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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 March 31, 2003

Commission File Number 000-26365



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OVERTURE SERVICES, INC.

(Exact name of Registrant as specified in its charter)


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

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b of the Act). x YES o NO

The number of outstanding shares of the registrants common stock as of
the close of business on April 30, 2003 was 59,441,603.



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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                           
|                             | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION  
|                             | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                  
|EXHIBIT INDEX               
|EXHIBIT 99.1                



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##### Table of Contents



OVERTURE SERVICES, INC.

TABLE OF CONTENTS

|        |  |                                                                                                     |  |         
|------- |  | --------------------------------------------------------------------------------------------------- |  | --------
|        |  |                                                                                                     |  | PAGE NO.
|        |  |                                                                                                     |  |         
|PART I  |  | FINANCIAL INFORMATION                                                                               |  |         
|Item 1. |  | Financial Statements:                                                                               |  |         
|        |  | Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002.                   |  | 3       
|        |  | Condensed Consolidated Statements of Operations for the three months ended
March 31, 2003 and 2002. |  | 4       
|        |  | Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2003 and 2002. |  | 5       
|        |  | Notes to Condensed Consolidated Financial Statements                                                |  | 6       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations               |  | 13      
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risks                                         |  | 30      
|Item 4. |  | Controls and Procedures                                                                             |  | 30      
|PART II |  | OTHER INFORMATION                                                                                   |  |         
|Item 1. |  | Legal Proceedings                                                                                   |  | 30      
|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 amounts)

|                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |          |  
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | -------- | ------------ | - | ------- | -------- | -
|                                               |                                                                                                                                                                                                                 |   | March 31,   |          | December 31,
|                                               |                                                                                                                                                                                                                 |   | 2003        |          | 2002        
|                                               |                                                                                                                                                                                                                 |   |             |          |             
|                                               |                                                                                                                                                                                                                 |   | (unaudited) |          |              |   |        
|ASSETS                                         |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|CURRENT ASSETS:                                |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|                                               | Cash and cash equivalents                                                                                                                                                                                       |   | $           | 108,193  |              |   | $       | 78,987   |  
|                                               | Short-term investments                                                                                                                                                                                          |   |             | 107,457  |              |   |         | 118,905  |  
|                                               | Accounts receivable, net                                                                                                                                                                                        |   |             | 38,034   |              |   |         | 31,682   |  
|                                               | Prepaid expenses, deferred tax assets and other                                                                                                                                                                 |   |             | 19,013   |              |   |         | 23,483   |  
|                                               | Prepaid traffic acquisition expense                                                                                                                                                                             |   |             | 40,678   |              |   |         | 25,372   |  
|                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|Total current assets                           |                                                                                                                                                                                                                 |   | 313,375     |          |              |   | 278,429 |         
|Property and equipment, net                    |                                                                                                                                                                                                                 |   | 62,818      |          |              |   | 55,656  |         
|Intangible assets, net                         |                                                                                                                                                                                                                 |   | 3,101       |          |              |   | 1,393   |         
|Goodwill                                       |                                                                                                                                                                                                                 |   | 4,494       |          |              |   |        |         
|Long-term investments                          |                                                                                                                                                                                                                 |   | 20,900      |          |              |   | 52,852  |         
|Long-term prepaid traffic acquisition expenses |                                                                                                                                                                                                                 |   | 35,759      |          |              |   | 36,738  |         
|Other assets                                   |                                                                                                                                                                                                                 |   | 14,863      |          |              |   | 10,648  |         
|                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|Total assets                                   |                                                                                                                                                                                                                 | $ | 455,310     |          |              | $ | 435,716 |         
|                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY           |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|CURRENT LIABILITIES:                           |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|                                               | Accounts payable                                                                                                                                                                                                |   | $           | 103,605  |              |   | $       | 93,293   |  
|                                               | Accrued expenses                                                                                                                                                                                                |   |             | 16,879   |              |   |         | 21,010   |  
|                                               | Deferred revenue                                                                                                                                                                                                |   |             | 16,979   |              |   |         | 16,672   |  
|                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|Total current liabilities                      |                                                                                                                                                                                                                 |   | 137,463     |          |              |   | 130,975 |         
|Long-term liabilities                          |                                                                                                                                                                                                                 |   | 1,031       |          |              |   | 1,203   |         
|STOCKHOLDERS EQUITY:                          |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|                                               | Preferred Stock; $0.0001 par value, 10,000 shares authorized as of
March 31, 2003 and December 31, 2002                                                                                                         |   |             |         |              |   |         |         |  
|                                               | Common stock, $0.0001 par value, 200,000 shares authorized as of
March 31, 2003 and December 31, 2002;
59,434 and 59,249 shares issued and outstanding as of
March 31, 2003 and December 31, 2002, respectively |   |             | 6        |              |   |         | 6        |  
|                                               | Additional paid-in capital                                                                                                                                                                                      |   |             | 711,889  |              |   |         | 709,568  |  
|                                               | Deferred compensation, net                                                                                                                                                                                      |   |             | (480     | )            |   |         | (210     | )
|                                               | Accumulated other comprehensive income                                                                                                                                                                          |   |             | 2,980    |              |   |         | 2,890    |  
|                                               | Accumulated deficit                                                                                                                                                                                             |   |             | (397,579 | )            |   |         | (408,716 | )
|                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|Total stockholders equity                     |                                                                                                                                                                                                                 |   | 316,816     |          |              |   | 303,538 |         
|                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |         
|Total liabilities and stockholders equity     |                                                                                                                                                                                                                 | $ | 455,310     |          |              | $ | 435,716 |         
|                                               |                                                                                                                                                                                                                 |   |             |          |              |   |         |          |  

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
|                                                                     |                                                             |   | March 31,         
|                                                                     |                                                             |   |                   
|                                                                     |                                                             |   | 2003               |         | 2002
|                                                                     |                                                             |   |                    |         |     
|Revenue                                                              |                                                             | $ | 224,725            |         |      | $ | 142,845 |       
|Operating expenses:                                                  |                                                             |   |                    |         |      |   |         |       
|                                                                     | Search serving                                              |   |                    | 12,968  |      |   |         | 5,993  | 
|                                                                     | Traffic acquisition                                         |   |                    | 144,025 |      |   |         | 77,003 | 
|                                                                     | Marketing, sales and service                                |   |                    | 17,800  |      |   |         | 11,429 | 
|                                                                     | General and administrative                                  |   |                    | 24,071  |      |   |         | 16,307 | 
|                                                                     | Product development                                         |   |                    | 7,789   |      |   |         | 4,367  | 
|                                                                     | Amortization of deferred compensation and
intangible assets |   |                    | 700     |      |   |         | 423    | 
|                                                                     | Reduction in loss on litigation ruling                      |   |                    | (3,941  | )    |   |         |       | 
|                                                                     |                                                             |   |                    |         |      |   |         |       
|                                                                     |                                                             |   | 203,412            |         |      |   | 115,522 |       
|                                                                     |                                                             |   |                    |         |      |   |         |       
|Income from operations                                               |                                                             |   | 21,313             |         |      |   | 27,323  |       
|Other income:                                                        |                                                             |   |                    |         |      |   |         |       
|                                                                     | Interest income, net                                        |   |                    | 860     |      |   |         | 1,249  | 
|                                                                     | Other (expense) income, net                                 |   |                    | (36     | )    |   |         | 718    | 
|                                                                     |                                                             |   |                    |         |      |   |         |       
|Income before income taxes                                           |                                                             |   | 22,137             |         |      |   | 29,290  |       
|Provision for income taxes                                           |                                                             |   | 11,000             |         |      |   |        |       
|                                                                     |                                                             |   |                    |         |      |   |         |       
|Net income                                                           |                                                             | $ | 11,137             |         |      | $ | 29,290  |       
|                                                                     |                                                             |   |                    |         |      |   |         |       
|Basic net income per share                                           |                                                             | $ | 0.19               |         |      | $ | 0.51    |       
|                                                                     |                                                             |   |                    |         |      |   |         |       
|Diluted net income per share                                         |                                                             | $ | 0.18               |         |      | $ | 0.48    |       
|                                                                     |                                                             |   |                    |         |      |   |         |       
|Weighted average shares used to compute
basic net income per share   |                                                             |   | 59,308             |         |      |   | 57,422  |       
|Weighted average shares used to compute
diluted net income per share |                                                             |   | 60,495             |         |      |   | 60,510  |       

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)

|                                                             |                                                                                   |                                                                                    |                                                                                  |         |                    |     |        |         |         |       | 
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------- | ------------------ | --- | ------ | ------- | ------- | ----- | 
|                                                             |                                                                                   |                                                                                    |                                                                                  |         | Three Months Ended
|                                                             |                                                                                   |                                                                                    |                                                                                  |         | March 31,         
|                                                             |                                                                                   |                                                                                    |                                                                                  |         |                   
|                                                             |                                                                                   |                                                                                    |                                                                                  |         | 2003               |     | 2002  
|                                                             |                                                                                   |                                                                                    |                                                                                  |         |                    |     |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                                   |                                                                                    |                                                                                  |         |                    |     |        |        
|                                                             | Net income                                                                        |                                                                                    | $                                                                                | 11,137  |                    |     | $      | 29,290  |        
|                                                             | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                                                    |                                                                                  |         |                    |     |        |         |        
|                                                             |                                                                                   |                                                                                    | Tax benefits from stock options                                                  |         |                    | 238 |        |         |         | 5,732 | 
|                                                             |                                                                                   |                                                                                    | Loss from sale of property and equipment                                         |         |                    |    |        |         |         | 468   | 
|                                                             |                                                                                   |                                                                                    | Accretion of discounts from the purchase of short-term and
long-term investments |         | 383                |     |        |         | 267     |      
|                                                             |                                                                                   | Depreciation and amortization                                                      |                                                                                  |         | 8,965              |     |        |         | 4,442   |      
|                                                             | Changes in operating assets and liabilities net of effect of
acquisition:         |                                                                                    |                                                                                  |         |                    |     |        |         |        
|                                                             |                                                                                   | Accounts receivable                                                                |                                                                                  |         | (5,987             | )   |        |         | (4,909  | )    
|                                                             |                                                                                   | Prepaid expenses and other                                                         |                                                                                  |         | 2,013              |     |        |         | (5,882  | )    
|                                                             |                                                                                   | Prepaid traffic acquisition expense                                                |                                                                                  |         | (14,327            | )   |        |         | 289     |      
|                                                             |                                                                                   | Accounts payable and accrued expenses                                              |                                                                                  |         | 5,525              |     |        |         | 22,231  |      
|                                                             |                                                                                   | Deferred revenues                                                                  |                                                                                  |         | 307                |     |        |         | 2,253   |      
|                                                             |                                                                                   |                                                                                    |                                                                                  |         |                    |     |        |        
|                                                             | Net cash provided by operating activities                                         |                                                                                    |                                                                                  | 8,254   |                    |     |        | 54,181  |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                                   |                                                                                    |                                                                                  |         |                    |     |        |        
|                                                             |                                                                                   | Proceeds from the sale of (purchases of) short-term and
long-term investments, net |                                                                                  |         | 42,932             |     |        |         | (24,484 | )    
|                                                             | Capital expenditures for property and equipment, and
other assets                 |                                                                                    |                                                                                  | (13,931 | )                  |     |        | (12,284 | )      
|                                                             | Payment for acquisition, net of cash acquired                                     |                                                                                    |                                                                                  | (7,914  | )                  |     |        |        |        
|                                                             |                                                                                   |                                                                                    |                                                                                  |         |                    |     |        |        
|                                                             | Net cash provided by (used in) investing activities                               |                                                                                    |                                                                                  | 21,087  |                    |     |        | (36,768 | )      
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                                   |                                                                                    |                                                                                  |         |                    |     |        |        
|                                                             | Proceeds from issuance of common stock, net                                       |                                                                                    |                                                                                  | 1,560   |                    |     |        | 9,358   |        
|                                                             | Repayments of debt                                                                |                                                                                    |                                                                                  | (1,971  | )                  |     |        | (71     | )      
|                                                             |                                                                                   |                                                                                    |                                                                                  |         |                    |     |        |        
|                                                             | Net cash (used in) provided by financing activities                               |                                                                                    |                                                                                  | (411    | )                  |     |        | 9,287   |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                                   |                                                                                    | 276                                                                              |         |                    |     | (79    | )      
|Net increase in cash and cash equivalents                    |                                                                                   |                                                                                    | 29,206                                                                           |         |                    |     | 26,621 |        
|Cash and cash equivalents at beginning of period             |                                                                                   |                                                                                    | 78,987                                                                           |         |                    |     | 61,974 |        
|                                                             |                                                                                   |                                                                                    |                                                                                  |         |                    |     |        |        
|Cash and cash equivalents at end of period                   |                                                                                   | $                                                                                  | 108,193                                                                          |         |                    | $   | 88,595 |        
|                                                             |                                                                                   |                                                                                    |                                                                                  |         |                    |     |        |         |        

