<PAGE>   1


================================================================================


                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                ----------------

                                    FORM 10-Q

                                ----------------

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

                        COMMISSION FILE NUMBER 000-26365

                                ----------------

                                 GOTO.COM, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

             DELAWARE                                        95-4652060
 (STATE OR OTHER JURISDICTION OF                          (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)                       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.
 52,241,386 shares of Common Stock, $0.0001 par value, as of September 30, 2000


================================================================================




<PAGE>   2



                                 GOTO.COM, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>         <C>                                                                                        <C>
                                                                                                     PAGE NO.
PART I.     FINANCIAL INFORMATION

Item 1.     Financial Statements:
            Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999.........3
            Condensed Consolidated Statements of Operations for the three and nine months ended
               September 30, 2000 and 1999...............................................................4
            Condensed Consolidated Statements of Cash Flows for the nine months ended
               September 30, 2000 and 1999...............................................................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 Risks.................................25

PART II.    OTHER INFORMATION

Item 1.     Legal Proceedings...........................................................................26
Item 2.     Changes in Securities and Use of Proceeds...................................................26
Item 6.     Exhibits and Reports on Form 8-K............................................................26

Signatures..............................................................................................27
</TABLE>




                                       2
<PAGE>   3



                          PART I FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                                 GOTO.COM, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     SEPTEMBER 30,   DECEMBER 31,
                                                                         2000            1999
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
                                                                      (UNAUDITED)

                                          ASSETS

CURRENT ASSETS:

  Cash and cash equivalents........................................   $  14,598       $  11,914
  Short-term investments...........................................      55,898          93,409
  Accounts receivable, net.........................................       3,854           2,927
  Prepaid expenses and other.......................................       1,112             851
  Prepaid marketing expenses.......................................      17,361           2,034
                                                                      ---------       ---------
Total current assets...............................................      92,823         111,135

Property and equipment, net........................................      26,914          12,703

Intangible assets, net.............................................     344,760            --
Long-term investments..............................................       1,356           4,932
Restricted investments.............................................       5,564            --
Other assets.......................................................         683             742
                                                                      ---------       ---------
Total assets.......................................................   $ 472,100       $ 129,512
                                                                      =========       =========

                            LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

  Accounts payable.................................................   $   8,107       $  10,465
  Accrued expenses.................................................      13,114           2,562
  Deferred revenue.................................................       3,156           2,058
  Current portion of debt..........................................           1             131
  Current portion of capital lease obligations.....................         900             754
                                                                      ---------       ---------
Total current liabilities..........................................      25,278          15,970

Other long-term liabilities........................................         807            --
Long-term capital lease obligations................................         156             768


STOCKHOLDERS' EQUITY:
  Common Stock, $0.0001 par value,
    200,000 shares authorized:
    Shares issued and outstanding 52,241 and 45,519
      as of September 30, 2000 and December 31, 1999,
      respectively.................................................           5               5
  Additional paid-in capital on Common Stock.......................     587,548         158,799
  Deferred compensation, net.......................................      (1,412)         (2,584)
  Accumulated deficit..............................................    (140,333)        (43,405)
  Unrealized gains (losses) on short-term and long-term
    investments....................................................          51             (41)
                                                                      ---------       ---------
Total stockholders' equity.........................................     445,859         112,774
                                                                      ---------       ---------
Total liabilities and stockholders' equity.........................   $ 472,100       $ 129,512
                                                                      =========       =========
</TABLE>

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




                                       3
<PAGE>   4




                                 GOTO.COM, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED               NINE MONTHS ENDED
                                                             SEPTEMBER 30,                   SEPTEMBER 30,

                                                        2000            1999            2000             1999
                                                        ----            ----            ----             ----
<S>                                                  <C>             <C>             <C>             <C>
Revenue...........................................   $  25,050       $   8,428       $  63,276       $  13,511

Cost of revenue (A)...............................       3,310           1,940           8,728           4,242
                                                     ---------       ---------       ---------       ---------
Gross profit......................................      21,740           6,488          54,548           9,269

Operating expenses:
  Marketing, sales and service (A)................      21,185           9,852          55,766          20,209
  General and administrative (A)..................       9,012           4,122          23,334           8,101
  Product development (A).........................       3,534           1,155           9,997           2,654
  Amortization of deferred compensation (A).......         311             586           1,111           2,986
  Write-off of acquired in-process research
    and development...............................        --              --             7,550            --
  Amortization of intangible assets...............      35,401            --            79,933            --
                                                     ---------       ---------       ---------       ---------
                                                        69,443          15,715         177,691          33,950
                                                     ---------       ---------       ---------       ---------
Loss from operations..............................     (47,703)         (9,227)       (123,143)        (24,681)

Other income:
  Interest income, net............................       1,592           1,605           4,650           2,133
  Other income....................................           8            --            21,565             526
                                                     ---------       ---------       ---------       ---------
Net loss..........................................   $ (46,103)      $  (7,622)      $ (96,928)      $ (22,022)
                                                     =========       =========       =========       =========


Pro forma basic and diluted net loss per share....   $   (0.94)      $   (0.18)      $   (2.04)      $   (0.60)
                                                     =========       =========       =========       =========


Historical basic and diluted net loss per share...   $   (0.94)      $   (0.18)      $   (2.04)      $   (0.95)
                                                     =========       =========       =========       =========

Weighted average shares used to compute
  pro forma basic and diluted net loss per share..      48,998          42,985          47,437          36,415
                                                     =========       =========       =========       =========


Weighted average shares used to compute
  historical basic and diluted net loss per share       48,998          42,985          47,437          23,065
                                                     =========       =========       =========       =========




(A) If deferred compensation were allocated
    to expense categories, it  would be
    allocated  as follows:

Cost of revenue...................................   $       1       $       3       $       4       $      14
Marketing, sales and service......................          67             129             318             545
General and administrative........................         224             417             733           2,233
Product development...............................          19              37              56             194
                                                     ---------       ---------       ---------       ---------
  Total amortization of deferred compensation.....   $     311       $     586       $   1,111       $   2,986
                                                     =========       =========       =========       =========
</TABLE>




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




                                       4
<PAGE>   5



                                 GOTO.COM, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (IN THOUSANDS; UNAUDITED)

