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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 September 30, 2002

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 [   ]

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date:

58,419,157 shares of Common Stock,$0.0001 par value, as of September 30, 2002.



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TABLE OF CONTENTS



|                              |                                                                                                |                                                      |  |  |  |  |  | 
|----------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                  
|                              |                                                                                                | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                                | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                                | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                                | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4.  CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 1.  LEGAL PROCEEDINGS                                                                    
|                              | ITEM 5.  OTHER INFORMATION                                                                    
|                              | ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K [UPDATE]                                            
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 10.1                 
|EXHIBIT 10.2                 
|EXHIBIT 10.3                 
|EXHIBIT 99.1                 



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OVERTURE SERVICES, INC.

TABLE OF CONTENTS

|        |  |                                                                                       |  |                                                                                                                 |  |          |  | 
|------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | -------- |  | 
|        |  |                                                                                       |  |                                                                                                                 |  | PAGE NO.
|        |  |                                                                                       |  |                                                                                                                 |  |         
|PART I  |  | FINANCIAL INFORMATION                                                                 |  |                                                                                                                 |  |         
|Item 1. |  | Financial Statements:                                                                 |  |                                                                                                                
|        |  |                                                                                       |  | Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001                            |  | 3       
|        |  |                                                                                       |  | Condensed Consolidated Statements of Operations for the three and nine months ended September 30,
2002 and 2001 |  | 4       
|        |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002
and 2001           |  | 5       
|        |  |                                                                                       |  | Notes to Condensed Consolidated Financial Statements                                                            |  | 6       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11                                                                                                             
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 29                                                                                                             
|Item 4. |  | Controls and Procedures                                                               |  | 29                                                                                                             
|PART II |  | OTHER INFORMATION                                                                     |  |                                                                                                                 |  |         
|Item 1. |  | Legal Proceedings                                                                     |  | 29                                                                                                             
|Item 5. |  | Other Information                                                                     |  | 31                                                                                                             
|Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 32                                                                                                             

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PART I  FINANCIAL INFORMATION




ITEM 1.  FINANCIAL STATEMENTS




OVERTURE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)

|                                                               |                                                                                                                                                                                                                           |   |               |          |              |   |         |          |  
|-------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | -------- | ------------ | - | ------- | -------- | -
|                                                               |                                                                                                                                                                                                                           |   | September 30, |          | December 31,
|                                                               |                                                                                                                                                                                                                           |   | 2002          |          | 2001        
|                                                               |                                                                                                                                                                                                                           |   |               |          |             
|                                                               |                                                                                                                                                                                                                           |   | (unaudited)   |          |              |   |        
|ASSETS                                                         |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|CURRENT ASSETS:                                                |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|                                                               | Cash and cash equivalents                                                                                                                                                                                                 |   | $             | 60,521   |              |   | $       | 61,974   |  
|                                                               | Short-term investments                                                                                                                                                                                                    |   |               | 127,820  |              |   |         | 71,837   |  
|                                                               | Accounts receivable, net                                                                                                                                                                                                  |   |               | 25,713   |              |   |         | 10,973   |  
|                                                               | Prepaid expenses, deferred tax assets and other                                                                                                                                                                           |   |               | 15,246   |              |   |         | 1,920    |  
|                                                               | Prepaid traffic acquisition expense                                                                                                                                                                                       |   |               | 15,345   |              |   |         | 8,590    |  
|                                                               |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|Total current assets                                           |                                                                                                                                                                                                                           |   | 244,645       |          |              |   | 155,294 |         
|                                                              
|Property and equipment, net                                    |                                                                                                                                                                                                                           |   | 52,019        |          |              |   | 27,966  |         
|Intangible assets, net                                         |                                                                                                                                                                                                                           |   | 1,467         |          |              |   | 2,042   |         
|Restricted investments                                         |                                                                                                                                                                                                                           |   |              |          |              |   | 5,744   |         
|Long-term investments                                          |                                                                                                                                                                                                                           |   | 32,659        |          |              |   | 36,476  |         
|Long-term prepaid traffic acquisition expense and other assets |                                                                                                                                                                                                                           |   | 38,905        |          |              |   | 4,405   |         
|                                                               |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|Total assets                                                   |                                                                                                                                                                                                                           | $ | 369,695       |          |              | $ | 231,927 |         
|                                                               |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY                           |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|CURRENT LIABILITIES:                                           |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|                                                               | Accounts payable                                                                                                                                                                                                          |   | $             | 66,800   |              |   | $       | 38,111   |  
|                                                               | Accrued expenses                                                                                                                                                                                                          |   |               | 11,535   |              |   |         | 5,271    |  
|                                                               | Deferred revenue                                                                                                                                                                                                          |   |               | 13,202   |              |   |         | 8,949    |  
|                                                               | Current portion of capital lease obligations                                                                                                                                                                              |   |               |         |              |   |         | 89       |  
|                                                               |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|Total current liabilities                                      |                                                                                                                                                                                                                           |   | 91,537        |          |              |   | 52,420  |         
|Long-term liabilities                                          |                                                                                                                                                                                                                           |   |              |          |              |   | 64      |         
|                                                               |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|STOCKHOLDERS EQUITY:                                          |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|                                                               | Common stock, $0.0001 par value, 200,000 shares authorized as of
September 30, 2002 and December 31, 2001; shares issued and
outstanding  58,419 and 57,616 as of September 30, 2002 and
December 31, 2001, respectively |   |               | 6        |              |   |         | 6        |  
|                                                               | Additional paid-in capital                                                                                                                                                                                                |   |               | 695,463  |              |   |         | 662,039  |  
|                                                               | Deferred compensation, net                                                                                                                                                                                                |   |               | (409     | )            |   |         | (763     | )
|                                                               | Accumulated deficit                                                                                                                                                                                                       |   |               | (418,229 | )            |   |         | (481,863 | )
|                                                               | Accumulated other comprehensive income                                                                                                                                                                                    |   |               | 1,327    |              |   |         | 24       |  
|                                                               |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|Total stockholders equity                                     |                                                                                                                                                                                                                           |   | 278,158       |          |              |   | 179,443 |         
|                                                               |                                                                                                                                                                                                                           |   |               |          |              |   |         |         
|Total liabilities and stockholders equity                     |                                                                                                                                                                                                                           | $ | 369,695       |          |              | $ | 231,927 |         
|                                                               |                                                                                                                                                                                                                           |   |               |          |              |   |         |         

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

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

|                                                                            |                                                             |   |                    |         |                   |   |        |        |      |   |         |         |  |   |         |         | 
|--------------------------------------------------------------------------- | ----------------------------------------------------------- | - | ------------------ | ------- | ----------------- | - | ------ | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                            |                                                             |   | Three Months Ended |         | Nine Months Ended
|                                                                            |                                                             |   | September 30,      |         | September 30,    
|                                                                            |                                                             |   |                    |         |                  
|                                                                            |                                                             |   | 2002               |         | 2001              |   | 2002   |        | 2001
|                                                                            |                                                             |   |                    |         |                   |   |        |        |     
|Revenue                                                                     |                                                             | $ | 172,749            |         |                   | $ | 72,523 |        |      | $ | 468,090 |         |  | $ | 186,945 |        
|Operating expenses:                                                         |                                                             |   |                    |         |                   |   |        |        |      |   |         |         |  |   |         |        
|                                                                            | Search serving                                              |   |                    | 8,303   |                   |   |        | 6,050  |      |   |         | 22,997  |  |   |         | 15,920  | 
|                                                                            | Traffic acquisition                                         |   |                    | 101,391 |                   |   |        | 38,551 |      |   |         | 259,831 |  |   |         | 110,161 | 
|                                                                            | Marketing, sales and service                                |   |                    | 15,216  |                   |   |        | 6,412  |      |   |         | 39,083  |  |   |         | 20,015  | 
|                                                                            | General and administrative                                  |   |                    | 19,427  |                   |   |        | 10,769 |      |   |         | 53,058  |  |   |         | 31,887  | 
|                                                                            | Product development                                         |   |                    | 4,505   |                   |   |        | 2,768  |      |   |         | 13,877  |  |   |         | 9,707   | 
|                                                                            | Amortization of deferred compensation and intangible assets |   |                    | 411     |                   |   |        | 505    |      |   |         | 1,230   |  |   |         | 1,552   | 
|                                                                            | Loss on disposition of GoTo Auctions and GoTo Shopping      |   |                    |        |                   |   |        |       |      |   |         |        |  |   |         | 3,611   | 
|                                                                            |                                                             |   |                    |         |                   |   |        |        |      |   |         |         |  |   |         |        
|                                                                            |                                                             |   | 149,253            |         |                   |   | 65,055 |        |      |   | 390,076 |         |  |   | 192,853 |        
|                                                                            |                                                             |   |                    |         |                   |   |        |        |      |   |         |         |  |   |         |        
|Income (loss) from operations                                               |                                                             |   | 23,496             |         |                   |   | 7,468  |        |      |   | 78,014  |         |  |   | (5,908  | )      
|Other income:                                                               |                                                             |   |                    |         |                   |   |        |        |      |   |         |         |  |   |         |        
|                                                                            | Interest income, net                                        |   |                    | 1,056   |                   |   |        | 1,177  |      |   |         | 2,893   |  |   |         | 2,965   | 
|                                                                            | Other income, net                                           |   |                    | 85      |                   |   |        | 479    |      |   |         | 932     |  |   |         | 2,488   | 
|                                                                            |                                                             |   |                    |         |                   |   |        |        |      |   |         |         |  |   |         |        
|Income (loss) before income taxes                                           |                                                             |   | 24,637             |         |                   |   | 9,124  |        |      |   | 81,839  |         |  |   | (455    | )      
|Provision for income taxes                                                  |                                                             |   | 7,776              |         |                   |   | 150    |        |      |   | 18,205  |         |  |   | 150     |        
|                                                                            |                                                             |   |                    |         |                   |   |        |        |      |   |         |         |  |   |         |        
|Net income (loss)                                                           |                                                             | $ | 16,861             |         |                   | $ | 8,974  |        |      | $ | 63,634  |         |  | $ | (605    | )      
|                                                                            |                                                             |   |                    |         |                   |   |        |        |      |   |         |         |  |   |         |        
|Basic net income (loss) per share                                           |                                                             | $ | 0.29               |         |                   | $ | 0.16   |        |      | $ | 1.10    |         |  | $ | (0.01   | )      
|                                                                            |                                                             |   |                    |         |                   |   |        |        |      |   |         |         |  |   |         |        
|Diluted net income (loss) per share                                         |                                                             | $ | 0.28               |         |                   | $ | 0.15   |        |      | $ | 1.06    |         |  | $ | (0.01   | )      
|                                                                            |                                                             |   |                    |         |                   |   |        |        |      |   |         |         |  |   |         |        
|Weighted average shares used to compute basic net income (loss) per share   |                                                             |   | 58,199             |         |                   |   | 55,552 |        |      |   | 57,897  |         |  |   | 52,225  |        
|Weighted average shares used to compute diluted net income (loss) per share |                                                             |   | 60,098             |         |                   |   | 58,324 |        |      |   | 60,291  |         |  |   | 52,225  |        

