

On January 28,
2002, 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 (and
related terms) 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. Overture believes that it has meritorious defenses to the
allegations and is contesting the allegations vigorously.

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. Overture believes that
it has meritorious defenses to the allegations and is contesting the
allegations vigorously. The parties are in the early phase of the discovery
process.

On February 20, 2002, Overture filed a complaint
against Did-It.com, Inc. for trespass, unfair competition and violations of the Computer Fraud and Abuse
Act. In response to Overtures complaint, on June 14, 2002, Did-It filed a
counterclaim against Overture alleging federal and state antitrust violations,
violations of the Unfair Trade Practices Act, fraud and deceit, negligent
misrepresentation, false and misleading advertising, unfair competition,
interference with contract and prospective economic advantage and violations of
California Civil Code Section 1812.600, et.seq. . Overture believes that it has
meritorious defenses to the allegations and is contesting the allegations
vigorously.

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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. An amended complaint was served on August 9, 2002. The
amended complaint alleges that the Company has committed acts of trademark
infringement, trademark dilution, unfair competition, false advertising and
tortious interference with prospective economic advantage. PlasmaNets
allegations are based on the Company allowing competitors to bid on
the terms freelotto and free lotto (and related terms) in order to obtain priority when an Internet user searches for free
lotto related Web sites. Overture believes that it has meritorious defenses to
the allegations and is contesting the allegations vigorously.

On April 23rd, 2002, Overture filed a patent infringement lawsuit against
Google Inc. in the United States District Court for the Northern District of
California. The lawsuit charges Google with willful infringement of
the 361
Patent. The Company also seeks permanent injunction against Google, an award of
increased damages, and an award of attorneys fees, costs and expenses. On
June 7, 2002, Google filed its answer to the Overture complaint, denying that
it infringes the 361 Patent and alleging counter claims of non-fringement,
invalidity and unenforceability relating to the 361 Patent. The parties are in
the initial phase of the discovery process, which began on August 5, 2002.




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

At the annual meeting of stockholders held on May 23, 2002, the following
proposals were adopted by the margins indicated:



| | (1) |  | To elect two directors to hold office for a term of three years
until the annual meeting of stockholders in the year 2004 (Class III
directors):
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |           |            |                |  |  |            | 
|-------------------- |  | --------- | ---------- | -------------- |  |  | ---------- | 
|                     |  | Votes For |            | Votes Withheld
|                     |  |           |            |               
|Linda Fayne Levinson |  |           | 40,890,034 |                |  |  | 9,972,267  | 
|Ted Meisel           |  |           | 32,532,665 |                |  |  | 18,329,636 | 

Robert Kavner and Steve Alesio continue serving as directors until the
annual meeting of stockholders in the year 2003 (Class I directors). William
Gross and William Elkus continue serving as directors until the annual meeting
of stockholders in the year 2004 (Class II directors).



| | (2) |  | Ratification of appointment of Ernst & Young LLP as Overtures
independent auditors for the 2002 fiscal year.
| | --- |  | -------------------------------------------------------------------------------------------------------------
|

|           |  |               |           |         |  |                  |        |  |  |  |   | 
|---------- |  | ------------- | --------- | ------- |  | ---------------- | ------ |  |  |  | - | 
|Votes For  |  | Votes Against |           | Abstain |  | Broker Non-Votes
|           |  |               |           |         |  |                 
|48,447,146 |  |               | 2,394,822 |         |  |                  | 20,333 |  |  |  | 0 | 




ITEM 5. OTHER INFORMATION

On May 31, 2002, Jeffrey Brewer resigned as a member of the Board of
Directors in order to pursue personal interests.

On August 2, 2002, Overture announced that Terrell Terry Jones, former
Chief Executive Officer of Travelocity, was named to Overtures Board of
Directors, effective August 1, 2002.

In addition to audit services, Overtures auditor, Ernst & Young LLP,
provided the following non-audit services to Overture:
(1) preparation of U.S. and international tax returns and advice
on related tax matters and (2)
consultation on compensation and equity related matters. The Audit Committee of
Overtures Board of Directors has directed that the Company cease engagement of
Ernst & Young to provide non-audit services to the Company following a
reasonable transition period for Overture to transition such work to other
service providers. The Audit Committee reviewed and approved Ernst & Youngs engagement to
provide these non-audit services in the transition period.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits.