<TABLE>
<CAPTION>
                                                            NINE MONTHS ENDED
                                                               SEPTEMBER 30,
                                                       ---------------------------
<S>                                                    <C>               <C>
                                                          2000             1999
                                                       -----------      ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss............................................  $ (96,928)      $ (22,022)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Amortization of deferred stock option
     compensation.....................................      1,111           2,986
    Accretion of discounts from the purchase of
      short-term and long-term investments............     (1,137)           --
    Other common stock and warrants expense...........       --               247
    Write-off of acquired in-process research
      and development.................................      7,550            --
    Depreciation and amortization ....................      5,529           1,361
    Amortization of intangible assets.................     79,933            --
  Changes in operating assets and liabilities:
    Accounts receivable...............................       (903)         (2,267)
    Prepaid expenses and other........................       (168)         (1,505)
    Prepaid marketing expenses........................    (15,327)         (2,651)
    Accounts payable and accrued expenses.............      3,505           6,923
    Deferred revenues.................................      1,098           1,153
                                                        ---------       ---------
Net cash used in operating activities.................    (15,737)        (15,775)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from (purchases of) short-term and
    long-term investments, net........................     36,752         (83,189)
  Capital expenditures for property and equipment.....    (18,226)         (6,844)
  Net cash used in acquisition........................       (863)           --
  Other assets........................................       (542)           --
                                                        ---------       ---------
Net cash provided by (used in) investing
  activities..........................................     17,121         (90,033)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from the issuance of Common Stock..........      2,654          96,662
  Proceeds from the issuance of Preferred Stock.......       --            24,969
  Proceeds from lease line............................       --             1,203
  Repayments under lease line.........................       (520)           (340)
  Repayment of debt...................................       (834)            (76)
                                                        ---------       ---------
Net cash provided by financing activities.............      1,300         122,418

  Net increase in cash and cash equivalents...........      2,684          16,610
  Cash and cash equivalents at beginning of period....     11,914          16,357
                                                        ---------       ---------
  Cash and cash equivalents at end of period..........  $  14,598       $  32,967
                                                        =========       =========
</TABLE>



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




                                       5
<PAGE>   6


                                 GOTO.COM, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  THE COMPANY, BASIS OF PRESENTATION

    GoTo.com, Inc. (the Company or GoTo) operates an online marketplace that
introduces consumers and businesses who search the Internet to advertisers who
provide products, services and information. Advertisers participating in our
marketplace include retail merchants, wholesale and service businesses and
manufacturers. GoTo facilitates these introductions through our search service,
which enables advertisers to bid in an ongoing auction for priority placement in
our search results. Priority placement means that the search results appear on
the page ranked in descending order of bid price, with the highest bidder's
listing appearing first. Each advertiser pays GoTo the amount of its bid
whenever a consumer clicks on the advertiser's listing in our search results.
Advertisers pay GoTo for each click-through, so advertisers bid only on keywords
relevant to the products, services or information that they offer. Because each
advertiser chooses the bid amount and advertisement placement that is optimal
for its business, we believe the GoTo marketplace provides advertisers with a
cost-effective way to target consumers. Consumers access the GoTo search service
primarily through our affiliates, a network of Web sites that have integrated
GoTo's search service into their sites or that direct consumer traffic to our
site. Consumers can also access GoTo's search service directly through GoTo's
Web site. GoTo also operates an online comparison shopping service called
"GoTo (TM) Shopping" (see Note 7), which allows consumers the ability to better
locate their desired products by automating product comparison across multiple
attributes. By enabling consumers to search at the product level, GoTo (TM)
Shopping creates more targeted, and therefore highly valuable, consumer leads
for our advertisers. GoTo also operates an online resource for auctions called
"GoTo (TM) Auctions" (see Note 7), which allows consumers to search for products
and services at more than 300 auction sites and B2B exchanges across the
Internet, enables sellers to easily manage their postings and distributes its
services through affiliate Web sites, much like the GoTo search service and
GoTo (TM) Shopping. As with Web search, GoTo (TM) Shopping and GoTo (TM)
Auctions are offered through GoTo's affiliate network as well as at GoTo's Web
site, providing consumers with multiple points of access to, and advertisers
with multiple points of distribution for, the advertisers' products. The Company
operates in one reportable business segment.

    GoTo was incorporated on September 15, 1997 in the state of Delaware and
officially launched its service on June 1, 1998.

    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, except for
the write-off during the quarter ended June 30, 2000 of approximately $7.6
million of in-process research and development associated with GoTo's
acquisition of Cadabra Inc. (Cadabra) (see Note 7). 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
fiscal year 1999 Form 10-K.

2.   RECENT ACCOUNTING PRONOUNCEMENTS

     In January 2000, the Emerging Issues Task Force issued EITF No. 00-2
"Accounting for Web Site Development Costs" (EITF 00-2). EITF 00-2 became
effective for Web site development costs incurred for fiscal quarters beginning
after June 30, 2000. GoTo adopted EITF 00-2 during the third quarter of 2000,
which did not have a material effect on its financial statements.




                                       6
<PAGE>   7


3. COMPREHENSIVE INCOME (LOSS)

    The Company accounts for comprehensive income (loss) using Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, as defined therein,
refers to revenues, expenses, gains and losses that are not included in net
income (loss) but rather are recorded directly in stockholders' equity. Total
comprehensive loss for the quarter ended September 30, 2000 approximated net
loss.

4. EARNINGS (LOSS) PER SHARE COMPUTATION

    Historical basic and diluted net loss per share is computed using the
weighted average number of shares of common stock outstanding, excluding the
unvested portion of stock that is subject to repurchase. The effect of
outstanding stock options, convertible preferred stock and unvested stock are
excluded from the calculation of historical diluted net loss per share for the
periods presented, as their inclusion would be antidilutive.

    Pro forma basic and diluted net loss per share is computed using the
historical weighted average number of shares of common stock outstanding plus
the weighted average number of shares resulting from the assumed conversion of
all outstanding convertible preferred stock as though such conversion occurred
at the beginning of the period or original date of issuance, if later. The
effect of outstanding stock options and unvested stock are excluded from the
calculation of pro forma diluted net loss per share for the periods presented,
as their inclusion would be antidilutive.