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. (Overture or the Company) is a global leader in
commercial search services on the Internet. Overtures Pay-For-Performance
search service is comprised of advertisers listings, which are screened for
relevance and accessed by consumers and businesses through Overtures
affiliates, a network of Web properties that have integrated Overtures search
service into their sites or that direct user traffic to Overtures sites. In
some cases, consumers and businesses access our search listings directly at our
sites. The search listings are ranked according to the advertisers bid; the
higher the bid, the higher the ranking. Advertisers pay Overture the bid price
for clicks on the advertisers search listing (also known as a paid
introduction, click-through or a paid click). As of March 31, 2003, Overture
and its wholly owned subsidiaries operated the Overture service in the United
States, Ireland, United Kingdom, Germany, France and Japan. South Korean
operations were launched in April 2003. The Company reports in one reportable
business segment.

Overture was incorporated on September 15, 1997 in the state of Delaware
and officially launched its operations on June 1, 1998. On October 8, 2001, we
changed our corporate name from GoTo.com, Inc. to Overture Services, Inc. and
changed our Nasdaq Stock Market trading symbol to OVER. Overture has its US
corporate office in Pasadena, California and additional offices in California
and New York in the United States, Ireland, United Kingdom, Germany, France,
Japan, Norway, Italy and South Korea.

On April 21, 2003, Overture completed its purchase of the Web search unit
of Fast Search and Transfer ASA (Fast), a Norway based developer of search
and real-time filtering technologies, for $70 million in cash, plus a
contingent performance-based cash incentive payment of up to $30 million over
three years.

On April 25, 2003, Overture acquired the business of AltaVista Company
(AltaVista), a provider of search services and technology, for $60 million in
cash and $46.6 million in stock based on the closing price on such date.

AltaVista and Fasts Web search unit both use advanced algorithmic search
technology to crawl the Web and return relevant search results in response to
users queries through syndication networks or through their websites,
AltaVista.com and alltheweb.com. Overture believes these technologies
complement its own technology in commercial search and will enhance its core
Pay-For-Performance search business, as well as allow Overture to develop new
products and services for its advertisers and affiliates.

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.

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, 2002.



|2. |  | COMPREHENSIVE INCOME
|-- |  | --------------------

The Company accounts for comprehensive income using Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS
130 establishes standards for reporting comprehensive income and its components
in financial statements. Comprehensive income, as defined therein, refers to
revenues, expenses, gains and losses that are not included in net income but
rather are recorded directly in stockholders equity. The differences between
total comprehensive income and net income for the three months ended March 31,
2003 and March 31, 2002 were $0.1 million and $(0.6) million, respectively. As
of March 31, 2003, accumulated other comprehensive income was comprised of $0.3
million of unrealized gains on investments and $2.7 million of cumulative
translation adjustments.

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|3. |  | EARNINGS PER SHARE COMPUTATION
|-- |  | ------------------------------

Shares used in computing basic and diluted net income per share are based
on the weighted average shares outstanding in each period. Basic net income per
share is calculated by dividing net income by the average number of outstanding
shares during the period. Diluted net income 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.

Options to purchase 10.2 million and 7.9 million shares of common stock
were outstanding as of March 31, 2003 and 2002, respectively. In addition,
there were approximately 24,000 and 374,000 shares of unvested common stock
outstanding, which are subject to repurchase by Overture, as of March 31, 2003
and 2002, respectively.

The following table sets forth the computation of basic and diluted net
income per share for the periods indicated (in thousands, except per share
amounts):

|                             |                                                           |                                                               |      |                              |        |      |      |        |        | 
|---------------------------- | --------------------------------------------------------- | ------------------------------------------------------------- | ---- | ---------------------------- | ------ | ---- | ---- | ------ | ------ | 
|                             |                                                           |                                                               |      | Three Months Ended March 31,
|                             |                                                           |                                                               |      |                             
|                             |                                                           |                                                               |      | 2003                         |        | 2002
|                             |                                                           |                                                               |      |                              |        |     
|Numerator:                   |                                                           |                                                               |      |                              |        |      |      |       
|                             | Net income                                                |                                                               | $    | 11,137                       |        |      | $    | 29,290 |       
|Denominator:                 |                                                           |                                                               |      |                              |        |      |      |       
|                             | Denominator for basic calculationweighted average shares |                                                               |      | 59,308                       |        |      |      | 57,422 |       
|                             |                                                           | Common stock equivalents                                      |      |                              | 1,187  |      |      |        | 3,088  | 
|                             |                                                           |                                                               |      |                              |        |      |      |       
|                             |                                                           | Denominator for diluted calculation  weighted average
shares |      |                              | 60,495 |      |      |        | 60,510 | 
|Net income per share:        |                                                           |                                                               |      |                              |        |      |      |       
|Basic net income per share   |                                                           | $                                                             | 0.19 |                              |        | $    | 0.51 |       
|Diluted net income per share |                                                           | $                                                             | 0.18 |                              |        | $    | 0.48 |       



|4. |  | INCOME TAXES
|-- |  | ------------

Overture generated taxable income during the three months ended March 31,
2003. A tax provision was recorded that was more than the statutory rate
primarily due to the effect of foreign net operating losses (NOLs) which
carry a benefit at a lower tax rate.

A portion of the valuation allowance was released during March 31, 2002
based on our assessment that the utilization of available tax deductions,
including NOLs, was more likely than not. The effect of the valuation release
was a benefit that reduced the March 31, 2002 tax provision to zero.

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

|                                            |  |           |    |      |  |  |     |  
|------------------------------------------- |  | --------- | -- | ---- |  |  | --- | -
|                                            |  | March 31,
|                                            |  |          
|                                            |  | 2003      |    | 2002
|                                            |  |           |    |     
|Statutory federal rate                      |  |           | 35 | %    |  |  | 35  | %
|State income taxes (net of federal benefit) |  |           | 5  |      |  |  |    |  
|Valuation allowance                         |  |           |   |      |  |  | (31 | )
|Effect of tax law change                    |  |           |   |      |  |  | (2  | )
|Foreign rate differential                   |  |           | 11 |      |  |  |     |  
|Non-deductible expense and other            |  |           | (1 | )    |  |  | (2  | )
|                                            |  |           |    |      |  |  |     |  
|                                            |  |           | 50 | %    |  |  |    | %
|                                            |  |           |    |      |  |  |     |  

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

|         |         |  |   |           |  |      |   |       |  | 
|-------- | ------- |  | - | --------- |  | ---- | - | ----- |  | 
|         |         |  |   | March 31,
|         |         |  |   |          
|         |         |  |   | 2003      |  | 2002
|         |         |  |   |           |  |     
|Current: |         |  |   |           |  |      |   |      
|         | Federal |  | $ | 10,041    |  |      | $ | 5,220 | 

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|          |         |                |        |           |        |      |   |        |        |  
|--------- | ------- | -------------- | ------ | --------- | ------ | ---- | - | ------ | ------ | -
|          |         |                |        | March 31,
|          |         |                |        |          
|          |         |                |        | 2003      |        | 2002
|          |         |                |        |           |        |     
|          | State   |                |        | 1,438     |        |      |   | 560    |       
|          | Foreign |                |        | 591       |        |      |   |       |       
|          |         |                |        |           |        |      |   |       
|          |         | Total current  |        |           | 12,070 |      |   |        | 5,780  |  
|          |         |                |        |           |        |      |   |       
|Deferred: |         |                |        |           |        |      |   |       
|          | Federal |                |        | 583       |        |      |   | (4,800 | )     
|          | State   |                |        | 153       |        |      |   | (550   | )     
|          | Foreign |                |        | (1,806    | )      |      |   | (430   | )     
|          |         |                |        |           |        |      |   |       
|          |         | Total deferred |        |           | (1,070 | )    |   |        | (5,780 | )
|          |         |                |        |           |        |      |   |       
|          |         | $              | 11,000 |           |        | $    |  |       
|          |         |                |        |           |        |      |   |        |       



|5. |  | LITIGATION
|-- |  | ----------

The Company is currently in separate litigations with Google and FindWhat
in which the Company is alleging that these parties infringe on 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 respective parties, Google and
FindWhat, have alleged invalidity and unenforceability of the 361 Patent. In
addition, FindWhat has also alleged that the Company has violated the Sherman
Act, 15 U.S.C. § 2. 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 complaint against FindWhat was filed on January 25, 2002, in the
United States District Court for the Central District of California. 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 the United States District Court for the Southern District of New York for
declaratory judgment of invalidity, unenforceability and non-infringement
relating to the Companys 361 Patent. On February 13, 2003, the New York Court
ordered FindWhats declaratory judgment to be transferred to the Central
District of California. Subsequently, after transfer, FindWhat dismissed its
action in favor of the Companys California action, which is now the only case
pending between the parties. FindWhat answered the Companys Complaint on March
25, 2003, and asserted counterclaims alleging non-infringement, invalidity and
unenforceability of the Companys patent as well as alleging that the Company
has violated the Sherman Act, 15 U.S.C. § 2. On April 17, 2003, the Company
filed its Reply and denied the allegations of these counterclaims. The parties
are now in the initial phase of the discovery process.

The complaint against Google was filed on April 23, 2002 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 a 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. On June 25, 2002, the Company filed its Reply and
denied the allegations of these counterclaims. On March 28, 2003 the Company
filed an Amended Complaint. On April 14, 2003 Google answered the amended
complaint and re-asserted its same counterclaims. The Company filed its reply
denying the allegations of these counterclaims. The parties continue to move
through the discovery process. A hearing regarding the interpretation of the
claims contained in the 361 Patent (commonly referred to as a Markman
hearing) currently is scheduled for October 2003.

The Company is a defendant in four trademark infringement actions (JR
Cigar, Mark Nutritionals, PlasmaNet and Pets Warehouse). In addition, AltaVista
is also a defendant in a trademark infringement action by Mark Nutritionals.
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. The amount of damages that are
claimed and, if awarded, in one or more of these lawsuits might have a material
effect on the Companys results of 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 were 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 position
of the Company.

The following sets forth details regarding other litigation, which may be
material to the Company.

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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.
In December 2001, the Court transferred the case to arbitration.
InternetFuel.com thereafter supplemented its claims, alleging fraud under
California law.