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)

|                                                             |                                                                                          |                                                     |        |                   |         |      |        |         |        |  
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ----------------- | ------- | ---- | ------ | ------- | ------ | -
|                                                             |                                                                                          |                                                     |        | Nine Months Ended
|                                                             |                                                                                          |                                                     |        | September 30,    
|                                                             |                                                                                          |                                                     |        |                  
|                                                             |                                                                                          |                                                     |        | 2002              |         | 2001
|                                                             |                                                                                          |                                                     |        |                   |         |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                                          |                                                     |        |                   |         |      |        |        
|                                                             | Net income (loss)                                                                        |                                                     | $      | 63,634            |         |      | $      | (605    | )     
|                                                             | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                     |        |                   |         |      |        |         |       
|                                                             |                                                                                          | Tax benefits from stock options                     |        |                   | 18,206  |      |        |         |       |  
|                                                             |                                                                                          | Loss from sale of property and equipment            |        |                   | 1,059   |      |        |         |       |  
|                                                             |                                                                                          | Unrealized losses from investments                  |        |                   | 642     |      |        |         | 72     |  
|                                                             |                                                                                          | Non-cash portion of closure and disposition charges |        |                   |        |      |        |         | 2,999  |  
|                                                             |                                                                                          | Depreciation and amortization                       |        |                   | 15,803  |      |        |         | 11,986 |  
|                                                             | Changes in operating assets and liabilities:                                             |                                                     |        |                   |         |      |        |         |       
|                                                             |                                                                                          | Accounts receivable                                 |        |                   | (14,740 | )    |        |         | (2,517 | )
|                                                             |                                                                                          | Prepaid expenses, deferred tax assets and other     |        |                   | (12,349 | )    |        |         | (1,268 | )
|                                                             |                                                                                          | Prepaid traffic acquisition expense                 |        |                   | (40,175 | )    |        |         | 9,855  |  
|                                                             |                                                                                          | Accounts payable and accrued expenses               |        |                   | 34,889  |      |        |         | 4,183  |  
|                                                             |                                                                                          | Deferred revenues                                   |        |                   | 4,253   |      |        |         | 2,569  |  
|                                                             |                                                                                          |                                                     |        |                   |         |      |        |        
|                                                             | Net cash provided by operating activities                                                |                                                     |        | 71,222            |         |      |        | 27,274  |       
|                                                             |                                                                                          |                                                     |        |                   |         |      |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                                          |                                                     |        |                   |         |      |        |        
|                                                             | Purchases of short-term and long-term investments, net                                   |                                                     |        | (46,820           | )       |      |        | (17,300 | )     
|                                                             | Capital expenditures for property and equipment, and other assets                        |                                                     |        | (41,066           | )       |      |        | (15,877 | )     
|                                                             |                                                                                          |                                                     |        |                   |         |      |        |        
|                                                             | Net cash used in investing activities                                                    |                                                     |        | (87,886           | )       |      |        | (33,177 | )     
|                                                             |                                                                                          |                                                     |        |                   |         |      |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                                          |                                                     |        |                   |         |      |        |        
|                                                             | Proceeds from issuance of common stock, net                                              |                                                     |        | 14,241            |         |      |        | 65,531  |       
|                                                             | Repayments under lease line                                                              |                                                     |        | (89               | )       |      |        | (666    | )     
|                                                             |                                                                                          |                                                     |        |                   |         |      |        |        
|                                                             | Net cash provided by financing activities                                                |                                                     |        | 14,152            |         |      |        | 64,865  |       
|Effect of exchange rate changes on cash and cash equivalents |                                                                                          |                                                     | 1,059  |                   |         |      | 50     |        
|Net increase (decrease) in cash and cash equivalents         |                                                                                          |                                                     | (1,453 | )                 |         |      | 59,012 |        
|Cash and cash equivalents at beginning of period             |                                                                                          |                                                     | 61,974 |                   |         |      | 12,986 |        
|                                                             |                                                                                          |                                                     |        |                   |         |      |        |        
|Cash and cash equivalents at end of period                   |                                                                                          | $                                                   | 60,521 |                   |         | $    | 71,998 |        
|                                                             |                                                                                          |                                                     |        |                   |         |      |        |        

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

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OVERTURE SERVICES, INC.




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | THE COMPANY, BASIS OF PRESENTATION
|-- |  | ----------------------------------

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

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

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

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

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

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



|2. |  | COMPREHENSIVE INCOME (LOSS)
|-- |  | ---------------------------

The Company accounts for comprehensive income (loss) using Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting comprehensive income (loss)
and its components in financial statements. Comprehensive income (loss), as
defined therein, refers to revenues, expenses, gains and losses that are not
included in net income (loss) but rather are recorded directly in stockholders
equity. The differences between total comprehensive income and net income
(loss) for the nine months ended September 30, 2002 and September 30, 2001 were
approximately $1.3 million and $250,000, respectively.



|3. |  | EARNINGS (LOSS) PER SHARE COMPUTATION
|-- |  | -------------------------------------

Shares used in computing basic and diluted net income (loss) per share are
based on the weighted average shares outstanding in each period. Basic net
income (loss) per share is calculated by dividing net income (loss) by the
average number of outstanding shares during the period. Diluted net income
(loss) per share is calculated by adjusting the average number of outstanding
shares assuming conversion of all potentially dilutive stock options and
unvested stock under the treasury stock method. For the nine months ended
September 30, 2001, potentially dilutive stock options and unvested stock were
excluded from the calculation of diluted net loss per share, as their effect
would be anti-dilutive.

Options to purchase
approximately 9.1 million and 7.9 million shares of
common stock were outstanding as of September 30, 2002 and 2001, respectively.
In addition, as of September 30, 2002, there were approximately 51,000 shares
of unvested common stock outstanding, which are subject to repurchase by
Overture.

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

Overture generated taxable income during the nine months ended September 30,
2002, however a tax provision was recorded that was less than the statutory
rate due to the benefit from the release of the valuation
allowance relating to deferred tax assets. As of December 31, 2001, Overture had net operating loss (NOL)
carryforwards available to reduce future federal and state taxable income.
These NOLs and temporary differences (difference between timing of the
recognition on a Generally Accepted Accounting Principle basis versus a tax
basis) were carried on the balance sheet as deferred tax assets. Financial
Accounting Statement Standard No. 109, Accounting for Income Taxes (SFAS 109)
requires that a valuation allowance be set up to reduce a deferred tax asset to
the extent it is more likely than not that the related tax benefits will not be
realized. Due to the uncertainty regarding if and when these NOLs would be
utilized and temporary differences would reverse, a full valuation allowance
was set up against the related deferred tax asset, resulting in a net zero
balance for deferred tax assets as of December 31, 2001. The valuation
allowance was released during fiscal 2002 based on the expectation of future
income from our ordinary and recurring operations and our assessment that the
utilization of available tax deductions was more likely than not.

Because the utilization of other deferred tax assets related to future
years, the release of the related valuation allowance was considered a discrete
event and the tax benefits were required to be recorded during the three months
ended March, 31, 2002. Therefore, no tax provision was recorded in the three
months ended March 31, 2002. There were remaining NOL benefits, of which 100%
are expected to be taken as a benefit against projected income before taxes for
2002. The Company had a tax provision of approximately
$7.8 million for the three months ended September 30, 2002, which was lower
than federal and state statutory rates.

We have deductions that resulted from the exercise of certain
stock options and sale of certain related stock by employees. Because no book
charge is recorded upon the generation of these deductions, the corresponding
tax benefits are recorded directly to stockholders equity. However, these
deductions will offset taxable income, to the extent available, upon filing the
Companys corporate income tax returns resulting in a cash
benefit. In September 2002, the state of California passed legislation suspending
the use of the operating loss carryforwards for the 2002 and 2003 tax years.
The legislation added two years to the carryforward period for these losses.
As a result, Overture will not be able to utilize its California net operating
loss carryforwards during 2002 and 2003 against its expected current tax
liabilities.