    Options to purchase approximately 5.9 million and 2.5 million shares of
common stock were outstanding as of September 30, 2000 and 1999, respectively.
In addition, as of September 30, 2000, there were approximately 2.9 million
shares of unvested common stock outstanding, which are subject to repurchase by
GoTo. The following table sets forth the computation of historical basic and
diluted net loss per share and pro forma basic and diluted net loss per share
for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                             SEPTEMBER 30,                      SEPTEMBER 30,
                                                      ----------------------------       --------------------------
                                                          2000             1999              2000            1999
                                                      -----------       ----------       -----------       --------
<S>                                                   <C>               <C>              <C>               <C>
Numerator:
  Net loss........................................    $   (46,103)      $   (7,622)      $   (96,928)      $(22,022)
                                                      ===========       ==========       ===========       ========
Denominator:
  Denominator for historical basic and
    diluted Calculation -- Weighted average
    shares........................................         48,998           42,985            47,437         23,065
                                                      ===========       ==========       ===========       ========

Weighted average effect of pro forma securities:
  Series A Preferred Stock........................           --               --                --              302
  Series B Preferred Stock........................           --               --                --            5,326
  Series C Preferred Stock........................           --               --                --            6,862
  Series D Preferred Stock........................           --               --                --              860
                                                      -----------       ----------       -----------       --------

  Denominator for pro forma basic and diluted
     Calculation..................................         48,998           42,985            47,437         36,415
                                                      ===========       ==========       ===========       ========

Pro forma basic and diluted net loss per
  share...........................................    $     (0.94)      $    (0.18)      $     (2.04)      $  (0.60)
                                                      ===========       ==========       ===========       ========

Historical basic and diluted net loss per
  share...........................................    $     (0.94)      $    (0.18)      $     (2.04)      $  (0.95)
                                                      ===========       ==========       ===========       ========
</TABLE>
5. LITIGATION

     On May 25, 2000, GoTo settled its trademark infringement lawsuit against
The Walt Disney Company. Pursuant to a settlement agreement, Disney paid GoTo
$21.5 million, which was included in other income for the quarter ended June 30,
2000, and Disney has also agreed to permanently discontinue its use of the
disputed Go Network logo and the replacement logo. In addition, Disney agreed to
dismiss its counterclaim against GoTo.




                                       7
<PAGE>   8


6. RELATED PARTY TRANSACTIONS

    During 1998 and through January 1999, Bill Gross' idealab!, which, with its
affiliate, idealab! Holdings, L.L.C., is a significant stockholder of GoTo,
provided certain services to GoTo, such as Internet connection and email
services. During February 1999 and July 1999, GoTo entered into two lease
agreements with Bill Gross' idealab!, which were effective through January 2000.
Subsequently, GoTo entered into an arrangement with Bill Gross' idealab! for
approximately 58,000 square feet of office space with total lease payments of
approximately $7.1 million commencing on January 15, 2000, terminating on
October 31, 2004. Total fees for leasing and management services were
approximately $1.4 million and $226,000 for the nine months ended September 30,
2000 and 1999, respectively. Management believes these amounts are materially
representative of the fair value of services received.

    During the nine months ended September 30, 2000, GoTo recorded approximately
$330,000 of search listing advertising revenue from Bill Gross' idealab! During
the nine months ended September 30, 2000, GoTo also recorded approximately
$143,000 of search listing and banner revenue from Cadabra prior to the closing
of GoTo's acquisition of Cadabra on January 31, 2000. Cadabra began advertising
its Web site on GoTo's marketplace on December 17, 1999 and ceased advertising
on GoTo on January 13, 2000. Management believes the amounts paid by Bill Gross'
idealab! and Cadabra were materially representative of the fair value of
advertising services provided.

    On March 3, 2000, GoTo entered into a Stockholder Agreement with Bill Gross'
idealab!, which provides, among other things, that Bill Gross' idealab! will not
and will cause its affiliates not to, directly or indirectly, except with the
prior written consent of our Board of Directors and, without limitation, a
majority of our directors who are not, and have not been for the previous twelve
months, affiliates of Bill Gross' idealab! or any of its affiliates or
associates:

     o    become a beneficial owner of 35% or more of the outstanding common
          stock of GoTo;

     o    transfer beneficial ownership of any common stock of GoTo except (A)
          pursuant to the terms of a merger, consolidation or liquidation of, or
          tender offer or other business combination transaction with respect to
          GoTo, in each case approved by our Board of Directors and, without
          limitation, by a majority of our directors who are not, and have not
          been for the previous twelve months, affiliates of Bill Gross'
          idealab! or any of its affiliates or associates; (B) pro rata
          distributions by certain of the affiliated venture funds of Bill
          Gross' idealab! of shares of common stock of GoTo to their limited
          partners consistent with past practice, or (C) other transfers to
          third parties, provided that any such third party (together with any
          of its affiliates and associates) would not, to the knowledge of Bill
          Gross' idealab! after inquiry, following the completion of such
          transfer, beneficially own 15% or more of the outstanding common stock
          of GoTo; or

     o    knowingly assist or advise, or knowingly provide or arrange financing
          to facilitate, another person or entity, or group of persons or
          entities acting in concert, to become the beneficial owner of 15% or
          more of the outstanding common stock of GoTo

    Further, the Stockholder Agreement also provides that, until March 3, 2002,
so long as Bill Gross' idealab! is the beneficial owner of at least 20% of the
outstanding common stock of GoTo, GoTo will not, without the prior written
consent of Bill Gross' idealab!, adopt a "shareholder rights plan" (commonly
referred to as a "poison pill"); provided, however, that if, in the good faith
judgment of GoTo's Board, after consideration of its fiduciary duties, adoption
of such a shareholder rights plan would be in the best interests of GoTo's
stockholders, GoTo may adopt such a shareholder rights plan without the consent
of Bill Gross' idealab! so long as the percentage thresholds set forth in such
plan are no more restrictive to Bill Gross' idealab! than the terms of the
Stockholder Agreement. If GoTo adopts a shareholder rights plan, the Stockholder
Agreement will terminate and be of no further force or effect.