This matter was arbitrated in late December 2002 and early January 2003.
On January 10, 2003, the arbitrator issued an interim award. Although the
arbitrator found in Overtures favor on InternetFuels claims for fraud and
unfair business practices, the arbitrator found for InternetFuel on the breach
of contract claim and awarded InternetFuel $8.7 million, which was recorded as
an expense in the three months ended December 31, 2002. On January 16, 2003,
InternetFuel filed an application with the arbitrator seeking approximately
$840,000 in pre-judgment interest on the award. As a result of several motions
filed by Overture, on April 2, 2003, the Arbitrator issued a Corrected Final
Award, reducing the damage award against Overture to $4.8 million. This $3.9
million reduction in the award was recorded as a reduction in loss of
litigation ruling in the three months ended March 31, 2003. InternetFuel has
petitioned the Court to confirm the Corrected Final Award and is seeking
post-award interest at a rate of 10% per annum. Overture has opposed
InternetFuels motion and has sought an order from the Court vacating the
arbitrators award. On May 5, 2003, the Court heard oral argument on the
parties motions. The Court ordered supplemental briefing, which will be
concluded by May 16, 2003. The Court will then issue a ruling on the parties
motions without further oral argument.

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. On July 15, 2002, the issuers filed an omnibus motion to dismiss for
failure to comply with applicable pleading standards. On October, 8, 2002, the
Court entered an Order of Dismissal as to all of the individual defendants in
the Overture IPO litigation, without prejudice. On February 19, 2003, the Court
denied the motion to dismiss the Rule 10b-5 claims against Overture. 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 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. On August 7, 2002, Overture
filed a motion to dismiss various claims contained in Did-Its counterclaim,
including claims for antitrust violations. On August 30, 2002, Did-It filed its
first amended counterclaim, which omitted some of the antitrust causes of
action contained in its initial counterclaim. On October 2, 2002, Overture
filed its answer to Did-Its first amended counterclaim. The parties are
entering the early phase of discovery. Overture believes that it has
meritorious defenses to the allegations contained in the counterclaim and is
contesting these allegations vigorously.

Overture has been named as a defendant in an action filed April 10, 2003,
in Federal Court in Massachusetts. Plaintiff MRT Micro ASA (MRT) asserts
ownership interest in certain technologies which it claims Fast Search and
Transfer, Inc. may be conveying to Overture in the course of Overtures
purchase of Fasts assets. In addition to a declaratory judgment that it is
the owner of the subject technologies, MRT is seeking to recover all proceeds
from the acquisition of Fasts assets, as well as preliminary and permanent
injunctions enjoining the acquisition of Fasts Web search unit by Overture.
In addition, MRT seeks to recover damages, its attorneys fees and costs.
Overture believes that it has meritorious defenses to the allegations directed
against it and intends to defend the action vigorously.

In August 2001, Jeffrey Black, a former employee of AltaVista, filed a
complaint in Superior Court of the State of California (Santa Clara County) in
his individual capacity as well as in his capacity as a trustee of two family
trusts against the AltaVista Company and CMGI, Inc. alleging certain claims
arising out of the termination of Mr. Blacks employment with AltaVista. As set
forth in the complaint, Mr. Black is seeking monetary damages in excess of $70
million. AltaVista believes that these claims are without merit and plans to
vigorously defend against these claims. In March 2002, the Court ordered the
entire case to binding arbitration in California. In June 2002, Mr. Black
petitioned the California Court of Appeal for a writ prohibiting enforcement of
the order compelling arbitration of his cause of action for wrongful
termination in violation of public policy. In July 2002, the Court of

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Appeal denied Mr. Blacks petition. In August 2002, Mr. Black submitted
the matter to the American Arbitration Association. An arbitrator was appointed
in January 2003 and an arbitration hearing is tentatively scheduled for August
2003. The parties have commenced discovery.

On March 11, 2002, Sean Barger filed suit in Superior Court of the State
of California against AltaVista and a number of other defendants alleging (1)
violation of state securities statutes, (2) fraudulent inducement, deceit,
fraud, (3) negligent misrepresentation, (4) unfair competition and (5) breach
of fiduciary duty. Mr. Barger is claiming an unspecified amount of damages.
Mr. Barger was the principal shareholder of Equilibrium Technologies, Inc.
(Equilibrium) which was a company purchased by AltaVistas majority
shareholder, CMGI, Inc. Mr. Barger claims that AltaVista and the other
defendants made false representations to induce him to allow Equilibrium to be
acquired by CMGI. The Court has dismissed without leave to amend Mr. Bargers
claim for breach of fiduciary duty. AltaVista is in the process of answering
interrogatories. No trial date has been scheduled. AltaVista believes it has
meritorious defenses to Mr. Bargers amended complaint and intends to contest
the allegations vigorously.

The
Irish subsidiary of AltaVista doing business in the United Kingdom
filed suit against Fraserside Holdings Limited or, in the alternative
against Private Media Group, Inc., claiming damages for procurement
of or inducement of breach of contract for Frasersides failure to
pay for the performance of services including display of
advertisements by the Irish subsidiary. The suit seeks approximately
$2.6 million in unpaid fees, interest and costs. The suit was
instituted in the Chancery Division of the High Court of Justice in
England on December 6, 2001. On March 21, 2002 Fraserside
served a defense, and counterclaim for breach of contract alleging
damages of at least $2.7 million and other unspecified damages
relating to the contract. Private served a substantially identical
defense on March 27, 2002. We believe we have meritorious
defenses to the counterclaims and are vigorously defending against
them.

On April 7, 2003, AltaVista was served with a complaint to avoid
preferential transfers that was filed in the United States Bankruptcy Court,
Northern District of Illinois. MarchFirst filed a voluntary bankruptcy petition
on April 12, 2001 and on July 16, 2001 a Trustee was appointed under chapter 7
of the Bankruptcy Code. The Trustee seeks return of payments of $0.6 million
that AltaVista received within 90 days of the filing of the bankruptcy petition.
These payments were in connection with advertisements displayed on AltaVistas
Web site on behalf of MarchFirst advertisers. AltaVista has provided the
Trustee with a letter outlining defenses against the demand because these
payments were made in the ordinary course and were earmarked for payment to
AltaVista. We believe we have meritorious defenses to the complaint and are
vigorously defending this matter.

The Company may also be subject to litigation brought against it in the
ordinary course of business.



|6. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------

Idealab is considered a related party of Overture because a member of
management of Idealab is a member of Overtures board of directors.

During the three months ended March 31, 2003 and 2002, Overture recorded
 $0.2 million and $0.3 million, respectively, of search listing advertising
revenue from companies affiliated with Idealab. Management believes these
amounts are materially representative of the fair value of advertising services
provided. During the three months ended March 31, 2003, Overture paid $1.7
million of traffic acquisition costs to Idealab and Idealab affiliated
companies, including New.net. Management believes these amounts are materially
representative of fair value.



|7. |  | AFFILIATE COMMITMENTS
|-- |  | ---------------------

The Company is obligated to make guaranteed payments totaling $151.5
million, $201.8 million, $25.0 million and $0.4 million for the remainder of
2003, 2004, 2005 and 2006, respectively, under contracts to provide search
services to its affiliates.



|8. |  | ACCOUNTING FOR STOCK-BASED COMPENSATION
|-- |  | ---------------------------------------

At March 31, 2003, the Company had one stock-based compensation plan. The
company accounts for the plan under the recognition and measurement principles
of Accounting Principles Board Opinion (APB) No. 25 Accounting for Stock
Issued to Employees (APB 25). The following table sets forth the effect on net
income and earnings per share if the Company had applied the fair value
provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation (SFAS
123), to stock-based employee compensation. For purposes of pro forma
disclosures, the fair value of the options is amortized to expense on a graded
methodology basis over the vesting period of the options.

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|                                                                                                                                         |                       |   |                              |      |      |   |        |      | 
|---------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | ---------------------------- | ---- | ---- | - | ------ | ---- | 
|                                                                                                                                         |                       |   | Three Months Ended March 31,
|                                                                                                                                         |                       |   |                             
|                                                                                                                                         |                       |   | 2003                         |      | 2002
|                                                                                                                                         |                       |   |                              |      |     
|                                                                                                                                         |                       |   | (IN THOUSANDS)              
|Net income, as reported                                                                                                                  |                       | $ | 11,137                       |      |      | $ | 29,290 |     
|Additional stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects |                       |   | (7,239                       | )    |      |   | (6,554 | )   
|                                                                                                                                         |                       |   |                              |      |      |   |        |     
|Pro forma net income                                                                                                                     |                       |   | 3,898                        |      |      |   | 22,736 |     
|Earnings per share:                                                                                                                      |                       |   |                              |      |      |   |        |     
|                                                                                                                                         | Basic  as reported   |   |                              | 0.19 |      |   |        | 0.51 | 
|                                                                                                                                         | Basic  pro forma     |   |                              | 0.07 |      |   |        | 0.40 | 
|Earnings per share:                                                                                                                      |                       |   |                              |      |      |   |        |     
|                                                                                                                                         | Diluted  as reported |   |                              | 0.18 |      |   |        | 0.48 | 
|                                                                                                                                         | Diluted  pro forma   |   | $                            | 0.06 |      |   | $      | 0.38 | 

The fair value of these options were estimated at the date of grant using
a Black-Scholes option pricing model with the following assumptions:

|                          |  |                              |      |      |  |  |      |  
|------------------------- |  | ---------------------------- | ---- | ---- |  |  | ---- | -
|                          |  | Three Months Ended March 31,
|                          |  |                             
|                          |  | 2003                         |      | 2002
|                          |  |                              |      |     
|Risk free interest rate   |  |                              | 1.75 | %    |  |  | 3.75 | %
|Expected lives (in years) |  |                              | 3.0  |      |  |  | 3.0  |  
|Dividend yield            |  |                              |     |      |  |  |     |  
|Expected volatility       |  |                              | 0.80 |      |  |  | 0.80 |  

Under SFAS 123, the Company would have incurred additional pre-tax
compensation expense of $12.1 million and $10.9 million for the three months
ended March 31, 2003 and 2002, respectively.

Applying SFAS 123 in the pro forma disclosure may not be representative of
the effects on pro forma net income for future years as options vest over
several years and additional awards will likely be made each year.



|9. |  | ACQUISITION
|-- |  | -----------

On January 2, 2003, Overture completed the acquisition of all of the
outstanding capital stock of Keylime Software, Inc (Keylime), a developer of
analytical software to monitor Web site traffic and customer behavior. The
acquisition enables Overture to offer advertisers enhanced services for
managing and analyzing the performance of their online marketing campaigns by
allowing them to better understand their return on investment, track sales
conversions and identify new leads. The results of Keylimes operations have
been included in the consolidated financial statements since that date.

The aggregate purchase price, net of acquisition costs, was $7.1 million.
The aggregate purchase price was allocated to tangible and identifiable
intangible assets acquired and liabilities assumed based on estimates of fair
value. Identifiable intangible assets consist of developed technology totaling
$1.6 million and are amortized over three years. The excess of the aggregate
purchase price over the fair value of the identifiable net assets acquired of
$4.5 million has been recorded as goodwill. As part of the acquisition,
Overture assumed debt held by Keylime of $2.0 million and repaid this amount in
conjunction with the acquisition.



|10. |  | GEOGRAPHICAL SEGMENT INFORMATION
|--- |  | --------------------------------

The following table sets forth revenue by geographic area:

|              |       |   |                            |         |      |   |         |         | 
|------------- | ----- | - | -------------------------- | ------- | ---- | - | ------- | ------- | 
|              |       |   | For the Three Months Ended
|              |       |   | March 31,                 
|              |       |   |                           
|              |       |   | 2003                       |         | 2002
|              |       |   |                            |         |     
|              |       |   | (IN THOUSANDS)            
|United States |       | $ | 202,615                    |         |      | $ | 138,742 |        
|International |       |   | 22,110                     |         |      |   | 4,103   |        
|              |       |   |                            |         |      |   |         |        
|              | Total |   | $                          | 224,725 |      |   | $       | 142,845 | 
|              |       |   |                            |         |      |   |         |        

The following table sets forth long-lived assets by geographic area:

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|              |       |   |                |         |                   |   |        |        | 
|------------- | ----- | - | -------------- | ------- | ----------------- | - | ------ | ------ | 
|              |       |   | March 31, 2003 |         | December 31, 2002
|              |       |   |                |         |                  
|              |       |   | (IN THOUSANDS)
|United States |       | $ | 93,462         |         |                   | $ | 82,339 |       
|International |       |   | 14,779         |         |                   |   | 13,857 |       
|              |       |   |                |         |                   |   |        |       
|              | Total |   | $              | 108,241 |                   |   | $      | 96,196 | 
|              |       |   |                |         |                   |   |        |       



|11. |  | SUBSEQUENT EVENTS
|--- |  | -----------------

On April 21, 2003 Overture completed its purchase of the Web search unit
of Fast, a Norway based developer of search and real-time filtering
technologies, for $70.0 million in cash, plus a contingent performance-based
cash incentive payment of up to $30.0 million over three years.