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

|                                                    |  |                   |     |      |  |  |     |   
|--------------------------------------------------- |  | ----------------- | --- | ---- |  |  | --- | --
|                                                    |  | Nine Months Ended
|                                                    |  | September 30,    
|                                                    |  |                  
|                                                    |  | 2002              |     | 2001
|                                                    |  |                   |     |     
|Statutory federal rate                              |  |                   | 35  | %    |  |  | (35 | )%
|State income taxes (net of federal benefit)         |  |                   | 5   |      |  |  |    |   
|Valuation allowance                                 |  |                   | (19 | )    |  |  | 35  |   
|Effect of foreign losses benefited at varying rates |  |                   | 4   |      |  |  |    |   
|Other                                               |  |                   | (3  | )    |  |  |    |   
|                                                    |  |                   |     |      |  |  |     |   
|                                                    |  |                   | 22  | %    |  |  |    | % 
|                                                    |  |                   |     |      |  |  |     |   

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

|          |         |                |       |                    |        |                   |   |      |   |      |        |        |        |   |   |   |   | 
|--------- | ------- | -------------- | ----- | ------------------ | ------ | ----------------- | - | ---- | - | ---- | ------ | ------ | ------ | - | - | - | - | 
|          |         |                |       | Three Months Ended |        | Nine Months Ended
|          |         |                |       | September 30,      |        | September 30,    
|          |         |                |       |                    |        |                  
|          |         |                |       | 2002               |        | 2001              |   | 2002 |   | 2001
|          |         |                |       |                    |        |                   |   |      |   |     
|Current:  |         |                |       |                    |        |                   |   |      |   |      |        |        |        |   |   |  
|          | Federal |                | $     | 5,298              |        |                   | $ |     |   |      | $      | 21,716 |        |   | $ |  |  
|          | State   |                |       | 4,086              |        |                   |   |     |   |      |        | 5,970  |        |   |   |  |  
|          |         |                |       |                    |        |                   |   |      |   |      |        |        |        |   |   |  
|          |         | Total current  |       |                    | 9,384  |                   |   |      |  |      |        |        | 27,686 |   |   |   |  | 
|          |         |                |       |                    |        |                   |   |      |   |      |        |        |        |   |   |  
|Deferred: |         |                |       |                    |        |                   |   |      |   |      |        |        |        |   |   |  
|          | Federal |                |       |                   |        |                   |   |     |   |      |        | (4,795 | )      |   |   |  |  
|          | State   |                |       | (1,608             | )      |                   |   |     |   |      |        | (2,165 | )      |   |   |  |  
|          | Foreign |                |       |                   |        |                   |   |     |   |      |        | (2,521 | )      |   |   |  |  
|          |         |                |       |                    |        |                   |   |      |   |      |        |        |        |   |   |  
|          |         | Total deferred |       |                    | (1,608 | )                 |   |      |  |      |        |        | (9,481 | ) |   |   |  | 
|          |         |                |       |                    |        |                   |   |      |   |      |        |        |        |   |   |  
|          |         | $              | 7,776 |                    |        | $                 |  |      |   | $    | 18,205 |        |        | $ |  |  
|          |         |                |       |                    |        |                   |   |      |   |      |        |        |        |   |   |  

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

The Company is a defendant in four trademark infringement actions (JR
Cigar, Mark Nutritionals (MNI), PlasmaNet, and Pets Warehouse). The plaintiffs
in these cases allege that they have trademark rights in certain search terms
and that the Company violates these rights by allowing competitors of the
plaintiffs to bid on these search terms. While the amount of damages that are
claimed and that in the worst case could be 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 was a
development in the law in a similar case to which the Company is not a party
that was negative to the Companys position, the Company might as a result
decide to change the general manner in which it accepts bids on certain search
terms and this change might have a material adverse effect upon the results of
operations, cash flows or financial position of the Company.

The Company is also currently in separate litigations with Google and
FindWhat in which the Company is alleging that these parties infringe the
Companys U.S. Patent No. 6,269,361 (the 361 patent) entitled System And
Method For Influencing A Position On A Search Result List Generated By A
Computer Network Search Engine. The 361 patent protects various features and
innovations relating to bid-for-placement products and Overtures
Pay-For-Performance search technologies, including our DirecTraffic Center
account management system and tools. In each litigation, the defendants have
alleged invalidity and unenforceability of the 361 patent. When the validity
and enforceability of the 361 patent is determined, in either litigation, that
determination may have a material effect on the Companys competitive position.

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

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

On June 19, 2001, InternetFuel.com, Inc. filed a complaint against
Overture in the Superior Court of the State of California for the County of Los
Angeles. The complaint alleges that Overture wrongfully terminated an agreement
pursuant to which InternetFuel participated in Overtures affiliate program and
that Overture did not properly account for monies owed under that agreement.
The complaint also alleges libel for messages allegedly placed by Overture on
an Internet forum, and it contains claims of unfair business practices. The
complaint seeks, among other remedies, monetary damages for the value of the
terminated agreement and for alleged harm to InternetFuels reputation,
punitive and exemplary relief and an injunction against alleged unfair business
practices. In December 2001, Overture successfully moved the court to transfer
the case to arbitration. InternetFuel.com recently supplemented its
claims, alleging fraud under California law. Arbitration
is currently scheduled for December 2002. Overture believes that it has
meritorious defenses to the allegations and is contesting the allegations
vigorously.

On July 12, 2001, the first of several purported securities class action
lawsuits was filed in the United States District Court, Southern District of
New York against certain underwriters involved in Overtures initial public
offering, Overture, and certain of Overtures current and former officers and
directors. The Court consolidated the cases against Overture into case number
01 Civ. 6339. Plaintiffs allege, among other things, violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934 involving
undisclosed compensation to the underwriters, and improper practices by the
underwriters, and seek unspecified damages. Similar complaints were filed in
the same court against numerous public companies that conducted initial public
offerings of their common stock since the mid-1990s. All of these lawsuits were
consolidated for pretrial purposes before Judge Shira Scheindlin. On April 19,
2002, plaintiffs filed an amended complaint, alleging Rule 10b-5 claims of
fraud. 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. 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 January 25, 2002, the Company filed a complaint for patent infringement
against FindWhat.com (FindWhat) in the United States District Court for the
Central District of California. The lawsuit charges FindWhat with willful
infringement of the 361 patent.

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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. (The original complaint was never served
on the Company.) The Company has moved to dismiss FindWhats New York action in
favor of the Companys California action. Discovery is stayed in both cases
pending a ruling by the New York court on the motion.

On January 28, 2002, MNI filed a complaint against the Company in the
United States District Court for the Western District of Texas. The initial
complaint was never served on the Company. An amended complaint was served on
the Company on February 6, 2002. The amended complaint alleges that the Company
has committed acts of trademark infringement, trademark dilution, unfair
competition, misappropriation and tortious interference with prospective
economic advantage. MNIs allegations are based on the Companys allowing
competitors to bid on the term body solutions (and related terms) in order to
obtain priority when an Internet user searches for diet-related Web sites. The
Company is indemnifying and defending an affiliate, who has been named a
defendant in a related action. Overture believes that it has meritorious
defenses to the allegations and is contesting the allegations vigorously.
Trial currently is scheduled in the related case against the Companys
affiliate for April 28, 2003, and trial is currently scheduled in the case against
the Company for June 2, 2003. MNI recently filed for protection under Chapter 11
of the bankruptcy code.

On January 31, 2002, a complaint was filed against the Company as a result
of its acquisition in May 2000 of AuctionRover.com, Inc., and other defendants
in North Carolina Superior Court by an individual, Paul Rony, relating to
alleged trade secrets concerning interaction with Internet auction Web sites.
The causes of action alleged against the Company include misappropriation of
trade secrets, quantum meruit, and constructive trust. Overture believes that
it has meritorious defenses to the allegations and is contesting the
allegations vigorously. The parties are in the early phase of the discovery
process.

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

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

On April 23, 2002, Overture filed a patent infringement lawsuit against
Google Inc. in the United States District Court for the Northern District of
California. The lawsuit charges Google with willful infringement of the 361
Patent. The Company also seeks permanent injunction against Google, an award of
increased damages, and an award of attorneys fees, costs and expenses. On June 7,
2002, Google filed its answer to the Overture complaint, denying that it
infringes the 361 Patent and alleging counterclaims of non-infringement,
invalidity and unenforceability relating to the 361 Patent. The parties are in
the initial phase of the discovery process, which began on August 5, 2002. A
hearing regarding the interpretation of the claims contained in the
361 patent
(commonly referred to as a Markman hearing) currently is scheduled for March 25, 2003.

On October 8, 2002, Robert Novak, doing business as Pets Warehouse and
PetsWarehouse.com, served a pro se complaint against the Company in an action
filed in the United States District Court for the Eastern District of New York.
The complaint asserts claims under federal and/or New York law for trademark
infringement, trademark dilution, unfair competition, misappropriation, unjust
enrichment, tortious interference with prospective economic advantage and
deceptive trade practices. The allegations are based on the Companys allowing
competitors to bid on pets warehouse as a search term. Overture denies
liability and will vigorously defend the lawsuit.

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

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

Idealab is considered a related party of Overture
because a management member of Idealab has a presence on Overtures board.

In January 2000, Overture entered into an arrangement to lease
approximately 58,000 square feet of office space from Idealab, which terminates
on October 31, 2004. In March 2002, Overture entered into an arrangement with
Parfinco EWA, LLC and Idealab whereby Idealab assigned its lease with
Parfinco to Overture for the 58,000 square feet of office space and Overture
entered into an amendment with Parfinco for an additional 29,000 square feet of
office space, which expires at the same time as its existing 58,000 square feet
of office space in October 2004. Overture has an option to extend the lease for
all 87,000 square feet for 5 more years beyond October 2004. As a result of the
assignment by Idealab to Overture in March 2002, Overture no longer has any
obligation to make lease payments to Idealab. Overture also subleased office
space in the U.K. from Idealab, which ended June 30, 2002. Total payments for
the lease for both the U.S. and U.K. office space to Idealab were $509,000 and
$1.0 million for the nine months ended September 30, 2002 and 2001,
respectively. Management believes these amounts were materially representative
of the fair value of the lease.