7. ACQUISITIONS

    Cadabra

    On January 31, 2000, GoTo acquired Cadabra, an online comparison shopping
service. Pursuant to the Agreement and Plan of Reorganization, GoTo acquired all
of the outstanding shares of capital stock and assumed all outstanding options
to acquire shares of capital stock of Cadabra, for $8.0 million in cash and
3,283,672 shares of GoTo common stock, including 214,833 shares to be issued
upon the exercise of options assumed by GoTo. The acquisition was accounted for
as a purchase. Under the purchase method of accounting, the purchase price is
allocated to the assets acquired and liabilities assumed based on their
estimated fair values as determined by GoTo at the date of the acquisition. The
operations of Cadabra have been included in our results of operations since the




                                       8
<PAGE>   9


date of the acquisition. The total purchase price of the acquisition was
approximately $263.1 million and consisted of cash of $8.0 million; GoTo common
stock of $252.5 million valued at the closing price of GoTo's common stock on
the date the exchange ratio was set, net of expected proceeds from the exercise
of Cadabra stock options assumed by GoTo; and acquisition costs of $2.6 million,
primarily for investment banking, legal and accounting costs. Of the purchase
price, $7.6 million was assigned to in-process research and development which
was expensed immediately following the consummation of the acquisition, $6.0
million was assigned to the value of purchased technology and other intangibles
and will be amortized on a straight-line basis over three years and $4.4 million
was allocated to the net tangible assets. The excess purchase price over the
estimated fair value of the assets acquired and liabilities assumed has been
allocated to goodwill in the amount of $245.1 million and will be amortized on a
straight-line basis over three years. The projects identified as in-process
research and development are those that are currently underway, that will
require additional effort to establish technological feasibility and have no
alternative future use. The projects are expected to add features that will
enhance the operating capabilities of the service. At the acquisition date,
these projects were approximately 80% complete. GoTo completed these projects in
the third quarter of 2000, incurring additional costs of approximately $1.2
million to do so. To determine the value of in-process research and development,
the expected future cash flows, including costs to reach technological
feasibility, were discounted at an after-tax rate of 25%, taking into account
risks related to the characteristics and applications of the technology,
existing and future markets, and assessments of the life cycle stage of the
technology. GoTo obtained an independent appraisal to derive the purchase price
allocation.

    AuctionRover

    On May 3, 2000, GoTo acquired AuctionRover.com, Inc. (AuctionRover), an
online resource for auctions. Pursuant to the Agreement and Plan of
Reorganization, GoTo acquired all of the outstanding shares of capital stock and
assumed all outstanding options to acquire shares of capital stock of
AuctionRover for 3,470,588 shares of GoTo common stock, including 521,408 shares
to be issued upon the exercise of options assumed by GoTo. The acquisition was
accounted for as a purchase. The operations of AuctionRover have been included
in GoTo's results of operations since the date of acquisition. Based on the
price of GoTo common stock on the date the exchange ratio was set, the purchase
price was valued at approximately $174.2 million, which consisted of GoTo common
stock of $173.7 million, net of expected proceeds from the exercise of stock
options assumed by GoTo and including acquisition costs of approximately
$500,000 for legal and accounting services. The purchase price was determined by
arms-length negotiations between the parties. Timothy Draper, who was a director
GoTo at the time of the AuctionRover acquisition, is affiliated with certain
entities that were principal stockholders of AuctionRover. Of the purchase
price, $6.7 million was assigned to the value of purchased technology and other
intangible assets and will be amortized on a straight-line basis over three
years and $600,000 was allocated to the net tangible assets. The excess purchase
price over the estimated fair value of the assets acquired and liabilities
assumed has been allocated to goodwill in the amount of $167.0 million and will
be amortized on a straight-line basis over three years. GoTo assumed a line of
credit with an outstanding balance of approximately $700,000, which GoTo paid
off, in the second quarter of 2000.

    The following unaudited pro forma financial information presents the
combined results of operations of GoTo, Cadabra and AuctionRover as if the
acquisitions had occurred as of the beginning of each period presented, after
giving effect to certain adjustments, including amortization of goodwill and
intangible assets, but excludes the non-recurring charge for the write-off of
in-process research and development associated with the Cadabra acquisition. The
pro forma financial information does not necessarily reflect the results of
operations that would have occurred had GoTo, Cadabra and AuctionRover
constituted a single entity during such periods (in thousands).

<TABLE>
<CAPTION>
                                   Nine Months Ended     Nine Months Ended
                                   September 30, 2000    September 30, 1999
                                   ------------------    ------------------
<S>                                <C>                   <C>
Revenue .....................      $           63,142    $           13,759
Net loss ....................                (126,395)             (128,844)
Pro forma net loss per share                    (2.58)                (3.19)
Historical net loss per share      $            (2.58)   $            (4.77)
</TABLE>

8. RESTRICTED INVESTMENTS

    In August 2000, GoTo entered into a 19-month agreement under which America
Online (AOL) will display GoTo's listings on the search results page of AOL,
AOL.com and Netscapes's Netcenter. The agreement calls for a guaranteed payment
by GoTo of $50 million over the term of the agreement. As part of the guaranteed
payment, GoTo issued to AOL a letter of credit for the benefit of AOL, in the
amount of $5 million. In order to secure the line of credit, GoTo deposited $5.6
million with a bank, which funds are restricted until the termination of the
letter of credit in March 2002.




                                       9
<PAGE>   10


9. SUBSEQUENT EVENTS

     On October 25, 2000, GoTo acquired substantially all the assets of
SearchUP, Inc., which did not constitute a business. Pursuant to the Asset
Purchase Agreement, GoTo acquired assets, including its operational Web site,
databases of registered URLs, trademarks and the patent obtained by SearchUP on
their URL Position Manager for 261,255 shares of GoTo common stock. The
acquisition will be accounted for as a purchase. The total purchase price was
approximately $3.2 million and determined by the closing price of GoTo's common
stock on the purchase date. GoTo will allocate the purchase price to the
intangible assets acquired based on their estimated fair values as determined by
GoTo. It is anticipated that such amounts will be amortized on a straight-line
basis over three years.

     On October 31, 2000, GoTo entered into a three year agreement with Lycos,
Inc. under which GoTo will provide its top three listings on the Lycos.com and
HotBot search result pages. The agreement includes an upfront payment
by GoTo of $10 million; additional costs will be based on specific
performance criteria and could potentially be valued in the tens of millions of
dollars.


                                       10
<PAGE>   11


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

    THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WE USE WORDS SUCH AS "ANTICIPATES," "BELIEVES," "PLANS,"
"EXPECTS," "FUTURE" AND "INTENDS" AND SIMILAR EXPRESSIONS TO IDENTIFY
FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS DOCUMENT.
GOTO UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY OR REVISE ANY FORWARD-LOOKING
STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE IN OUR
FORWARD-LOOKING STATEMENTS FOR MANY REASONS, INCLUDING WITHOUT LIMITATION THE
RISKS DESCRIBED IN "RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS," BELOW.