On April 25, 2003 Overture acquired the business of AltaVista, a provider
of search services and technology, for $60.0 million in cash and $46.6 million
in stock based on the closing price on such date

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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 AMOUNT OF TRAFFIC THAT WE
EXPECT 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, THE AMOUNT OF FUTURE
TRAFFIC ACQUISITION COSTS AS A PERCENTAGE OF REVENUE, ACQUISITIONS AND
DEVELOPMENT OF SERVICES ACQUIRED IN SUCH ACQUISITIONS, INTERNATIONAL EXPANSION,
LIQUIDITY, GROWTH IN THE NUMBER OF ADVERTISERS, FLUCTUATION IN THE PRICE OF OUR
COMMON STOCK, CHANGES IN OUR QUARTER-TO-QUARTER FINANCIAL RESULTS, SEASONAL
EFFECTS 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. OVERTURE UNDERTAKES NO OBLIGATION TO REVISE OR PUBLICLY RELEASE
THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS.

OVERVIEW

Overture Services, Inc. is a global leader in commercial search services
on the Internet. Overtures Pay-For-Performance search service is comprised of
advertiser generated listings, which are screened for relevance and accessed by
consumers and businesses through Overtures affiliates, a network of Web
properties that have integrated Overtures search service into their sites or
that direct user traffic to Overtures sites. In some cases, consumers and
businesses access our search listings directly at our sites. The search
listings are ranked according to the advertisers bid; the higher the bid, the
higher the ranking. Advertisers pay Overture the bid price for clicks on the
advertisers search listing (also known as a paid introduction, click-through
or a paid click). As of March 31, 2003, Overture and its wholly owned
subsidiaries operated the Overture service in the United States, Ireland,
United Kingdom, Germany, France and Japan. South Korean operations were
launched in April 2003.

Overture was incorporated on September 15, 1997 in the state of Delaware
and officially launched its operations on June 1, 1998. On October 8, 2001, we
changed our corporate name from GoTo.com, Inc. to Overture Services, Inc. and
changed our Nasdaq Stock Market trading symbol to OVER. Overture has its US
corporate office in Pasadena, California and additional offices in California
and New York in the United States, Ireland, United Kingdom, Germany, France,
Japan, Norway, Italy and South Korea.

Expansion Strategy

Overture has historically operated a single business of providing
commercial search listings. Overture has launched several new initiatives to
expand our commercial search offerings. We have decided to accelerate our
international market expansion this year. We have also begun to implement
several new initiatives to launch Web search products, including algorithmic
search and paid inclusion. We are
developing complementary new products, such as local search, contextual
advertising and Web analytics. At the same time, we are increasing efforts to
improve the quality and monetization of search in our core Pay-For-Performance
business. We believe these steps will prepare the Company to compete more
effectively over the long term.

These new diversification strategies will require a substantial level of
investment and additional skills and capabilities, and will pose significant
challenges over the next year. These challenges include building functional
and accepted products, execution of multiple initiatives at the same time, and
managing resources. We cannot be certain our new offerings will achieve market
acceptance. Because of these challenges, there is substantial risk associated
with the implementation of these new initiatives. Failure to successfully
integrate and implement these new product lines in a timely manner may
adversely affect our revenue and results of operations. We may not be able to
distribute our products to our current affiliates or renew existing affiliate
agreements or, if they are renewed, they may not be on as favorable terms.

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Presently, Internet search traffic is concentrated among a limited number of
destination sites that attract users to conduct searches on the Internet.
These include sites operated by AOL, Microsoft, Yahoo and Google. This
concentration of searches may provide these destination sites with the ability
to negotiate highly favorable terms under which Overture services search
traffic. Additionally, we believe competitive pressure in our core
Pay-For-Performance business will continue to create upward pressure on our
traffic acquisition costs.

International Expansion

We launched our commercial search marketplace in the United Kingdom in
November 2000, Germany in February 2002, France in September 2002, Japan in
December 2002, and South Korea in April 2003. We anticipate launching
additional commercial search services in Italy, Spain, Austria, the
Netherlands, Switzerland and in Scandinavian markets during 2003. Although we
will be able to use our experience in the United States and other markets in conducting
this expansion, we expect that our international expansion will require
continued investment to build internal infrastructure, as well as grow our
advertiser and affiliate bases overseas. We expect to incur losses from our
international operations of approximately $25 million to $30 million for the
fiscal year 2003.

Acquisitions

On April 21, 2003, Overture completed its purchase of the Web search unit
of Fast Search and Transfer ASA (Fast), a Norway based developer of search
and real-time filtering technologies, for $70 million in cash, plus a
contingent performance-based cash incentive payment of up to $30 million over
three years.

On April 25, 2003, Overture acquired the business of AltaVista, a provider
of search services and technology, for $60 million in cash and $46.6 million in
stock based on the closing price on such date.

AltaVista and Fasts Web search unit both use advanced algorithmic search
technology to crawl the Web and return relevant search results in response to
users queries through syndication networks or through their websites,
AltaVista.com and alltheweb.com. We believe these technologies complement our
own commercial search technology and will enhance our core Pay-For-Performance
search business, as well as allow us to develop new products and services for
our advertisers and affiliates.

New Product Development

We expect that the development of new product lines, including Web search,
contextual, local search and analytics will require additional investments for
fiscal year 2003. Because these products are new and untested, it is difficult
to determine the impact these new products will have on our revenue and results
of operations.

RESULTS OF OPERATIONS

Revenue. We generate revenue, in the amount paid by the advertiser,
primarily when a user clicks on an advertisers listing. We refer to these
clicks as paid introductions. Revenue is recognized when earned based on paid
introduction activity to the extent that the advertiser has deposited
sufficient funds with us or collection is probable. Revenue also consists of
listing service fees, banner advertising and Web analytics, which together
constituted less than 1% of our revenue for the three months ended March 31,
2003 and 2002. Web analytics and 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 we have provided all of the services under the terms
of the arrangement. We have no barter transactions. Revenue was $224.7 million
for the three months ended March 31, 2003 compared to $142.8 million for the
three months ended March 31, 2002. The increase was the result of the growth in
our key constituents, our affiliates, advertisers and consumers, which drive
the number of paid introductions and average price per paid introduction.

We believe the increase in the worldwide number of paid introductions from
587 million in the three months ended March 31, 2002 to 608 million in the
three months ended March 31, 2003 was primarily due to increased search traffic
from our affiliates resulting from expanding implementations with existing
affiliates and the addition of new affiliates. The average price per paid
introduction increased from $0.24 during the three months ended March 31, 2002
to $0.37 during the three months ended March 31, 2003, we believe, as a result
of growth of our advertiser base creating increased competition for placement,
and as a result of improved account management, new product initiatives rolled
out during 2002 and broader acceptance of Pay-For-Performance search. The
number of advertisers increased from approximately 60,000 in March 2002 to
approximately 88,000 in March 2003.

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It is difficult to forecast the future growth of the average price per
paid introduction, as advertisers 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 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. As we develop and implement new search
monetization efforts, growth in new products may provide new revenue, but at a
lower price per click. For example, some initiatives designed to increase
listings on less popular search terms that carry lower prices may increase the
number of paid clicks, but lower the overall reported average price per
introduction. 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. This seasonal effect is difficult
to predict, but we believe what we experience is typical of general internet
usage in the United States. Traffic from affiliates varies as we enter into new
agreements and existing agreements are renewed or expire. We anticipate these
variables will fluctuate, affecting our growth rate and results. The addition
of the acquired AltaVista and Fast businesses will increase revenue in 2003.
The revenue impact, however, will be lower than that generated by the
standalone businesses as some revenue sources we plan to discontinue.

During the three months ended March 31, 2003, we earned approximately 65%
of our total revenue from advertisers who received paid introductions through
Overture as supplied by Microsoft (primarily msn.com and MSN Panel on
Microsofts Internet Explorer) and Yahoo.

Several new, expanded and renewed affiliate relationships were signed
during the three months ended March 31, 2003. These agreements include AOL
Europe, Gator, Terra Lycos, MSN Japan and New.net (an Idealab company whose
traffic was previously received through Applied Semantics). Subsequent to the
three months ended March 31, 2003, we have signed an agreement with MSN Korea.

Our growth rate depends, in part, on increasing the number of searches and
resulting click-throughs performed by users of our service, primarily 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 do not grow or are adversely affected, our
revenue and results of operations may be materially and adversely affected.

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 $13.0 million for the three months ended March 31,
2003 compared to $6.0 million for the three months ended March 31, 2002. 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 increased traffic, the acquisition of Keylime and our international
expansion efforts. We anticipate search serving costs to continue to increase
as our traffic and number of advertisers increase and we expand our product
offerings.

Traffic Acquisition. Traffic acquisition costs relate to payments made to
our affiliates that have integrated our search service into their sites or that
direct consumer and business traffic to our Web site. There are generally three
economic structures of the affiliate agreements: 1) fixed payments, based on a
guaranteed minimum amount of traffic delivered, which often carry reciprocal
performance guarantees from the affiliates, 2) variable payments based on a
percentage of our revenue or based on a certain metric, such as number of
searches or click-throughs, or 3) a combination of the above. Traffic
acquisition costs were $144.0 million (approximately 64% of revenue) for the
three months ended March 31, 2003 compared to $77.0 million (approximately 54%
of revenue) for the three months ended March 31, 2002. The increase in total
traffic acquisition costs was primarily due to the increase in revenue as
previously discussed. The percentage increase in the three months ended March
31, 2003 compared to the three months ended March 31, 2002 was primarily due to
a higher mix of traffic from more prominent search destination sites, which
typically receive a higher than average share of revenue. We may experience an
increase in traffic acquisition costs due to increased competition and the
ability our large affiliates have as a result of their sizable market share of
search traffic to negotiate highly favorable terms. 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. If we do
not meet our target metrics, then we may be required to make guaranteed
payments and traffic acquisition costs as a percentage of revenue may increase.

The following represents our top 10 continuing affiliates based on revenue
(which was approximately 83% of total revenue) that we earned for the three
months ended March 31, 2003 from our advertisers, who received paid
introductions through Overture as supplied by these affiliates. We have more
than one agreement with some affiliates. The table below groups such agreements
together and displays them in order of expiration date of the largest
agreement. The table excludes affiliates whose agreements have terminated and
AltaVista, whose business has been acquired by Overture.

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|                                           |  |                
|------------------------------------------ |  | ---------------
|Affiliate                                  |  | Expiration Date
|                                           |  |                
|AOL:                                       |  |                
|Netscape Premier Provider                  |  | June 2003      
|AOL Europe                                 |  | March 2005     
|CNN                                        |  | January 2006   
|Comet Systems                              |  | July 2003      
|Terra Lycos                                |  | May 2006       
|Microsoft:                                 |  |                
|MSN Panel on Microsofts Internet Explorer |  | December 2003  
|msn.com                                    |  | December 2004  
|CNET                                       |  | May 2004       
|New.net                                    |  | December 2004  
|Wanadoo (Freeserve)                        |  | January 2005   
|Yahoo                                      |  | April 2005     
|InfoSpace:                                 |  | March 2006     
|(Excite, Dogpile and Webcrawler)           |  |                
|Gator                                      |  | March 2006     

In addition to the above continuing affiliate agreements, from time to
time, we engage in tests with potential affiliates for trial periods to provide
paid introductions. Revenue from advertisers who receive paid introductions
through Overture, as supplied during these trial periods, can be significant.