During the three months ended September 30, 2002 and 2001, Overture
recorded approximately $105,000 and $259,000 respectively and for the nine
months ended September 30, 2002 and 2001, Overture recorded approximately
$583,000 and $935,000 respectively, of search listing advertising revenue from
companies controlled by Idealab. Management believes these amounts are
materially representative of the fair value of advertising services provided.
During the three months and nine months ended September 30, 2002, Overture
recorded approximately $49,000 and $146,000 respectively, of traffic
acquisition costs paid to Idealab. Management believes these amounts are
materially representative of fair value.



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

As of September 30, 2002, the Company was obligated to make guaranteed
payments totaling approximately $46.4 million, $161.1 million, $172.3 million
and $12.6 million for the remainder of 2002, 2003, 2004 and 2005, respectively,
under contracts to provide search services to its affiliates. Some of these
guaranteed payments are subject to adjustment based on the performance of the
affiliate or Overture relative to certain metrics.



|8. |  | SHAREHOLDERS RIGHTS PLAN
|-- |  | -------------------------

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

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

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

OVERVIEW

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

Overture (formerly GoTo.com, Inc.) was incorporated in September 1997 and
has approximately a four-year operating history. We launched a proof-of-concept
version of our search service in the fiscal year ended December 31, 1997. Our
Pay-For-Performance service was announced in February 1998, and following
further proof-of-concept testing, was officially launched in June 1998.

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

International Expansion

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

RESULTS OF OPERATIONS

Revenue. Overture generates revenue, in the amount paid by the
advertiser, primarily when a user clicks on an advertisers listing. Overture refers to
these clicks as paid introductions. Revenue is recognized when earned based on
clickthrough activity to the extent

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that the advertiser has deposited sufficient funds with us or collection
is probable. Revenue also consists of listing service fees and banner
advertising, which together constituted less than 1% and 2% of our revenue for
the nine months ended September 30, 2002 and 2001, respectively. Banner
advertisement revenue is recognized when earned under the terms of the
contractual arrangement with the advertiser or advertising agency, provided
that collection is probable. Listing service revenue is recognized when
Overture has provided all of the services under the terms of the arrangement.
Overture has no barter transactions. Revenue was approximately $172.7 million
for the three months ended September 30, 2002 compared to approximately $72.5
million for the three months ended September 30, 2001. Revenue was
approximately $468.1 million for the nine months ended September 30, 2002
compared to approximately $186.9 million for the nine months ended September
30, 2001. The increase was the result of the growth in our key constituents,
our affiliates and advertisers, which drive the number of paid introductions
and average price per paid introduction. We do not anticipate our historical
revenue growth rate, expressed as a percentage, to continue on a
quarter-to-quarter basis.

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

|                             |  |                       |  | 
|---------------------------- |  | --------------------- |  | 
|NUMBER OF PAID INTRODUCTIONS |  | FOR THE QUARTER ENDED
|                             |  |                      
|500 million                  |  | September 30, 2002   
|515 million                  |  | June 30, 2002        
|587 million                  |  | March 31, 2002       
|442 million                  |  | December 31, 2001    
|338 million                  |  | September 30, 2001   
|327 million                  |  | June 30, 2001        
|318 million                  |  | March 31, 2001       
|228 million                  |  | December 31, 2000    
|114 million                  |  | September 30, 2000   
|93 million                   |  | June 30, 2000        
|88 million                   |  | March 31, 2000       

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

|                      |      |                       |  |                   
|--------------------- | ---- | --------------------- |  | ------------------
|AVERAGE PRICE         |      |                      
|PER PAID INTRODUCTION |      | FOR THE QUARTER ENDED
|                      |      |                      
|$                     | 0.34 |                       |  | September 30, 2002
|                      | 0.30 |                       |  | June 30, 2002     
|                      | 0.24 |                       |  | March 31, 2002    
|                      | 0.23 |                       |  | December 31, 2001 
|                      | 0.21 |                       |  | September 30, 2001
|                      | 0.19 |                       |  | June 30, 2001     
|                      | 0.16 |                       |  | March 31, 2001    
|                      | 0.17 |                       |  | December 31, 2000 
|                      | 0.21 |                       |  | September 30, 2000
|                      | 0.21 |                       |  | June 30, 2000     
|                      | 0.19 |                       |  | March 31, 2000    

We believe the decrease in the worldwide number of paid introductions from
the three months ended June 30, 2002 compared to the three months ended
September 30, 2002 was primarily due to seasonality and the loss of America
Online and certain of its related properties as our affiliate for the entire
three months ended September 30, 2002 compared to the inclusion of one month
during the three months ended June 30, 2002. During the three months ended
September 30, 2002, we earned approximately 63% 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. Our top 10 continuing affiliates, based on revenue that we earned
during the three months ended September 30, 2002 from our advertisers, who
received paid introductions through Overture as supplied by these affiliates,
represented approximately 83% of total revenue.

Several new and renewed affiliate relationships were signed during the
three months ended September 30, 2002. The agreements include an extension of
the MSN Search Pane and MSN Search sites to December 2003 and December 2004
respectively in the United States, United Kingdom and Canada and an expansion to include Germany and
France. Our agreement with InfoSpace was extended to March 2006. Also during
the quarter our relationship with Ask Jeeves in the United States ended on September 1, 2002.

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Our growth rate depends, in part, on increasing the number of searches and
resulting clickthroughs performed by users who use 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 are adversely affected, our revenue and results
of operations may be materially and adversely affected.

We believe that the worldwide average price per paid introduction
increased as a result of advertiser acquisition, account management and other
types of product quality initiatives. The number of advertisers increased from
approximately 67,000 in June 2002 to approximately 73,000 in September 2002.
We believe the quarterly number of paid introductions and average price per
paid introduction listed above are not necessarily indicative of future
results. It is difficult to forecast the future growth of the average price per
paid introduction, as advertisers, rather than Overture, primarily determine
the price paid. We cannot assure you that the average price per click will
continue to increase and if it does increase, at what rate, or that it will not
decrease from prior levels. Our growth rate and results depend on our ability
to increase the price per paid introduction, the number of advertisers who use
our service and the amount our advertisers spend on our service. In addition,
we believe we will experience seasonality, whereby the second and third
quarters of the calendar year experience relatively lower traffic than the
first and fourth quarters. This seasonal effect is difficult to predict, but we
believe what we experience is typical of general internet usage. 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.

Search Serving.Search serving costs consist primarily of costs associated
with serving our search results, maintaining our Web site and fees paid to
outside service providers that provide and manage our unpaid listings. Costs
associated with serving our search results and maintaining our Web site include
depreciation of Web site equipment, co-location charges for our Web site
equipment, bandwidth, software license fees and salaries of related personnel.
Search serving costs were approximately $8.3 million for the three months ended
September 30, 2002 compared to approximately $6.1 million for the three months
ended September 30, 2001. The search serving costs were approximately $23.0
million for the nine months ended September 30, 2002 compared to $15.9 million
for the nine months ended September 30, 2001. The increase was primarily due to
an increase in the number of personnel required to support our services and
increased hardware and software costs as a result of increased
traffic and our international
expansion efforts. We anticipate search serving costs to increase for the
remainder of 2002 as we expand internationally and continue to invest in
product quality.

Traffic Acquisition.Traffic acquisition costs relate to payments made to
our affiliates that have integrated the Overture search service into their
sites or that direct consumer and business traffic to the Overture Web site.
There are generally three economic structures of the affiliate agreements, 1)
fixed payments based on a guaranteed minimum amount of traffic delivered, 2)
variable payments based on a percentage of our revenue or based on a certain
metric, such as number of searches or paid clicks, or 3) a combination of the
above. Traffic acquisition costs were approximately $101.4 million (59% of
revenue) for the three months ended September 30, 2002 compared to
approximately $38.6 million (53% of revenue) for the three months ended
September 30, 2001. Traffic acquisition costs were approximately $259.8 million
(56% of revenue) for the nine months ended September 30, 2002, compared to
$110.2 million (59% of revenue) for the nine months ended September 30, 2001. The
increases in total traffic acquisition costs were primarily due to the
increases in revenue as previously discussed. The percentage increase in the
three month period ended September 30, 2002 compared to the three month period
ended September 30, 2001 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. The
percentage decrease in the nine months ended September 30, 2002 compared to the
nine months ended September 30, 2001 was primarily due to a
lower proportion of traffic acquisition costs from fixed
minimum guarantees in the nine months ended September 30, 2001, which resulted
in a lower percentage of revenue being shared with affiliates as revenue
increased. We expect total traffic acquisition costs and traffic
acquisition costs as a percentage of
revenue to increase as a result of increased competition, industry
consolidation, shifts in market share among our partner base, and
international expansion. 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 the target metrics are
not met, then guaranteed payments may be required to be paid without a
corresponding increase in revenue and traffic acquisition costs as a percentage
of revenue may increase.