OVERVIEW

    GoTo operates an online marketplace that introduces consumers and businesses
who search the Internet to advertisers who provide products, services and
information. Advertisers participating in our marketplace include retail
merchants, wholesale and service businesses and manufacturers. GoTo facilitates
these introductions through our search service, which enables advertisers to bid
in an ongoing auction for priority placement in our search results. Priority
placement means that the search results appear on the page ranked in descending
order of bid price, with the highest bidder's listing appearing first. Each
advertiser pays GoTo the amount of its bid whenever a consumer clicks on the
advertiser's listing in our search results. Advertisers pay GoTo for each
click-through, so advertisers bid only on keywords relevant to the products,
services or information that they offer. Because each advertiser chooses the bid
amount and advertisement placement that is optimal for its business, we believe
the GoTo marketplace provides advertisers with a cost-effective way to target
consumers. Consumers access the GoTo search service primarily through our
affiliates, a network of Web sites that have integrated GoTo's search service
into their sites or that direct consumer traffic to our site. Consumers can also
access GoTo's search service directly through GoTo's Web site. GoTo also
operates an online comparison shopping service called "GoTo (TM) Shopping,"
which allows consumers the ability to better locate their desired products by
automating product comparison across multiple attributes. By enabling consumers
to search at the product level, GoTo (TM) Shopping creates more targeted, and
therefore highly valuable, consumer leads for our advertisers. GoTo also
operates an online resource for auctions called "GoTo (TM) Auctions," which
allows consumers to search for products and services at more than 300 auction
sites and B2B exchanges across the Internet, enables sellers to easily manage
their postings and distributes its services through affiliate Web sites, much
like the GoTo search service and GoTo (TM) Shopping. As with Web search,
GoTo (TM) Shopping and GoTo (TM) Auctions are offered through GoTo's affiliate
network as well as at GoTo's Web site, providing consumers with multiple points
of access to, and advertisers with multiple points of distribution for, the
advertisers' products.

     A large and growing number of consumers using the GoTo search service at
our Web site and at our affiliates' Web sites across the Internet increases the
incentive for advertisers to bid in the GoTo marketplace. In turn, a breadth of
relevant advertiser links increases the value to consumers of using the GoTo
search service. Consequently, we believe a large and active base of advertisers,
consumers and affiliates in our marketplace can stimulate growth in bidding,
searches and paid introductions. GoTo was incorporated in September 1997 and has
a limited 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 (TM) service was announced in February 1998, and following
further proof-of-concept testing, was officially launched in June 1998. We
launched GoTo (TM) Shopping during February 2000 and GoTo (TM) Auctions during
May 2000. On October 26, 2000, GoTo announced its intent to change its corporate
name and expects to officially change its name by the middle of next year. This
change will need the approval of Goto's shareholders. GoTo has devoted
significant resources to launching its search service, including developing an
infrastructure and building a management team. GoTo's losses for the nine months
ended September 30, 2000 and the years ended December 31, 1999 and 1998 were
approximately $96.9 million, $29.3 million and $14.0 million, respectively.

    We believe that the GoTo search service, GoTo (TM) Shopping, and GoTo (TM)
Auctions will be more attractive to advertisers as more consumers use these
services for their search needs and more attractive to consumers as more
advertisers bid for placement in our search, shopping and auction results. A
significant component of our expenses consists of costs incurred to attract
consumers to our service through GoTo's affiliate network. We expect to continue
to rely upon these sources for a significant proportion of consumer searches
conducted on our service. Our future success is dependent upon increasing the
revenue we derive from this traffic.




                                       11
<PAGE>   12



Acquisitions

    As a result of our acquisitions of Cadabra and AuctionRover, we believe our
cost of revenue; marketing, sales and service expenses; general and
administrative expenses and product development expenses will increase as we
integrate and expand our shopping and auction services. Further, these products
have limited histories and it is difficult to forecast revenues, expenses and
therefore the total potential loss. In addition, we will incur significant
additional charges resulting from the amortization of goodwill and other
acquired intangible assets.

    On January 31, 2000, GoTo acquired Cadabra, an online comparison shopping
service. Pursuant to the Agreement and Plan of Reorganization, GoTo acquired all
of the outstanding shares of capital stock and assumed all outstanding options
to acquire shares of capital stock of Cadabra, for $8.0 million in cash and
3,283,672 shares of GoTo common stock, including 214,833 shares to be issued
upon the exercise of options assumed by GoTo. The acquisition was accounted for
as a purchase. Under the purchase method of accounting, the purchase price is
allocated to the assets acquired and liabilities assumed based on their
estimated fair values as determined by GoTo at the date of the acquisition. The
operations of Cadabra have been included in our results of operations since the
date of the acquisition. The total purchase price of the acquisition was
approximately $263.1 million and consisted of cash of $8.0 million; GoTo common
stock of $252.5 million valued at the closing price of GoTo's common stock on
the date the exchange ratio was set, net of expected proceeds from the exercise
of Cadabra stock options assumed by GoTo; and acquisition costs of $2.6 million,
primarily for investment banking, legal and accounting costs. Of the purchase
price, $7.6 million was assigned to in-process research and development which
was expensed immediately following the consummation of the acquisition, $6.0
million was assigned to the value of purchased technology and other intangibles
and will be amortized on a straight-line basis over three years and $4.4 million
was allocated to the net tangible assets. The excess purchase price over the
estimated fair value of the assets acquired and liabilities assumed has been
allocated to goodwill in the amount of $245.1 million and will be amortized on a
straight-line basis over three years. The projects identified as in-process
research and development are those that are currently underway, that will
require additional effort to establish technological feasibility and have no
alternative future use. The projects are expected to add features that will
enhance the Web site scraping ability and operating capabilities of the service.
At the acquisition date, these projects were approximately 80% complete. GoTo
completed these projects in the third quarter of 2000, incurring additional
costs of approximately $1.2 million to do so. To determine the value of
in-process research and development, the expected future cash flows, including
costs to reach technological feasibility, were discounted at an after-tax rate
of 25%, taking into account risks related to the characteristics and
applications of the technology, existing and future markets, and assessments of
the life cycle stage of the technology. GoTo obtained an independent appraisal
to derive the purchase price allocation.

    On May 3, 2000, GoTo acquired AuctionRover, an online resource for auctions.
Pursuant to the Agreement and Plan of Reorganization, GoTo acquired all of the
outstanding shares of capital stock and assumed all outstanding options to
acquire shares of capital stock of AuctionRover for 3,470,588 shares of GoTo
common stock, including 521,408 shares to be issued upon the exercise of options
assumed by GoTo. Based on the price of GoTo common stock on the date the
exchange ratio was set, the purchase price was valued at approximately $174.2
million, which consisted of GoTo common stock of $173.7 million, net of expected
proceeds from the exercise of stock options assumed by GoTo and including
acquisition costs of approximately $500,000 for legal and accounting services.
The purchase price was determined by arms-length negotiations between the
parties. Timothy Draper, a former director of GoTo, is affiliated with certain
entities that were principal stockholders of AuctionRover. Of the purchase
price, $6.7 million was assigned to the value of purchased technology and other
intangible assets and will be amortized on a straight-line basis over three
years and $600,000 was allocated to the net tangible assets. The excess purchase
price over the estimated fair value of the assets acquired and liabilities
assumed has been allocated to goodwill in the amount of $167.0 million and will
be amortized on a straight-line basis over three years.