The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission.

|        |  |                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                   
|NUMBER  |  |                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                   
|3.1     |  | Amended and Restated Certificate of Incorporation of GoTo.com Inc.                                                                                                                                
|3.2     |  | Certificate of Ownership and Merger Merging Overture Services, Inc.
into GoTo.com, Inc.                                                                                                           
|3.3     |  | Certificate of Designations of Series A Junior Participating
Preferred Stock of Overture Services, Inc. *                                                                                         
|3.4     |  | Bylaws of Overture Services, Inc. **                                                                                                                                                              
|4.1     |  | Specimen Stock Certificate***                                                                                                                                                                     
|10.1    |  | Form of Change of Control Severance Agreement between Overture and each
of Ted Meisel, Jaynie Studenmund and Todd Tappin effective June 30,
2002                                                  
|10.2    |  | Distribution agreement between Overture and Microsoft (GoTo-in-a-Box
or Internet Explorer Panel)
effective as of April 15, 2001 and amendments effective as of July 12, 2001 and June 18,
2002****
|10.3    |  | Distribution agreement between Overture and Microsoft (msn.com)
effective as of December 19, 2001 and amendment effective as of
March 17, 2002****                                                
|10.4    |  | Distribution agreement between Overture and Yahoo effective
as of May 1, 2002****                                                                                                                 
|99.1    |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                



---

|*    |  | Previously filed as
Exhibit 3.3 to the Registrants Form 10-Q filed on
May 15, 2002 and incorporated by reference herein.                                                         
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|**   |  | Previously filed as
Exhibit 3.3 to the Registrants Form 8-A filed on March
25, 2002 and incorporated by reference herein.                                                        
|    
|    
|    
|    
|***  |  | Previously filed as
Exhibit 4.1 to the Registrants Form 8-K filed on March
25, 2002 and incorporated by reference herein.                                                        
|    
|    
|    
|    
|**** |  | Confidential treatment
requested on certain portions of this exhibit. An unredacted version of this
exhibit has been filed separately with the Securities and Exchange
Commission.



|(b) |  | Reports on Form 8-K.                                                     
|--- |  | -------------------------------------------------------------------------
|   
|    |  | No reports on Form 8-K were filed during the quarter ended June 30, 2002.

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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: August 14, 2002 | OVERTURE SERVICES, INC.                                                                      
|                     
|                      | By                                                                                            | /s/ Todd Tappin
|                      |                                                                                              
|                      | Todd Tappin
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)

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EXHIBIT INDEX

|        |  |                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                   
|NUMBER  |  |                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                   
|3.1     |  | Amended and Restated Certificate of Incorporation of GoTo.com Inc.                                                                                                                                
|3.2     |  | Certificate of Ownership and Merger Merging Overture Services, Inc.
into GoTo.com, Inc.                                                                                                           
|3.3     |  | Certificate of Designations of Series A Junior Participating
Preferred Stock of Overture Services, Inc. *                                                                                         
|3.4     |  | Bylaws of Overture Services, Inc. **                                                                                                                                                              
|4.1     |  | Specimen Stock Certificate***                                                                                                                                                                     
|10.1    |  | Form of Change of Control Severance Agreement between Overture and each
of Ted Meisel, Jaynie Studenmund and Todd Tappin effective June 30,
2002                                                  
|10.2    |  | Distribution agreement between Overture and Microsoft (GoTo-in-a-Box
or Internet Explorer Panel)
effective as of April 15, 2001 and amendments effective as of July 12, 2001 and June 18,
2002****
|10.3    |  | Distribution agreement between Overture and Microsoft (msn.com)
effective as of December 19, 2001 and amendment effective as of
March 17, 2002****                                                
|10.4    |  | Distribution agreement between Overture and Yahoo effective
as of May 1, 2002****                                                                                                                 
|99.1    |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                



---

|*    |  | Previously filed as
Exhibit 3.3 to the Registrants Form 10-Q filed on
May 15, 2002 and incorporated by reference herein.                                                         
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|**   |  | Previously filed as
Exhibit 3.3 to the Registrants Form 8-A filed on March
25, 2002 and incorporated by reference herein.                                                        
|    
|    
|    
|    
|***  |  | Previously filed as
Exhibit 4.1 to the Registrants Form 8-K filed on March
25, 2002 and incorporated by reference herein.                                                        
|    
|    
|    
|    
|**** |  | Confidential treatment
requested on certain portions of this exhibit. An unredacted version of this
exhibit has been filed separately with the Securities and Exchange
Commission.