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The following represents our top 10 continuing affiliates based on revenue
(which was approximately 83% of total revenue) that we earned during the three
months ended September 30, 2002 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 that
follows groups such agreements together and displays them in order of
expiration date of the largest agreement. Microsoft agreements are
combined. The table excludes affiliates whose
agreements have terminated.

|                                           |  |                 |  | 
|------------------------------------------ |  | --------------- |  | 
|Affiliate                                  |  | Expiration Date
|                                           |  |                
|Freeserve
(U.K.)                           |  | November 2002  
|Applied Semantics (formally Oingo)         |  | May 2003       
|AltaVista                                  |  | May 2003       
|Netscape
Premier Provider and AOL Europe   |  | June 2003      
|Comet Systems                              |  | July 2003      
|Terra Lycos                                |  | November 2003  
|Microsoft:                                 |  |                
|MSN Panel on Microsofts Internet Explorer |  | December 2003  
|msn.com                                    |  | December 2004  
|CNET                                       |  | May 2004       
|Yahoo                                      |  | April 2005     
|InfoSpace:                                 |  |                 |  | 
|(Excite, Dogpile and Webcrawler)           |  | March 2006     

The amount of traffic from each of our affiliates has varied, and we
expect it will continue to vary, from quarter to quarter, sometimes
significantly. Moreover, while we seek to align economic incentives, most of
Overtures affiliate agreements contain limitations and provide varying levels
of discretion to the affiliate in the implementation of our service 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. If we are unable to replace traffic from
any of our large affiliates after expiration of our contract with them or if
our relationship with any of our larger affiliates deteriorates, it could
seriously harm our business, financial condition and results of operations.
Overtures agreements with its affiliates vary in initial duration from three
months to three years, and depending on the agreement, may be terminable upon
the occurrence of certain events, including for our failure to meet certain
service levels, for general breaches of agreement terms, for changes in control
or in some instances, at will. Both Microsoft and Yahoo may terminate their
agreements with Overture upon a change of control in the ownership of Overture.
If any of the foregoing termination events occur, the related agreement could
terminate earlier than the expiration date, and/or we may incur additional
obligations. We may not be successful in renewing any of these agreements, or
if they are renewed, any new agreement may not be on as favorable terms. We may
not be successful in entering into agreements with new affiliates on
commercially acceptable terms. In addition, several of these affiliates may be
considered potential competitors.

Marketing, Sales and Service. Marketing, sales and service expenses
consist primarily of payroll and related expenses for personnel engaged in
marketing, customer service and sales functions; advertising and promotional
expenditures; and cost of systems used to sell and serve advertisers.
Marketing, sales and service expenses were approximately $15.2 million for the
three months ended September 30, 2002 compared to approximately $6.4 million
for the three months ended September 30, 2001. Marketing, sales and services
expenses were approximately $39.1 million for the nine months ended September
30, 2002 compared to approximately $20.0 million for the nine months ended
September 30, 2001. The increase was primarily the result of increased costs
associated with advertiser development and an increase in payroll for customer
service and sales functions. We expect marketing, sales and service expenses to
increase for the remainder of 2002 due to continuing international expansion
and continued investment in product quality.

General and Administrative.General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; credit card processing fees; facilities; professional services,
including legal; and insurance and other general corporate expenses. General
and administrative expenses were approximately $19.4 million for the three
months ended

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September 30, 2002 compared to approximately $10.8 million for the three
months ended September 30, 2001. General and administrative expenses were
approximately $53.1 million for the nine months ended September 30, 2002
compared to approximately $31.9 million for the nine months ended September 30,
2001. The increase was primarily the result of increased headcount, increased
professional fees including costs of litigation, higher insurance costs,
increased credit card processing fees from prepaid accounts due to increased
revenue, and international expansion. We expect general and administrative
expenses to increase for the remainder of 2002 due to continuing international
expansion and credit card processing fees (as a result of an increase in
revenue), as well as an increase in legal and insurance costs.

Product Development.Product development expenses consist primarily of
payroll and related expenses for personnel responsible for development of
features and functionality for our service, as well as costs incurred in the
preliminary project and post-implementation stage of computer software
developed for internal use. Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1)
requires that costs incurred in the preliminary project and post-implementation
stages of an internal use software project be expensed as incurred and that
certain costs incurred in the application development stage of a project be
capitalized. The Company capitalized internally developed software costs of
approximately $1.3 million during the three months ended September 30, 2002 and
approximately $2.1 million for the nine months ended September 30, 2002.
Product development expenses were approximately $4.5 million for the three
months ended September 30, 2002 compared to approximately $2.8 million for the
three months ended September 30, 2001. Product development expenses were
approximately $13.9 million for the nine months ended September 30, 2002
compared to approximately $9.7 million for the nine months ended September 30,
2001. The increase was primarily the result of our international expansion and
investment in product quality. We expect product development expenses and
capitalized internally developed software costs to be relatively flat for the
remainder of 2002.

Interest Income, Net.Interest income consists primarily of earnings on
our cash, cash equivalents and short-term and long-term investments, net of
interest expense attributable to leased equipment. Interest income was
approximately $1.1 million for the three months ended September 30, 2002
compared to approximately $1.2 million for the three months ended September 30,
2001. Interest income was approximately $2.9 million for the nine months ended
September 30, 2002 and $3.0 million for the nine months ended September 30,
2001.

Other Income, Net. Other income, net was approximately $85,000 for the
three months ended September 30, 2002 compared to $479,000 for the three months
ended September 30, 2001. Other income, net was approximately $0.9 million for
the nine months ended September 30, 2002 compared to $2.5 million for the nine
months ended September 30, 2001. The decrease from the nine months ended
September 30, 2001 relates to the reimbursement of legal costs associated with
settlement of litigation with MercExchange.

Provision For Income Taxes.Provision for income taxes was approximately
$7.8 million for the three months ended September 30, 2002 and approximately $18.2
million for the nine months ended September 30, 2002 compared to zero expense
for the three months and nine months ended September 30, 2001. Overture
generated taxable income during the nine months ended September 30, 2002,
however a tax provision was recorded that was less than the statutory rate due
to the benefit from the release of the valuation allowance relating to deferred tax
assets. As of December 31, 2001, Overture had net operating loss (NOL)
carryforwards available to reduce future federal and state taxable income.
These NOLs and temporary differences (between timing of the
recognition on a Generally Accepted Accounting Principle basis versus a tax
basis) were carried on the balance sheet as deferred tax assets. Financial
Accounting Statement Standard No. 109, Accounting for Income Taxes (SFAS 109)
requires that a valuation allowance be set up to reduce a deferred tax asset to
the extent it is more likely than not that the related tax benefits will not be
realized. Due to the uncertainty regarding if and when these NOLs would be
utilized and temporary differences would reverse, a full valuation allowance
was initially set up against the related deferred tax asset, resulting in a net
zero balance for deferred tax assets, as of December 31, 2001. The valuation
allowance was released during fiscal 2002 due to the expectation of future
income from our ordinary and recurring operations and our assessment that the
utilization of available tax deductions was more likely than not.

Because the utilization of certain deferred tax assets related to future
years, the release of the related valuation allowance was considered a discrete
event and the tax benefits were required to be recorded during the three months
ended March, 31, 2002. Therefore, no tax provision was recorded in the three
months ended March 31, 2002. There were remaining NOL benefits, of which 100%
are expected to be taken as a benefit against expected income before taxes for
2002. The Company had a tax provision of
approximately $7.8 million for the three months ended September 30, 2002, which
was lower than federal and state statutory rates.

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We have deductions which resulted from the exercise of certain
stock options and sale of certain related stock by employees. Because no book
charge is recorded upon the generation of these deductions, the corresponding
tax benefits are recorded directly to stockholders equity. However, these
deductions, to the extent available, will offset taxable income upon filing the
Companys corporate income tax returns resulting in a cash
benefit. In September 2002, the state of California passed legislation
suspending the use of the operating loss carryforwards for the 2002 and 2003
tax years. The legislation added two years to the carryforward period for
these losses. As a result, Overture will not be able to utilize its California
net operating loss carryforwards during 2002 and 2003 against its expected
current tax liabilities.

We expect to have an income tax provision for the remainder of 2002. We
expect this provision to be lower than statutory rates due to the expected
utilization of net operating losses and other deferred tax assets previously
not benefited. We expect to incur a full statutory tax rate in subsequent years
for U.S. operations and the consolidated effective rate may be higher
due to international expansion costs for which no benefit or lower benefit
would be recorded.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities totaled approximately $71.2
million and $27.3 million for the nine months ended September 30, 2002 and
2001, respectively. The change was due primarily to operating income, tax
benefit from stock options and increased accounts payable and accrued expenses
partially offset by an increase in accounts receivable, prepaid expenses and other
prepaid traffic acquisition expense during the nine months ended September 30,
2002. Net cash used in investing activities totaled approximately $87.9 million
and $33.2 million for the nine months ended September 30, 2002 and 2001,
respectively. The change resulted primarily from the investment of cash
generated by operating activities in short-term and long-term investments and
increased capital spending in the nine months ended September 30, 2002. As we
increase our volume and expand internationally, our investment in capitalized
hardware and software will increase. Our capital expenditures in hardware and
software for the three months and nine months ended September 30, 2002 were
approximately $13.7 million and $39.9 million respectively. Net cash provided
by financing activities totaled approximately $14.2 million and $64.9 million
for the nine months ended September 30, 2002 and 2001, respectively. The
decrease was due primarily to our common stock offering on July 5, 2001, which
resulted in net proceeds of $58.2 million.

Our principal sources of liquidity consisted of cash, cash equivalents,
short-term investments and long-term investments of approximately $221.0
million as of September 30, 2002 compared to $170.3 million as of December 31,
2001. We believe that our cash and liquid investment reserves are sufficient to
sustain operations through the foreseeable future. As of September 30, 2002,
the Company was obligated to make guaranteed payments totaling approximately
$46.4 million, $161.1 million, $172.3 million and $12.6 million for the
remainder of 2002, 2003, 2004 and 2005, respectively, under contracts to
provide search services to its affiliates. The Company leases 87,000 square
feet of office space for its corporate office in Pasadena, California under
operating lease agreements expiring in October 2004 with an option to extend
the lease for 5 years. The Company also leases office space in San Mateo,
California; New York; London; Germany; France; Ireland; and Japan. As of
September 30, 2002, Overture is obligated to make total remaining office lease
payments of approximately $7.4 million.