International Expansion

    We launched our service in the United Kingdom in November 2000 and plan to
launch our German-speaking marketplace during the first half of 2001. Our
international expansion will require continued investment, and we expect to
incur significant costs to build internal infrastructure and grow our advertiser
and affiliate bases overseas. Therefore, our strategy is to align with partners
that may accelerate the timing of expansion, provide key distribution channels
for our products and provide additional financing. At this stage, the structure
of potential partnerships is not known, but it is intended that the partners
will take an equity position in GoTo's international ventures, which would
potentially reduce the start-up losses that we would record. If appropriate
partnerships with terms acceptable to us are not obtained, our share of
international start-up costs may be higher.




                                       12
<PAGE>   13


RESULTS OF OPERATIONS

    Revenue. Our revenue consists of search listing advertisements and banner
advertisements. GoTo has no barter transactions. For the quarter ended
September 30, 2000, banner advertisement revenue constituted less than 10
percent of our total revenue.  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. Search listing
advertisement revenue is determined by multiplying the number of click-throughs
on paid search results by the amounts bid for applicable keywords. Search
listing revenue is recognized when earned based on click-through activity to the
extent that the advertiser has deposited sufficient funds with us or collection
is probable.

    Our revenue is determined primarily by the number of paid introductions,
that is the result of the number of times consumers click on advertisers' search
listing advertisements, multiplied by the bid price for those listings. The
number of paid introductions for each of the last nine fiscal quarters is as
follows:

NUMBER OF PAID INTRODUCTIONS                      FOR THE QUARTER ENDED
----------------------------                      ---------------------
114 million....................................   September 30, 2000
93 million.....................................   June 30, 2000
88 million.....................................   March 31, 2000
73 million.....................................   December 31, 1999
54 million.....................................   September 30, 1999
31 million.....................................   June 30, 1999
15 million.....................................   March 31, 1999
 7 million.....................................   December 31, 1998
 2 million.....................................   September 30, 1998

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

AVERAGE PRICE PER PAID INTRODUCTION                  FOR THE QUARTER ENDED
-----------------------------------                  ---------------------
$0.21............................................    September 30, 2000
 0.21............................................    June 30, 2000
 0.19............................................    March 31, 2000
 0.17............................................    December 31, 1999
 0.14............................................    September 30, 1999
 0.11............................................    June 30, 1999
 0.08............................................    March 31, 1999
 0.05............................................    December 31, 1998
$0.03............................................    September 30, 1998

Average price per paid introduction was constant this quarter compared to last
quarter for several reasons. First, traffic flow increased during the quarter,
which caused some of the advertisers to lower their bids in order to maintain
their advertising budget for the quarter. Second, our contextual links product
(which was launched in late second quarter of 2000) included the distribution of
our top three to five listings to other affiliate sites; in some cases
advertisers indicated poor conversion rates, that is they were receiving clicks
that were not translating into sales. As a result, these advertisers lowered
their bids. Third, we removed approximately 1 million listings (approximately
20% of our listings) for what we believed were for relevancy improvements. In
some cases, removed listings were in the top three to five listings, which carry
higher bids than listings below the top three to five listings. Fourth, although
our number of paid introductions increased by 21 million between the second and
third quarters of 2000, approximately 6 million of these were at a price per
paid introduction of $0.01, the lowest bid price GoTo accepts for a paid
listing, and approximately 2 million of these were on terms for which no
advertiser previously had bid.

    We believe that some of these events will have a long-term positive impact
on our business, such as the increased traffic, bid on new terms and the
increased relevancy of our results. We anticipate that it may take at least
another quarter or so to complete contextual links implementation changes and
improvements.

    We believe the quarterly number of paid introductions and average price per
paid introduction listed above are not necessarily indicative of future results
and that the periods prior to the three-month period ended September 30, 1998
are not relevant because our service was only in its initial stage. It is
difficult to forecast the future growth of the average price per paid
introduction, as advertisers, rather than GoTo, determine the price paid. We do
not anticipate our historical growth rate to continue. Our growth rate and
results depend on our ability to continue to increase the number of advertisers
who use our service, the amount our advertisers spend on our service and the
number of consumers who use our service. We anticipate these variables to
fluctuate, affecting our growth rate and results.




                                       13
<PAGE>   14


    Revenue was approximately $25.1 million for the quarter ended September 30,
2000 compared to approximately $8.4 million for the quarter ended September 30,
1999. Revenue was approximately $63.3 million for the nine months ended
September 30, 2000 compared to approximately $13.5 million for the nine months
ended September 30, 1999. The increase was the result of continued growth of our
marketplace and the corresponding participants, our advertisers and the number
of consumers using our product. We experienced rapid growth from the quarter
ended September 30, 1999 through the quarter ended September 30, 2000; however,
we do not anticipate our historical revenue growth rate to continue as a
percentage of growth as expressed on a year-to-year or quarter-to-quarter
comparison basis. Our growth is dependent on obtaining additional traffic and
the increasing average price per paid introduction. For the quarter ended
September 30, 2000, approximately 10% of our overall traffic came from the
browsers, Microsoft's Internet Explorer and Netscape. Although we entered into a
one-year agreement with Microsoft on January 21, 2000 for continued traffic from
their Internet Explorer 4 and Internet Explorer 5 browsers, we expect Microsoft
to deliver a diminishing level of traffic to us in 2000 compared to 1999, and
anticipate that we eventually will receive no traffic from Internet Explorer 4
and Internet Explorer 5. Our agreement with Netscape was renewed in July of 2000
and will expire on June 30, 2001. Even though we currently anticipate growth in
traffic from existing and new affiliates, we must renew our affiliate agreements
or replace this traffic with other sources and grow our advertising base;
otherwise, our revenue may be materially, adversely affected.