The amount of traffic from each of our affiliates has varied, and we
expect it will continue to vary, from quarter to quarter and year to year,
sometimes significantly. Moreover, while we seek to align economic incentives,
most of our affiliate agreements contain limitations and provide varying levels
of discretion to the affiliate in the implementation of our service including
the degree to which affiliates can integrate our services with their own
services. In addition, we have been and are likely to be dependent on searches
from a limited number of affiliates. Our constituents, including our
affiliates, advertisers and consumers, may be averse to the implementations we
enter into with other affiliates or these affiliates distribution or
presentation of our services. Our agreements with our affiliates vary in
duration, and depending on the agreement, may be terminable upon the occurrence
of certain events, including our failure to meet certain service levels,
material breaches of agreement terms, changes in control, or in some instances,
at will. Our two largest affiliates, Microsoft and Yahoo may, in certain
circumstances, terminate their agreements with us upon our change of control.
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, they may not be on as favorable terms. If we are unable to
replace traffic from any of our large affiliates or if our relationship with
any of our larger affiliates deteriorates, it could seriously harm our
business, financial condition and results of operations. Moreover, we may not
be able to adjust our cost structure quickly enough should we lose one of our
two largest affiliates. 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.

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 manage and serve advertisers.
Marketing, sales and services expenses totaled $17.8 million for the three
months ended March 31, 2003 compared to $11.4 million for the three months
ended March 31, 2002. The increase was primarily the result of increased
payroll for customer service and sales functions, increased costs associated
with advertiser development, and international expansion. We anticipate these
costs to increase in the future as we continue to expand internationally, and
begin to offer our new services.

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,
insurance and other general corporate expenses. General and administrative
expenses were $24.1 million for the three months ended March 31, 2003 compared
to $16.3 million for the three months ended March 31, 2002. The increase was
primarily the result of increased headcount, increased credit card processing
fees due to increased revenue, increased professional fees including costs of
litigation, higher insurance costs, and international expansion. We expect
general and administrative expenses to increase throughout 2003 due to
continuing international expansion and costs to support a multi-product
organization, as well as integration of our acquisitions. We believe we will
also

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continue to incur additional credit card processing fees as revenue
increases, and we expect an increase in legal and insurance costs.

Product Development.Product development expenses consist primarily of
payroll and related expenses for personnel responsible for the development of
features and functionality for our service, as well as for 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. We capitalized internally developed software costs of
$0.7 million and $0.3 million for the three months ended March 31, 2003
and 2002, respectively. Product development expenses were $7.8 million for the
three months ended March 31, 2003 compared to $4.4 million for the three months
ended March 31, 2002. The increase was primarily the result of our
international expansion and investment in new offerings and search monetization
initiatives. We expect product development costs will continue to enhance our
existing service and increase as we continue to develop new products.

Reduction in Loss on Litigation Ruling. As of December 31, 2002, we
recorded an accrual of $8.7 million relating to an unfavorable interim
award in a dispute with a former affiliate, InternetFuel. In the three months
ended March 31, 2003, the final award of $4.8 million was issued resulting in a
reduction of $3.9 million.

Interest Income, Net.Interest income, net 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, net was
$0.9 million for the three months ended March 31, 2003 and $1.2 million for the
three months ended March 31, 2002. The decrease was primarily a result of a
decline in interest rates.

Provision For Income Taxes.Overture recorded income tax expense of $11.0
million for the three months ended March 31, 2003 and zero income tax expense
for the three months ended March 31, 2002. The Companys increase in income tax
expense for the three months ended March 31, 2003 is primarily due to the
impact of differences in foreign tax rates versus the US statutory rate. There
was no income tax expense recorded for the three months ended March 31, 2002
due to the reversal of a previously established valuation allowance against the
Companys deferred tax assets, including Net operating losses.

The possibility exists that federal, state, local, or international
jurisdictions may impose, or pass new legislation to impose, various taxes on
our business, our partners or our affiliates. The effect of these new taxes
may make doing business over the Internet less attractive. We cannot predict
the impact of these potential tax changes on our business.

Overture acquired the Web search unit of Fast Search and Transfer on April
21, 2003 and the business of AltaVista on April 25, 2003. The anticipated
financial impact of these acquisitions throughout the remainder of 2003 has not
been considered in the tax provision for the period ended March 31, 2003.
However, these acquisitions may increase the effective tax rate for the period
ended June 30, 2003, and for the remainder of 2003.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities totaled $8.3 million and $54.2
million for the three months ended March 31, 2003 and 2002, respectively.
The change was due primarily to a decrease in operating income and increased
prepaid traffic acquisition costs, accounts payable and accrued expenses during
the three months ended March 31, 2003. Net cash provided by investing
activities totaled $21.1 million for the three months ended March 31, 2003 and
net cash used in investing activities totaled $36.8 million for the three
months ended March 31, 2002. The change resulted primarily from the sale of
short-term and long-term investments, partially offset by the acquisition of
Keylime Software, Inc. Our capital expenditures for the three
months ended March 31, 2003 were $13.9 million.

Net cash used in financing activities totaled $0.4 million for the three
months ended March 31, 2003 and net cash provided by financing activities
totaled $9.3 million for the three months ended March 31, 2002. The change
resulted from the decrease in the proceeds received from the exercise of stock
options and a payment of debt that was acquired in the acquisition of Keylime.

Our principal sources of liquidity consisted of cash, cash equivalents,
short-term investments and long-term investments of $236.6 million as of March
31, 2003 and $250.7 million as of December 31, 2002. We believe that our cash
and liquid investment reserves are sufficient to sustain operations at least
through the next 12 months. As of March 31, 2003, we were obligated to make
guaranteed payments totaling $151.5 million, $201.8 million, $25.0 million and
$0.4 million for the remainder of 2003, 2004, 2005 and 2006, respectively,
under contracts to provide search services to our affiliates. We lease 116,000
square feet of office space for our corporate

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office in Pasadena, California under operating lease agreements expiring
in October 2004 with an option to extend the lease for 5 years. We also lease
office space in San Mateo, Palo Alto and Carlsbad, California and New York in the United
States, Ireland, United Kingdom, Germany, France, Japan, Norway, Italy and
South Korea. As of March 31, 2003, we were obligated to make total remaining
office lease payments of $19.3 million. Additional uses of cash in 2003 include
payments for the acquisitions of AltaVista of $60.0 million and Fasts Web
search unit of $70.0 million as well as capital expenditures of $60 million to
$70 million .

ACCOUNTING POLICIES SUBJECT TO ESTIMATION AND JUDGMENT

The discussion and analysis of our financial condition and results of
operations is 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 income tax, marketing-related agreements with our affiliates
and loss contingencies. 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 of the Notes of the Consolidated Financial Statements of our 2002
Form 10-K describes our significant accounting policies. We believe the
following accounting policies are subject to more significant judgments and
estimates used in the preparation of our consolidated financial statements.

Income Tax

Overture has foreign NOL carryforwards available to reduce future foreign
income taxes. These NOLs constitute a deferred tax asset. Currently, we
believe that it is more likely than not that our foreign NOLs will be realized.
Therefore, we have determined that no valuation allowance should be recorded at
March 31, 2003 to reduce the deferred tax asset associated with these NOLs. If
our international operations do not perform as expected, we could be required
to re-evaluate this position in future periods.

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 was determined at arms-length and
represents 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 was 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, traffic acquisition costs as a percentage of revenue
would have increased by less than 1% for the three months ended March 31, 2003.

Loss Contingencies

We are a defendant in several litigation matters. Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies requires an
estimated loss to be accrued when a loss is both probable and can be reasonably
estimated. We determine the probability of loss and the estimation of the
amount of loss through an analysis of potential results, considering a
combination of litigation and settlement strategies in consultation with
outside counsel.

RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

IN ORDER FOR OUR PAY-FOR-PERFORMANCE BUSINESS TO BE SUCCESSSFUL, WE MUST
CONTINUE TO MAINTAIN AND GROW OUR ADVERTISER, CONSUMER AND BUSINESS, AND
AFFILIATE CONSTITUENCIES

Our growth depends, in part, on the maintenance of a critical mass of
advertisers, consumers, affiliates and traffic generated by our sites. Such a
critical mass encourages increased participation in our Pay-For-Performance
search marketplace and our destination sites. To the extent that we experience
a decline in the growth or number of any one or all constituents, 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 would
seriously harm our revenues and business.

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Our ability to increase the volume of transactions on our service and the
amounts bid by our advertisers is dependent upon building and maintaining a
substantial base of advertisers and consumers. Many potential advertisers have
only limited experience advertising on the Internet and have not devoted a
significant portion of their advertising expenditures to Internet advertising.
Periodically, we introduce new initiatives, service programs or rules that
affect the bidding process, search term selection rules, editorial policies and
search methodology or other components of our services. Advertisers may dislike
the effect of these new initiatives, programs or changes which may cause
advertisers to cease advertising with us, or reduce their level of spending.
Advertisers may dislike new traffic sources Overture adds and cease advertising
with us or reduce their level of spending. Advertiser attrition or reduction
in advertiser spending could have a material adverse effect on our business.
Our affiliates may have specific rules that prohibit some advertisers from
participating in our services, which may affect our ability to maintain and
grow our advertiser base. In addition, our services may not achieve significant
acceptance by consumers. Among other things, because our Pay-For-Performance
services prioritize search results based on advertising bids associated with
keywords rather than other search and retrieval approaches, consumers may not
use this service because they perceive our results to be less objective or not
as relevant as those provided by other search methods. Failure to achieve and
maintain a large and active base of advertisers and consumers could have a
material adverse effect on our business, operating results and financial
condition.

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 our 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 users to our services is dependent upon the
growth of our affiliate network. Our success depends in part on the success
of, and our relationships with, our affiliates. As part of our ongoing
relationship with our affiliates, we may introduce new services, new
implementation and/or new variations of our services our affiliates may not
want. In addition, our affiliates may not regard us as significant for their
own businesses or they may regard us as competitors to their 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. Our success also depends in part on the success of our affiliates
and, in particular, their ability to generate search traffic. New third party
software developments and competition from companies with whom we do not have a
relationship may lead to deterioration of searches supplied to us by our
affiliates. If we are unable to successfully develop and maintain relationships
with affiliates and/or our affiliates search business deteriorates, 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 of one or more affiliates by competitors could harm our operating
results, cause us to lose our relationships with those affiliates, and reduce
our competitive position. For example, if a third party acquires one of our
affiliates, we may lose our relationship with our affiliate in favor of a
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
combined 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 a poor economic environment. This consolidation,
particularly among search sites, coupled with the recent increase in
competition, may place pressure our margins, which would harm our business.