ACCOUNTING POLICIES SUBJECT TO ESTIMATION AND JUDGMENT

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

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

Affiliate Prepayments and Commitments

The Companys agreements with some of its affiliates may include
prepayments or commitments for future minimum payments to these affiliates. The
recoverability of prepayments and profitability related to future minimum
payments and commitments are subject to the judgment of management.
Periodically, the Company assesses affiliate prepayments and commitments on a
per agreement basis, considering historical performances, price per
paid introduction and
other financial trends, the development stage of the market, and any other

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relevant factors to determine realizability. Negative results from these
assessments could result in additional one-time charges to traffic acquisition
expense resulting from the write-down of prepayments or accrual of
losses.

Income Tax

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

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

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



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

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



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

Currently, we believe that our income in recent quarters and available tax
planning strategies indicate that it is more likely than not that our deferred
tax assets will be realized. Therefore, we have determined that the valuation
allowance to reduce the deferred tax asset associated with the regular and
stock option NOLs, as well as the valuation allowance associated with other
deferred tax assets should not be maintained. A portion of the valuation
allowance relating to deferred tax assets expected to be realized in future
years was released as a discrete event during the quarter ended March 31, 2002.
The remaining valuation allowance relating to net operating losses as well as
stock option deductions is being released ratably throughout the year. If we do
not continue to generate taxable income in the future, this would be negative
evidence that could require us to re-evaluate this position.

In calculating our provision for income taxes for the three and nine
months ended September 30, 2002, we considered the release of the valuation
allowance attributable to the regular NOLs in calculating our annual estimated
tax rate in accordance with Accounting Principles Board (APB) 28 and other
deferred tax assets recorded as discrete items during the three months ended
March 31, 2002. In subsequent quarters, to the extent our position changes with
respect to releasing the valuation allowance attributable to the regular NOLs,
as other deferred tax assets, and expected results for the remainder of the
year, our effective tax rate for the current year as well as the provision or
benefit recorded in a subsequent quarter could be impacted.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments,

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additional allowances may be required which would result in an additional
general and administrative expense in the period such determination was made.

Property and Equipment depreciation

We depreciate our capitalized assets using a straight-line method based on
the estimated useful life of the assets, which ranges from 18 months to 5
years. Growth or other discrete events may require a change in the estimated
useful life of one or more assets or an unanticipated early write-off of assets
resulting in additional depreciation expense.

Marketing-Related Agreements with our Affiliates

Overture has arrangements with two affiliates to obtain additional
marketing-related services from these affiliates. Overture believes that the
pricing of the marketing-related services were determined at arms-length and
represent the fair value of the services received by Overture and therefore the
costs are appropriately recorded as marketing costs in the line item,
Marketing, Sales and Service in the Statements of
Operations. If it were 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, this would have increased traffic acquisition costs
as a percentage of revenue by approximately 2% for the three months ended
September 30, 2002 and would have a lower effect on the remaining three
months of 2002.

RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

We believe that quarter-to-quarter comparisons of our operating results
are not a good indication of our future performance. Our operating results have
varied widely in the past, and we expect that they will continue to vary widely
from quarter to quarter due to 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 businesses
and the rate at which they click through to paid search results;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | prices paid by advertisers using the Overture services, which in
large part are not determined by Overture;                                                                                              
|
| |  |  | decrease in traffic from our affiliates for any reason, including
loss of our agreements with affiliates or reduction in demand for the
services of affiliates;                                          
|
| |  |  | our costs of attracting consumers and businesses to use Overtures services, including traffic acquisition costs;                                                                                        
|
| |  |  | costs related to agreements with affiliates;                                                                                                                                                             
|
| |  |  | ability to protect our business model from competitors;                                                                                                                                                  
|
| |  |  | the percentage of Overtures search listings that are bidded listings;                                                                                                                                   
|
| |  |  | our ability to maintain and grow our affiliate program including amendments, extensions or new affiliate agreements;                                                                                     
|
| |  |  | implementation and placement of our services by our affiliates, over which we may have limited or no control;                                                                                            
|
| |  |  | seasonal fluctuations in the use of our service, typical of our
industry, in which online traffic has typically been lower in the second
and third quarters of the calendar year;                        
|
| |  |  | the amount and timing of operating costs and capital expenditures relating to expansion of our operations;                                                                                               
|
| |  |  | costs and delays in introducing any new Overture services and improvements to existing services;                                                                                                         

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| |  |  | our ability to successfully introduce new products or services;                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in the growth rate of Internet usage and acceptance by consumers of e-commerce;                                                                           
|
| |  |  | technical difficulties, system failures, system security breaches, or
Internet downtime, some of which may allow affiliates to terminate their
agreements with us;
|
| |  |  | government regulations related to the Internet;                                                                                                                   
|
| |  |  | our ability to upgrade and develop our information technology systems and infrastructure;                                                                         
|
| |  |  | costs related to any acquisitions or dispositions of technologies or businesses;                                                                                  
|
| |  |  | general economic conditions, as well as those specific to the Internet and related industries; and                                                                
|
| |  |  | ability to expand and compete internationally.                                                                                                                    

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

Historically, our stock price has been extremely volatile and we cannot
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. We have in the past experienced significant declines in our stock
price following announcements of changes in affiliate relationships, even when
the particular affiliate relationship did not provide significant paid
introductions or result in a significant amount of revenue from advertisers who
received paid introductions through Overture as supplied by such affiliates. If
our stock price is low, it may limit our ability to raise capital or pursue
strategic opportunities, such as acquisitions. In addition, it may reduce the
incentive value of our stock options and harm employee morale.

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

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

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

The consumers and businesses who conduct searches on our service come
primarily from a limited number of sources. Our sources for consumers and
businesses conducting searches are members of our affiliate network, including
portals, browsers, and other affiliates and our Web site. In any given month,
we typically depend upon one or a few of these sources for a significant amount
of searches conducted on our service. Revenue is generated from click-throughs
that users make on advertisers listings and, generally, the more traffic from
any given source, the greater number of click-throughs we will generate.

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During the three months ended September 30, 2002, we earned approximately
63% 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. Unfavorable changes to either
agreement (including, but not limited to a change in implementation or
placement) or loss of either relationship would materially and adversely affect
our revenue and results of operations.

Our top 10 continuing affiliates based on revenue earned during the three
months ended September 30, 2002 from our advertisers, who received paid
introductions through Overture as supplied by these affiliates was
approximately 83% of total revenue. See Managements Discussion and
Analysis of Financial Condition and Results of Operations.

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

The amount of traffic from each of our affiliates has varied, and we
expect it will continue to vary, from quarter to quarter, sometimes
significantly. Moreover, while we seek to align economic incentives, most of
Overtures affiliate agreements contain limitations and provide varying levels
of discretion to the affiliate in the implementation and placement of our
service. In addition, we have been and are likely to be dependent on searches
from a limited number of affiliates. If we are unable to replace traffic from
any of our large affiliates after expiration of our contract with them or if
our relationship with any of our larger affiliates deteriorates, it could
seriously harm our business, financial condition and results of operations.
Overtures agreements with its affiliates vary in initial duration from three
months to three years, and depending on the agreement, may be terminable upon
the occurrence of certain events, including for our failure to meet certain
service levels, for general breaches of agreement terms, for changes in control
in certain circumstances, or in some instances, at will. Both Microsoft and
Yahoo may terminate their agreements with Overture upon a change of control in
the ownership of Overture. If any of the foregoing termination events occur,
the related agreement could terminate earlier than the expiration date, and/or
we may incur additional obligations. We may not be successful in renewing any
of these agreements, or if they are renewed, any new agreement may not be on as
favorable terms. We may not be successful in entering into agreements with new
affiliates on commercially acceptable terms. In addition, several of these
affiliates may be considered potential competitors.

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

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

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

OUR SUCCESS DEPENDS UPON ACHIEVING A LARGE AND
ACTIVE BASE OF ADVERTISERS AND USERS

Our ability to increase the volume of transactions and the
amounts bid by our advertisers is dependent upon building and
maintaining a substantial base of advertisers and users. Most
potential advertisers

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have only limited experience advertising on the Internet and have not devoted a
significant portion of their advertising expenditures to Internet advertising.
Advertising through priority placement on our services in particular has been
introduced only recently, and we cannot predict the level of its acceptance as
an advertising medium. Our services may not achieve significant acceptance by
users. Among other things, because our services prioritize
search results based on advertising bids associated with keywords rather than
on other search and retrieval approaches,
users may not use our service because they perceive our
results to be less objective or not as relevant than those provided by
other search methods. Failure to achieve and maintain a large and active
base of advertisers and users could have a material
adverse effect on our business, operating results and financial condition.
Periodically we may introduce new initiatives, programs, or rules that could
change the bidding process, search term selection rules and search methodology,
which may affect our advertisers. Advertisers may dislike the effect of these
new initiatives and programs which may cause advertisers to cease advertising
with us or reduce their spend. Advertiser attrition or reduction in advertiser
spend could have a material adverse effect on our business. Our affiliates may
have specific rules that prohibit some advertisers from participating in their
services, which may affect our ability to maintain and grow our advertiser
base.

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

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



| |  |  | complete dependence on online advertising and consumer search
services with only limited market acceptance;                                                              
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | need to continually develop and upgrade our infrastructure, including
internal controls, transaction processing systems, data storage and
retrieval systems and Web site;
|
| |  |  | reliance on affiliates to direct consumers and businesses to our service to conduct searches;                                                                            
|
| |  |  | need to manage changing operations; and                                                                                                                                  
|
| |  |  | dependence upon and need to hire and retain key personnel.                                                                                                               

The Overture service may not retain its existing, or attract new,
advertisers, users, and affiliates. Overture may not
maintain or achieve additional revenues or maintain operating margins in future
periods. Overtures services may not continue to achieve commercial acceptance
and, if they do not, our business, operating results and financial condition
may be materially and adversely affected.