    Cost of Revenue. Cost of revenue consists primarily of fees paid to outside
service providers that provide and manage our unpaid listings and costs
associated with maintaining our Web site. Costs associated with maintaining our
Web site include salaries of related personnel, depreciation of Web site
equipment, co-location charges for our Web site equipment and software license
fees. Cost of revenue was approximately $3.3 million for the quarter ended
September 30, 2000 compared to approximately $1.9 million for the quarter ended
September 30, 1999. Cost of revenue was approximately $8.7 million for the nine
months ended September 30, 2000 compared to approximately $4.2 million for the
nine months ended September 30, 1999. The increase was primarily due to the
increased fees paid to outside service providers, increased database and
hardware capacity requirements and an increase in the number of personnel
required to support our Web site. We anticipate cost of revenue to continue to
increase as our traffic and number of advertisers increase.

    Marketing, Sales and Service. Marketing, sales and service expenses consist
primarily of our advertising and promotional expenditures, such as online links
from other Web sites associated with our affiliate network, banner
advertisements on other sites and offline media advertising, as well as payroll
and related expenses for personnel engaged in marketing, customer service and
sales functions. Marketing, sales and service expenses were approximately $21.2
million for the quarter ended September 30, 2000 compared to approximately $9.9
million for the quarter ended September 30, 1999. Marketing, sales and service
expenses were approximately $55.8 million for the nine months ended September
30, 2000 compared to approximately $20.2 million for the nine months ended
September 30, 1999. The increase was primarily due to increased distribution of
our search service and the hiring of additional personnel for marketing, sales
and service functions. We believe that continued investment in marketing, sales
and service and in the increased distribution of our services, which includes
our recent agreement with AOL, is critical to attaining our strategic objectives
and, as a result, expect these costs to continue to increase in the future. In
August 2000, we entered into a 19-month agreement under which AOL will display
GoTo's listings on the search results page of AOL, AOL.com and Netscape's
Netcenter. The agreement calls for a guaranteed payment of $50 million over the
term of the agreement.

    General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; facilities; and professional services, including legal, insurance and
other general corporate expenses. General and administrative expenses were
approximately $9.0 million for the quarter ended September 30, 2000 compared to
approximately $4.1 million for the quarter ended September 30, 1999. General and
administrative expenses were approximately $23.3 million for the nine months
ended September 30, 2000 compared to approximately $8.1 million for the nine
months ended September 30, 1999. The increase was the result of increased
headcount and related expenses associated with the hiring of additional
personnel and increased professional services. We expect general and
administrative expenses to continue to increase as we expand our staff and incur
additional costs related to the growth of our business.




                                       14
<PAGE>   15


    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. Product development expenses were approximately $3.5 million
for the quarter ended September 30, 2000 compared to approximately $1.2 million
for the quarter ended September 30, 1999. Product development expenses were
approximately $10.0 million for the nine months ended September 30, 2000
compared to approximately $2.7 million for the nine months ended September 30,
1999. The increase was a result of increased staffing and associated costs
relating to enhancing features and functionality to our Web site and search
service. The increase was offset by capitalization of certain costs under EITF
00-2 and Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," of approximately $721,000 and
$2.2 million during the quarter ended September 30, 2000 and the nine months
ended September 30, 2000, respectively. We believe our continued investment in
product development is critical to attaining our strategic objectives and, as a
result, expect product development expenses to continue to increase in the
future.

    Amortization of Deferred Compensation. Certain stock options granted from
the inception of GoTo through our initial public offering have been considered
to be compensatory for financial accounting purposes. Total compensation
resulting from these stock options amounted to approximately $7.4 million. This
amount represents the difference between the exercise price of the stock options
and the deemed fair value of our common stock at the time of the grants or
issuances, adjusted for the return of unvested options or the repurchase of
restricted stock resulting from employee terminations. Compensation associated
with these stock options is amortized and expensed over the applicable vesting
periods using a graded methodology. Approximately $311,000 and $586,000 were
amortized and charged to operations for the quarters ended September 30, 2000
and 1999, respectively. Approximately $1.1 million and $3.0 million were
amortized and charged to operations for the nine months ended September 30, 2000
and 1999, respectively.

    Acquisition-Related Charges. On January 31, 2000, GoTo acquired Cadabra. The
total purchase price of the acquisition was approximately $263.1 million, of
which $7.6 million was assigned to in-process research and development which was
expensed immediately following the consummation of the acquisition, $6.0 million
was assigned to the value of purchased technology and other intangible assets
and will be amortized on a straight-line basis over three years and $4.4 million
was allocated to the net tangible assets. The excess purchase price over the
estimated fair value of the assets acquired and liabilities assumed has been
allocated to goodwill in the amount of $245.1 million and will be amortized on a
straight-line basis over three years. On May 3, 2000, GoTo also acquired
AuctionRover. The total purchase price was approximately $174.2 million, of
which $6.7 million was assigned to the value of purchased technology and other
intangible assets and will be amortized on a straight-line basis over three
years and $600,000 was allocated to the net tangible assets. The excess purchase
price over the estimated fair value of the assets acquired and liabilities
assumed has been allocated to goodwill in the amount of $167.0 million and will
be amortized on a straight-line basis over three years. In the quarter ended
September 30, 2000, GoTo incurred charges for the amortization of goodwill and
intangible assets totaling approximately $35.4 million. In the nine months ended
September 30, 2000, GoTo incurred charges totaling approximately $87.5 million,
which included approximately $7.6 million for the write-off of in-process
research and development and approximately $80.0 million for the amortization of
goodwill and other intangible assets.

    Other Income. Other 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 and debt. Other income was approximately $1.6
million for the quarter ended September 30, 2000 compared to approximately $1.6
million for the quarter ended September 30, 1999. Other income was approximately
$26.2 million for the nine months ended September 30, 2000 compared to
approximately $2.7 million for the nine months ended September 30, 1999. The
increase from the nine months ended September 30, 1999 to the nine months ended
September 30, 2000 was primarily due to the settlement of litigation with The
Walt Disney Company, pursuant to which Disney paid GoTo $21.5 million, and the
increased earnings on cash, cash equivalents, and short-term and long-term
investments in available-for-sale securities, which increased as a result of our
initial public offering.

LIQUIDITY AND CAPITAL RESOURCES

    Net cash used in operating activities totaled approximately $15.7 million
and approximately $15.8 million for the nine months ended September 30, 2000 and
1999, respectively. Net cash provided by investing activities totaled
approximately $17.1 million for the nine months ended September 30, 2000, and
net cash used in investing activities totaled approximately $90.0 million for
the nine months ended September 30, 1999. The increase resulted from proceeds
from maturities or sales of short-term and long-term investments, which was
partially offset by capital expenditures for property and equipment. Net cash
provided by financing activities totaled approximately $1.3 million and $122.4
million for the nine months ended September 30, 2000 and 1999, respectively.