WE MAY NOT BE SUCCESSFUL IN INTRODUCING NEW SERVICES

In connection with the recent acquisitions of the businesses of AltaVista
and Fasts Web search unit, we have begun offering algorithmic and paid
inclusion search services, both on a stand-alone basis and together with our
Pay-For-Performance search service. Although complementary to our existing
Pay-For-Performance business, these search services require different
technological and marketing capabilities, and present different risks, from our
existing business. We have limited experience in operating and marketing
algorithmic and paid inclusion search service businesses. Our success in these
new businesses depends in part on our relationships with existing users of such
algorithmic and paid inclusion search services and on the quality of such
search service, as well as our ability to successfully offer such services to
members of our affiliate network. If our affiliates or end-users of these
search services do not find our search results to be of high quality or do not
wish to use such services, our revenues or business could be adversely
affected. We may not be successful in maintaining the users of our search
site. If there is a continuing decline in our users, it may adversely affect
our business. In addition, the quality of our algorithmic search service
could impact demand for our Pay-For-Performance search services to the extent
that our affiliates choose to do business with only a single search provider.
In addition, in order to obtain and maintain demand for our new algorithmic
and paid inclusion search services, we must continually invest in improving
search relevance, speed and other aspects of our technology. If we do not
continually improve our overall search service, our business could be harmed.
Because some of these new products are unproven and rely on new technologies,
our forward-looking

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projections have a higher degree of uncertainty.

We also plan to launch several new services including local search,
contextual advertising and Web analytics in 2003. These initiatives are new
and untested. There may not be a demand for such services by any or all of our
constituents. If such services do not achieve market acceptance, our business
could be harmed.

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 users conducting
searches are members of our affiliate network, including portals, browsers, and
other affiliates and our Web sites. Revenue is generated from paid
introductions on advertisers listings and, generally, the more traffic from
any given source, the greater number of paid introductions we will generate.

During the three months ended March 31, 2003, we earned approximately 65%
of our total revenue from advertisers who received our paid introductions as
supplied by Microsoft (primarily msn.com and MSN Panel on Microsofts Internet
Explorer) and Yahoo. Unfavorable changes in our relationship with these
affiliates (including, but not limited to, a change in implementation or
placement permitted under our agreements with this affiliates) or loss of
either relationship would materially and adversely affect our revenue and
results of operations.

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
our affiliate agreements contain limitations and provide varying levels of
discretion to the affiliate in the implementation and placement of our service.
In addition, we have been, and are likely to be, dependent on searches from a
limited number of affiliates. Our constituents, including our affiliates,
advertisers and consumers may be averse to the implementations we enter into
with other affiliates or these affiliates distribution or presentation of our
services. Our agreements with our affiliates vary in duration, and depending on
the agreement, may be terminable upon the occurrence of certain events,
including for our failure to meet certain service levels, for material breaches
of agreement terms, for changes in control or in some instances, at will. Our
two largest affiliates, Microsoft and Yahoo may, in certain circumstances,
terminate their agreements with us upon a change of control in our ownership.
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 our affiliate
agreements, or if they are renewed, they may not be on as favorable terms. If
we are unable to replace traffic from any of our large affiliates, or if our
relationship with any of our larger affiliates deteriorates, it could seriously
harm our business, financial condition and results of operations. We depend on
our affiliates for searches and the loss of any of these affiliates could harm
our business, ability to generate revenue and operating results. In addition,
we may not be successful in entering into agreements with new affiliates on
commercially acceptable terms. As a result of the acquisition of AltaVista and
Fasts Web search unit, we now operate several destination search sites. If we
cannot maintain the traffic at these sites, our business could be harmed.

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

We face competition in three principal areas: (i) distribution of our
services; (ii) demand for our services on our affiliates
Web sites; and (iii)
usage of our services by advertisers.

We compete with companies that provide pay-per-click advertising services
that are similar to ours. These companies include Espotting Media, Inc.,
FindWhat, Google, Inc., PRIMEDIA (About.com) and Terra Lycos. In addition, we
cannot assure you that another search service will not successfully offer a
competitive pay-per-click advertising service. We believe it is likely that
there will be additional entrants to the pay-per-click search market, including
affiliates who are members of the Overture network. These new competitors will
likely compete against us for affiliate arrangements and could cause us to
enter into affiliate agreements with less favorable terms or lose current
affiliates or not acquire new affiliates, which could reduce our number of
click-throughs, increase the amount of revenue shared with affiliates, and
reduce total revenues and thereby have a material adverse effect on our
business, operating results and financial condition.

We also compete with providers of other search related services including,
among others, Espotting Media, Inc., Google, Inc., Inktomi, recently acquired
by Yahoo, MSN, Yahoo, AOL, Ask Jeeves, Infospace and LookSmart, Ltd.

Both Overture and our affiliates face competition for consumer traffic
within the search marketplace, which affects the number of

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paid click-throughs on our service and the price we share with our
affiliates for those click-throughs. If the consumers of these affiliates
prefer the services offered by the affiliates competitors with whom we do not
have a relationship, the businesses of our affiliates may suffer, which may in
turn have a material adverse effect on our business, operating results and
financial condition. In addition, many of our affiliates compete with one
another, and this may make it difficult for us to develop some affiliate
relationships.

We also compete with other providers of pay-per-click search services,
other search service, internet search providers, 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 and direct
marketing companies, for a share of advertisers total advertising budgets.
Accordingly, we may face increased pricing pressure for the sale of
advertisements and direct marketing opportunities, as well as a decrease in
demand for Overture services, which could have a material adverse effect on our
business, operating results and financial condition.

Some of our competitors, as well as potential entrants into our market,
have longer operating histories, larger consumer bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many 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 our
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, reduce the demand for our services and could have a
material adverse effect on our business, operating results and financial
condition.

WE DEPEND ON THE GROWTH OF THE INTERNET AND INTERNET INSTRASTRUCTURE FOR OUR
FUTURE GROWTH

We are completely dependent on online advertising and consumer search
services. 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
advertising is likely only if the Internet provides these businesses with
greater efficiencies and improvements.

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 affiliates to alleviate overloading and delayed
response times.

OUR ACQUISITIONS OF ALTAVISTA, FASTS WEB SEARCH UNIT, KEYLIME SOFTWARE AND
OTHER POTENTIAL ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS

We recently completed the acquisition of the business of AltaVista, Fasts
Web search unit and Keylime Software. In addition, we may make investments in
or acquire other complementary products, services, technologies and businesses.
These acquisitions and investments could disrupt our ongoing business, distract
our management and employees and increase our expenses. Acquisitions may expose
us to additional contingent liabilities. We could face difficulties in
assimilating the personnel and operations of the companies we have recently
acquired and those of any future acquisition. In addition, the key personnel of
the acquired companies 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. In addition,
the acquisitions have added approximately 275 employees in several countries.
Even assuming successful integration, we expect that the acquisitions will not
be accretive to our earnings until mid-2004. We cannot assure you that we will
be able to effectively integrate and operate the businesses of AltaVista and
Fasts Web Search unit.

If we finance future acquisitions by issuing equity securities, this would
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 the acquired
products, services, technology or business is ultimately worth.

WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE THE TECHNOLOGY AND SALES FORCES OF
KEYLIME,

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ALTAVISTA AND FASTS WEB SEARCH UNIT

In order to fully recognize the benefits of the acquisitions of Keylime,
AltaVista and Fasts Web search unit, we must integrate their technology into
our existing technology and integrate our sales forces. We cannot assure you
that we will successfully integrate these technologies and sales forces or that
the integration will take place within the planned timeframe and budget. The
research and development organizations are located in different locations,
which we expect will make integration more difficult. The integration of
technology and sales forces may distract our management and research and
development teams from the day-to-day operations of the Company and may cause
disruption in our relationships with affiliates. If we fail to effectively
integrate the technology or are not able to cross sell our products, we will
not receive the expected benefits of the acquisitions and it could adversely
affect our business and financial condition.

EXPANSION OF OUR BUSINESS MODEL WILL REQUIRE SIGNIFICANT INVESTMENT AND WE
CANNOT ASSURE YOU THAT THESE INVESTMENTS WILL BE PROFITABLE

Our current strategy involves significant investment, including investment
in our existing Pay-For-Performance business through the introductions of new
technologies aimed at improving advertiser acquisition and advertiser results,
expansion into additional international territories, expansion of our
distribution network of affiliates, both in the United States and internationally, and
introduction of new search products. This expansion will require us to enter
into new markets, continue research and development efforts, hire new personnel
and successfully attract new affiliates and advertisers. We cannot assure you
that the investments we make in these new strategies will successfully increase
our revenues and profits. In addition, the pursuit of multiple initiatives
may strain our management and make each of the individual initiatives more
risky. If improvements to our existing services and expansion into new
businesses are not successful, we believe our business will suffer.

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 variability in a number of factors, including:



| |  |  | demand for our services by advertisers, consumers and businesses,
including the number of searches performed by consumers and the rate at
which they click-through to paid search results;                                                                                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | prices paid by advertisers using our services which, aside from
minimum prices are not determined by Overture;                                                                                                                                                                    
|
| |  |  | decrease in traffic from our affiliates for any reason and over
which we may have limited or no control, including loss of our
agreements with affiliates or reduction in demand for the services of
affiliates or implementation and placement of our services by our
affiliates;
|
| |  |  | our costs of attracting consumers and businesses to use our
services, including traffic acquisition costs;                                                                                                                                                                        
|
| |  |  | costs related to agreements with affiliates;                                                                                                                                                                                                                                      
|
| |  |  | ability to protect our business model from competitors;                                                                                                                                                                                                                           
|
| |  |  | the percentage of our search listings that are bidded listings;                                                                                                                                                                                                                   
|
| |  |  | our ability to maintain and grow our affiliate program including
amendments, extensions or new affiliate agreements;                                                                                                                                                              
|
| |  |  | changes in the mix of commercial and non-commercial search queries on
the Internet;                                                                                                                                                                                               
|
| |  |  | 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;                                                                                                 
|
| |  |  | foreign exchange fluctuations;                                                                                                                                                                                                                                                    

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| |  |  | the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;                                                        
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | costs and delays in introducing any new services and improvements
to existing services;                                                                           
|
| |  |  | our ability to successfully introduce new products or services;                                                                                                   
|
| |  |  | changes in the growth rate of Internet usage and acceptance by
users of e-commerce;                                                                               
|
| |  |  | technical difficulties, system failures, system security breaches,
or Internet downtime, some of which may allow affiliates to terminate
their agreements with us;
|
| |  |  | laws, government regulations and judicial determinations related
to the Internet;                                                                                 
|
| |  |  | our ability to upgrade and develop our information technology
systems and infrastructure;                                                                         
|
| |  |  | our ability to successfully identify and integrate acquisitions;                                                                                                  
|
| |  |  | costs related to any acquisitions or dispositions of technologies
or businesses;                                                                                  
|
| |  |  | general economic and geopolitical conditions, as well as those
specific to the Internet and related industries;                                                   
|
| |  |  | ability to expand and compete internationally; and                                                                                                                
|
| |  |  | the timing, acceptance and impact of the release of new
monetization of search efforts.                                                                           

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
make assurances 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. In the past, we have 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 FUTURE OPERATIONS MORE
DIFFICULT

As a result of our limited operating history, it is difficult to
accurately forecast our revenue, and we have limited historical financial data
upon which to base planned operating expenses. We plan to increase our
operating expenses to expand internationally, expand our marketing and sales
operations, broaden our service, search montetization efforts and customer
support capabilities, as well as diversify our offerings. 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 terms users search on, 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 or for the loss of a significant revenue source. In addition, we have
only recently begun to expand internationally and create new and untested
products, which makes forecasting revenue, expenses and operating results even
more difficult. We also may be unable to

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increase our spending and expand our operations in a timely manner to
adequately meet user demand, to the extent such demand exceeds our
expectations.

WE 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 effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations and services. 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, as well as expanding our facilities. 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 acquisitions of AltaVistas business and Fasts Web
search unit will require us to effectively integrate and expand our
infrastructure.

In periods of significant growth, the hardware and software used to
operate our services may become obsolete faster than originally anticipated,
and we may be required to replace this hardware or software. As a result, we
may incur additional expenses to acquire new systems and may incur unplanned
charges for impairment or write-offs of obsolete assets. In addition, as our
service grows and new features and services are added to our existing software
platforms, we may be required to conduct a more significant redesign of our
software architecture. Such a redesign could be costly and any significant
software redesign presents additional risks of errors or systems failures.