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

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

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

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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,
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 product. We believe it is likely that there will be additional
entrants to the pay-per-click search market. These new competitors will likely
compete against us for affiliate arrangements and could cause us to
enter into affiliate agreements with less favorable terms or lose
affiliates or potential affiliates, which could reduce our number of
clickthroughs and 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 for space on the search
results page, including, among others, AltaVista, Espotting Media, Inc., Fast
Search & Transfer ASA, Google, Inc., LookSmart, Ltd.

Our affiliates face competition for user traffic within the search
marketplace, which affects the number of paid clickthroughs to our service. If
the users 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 other, and this may make it difficult for us to
develop some affiliate relationships.

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

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

WE ARE DEPENDENT UPON OUR COMPUTER AND COMMUNICATION SYSTEMS

Our business depends on our ability to provide high capacity data
transmission without system downtime and upon our transaction processing
systems and network infrastructure. Furthermore, we rely on many different
software applications, some of which have been developed internally. If these
hardware and software systems fail, it would adversely affect our business and
results of operations. If we receive a significant unexpected increase in usage
and are not able to rapidly expand our transaction-processing systems and
network infrastructure without any systems interruptions, 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 HINDERED BY THE OCCURRENCE OF NATURAL
DISASTERS AND OTHER CATASTROPHIC EVENTS

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

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prevent outages and downtime, which could severely damage our business and
adversely affect results of operations. Our operations depend upon our ability
to maintain and protect our computer systems, which are located in Pasadena,
California and 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 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 multiple
sites for our customer service center and editorial department which are both located at
our Pasadena, California office. An interruption in our ability to provide
customer support and editorial services would adversely affect our business.
The occurrence of a natural disaster or unanticipated problems at our principal
headquarters or at a third-party facility could cause interruptions or delays
in our business, loss of data or could render us unable to provide some
services. In addition, failure by the third-party facility to provide the data
communications capacity required by us, as a result of human error, natural
disaster or other operational disruptions, could cause interruptions in our
service. 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.

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

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

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

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

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, at some point it may require us 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.

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

Our future success depends upon the continued service of our executive
officers and other key technology, marketing, sales and support personnel. None
of our officers or key employees is bound by an employment agreement for any
specific term. If we lost the

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services of one or more of our key employees, or if one or more of our
executive officers or employees decided to join a competitor or otherwise
compete directly or indirectly with us, this could have a material adverse
effect on our business, operating results and financial condition.

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

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

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



| |  |  | lower per capita Internet usage in many countries abroad, due to a
variety of causes such as lower disposable incomes, lack of
telecommunications and computer infrastructure and questions regarding
adequate online security for e-commerce transactions;                                               
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | relatively small Internet markets in some countries, which may
prevent us from aggregating sufficient traffic and advertising revenues
and scaling our business model in those countries;                                                                                                                 
|
| |  |  | lower usage of the Internet for
e-commerce transactions, thus
limiting the number of advertisers that uses our service;                                                                                                                                                                                   
|
| |  |  | entering into affiliate agreements
with guaranteed minimum payments that may exceed our revenues during the
initial stage of the markets development;                                                                                                                                                    
|
| |  |  | our potential inability to aggregate a large amount of Internet
traffic and find and develop relationships with international
advertisers, consumers and businesses, and affiliates;                                                                                                                      
|
| |  |  | competition in international markets from a broad range of
competitors, including but not limited to, Espotting, Google, LookSmart
and other United States and foreign search engines, content aggregators
and portals, some of which have greater local experience than we do;                           
|
| |  |  | clickthrough rates in international markets may differ from U.S.
rates;                                                                                                                                                                                                                                   
|
| |  |  | difficulties in recruiting qualified and knowledgeable staff and in
building locally relevant products and services, which could prevent us
from aggregating a large advertiser base;                                                                                                                     
|
| |  |  | price per paid introduction in international markets may vary from the U.S.;                                                                                                                                                                                                                              
|
| |  |  | higher costs of doing business in foreign countries, including different employment laws;                                                                                                                                                                                                                 
|
| |  |  | trade barriers and unexpected changes and differences in regulatory,
tax and legal requirements applicable to Internet services; and                                                                                                                                                                      
|
| |  |  | the application of transfer pricing regulations by taxing authorities
in various jurisdictions worldwide, who may disagree with our
determinations as to the income and expenses attributable to specific
jurisdictions, which could result in Overtures paying additional taxes,
interest and penalties;
|
| |  |  | technological differences that vary by marketplace, which we may not be able to support;                                                                                                                                                                                                                  

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| |  |  | longer payment cycles and foreign currency fluctuations.
| | - |  | --------------------------------------------------------

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

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

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

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

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

Our services operate in part by making Internet services and content
available to our users. This creates the potential for claims to be made
against us, either directly or through contractual indemnification provisions
with third parties. These claims might, for example, be made for defamation,
negligence, copyright, trademark or patent infringement, personal injury,
invasion of privacy or other legal theories. Allegations are made against us
from time to time concerning these types of claims. For example, we are in
litigation with companies that have alleged that allowing advertisers to bid on
certain search terms constitutes trademark infringement. Although we deny such
allegations, these and other claims could result in costly litigation and be
time consuming to defend, divert managements attention and resources, cause
delays in releasing new or upgrading existing services or require us to enter
into royalty or licensing agreements. Royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all.

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

There can be no assurance that our services do not infringe the
intellectual property rights of third parties. A successful claim of
infringement against us and our failure or inability to license the infringed
or similar technology could have a material adverse effect on our business,
operating results and financial condition.

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

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

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

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

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

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

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

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

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



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

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY DAMAGE OUR BUSINESS

The laws and regulations applicable to the Internet and our services are
evolving and unclear and could damage our business. There are currently few
laws or regulations directly applicable to access to, or commerce on, the
Internet. Due to the increasing popularity and use of the Internet, state and
federal agencies are currently proposing, and may in the future propose or
adopt 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, consumer 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 Overture 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 Overture to
incur significant expenses in complying with any new regulations. In response
to these laws and regulations, whether proposed or enacted, as well
as public
opinion, Overture may also elect to limit the types of advertisers or
advertisements included in its search service, which could in turn decrease the
desirability of Overtures service and reduce its revenues.

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

WE MAY INCUR LIABILITIES FOR THE ACTIVITIES OF USERS OF OUR SERVICE AND FOR THE
CONTENT OF OUR ADVERTISEMENTS

The law relating to the liability of providers of online services for
activities of their users and for the content of our advertisers is currently
unsettled and could damage our business. Our insurance policies may not provide
coverage for liability for activities of our users or for the content of our
listings. Overture may not successfully avoid civil or criminal liability for
unlawful activities carried out by users of our service or for the content of
our listings. The imposition upon Overture of 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 CHARTER DOCUMENTS, CHANGE OF CONTROL SEVERANCE AGREEMENTS WITH OUR
MANAGEMENT AND TERMS OF OUR AFFILIATE AGREEMENTS MAY MAKE IT MORE DIFFICULT TO
ACQUIRE US

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

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

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

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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.

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

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

FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT OUR FUTURE GROWTH

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

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

Prior to the three months ended September 30, 2001, we had a history of
losses and we cannot assure you we will not incur net losses again in any
particular future period. Although we had net income of approximately $63.6
million in the nine months ended September 30, 2002 and net income of
approximately $20.2 million for the year ended December 31, 2001, we had net
losses of approximately $458.6 million for the year ended December 31, 2000.
Because our expense levels are relatively fixed in the short term, if our
revenues do not keep pace with our expense levels, we may not sustain or
increase profitability in any particular quarter or we may incur losses again.
We expect to continue to increase our marketing, sales and service and general
and administrative expenses and we cannot be certain that revenue growth will
continue to grow. If our revenue growth does not continue, we may experience a
loss in one or more future periods and it may as a result cause our stock price
to decline. This may in turn impact our ability to implement our business
strategy.

28



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##### Table of Contents






ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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 September 30, 2002, our fixed income investments had an
unrealized gain of $0.3 million. Assuming an average investment balance of $184
million, if rates were to increase (decrease) by 100 basis points, this would
translate to an increase (decrease) in interest income of approximately $1.8
million annually.

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

Overtures exposure to foreign exchange rate fluctuations arises in part
from intercompany accounts in which costs incurred in the United States are
charged to Overtures foreign sales subsidiaries. Overture is also exposed to
foreign exchange rate fluctuations as the financial results of foreign
subsidiaries are translated into U.S. dollars in consolidation. As exchange
rates vary, these results, when translated, may vary from expectations and
adversely impact overall expected profitability. The effect of foreign exchange
rate fluctuations on Overtures results for the nine months ended September 30,
2002 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 by us 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

The Company is a defendant in four trademark infringement actions (JR
Cigar, Mark Nutritionals (MNI), PlasmaNet and Pets Warehouse). The plaintiffs
in these cases allege that they have trademark rights in certain search terms
and that the Company violates these rights by allowing competitors of the
plaintiffs to bid on these search terms. While the amount of damages that are
claimed and that in the worst case could be 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 was a
development in the law in a similar case to which the Company is not a party
that was

29



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##### Table of Contents



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 Company is also currently in separate litigations with Google and
FindWhat in which the Company is alleging that these parties infringe the
Companys U.S. Patent No. 6,269,361 (the 361 patent) entitled System And
Method For Influencing A Position On A Search Result List Generated By A
Computer Network Search Engine. The 361 patent protects various features and
innovations relating to bid-for-placement products and Overtures
Pay-For-Performance search technologies, including our DirecTraffic Center
account management system and tools. In each litigation, the defendants have
alleged invalidity and unenforceability of the 361 patent. When the validity
and enforceability of the 361 patent is determined, in either litigation, that
determination may have a material effect on the Companys competitive position.

The following sets forth details regarding the above-described litigation
and other litigation which may be material to the Company.