WE FACE NEW AND ADDITIONAL RISKS IN INTERNATIONAL MARKETS AND WE MAY BE UNABLE
TO SUCCESSFULLY 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 search service for the
United Kingdom in November 2000, our German search service in February 2002,
our search service for France in September 2002, our search service for Japan
in December 2002 and our search service in South Korea in April 2003. We have
plans to launch in several additional international locations. 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 consumers and businesses in their country due to earlier
established businesses in that country, greater knowledge with respect to the
cultural differences of consumers and businesses 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 or lower advertiser spending 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 use our service;                                                                                                                                                                                                           
|
| |  |  | entering into affiliate agreements with guaranteed minimum payments
that may exceed our revenues;                                                                                                                                                                                                                                
|
| |  |  | 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 or may launch
or have launched in markets earlier than we do;

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| |  |  | click-through rates and price per paid introduction in international
markets may not be sufficient to recoup our costs;                                                                                                                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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;                                                                                                       
|
| |  |  | foreign laws and regulations, which may vary country by country, that
may impact how we conduct our business and provide search results;                                                                                                                                                    
|
| |  |  | 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;                                                                                                                                                            
|
| |  |  | potential adverse foreign tax consequences if taxing authorities in
various jurisdictions worldwide 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; and                                                                                                                                                                                                                                
|
| |  |  | economic downturns.                                                                                                                                                                                                                                                                         

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.

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 adversely affected. 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. The agreements we have with our advertisers 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 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 $11.1 million for the
three months ended March 31, 2003 and net income of $73.1 million and $20.2
million for the years ended December 31, 2002 and 2001, respectively, we had
net losses of $458.6 million for the year ended December 31, 2000. Because our
expense levels are relatively fixed in the short term and include guaranteed
payments to some of our affiliates, 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, general and administrative, research and
development and technology related expenses and we cannot be certain that
revenue 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.

WE FACE RISKS OF CLAIMS FOR OUR SERVICES, INCLUDING TRADEMARK INFRINGEMENT AND
SIMILAR CLAIMS FROM THIRD-PARTIES

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 JR Cigar, Mark
Nutritionals, PlasmaNet and Pets Warehouse that have alleged that allowing
advertisers to bid on certain search terms constitutes trademark infringement.

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The plaintiffs in these cases allege that they have trademark rights in
certain search terms and that we violate 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, could be awarded in one or more
of these lawsuits might have a material effect on our results of operations,
cash flow or financial position, we believe that we have meritorious defenses
to liability and damages in each of these lawsuits and we are contesting them
vigorously. If we 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 we are not a party that was negative to our position, we
might decide to change the general manner in which we accept bids on certain
search terms, and this change might have a material adverse effect upon our
results of operations, cash flows or financial position. Moreover, there can be
no assurance that courts will agree with our position in these cases.

If a court were to determine that the sale of advertising related to
certain search terms or that our processes to create search results via our
business model constitutes trademark infringement or some other form of
liability, it could negatively impact our revenues and business and we might,
as a result, decide to change the general manner in which we accept bids on
certain search terms or change other practices, and this change might have a
material adverse effect upon our results of operations, cash flows or financial
position.

There can be no assurance that our services do not infringe on 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.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY DAMAGE OUR BUSINESS

The laws and regulations applicable to the Internet, our services and the
territorial markets in which we operate are evolving. The application to our
business is unclear and, depending on how these laws and regulations are
changed or applied, could damage our business. There are currently relatively
few laws or regulations directly applicable to Internet access, commerce or
Internet search. Due to the increasing popularity and use of the Internet,
state and federal agencies and foreign governments are currently proposing, and
may in the future propose or adopt, additional laws and regulations regarding
the Internet or the conduct of business on the Internet. The laws and
regulations may cover issues such as user privacy, defamation, database
protection, user protection, pricing, taxation, content regulation (including,
for example, obscenity and gambling), quality of products and services, and
intellectual property ownership and infringement. In addition, we might be
required to comply with existing laws regulating or requiring licenses for
certain businesses of our advertisers including, for example, distribution of
pharmaceuticals, alcohol, tobacco or firearms, as well as insurance and
securities brokerage and legal services. These laws and regulations could
expose us to substantial compliance costs and 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 us to incur significant
expenses to comply with any new regulations. In response to these laws and
regulations, whether proposed or enacted, as well as public opinion, we may
also elect to limit the types of advertisers or advertisements included in its
search service, which could in turn decrease the desirability of our service
and reduce its revenues.

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. In
2002, the FTC staff issued guidance on the matter in the form of letters to the
petitioner and to members of the industry, including Overture and AltaVista
Company. 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 against us or any of our affiliates. If the
FTC were to take 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, Overture and some of our affiliates
have 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
services, which could adversely affect our business.

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 users 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

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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 or a change in industry standards,
regulations or laws or an adverse judicial determination could result in
liability or 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 our business.

In offering our current products and services, we collect information from
our advertisers, our users, and our advertisers users. Although users are not
required to provide personally identifiable information to initiate a search or
view search results, we do collect personally identifiable information from our
advertisers as part of servicing their account and from users when they
initiate contact with us. We may also have access to personally identifiable
information of our advertisers users, although we do not at this time retain
or store this personally identifiable information. Additionally, we may change
the way we collect, store or use information we collect from and about third
parties as we introduce new products and services. Any well-publicized misuse
of third party information we collect or collected by any other Internet
provider or a change in industry standards, regulation or laws or an adverse
judicial determination could result in liability or deter people from using our
services or the Internet to conduct transactions that involve transmitting
confidential information or downloading sensitive materials, or could cause us
to change the way we conduct our business, which would adversely affect the
business of our advertisers and, accordingly, our business.

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 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 and for the content of their advertisers listings is
currently unsettled and could damage our business. Our insurance policies may
not provide coverage for liability for activities of our users or advertisers
for the content of our listings. We may not successfully avoid civil or
criminal liability for unlawful activities carried out by consumers of our
service or for the content of our listings. Our potential liability for
unlawful activities of users of our service or for the content of our listings
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 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. In particular, the market for algorithmic search is characterized by
rapid technology change and innovation. We believe our future success will
depend on our ability to:



| |  |  | license and internally develop leading technologies useful in our business;
| | - |  | ---------------------------------------------------------------------------
|
| |  |  | enhance our existing services;                                             

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| |  |  | 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. We cannot assure you
that we will be able to timely address technological change in our
industry.

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. We rely on third parties to provide data
transmission capacity. Consolidations within this industry could impact our
system availability and could have an adverse effect on our business.
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, it could seriously harm our business. We have experienced
occasional systems interruptions in the past and we cannot assure you we will
not incur any such interruption in the future.

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

Our business is susceptible to natural disasters and other catastrophic
events. We have redundant hardware and software systems supporting our services
at an alternate site, which is part of our business continuity plan. A business
continuity plan is intended to mitigate interruptions of an indeterminate
length of time due to natural disasters and other catastrophic events such as
fire, flood, earthquake, power loss, telecommunications failure, or a similar
event. Despite these redundant systems, we cannot prevent outages and downtime
caused by natural disasters and other events out of our control, 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 California, Ireland and several other domestic
and international offsite locations managed by third parties.

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 implemented are adequate, the back-up servers could fail or cause
interruptions in our service and possibly even the termination of one or more
affiliate contracts.

A catastrophe in any of our business centers or serving sites, in
particular, those in 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 back-up sites
for our main U.S. and European customer operations centers and editorial
department which are located in California and Ireland. 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. Our California and Washington State sites exist
on or near known earthquake fault zones and a significant earthquake could
cause an interruption in our services. 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.

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 are bound by an employment agreement for any
specific term. If we lose the services of one or more of our key employees, or
if one or more of our executive officers or employees decide 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 NOT BE ABLE TO PROTECT OUR INTERNET DOMAIN NAMES OR INTELLECTUAL
PROPERTY RIGHTS UPON WHICH OUR BUSINESS RELIES

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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 names. 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.

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. Advance 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, may
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.

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

We require substantial working capital to fund our business. In addition,
our new business initiatives will require significant capital outlays relating
to integration of acquired businesses and research and development related to
new product offerings. If we raise additional funds through the issuance of
equity, equity-related or convertible debt securities, these securities may
have rights, preferences or privileges senior to those of the rights of our
common stock, and our stockholders may experience additional dilution. We
cannot be certain that additional financing will be available to us on
favorable terms when required, or at all. We experienced negative cash flow
from operations from our inception through the first quarter of 2001, and we
could experience negative cash flow from operations in the future. We currently
anticipate that our available funds will be sufficient to meet our anticipated
needs for working capital and capital expenditure at least through the next 12
months. However, we may choose to raise additional funds in the future.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of interest rate changes and foreign currency
fluctuations:

Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We have not used derivative financial
instruments in our investment portfolio. We invest our excess cash, according
to an investment policy, in high quality credit instruments, which are spread
over many issuers. Our 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 March 31, 2003, our fixed income investments had an
unrealized gain of $0.3 million. Assuming an average investment balance of
$243.6 million, if rates were to increase (decrease) by 100 basis points, this
would translate to an increase (decrease) in interest income of $2.4 million
annually.

Our international business is subject to risks typical of an international
business, including, but not limited to differing economic conditions, changes
in political climate, differing tax structures, 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.

Our exposure to foreign exchange rate fluctuations arises from
intercompany accounts in which costs incurred in the United States are charged
to our foreign subsidiaries or from funds transferred to foreign subsidiaries
to support expansion. We are also exposed to foreign exchange rate fluctuations
as the financial results of foreign subsidiaries are translated into U.S.
dollars in consolidation. As exchange rates vary, these results, when
translated, may vary from expectations and adversely impact overall expected
profitability. The effect of foreign exchange rate fluctuations on Overtures
results for the three months ended March 31, 2003 was not material.




ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this quarterly
report on Form 10-Q, our principal executive officer and principal financial
officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
Exchange Act) are effective to ensure that information required to be
disclosed in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.

Changes in internal controls. There were no significant changes in our
internal controls (relating to financial reporting) or in other factors that
could significantly affect these internal controls subsequent to the date such
internal controls were evaluated. There were no significant deficiencies or
material weaknesses in such internal controls for which corrective actions
should have been taken.




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

Overture is currently in separate litigations with Google and FindWhat in
which Overture is alleging that these parties infringe on our 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 respective parties, Google and FindWhat, have
alleged invalidity and unenforceability of the 361 Patent. In addition,
FindWhat has also alleged that the Company has violated the Sherman Act, 15
U.S.C. § 2. When the validity and enforceability of the 361 Patent is
determined, in either litigation, that determination may have a material effect
on our competitive position.

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The complaint against FindWhat was filed on January 25, 2002, in the United
States District Court for the Central District of California. The lawsuit
charges FindWhat with willful infringement of the 361 Patent. Overture 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 Overture with an amended complaint filed in the United States
District Court for the Southern District of New York for declaratory judgment
of invalidity, unenforceability and non-infringement relating to our 361
Patent. On February 13, 2003, the New York Court ordered FindWhats declaratory
judgment action to be transferred to the Central District of California.
Subsequently, after transfer, FindWhat dismissed its action in favor of the
Companys California action, which is now the only case pending between the
parties. FindWhat answered the Companys Complaint on March 25, 2003, and
asserted counterclaims alleging non-infringement, invalidity and
unenforceability of the Companys patent as well that Overture has violated the
Sherman Act, 15 U.S.C. § 2. On April 17, 2003, the Company filed its Reply and
denied the allegations of these counterclaims. The parties are now in the
initial phase of the discovery process.

The complaint against Google was filed on April 23, 2002 in the United
States District Court for the Northern District of California. The lawsuit
charges Google with willful infringement of the 361 Patent. Overture also
seeks a 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. On June 25, 2002, the Company filed its Reply and
denied the allegations of these counterclaims. On March 28, 2003 the Company
filed an Amended Complaint. On April 14, 2003 Google answered the amended
complaint and re-asserted its same counterclaims. The Company filed its reply
denying the allegations of these counterclaims. The parties continue to move
through the discovery process. A hearing regarding the interpretation of the
claims contained in the 361 Patent (commonly referred to as a Markman
hearing) currently is scheduled for October 2003.

Overture is a defendant in four trademark infringement actions (JR Cigar,
Mark Nutritionals, PlasmaNet and Pets Warehouse). In addition, AltaVista is
also a defendant in a trademark infringement action by Mark Nutritionals. The
plaintiffs in these cases allege that they have trademark rights in certain
search terms and that Overture violates these rights by allowing competitors of
the plaintiffs to bid on these search terms. The amount of damages that are
claimed and, if awarded, in one or more of these lawsuits might have a material
effect on our results of operations, cash flow or financial position. We
believe that we have meritorious defenses to liability and damages in each of
these lawsuits and we are contesting them vigorously. If Overture were to incur
one or more unfavorable judgments that in themselves are not material, or if
there were a development in the law in a similar case to which we are not a
party that was negative to Overtures position, we might as a result decide to
change the general manner in which we accept bids on certain search terms and
this change might have a material adverse effect upon the results of
operations, cash flows or our financial position.

The following sets forth the details concerning the five trademark cases that
have been filed against Overture based on its acceptance of bids on certain
search terms. The plaintiffs in each seek money damages, including attorneys
fees and costs.

|                 |  |                                                                      |  |                                                                                
|---------------- |  | -------------------------------------------------------------------- |  | -------------------------------------------------------------------------------
|Date Instituted  |  | Plaintiff                                                            |  | Venue                                                                          
|                 |  |                                                                      |  |                                                                                
|October 2, 2000  |  | 800-JR-Cigar, Inc.                                                   |  | United States District Court for the
District of New Jersey                    
|January 28, 2002 |  | Mark Nutritionals*                                                   |  | United States District Court for the Western
District of Texas                 
|April 23, 2002   |  | PlasmaNet, Inc.                                                      |  | United States District Court for the Southern
District of New York             
|October 8, 2002  |  | Robert Novak, doing business as Pets
Warehouse and PetsWarehouse.com |  | United States District Court for the Eastern
District of New York              
|January 28, 2002 |  | Mark Nutritionals* (AltaVista)                                       |  | United States District Court for the
District for the Western District of Texas

*  In September 2002, Mark Nutritionals filed for protection under Chapter
11 of the bankruptcy code, and in February 2003, the U.S. Trustee moved to
convert the filing to Chapter 7 of the bankruptcy code.

The following sets forth details regarding other litigation, which may be
material to Overture.

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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. In
December 2001, the Court transferred the case to arbitration. InternetFuel.com
thereafter supplemented its claims, alleging fraud under California law.

This matter was arbitrated in late December 2002 and early January 2003.
On January 10, 2003, the arbitrator issued an interim award. Although the
arbitrator found in Overtures favor on InternetFuels claims for fraud and
unfair business practices, the arbitrator found for InternetFuel on the breach
of contract claim and awarded InternetFuel $8.7 million. As a result of several
motions filed by Overture, on April 2, 2003, the Arbitrator issued a Corrected
Final Award, reducing the damage award against Overture to $4.8 million.
InternetFuel has petitioned the Court to confirm the Corrected Final Award and
is seeking post-award interest at a rate of 10% per annum. Overture has
opposed InternetFuels motion and has sought an order from the Court vacating
the arbitrators award. On May 5, 2003, the Court heard oral argument on the
parties motions. The Court ordered supplemental briefing, which will be
concluded by May 16, 2003. The Court will then issue a ruling on the parties
motions without further oral argument.

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. On July 15, 2002, the issuers filed an omnibus motion to dismiss for
failure to comply with applicable pleading standards. On October, 8, 2002, the
Court entered an Order of Dismissal as to all of the individual defendants in
the Overture IPO litigation, without prejudice. On February 19, 2003, the Court
denied the motion to dismiss the Rule 10b-5 claims against Overture. 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 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. On August 7, 2002, Overture
filed a motion to dismiss various claims contained in Did-Its counterclaim,
including claims for antitrust violations. On August 30, 2002, Did-It filed its
first amended counterclaim, which omitted some of the antitrust causes of
action contained in its initial counterclaim. On October 2, 2002, Overture
filed its answer to Did-Its first amended counterclaim. The parties are
entering the early phase of discovery. Overture believes that it has
meritorious defenses to the allegations contained in the counterclaim and is
contesting these allegations vigorously.

Overture has been named as a defendant in an action filed April 10, 2003,
in Federal Court in Massachusetts. Plaintiff MRT Micro ASA (MRT) asserts
ownership interest in certain technologies which it claims Fast Search and
Transfer, Inc. may be conveying to Overture in the course of Overtures
purchase of Fasts assets. In addition to a declaratory judgment that it is
the owner of the subject technologies, MRT is seeking to recover all proceeds
from the acquisition of Fasts assets, as well as preliminary and permanent
injunctions enjoining the acquisition of Fasts Web search unit by Overture.
In addition, MRT seeks to recover damages, its attorneys fees and costs.
Overture believes that it has meritorious defenses to the allegations directed
against it and intends to defend the action vigorously.

In August 2001, Jeffrey Black, a former employee of AltaVista, filed a
complaint in Superior Court of the State of California (Santa Clara County) in
his individual capacity as well as in his capacity as a trustee of two family
trusts against the AltaVista Company and CMGI, Inc. alleging certain claims
arising out of the termination of Mr. Blacks employment with AltaVista. As set
forth in the complaint, Mr. Black is seeking monetary damages in excess of $70
million. AltaVista believes that these claims are without merit and plans to
vigorously defend against these claims. In March 2002, the Court ordered the
entire case to binding arbitration in California. In June 2002, Mr. Black
petitioned the California Court of Appeal for a writ prohibiting enforcement of
the order compelling arbitration of his cause of action for wrongful
termination in violation of public policy. In July 2002, the Court of Appeal
denied Mr. Blacks petition. In August 2002, Mr. Black submitted the matter to
the American Arbitration Association. An

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arbitrator was appointed in January 2003 and an arbitration hearing is
tentatively scheduled for August 2003. The parties have commenced discovery.

On March 11, 2002, Sean Barger filed suit in Superior Court of the State
of California against AltaVista and a number of other defendants alleging (1)
violation of state securities statutes, (2) fraudulent inducement, deceit,
fraud, (3) negligent misrepresentation, (4) unfair competition and (5) breach
of fiduciary duty. Mr. Barger is claiming an unspecified amount of damages.
Mr. Barger was the principal shareholder of Equilibrium Technologies, Inc.
(Equilibrium) which was a company purchased by AltaVistas majority
shareholder, CMGI, Inc. Mr. Barger claims that AltaVista and the other
defendants made false representations to induce him to allow Equilibrium to be
acquired by CMGI. The Court has dismissed without leave to amend Mr. Bargers
claim for breach of fiduciary duty. AltaVista is in the process of answering
interrogatories. No trial date has been scheduled. AltaVista believes it has
meritorious defenses to Mr. Bargers amended complaint and intends to contest
the allegations vigorously.

The Irish subsidiary of AltaVista doing
business in the United Kingdom
filed suit against Fraserside Holdings Limited or, in the alternative
against Private Media Group, Inc., claiming damages for procurement of
or inducement of breach of contract for Frasersides failure to
pay for the performance of services including display of
advertisements by the Irish subsidiary. The suit seeks approximately
$2.6 million in unpaid fees, interest and costs. The suit was
instituted in the Chancery Division of the High Court of Justice in
England on December 6, 2001. On March 21, 2002 Fraserside
served a defense, and counterclaim for breach of contract alleging
damages of at least $2.7 million and other unspecified damages
relating to the contract. Private served a substantially identical
defense on March 27, 2002. We believe we have meritorious
defenses to the counterclaims and are vigorously defending against
them.

On April 7, 2003, AltaVista was served with a complaint to avoid
preferential transfers that was filed in the United States Bankruptcy Court,
Northern District of Illinois. MarchFirst filed a voluntary bankruptcy petition
on April 12, 2001 and on July 16, 2001 a Trustee was appointed under chapter 7
of the Bankruptcy Code. The Trustee seeks return of payments of $0.6 million
that AltaVista received within 90 days of the filing of the bankruptcy petition.
These payments were in connection with advertisements displayed on AltaVistas
Web site on behalf of MarchFirst advertisers. AltaVista has provided the
Trustee with a letter outlining defenses against the demand because these
payments were made in the ordinary course and were earmarked for payment to
AltaVista. We believe we have meritorious defenses to the complaint and are
vigorously defending this matter.

We may also be subject to litigation brought against us in the ordinary
course of business.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

None

(b) Reports on Form 8-K.

The Company filed a Current Report on Form 8-K dated January 22, 2003 to
report, under Item 5 thereof, that Overture issued a press release updating
their financial forecast for the fourth quarter .

The Company filed a Current Report on Form 8-K dated February 19, 2003 to
report, under Item 5 thereof, that Overture issued a press release announcing
the agreement to acquire AltaVistas business for $60.0 million in cash and
approximately $80.0 million in stock.

The Company filed a Current Report on Form 8-K dated February 21, 2003 to
report, under Item 5 thereof, that Overture and the AltaVista
Company announced
that they signed a definitive agreement to acquire AltaVistas business for
$60.0 million in cash and approximately $80.0 million in stock. Overture
agreed to file a registration statement for the resale of the shares to be
issued to AltaVista. Overture announced that the transaction is expected to
close in April 2003.

The Company filed a Current Report on Form 8-K dated February 26, 2003 to
report, under Item 5 thereof, that Overture issued a press release announcing
the agreement to acquire the Web search unit of Norway-based Fast Search and
Transfer (Fast), a developer of search and real-time filtering technologies,
for $70.0 million in cash, plus a potential performance-based cash incentive
payment of up to $30 million over three years.

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The Company filed a Current Report on Form 8-K dated April 23, 2003 to
report, under Item 9 thereof, that Overture issued a press release for
Overtures first quarter results of operations and financial position.

The Company filed a Current Report on Form 8-K dated April 21, 2003 to
report, under Item 2 thereof, that Overture completed the purchase of the Web
search unit of Fast Search and Transfer (Fast), a Norway based developer of
search and real-time filtering technologies, for approximately $70.0 million in
cash, as well as a contingent performance-based cash incentive payment of up to
$30 million over three years.

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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: May 7, 2003 |  | OVERTURE SERVICES, INC.
|                  |  |                         |  |                                                                                              
|                  |  |                         |  |                                                                                              
|                  |  | By                      |  | /s/ Todd Tappin                                                                              
|                  |  |                         | 
|                  |  |                         |  | Todd Tappin
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)

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I, Ted Meisel, certify that:



| | 1. I have reviewed this quarterly report on Form 10-Q of Overture Services,
Inc.;                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|
| | 3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|
| | 4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                     



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



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



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



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

|                  |  |                                                  
|----------------- |  | -------------------------------------------------
|Date: May 7, 2003 |  | /s/ Ted Meisel
Ted Meisel
Chief Executive Officer

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##### Table of Contents



I, Todd Tappin, certify that:



| | 1. I have reviewed this quarterly report on Form 10-Q of Overture
Services, Inc.;                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|
| | 3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;                   
|
| | 4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                     



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



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



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



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

|                  |  |                                                    
|----------------- |  | ---------------------------------------------------
|Date: May 7, 2003 |  | /s/ Todd Tappin
Todd Tappin
Chief Financial Officer

37



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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                    
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                    
|NUMBER  |  |                                                                                                                                    
|        |  |                                                                                                                                    
|99.1    |  | Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

38