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

On June 19, 2001, InternetFuel.com, Inc. filed a complaint against
Overture in the Superior Court of the State of California for the County of Los
Angeles. The complaint alleges that Overture wrongfully terminated an agreement
pursuant to which InternetFuel participated in Overtures affiliate program and
that Overture did not properly account for monies owed under that agreement.
The complaint also alleges libel for messages allegedly placed by Overture on
an Internet forum, and it contains claims of unfair business practices. The
complaint seeks, among other remedies, monetary damages for the value of the
terminated agreement and for alleged harm to InternetFuels reputation,
punitive and exemplary relief and an injunction against alleged unfair business
practices. In December 2001, Overture successfully moved the court to transfer
the case to arbitration. InternetFuel.com recently supplemented its
claims, alleging fraud under California law. Arbitration
is currently scheduled for December 2002. Overture believes that it has
meritorious defenses to the allegations and is contesting the allegations
vigorously.

On July 12, 2001, the first of several purported securities class action
lawsuits was filed in the United States District Court, Southern District of
New York against certain underwriters involved in Overtures initial public
offering, Overture, and certain of Overtures current and former officers and
directors. The Court consolidated the cases against Overture into case number
01 Civ. 6339. Plaintiffs allege, among other things, violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934 involving
undisclosed compensation to the underwriters, and improper practices by the
underwriters, and seek unspecified damages. Similar complaints were filed in
the same court against numerous public companies that conducted initial public
offerings of their common stock since the mid-1990s. All of these lawsuits were
consolidated for pretrial purposes before Judge Shira Scheindlin. On April 19,
2002, plaintiffs filed an amended complaint, alleging Rule 10b-5 claims of
fraud. 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. 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 January 25, 2002, the Company filed a complaint for patent infringement
against FindWhat.com (FindWhat) 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.
(The original complaint was never served on the Company.) The Company has moved
to dismiss FindWhats New York action in favor of the Companys California
action. Discovery is stayed in both cases pending a ruling by the New York
court on the motion.

On January 28, 2002, MNI filed a complaint against the Company in the
United States District Court for the Western District of Texas. The initial
complaint was never served on the Company. An amended complaint was served on
the Company on February 6,

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##### Table of Contents



2002. The amended complaint alleges that the Company
has committed acts of trademark infringement, trademark dilution, unfair
competition, misappropriation and tortious interference with prospective
economic advantage. MNIs allegations are based on the Companys allowing
competitors to bid on the term body solutions (and related terms) in order to
obtain priority when an Internet user searches for diet-related Web sites. The
Company is indemnifying and defending an affiliate, who has been named a
defendant in a related action. Overture believes that it has meritorious
defenses to the allegations and is contesting the allegations vigorously.
Trial currently is scheduled in the related case against the Companys
affiliate for April 28, 2003, and trial is currently scheduled in the case
against the Company for June 2, 2003. MNI recently filed for protection under
Chapter 11 of the bankruptcy code.

On January 31, 2002, a complaint was filed against the Company as a result
of its acquisition in May 2000 of AuctionRover.com, Inc., and other defendants
in North Carolina Superior Court by an individual, Paul Rony, relating to
alleged trade secrets concerning interaction with Internet auction Web sites.
The causes of action alleged against the Company include misappropriation of
trade secrets, quantum meruit, and constructive trust. Overture believes that
it has meritorious defenses to the allegations and is contesting the
allegations vigorously. The parties are in the early phase of the discovery
process.

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

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

On April 23, 2002, Overture filed a patent infringement lawsuit against
Google Inc. in the United States District Court for the Northern District of
California. The lawsuit charges Google with willful infringement of
the 361
Patent. The Company also seeks permanent injunction against Google, an award of
increased damages, and an award of attorneys fees, costs and expenses. On June 7, 2002, Google filed its answer to the Overture complaint, denying that it
infringes the 361 Patent and alleging counter claims of non-fringement,
invalidity and unenforceability relating to the 361 Patent. The parties are in
the initial phase of the discovery process, which began on August 5, 2002. A
hearing regarding the interpretation of the claims contained in the
361 Patent
(commonly referred to as a Markman hearing) currently is scheduled for March 25, 2003.

On October 8, 2002, Robert Novak, doing business as Pets Warehouse and
PetsWarehouse.com, served a pro se complaint against the Company in an action
filed in the United States District Court for the Eastern District of New York.
The complaint asserts claims under federal and/or New York law for trademark
infringement, trademark dilution, unfair competition, misappropriation, unjust
enrichment, tortious interference with prospective economic advantage and
deceptive trade practices. The allegations are based on the Companys allowing
competitors to bid on pets warehouse as a search term. Overture denies
liability and will vigorously defend the lawsuit.

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




ITEM 5.  OTHER INFORMATION

In addition to audit services, Overtures auditor, Ernst & Young LLP,
provided the following non-audit services to Overture with the approval of the
audit committee: (1) preparation of U.S. and international tax returns and
advice on related tax matters and (2) consultation on compensation and equity
related matters.

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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K [UPDATE]



|(a) |  | Exhibits.
|--- |  | ---------

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

|        |      |  |  |                                                                                                                                                              
|------- | ---- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT
|NUMBER 
|       
|        | 3.1  |  |  | Amended and Restated Certificate of Incorporation of GoTo.com Inc.*****                                                                                      
|        |      | 
|        | 3.2  |  |  | Certificate of Ownership and Merger Merging Overture Services, Inc. into GoTo.com, Inc.*****                                                                 
|        |      | 
|        | 3.3  |  |  | Certificate of Designations of Series A Junior Participating Preferred Stock of Overture Services, Inc.*                                                     
|        |      | 
|        | 3.4  |  |  | Bylaws of Overture Services, Inc.**                                                                                                                          
|        |      | 
|        | 4.1  |  |  | Specimen Stock Certificate***                                                                                                                                
|        |      | 
|        | 10.1 |  |  | Amendment No. 2 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
September 1, 2002****                                 
|        |      | 
|        | 10.2 |  |  | Amendment No. 3 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
September 1, 2002****                                 
|        |      | 
|        | 10.3 |  |  | Amendment No. 3 to the distribution agreement between Overture and Microsoft (GoTo-in-a-Box or Internet
Explorer Panel) effective as of September 1, 2002****
|        |      | 
|        | 99.1 |  |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002                           



---

|*     |  | Previously filed as Exhibit 3.3 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on May 15, 2002 and incorporated by
reference herein.             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|**    |  | Previously filed as Exhibit 3.3 to the Registrants Form 8-A filed with
the Securities and Exchange Commission on March 25, 2002 and incorporated
by reference herein.            
|     
|     
|     
|     
|***   |  | Previously filed as Exhibit 4.1 to the Registrants Form 8-K filed with
the Securities and Exchange Commission on March 25, 2002 and incorporated
by reference herein.            
|     
|     
|     
|     
|****  |  | Confidential treatment requested on certain portions of this exhibit. An
unredacted version of this exhibit has been filed separately with the
Securities and Exchange Commission.
|     
|     
|     
|     
|***** |  | Previously filed as an exhibit to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on August 14, 2002 and incorporated
by reference herein            



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

No reports on Form 8-K were filed during the quarter ended September 30,
2002.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                        |  |                         |  |                                                                                                               
|----------------------- |  | ----------------------- |  | --------------------------------------------------------------------------------------------------------------
|Date: November 12, 2002 |  | OVERTURE SERVICES, INC.
|                        |  | By                      |  | /s/ Todd Tappin

Todd Tappin
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)

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##### Table of Contents



CERTIFICATIONS

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: November 12, 2002 |  | /s/ Ted Meisel
Ted Meisel
Chief Executive Officer

34



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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: November 12, 2002 |  | /s/ Todd Tappin
Todd Tappin
Chief Financial Officer

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##### Table of Contents






EXHIBIT INDEX

|        |      |  |  |                                                                                                                                                              
|------- | ---- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT
|NUMBER 
|       
|        | 3.1  |  |  | Amended and Restated Certificate of
Incorporation of GoTo.com Inc.*****                                                                                      
|       
|        | 3.2  |  |  | Certificate of Ownership and Merger Merging
Overture Services, Inc. into GoTo.com, Inc.*****                                                                 
|       
|        | 3.3  |  |  | Certificate of Designations of Series A Junior Participating Preferred Stock of Overture Services, Inc. *                                                    
|       
|        | 3.4  |  |  | Bylaws of Overture Services, Inc. **                                                                                                                         
|       
|        | 4.1  |  |  | Specimen Stock Certificate***                                                                                                                                
|       
|        | 10.1 |  |  | Amendment No. 2 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
September 1, 2002****                                 
|       
|        | 10.2 |  |  | Amendment No. 3 to the distribution agreement between Overture and Microsoft (msn.com) effective as of
September 1, 2002****                                 
|       
|        | 10.3 |  |  | Amendment No. 3 to the distribution agreement between Overture and Microsoft (GoTo-in-a-Box or Internet
Explorer Panel) effective as of September 1, 2002****
|       
|        | 99.1 |  |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002                           



---

|*     |  | Previously filed as Exhibit 3.3 to the Registrants Form 10-Q filed with
the Securities and Exchange Commission on May 15, 2002 and incorporated by
reference herein.             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|**    |  | Previously filed as Exhibit 3.3 to the Registrants Form 8-A filed with
the Securities and Exchange Commission on March 25, 2002 and incorporated
by reference herein.            
|     
|     
|     
|     
|***   |  | Previously filed as Exhibit 4.1 to the Registrants Form 8-K filed with
the Securities and Exchange Commission on March 25, 2002 and incorporated
by reference herein.            
|     
|     
|     
|     
|****  |  | Confidential treatment requested on certain portions of this exhibit. An
unredacted version of this exhibit has been filed separately with the
Securities and Exchange Commission.
|     
|     
|     
|     
|***** |  | Previously filed an Exhibit to the Registrants Form 10-Q filed with the
Securities and Exchange Commission on August 14, 2002 and incorporated by
reference herein.              

36