                                       15
<PAGE>   16


    Our principal sources of liquidity consisted of cash, cash equivalents and
short-term investments of approximately $70.5 million as of September 30, 2000
and approximately $105.3 million as of December 31, 1999. We also carry
long-term investments of approximately $1.4 million as of September 30, 2000,
which we believe is liquid. We believe that our cash reserves are sufficient to
sustain operations through the next 12 months, however, unknown factors may
require us to seek additional capital. Such unknown factors may include, among
other things, competitive pressure, higher cost of intellectual capital, higher
cost of traffic, higher cost of international expansion or higher costs to
accommodate increases in capacity and acquisitions.

    We may seek additional capital through the issuance of debt or equity
depending upon our results of operations, market conditions or unforeseen
opportunities. Our future liquidity and capital requirements will depend upon
numerous factors. The pace of expansion of our operations will affect our
capital requirements. Our forecast of the period of time through which our
financial resources will be adequate to support our operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary materially as a result of the factors described above. If we
require additional capital resources, we may seek to sell additional equity or
debt securities or obtain a bank line of credit. The sale of additional equity
or convertible debt securities could result in additional dilution to our
stockholders. There can be no assurance that any financing arrangements will be
available in amounts or on terms acceptable to us, if at all.

    RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

WE HAVE A LIMITED OPERATING HISTORY.

    GoTo 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:

o    complete dependence on online advertising and consumer search services with
     only limited market acceptance;

o    need to develop and upgrade our infrastructure, including internal
     controls, transaction processing systems, data storage and retrieval
     systems and Web site;

o    need to manage changing operations;

o    dependence upon and need to hire and retain key personnel; and

o    ability to integrate acquisitions, including, but not limited to, the
     acquisitions of Cadabra in January 2000 and AuctionRover in May 2000.

    We cannot assure you that the GoTo service will retain its existing, or
attract new, advertisers, consumers and "affiliates," which are Web sites that
include GoTo's services on their sites or that direct consumer traffic to the
GoTo Web site. We also cannot assure you that GoTo will achieve significant
additional revenues or improve operating margins in future periods. There can be
no assurance that GoTo's services will continue to achieve commercial success
and, if they do not, our business, operating results and financial condition may
be materially and adversely affected.

WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.

    We have not achieved profitability. We expect to incur net losses throughout
2001, but we may never become profitable should adverse events occur. We
incurred a net loss of approximately $96.9 million and $22.0 million for the
nine months ended September 30, 2000 and 1999, respectively, and as of September
30, 2000, we had an accumulated deficit of approximately $140.3 million.

    Our limited operating history makes it difficult to forecast our future
operating results. Although our revenue has grown in recent quarters, we cannot
be certain that this growth will continue. We expect to continue to increase our
marketing, sales and service, product development and general and administrative
expenses. In addition, the amortization of goodwill and other intangible assets
related to our acquisitions of Cadabra and AuctionRover will be significant, and
any similar expense for future acquisitions could negatively affect our
earnings. As a result, we will need to generate significant additional revenue
to achieve profitability and in the absence of significant additional revenue,
we may need to raise additional funds. If we do achieve profitability, we cannot
be certain that we will sustain or increase it.




                                       16
<PAGE>   17


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

    We believe that quarter-to-quarter comparisons of our operating results are
not a good indication of our future performance. It is likely that in some
future quarter our operating results may be below 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 or significantly fluctuate. Our operating
results have varied widely in the past, and we expect that they will continue to
vary significantly from quarter to quarter due to a number of factors,
including:

o    demand for our services by advertisers and consumers, including the number
     of searches performed by consumers and the rate at which they click-through
     to paid search results;

o    prices paid by advertisers using the GoTo services, which are not
     determined by GoTo;

o    our costs of attracting consumers to GoTo's services, including costs of
     receiving exposure on third-party Web sites and advertising costs;

o    costs related to agreements with suppliers of consumer traffic to our
     service and professional services;

o    loss of our agreements with suppliers of consumer traffic;

o    the mix of paying vs. non-paying results on the GoTo services;

o    our ability to significantly increase our distribution channels;

o    seasonality, typical of our industry, which in the past has been lower in
     the first and third quarters of our fiscal year;

o    the amount and timing of operating costs and capital expenditures relating
     to expansion of our operations;

o    costs and delays in introducing new GoTo services and improvements to
     existing services;

o    costs related to the integration of acquisitions, including the integration
     of Cadabra and AuctionRover;

o    changes in the growth rate of Internet usage and acceptance by consumers of
     e-commerce;

o    technical difficulties, system failures or Internet downtime;

o    government regulations related to the Internet;

o    our ability to upgrade and develop our information technology systems and
     infrastructure;

o    costs related to acquisitions of technologies or businesses; and

o    general economic conditions, as well as those specific to the Internet and
     related industries.

    As a result of our limited operating history, it is difficult to accurately
forecast our revenue, and we have limited meaningful historical financial data
upon which to base planned operating expenses. We plan to significantly increase
our operating expenses to expand our marketing and sales operations, broaden our
customer support capabilities and fund greater levels of product development. We
base our current and future expense levels on our operating plans and estimates
of future revenue, and 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
keyword search listings on the service and the number of advertisers that bid on
the service, none of which are under our control. 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 it
exceeds our expectations.




                                       17
<PAGE>   18


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

    The consumers who conduct searches on our service come from a limited number
of sources. Our sources for consumers conducting searches are members of our
affiliate network, including providers of Internet browsers such as Netscape
Communicator and Microsoft Internet Explorer, aggregators of search offerings of
various providers, Internet Service Providers, such as AOL and Earthlink, our
Web site, and banner advertising. In August 2000, we entered into a multi-year
agreement under which AOL will display GoTo's listings on the search results
page of AOL, AOL.com and Netscape's Netcenter. We also entered into a one-year
agreement with Microsoft Corporation for continued traffic from their Internet
Explorer 4 and Internet Explorer 5 browser, which commenced on January 21, 2000.
This source is expected to deliver a diminishing level of traffic to us in 2000
compared to 1999, and we expect that we will eventually receive no traffic from
this source. In addition, our agreement with Netscape will expire on June 30,
2001. Although sources of consumer traffic to our service fluctuate, in any
given month we typically depend upon one or a few of these sources for a
significant majority of traffic and searches conducted on our service. For the
quarter ended September 30, 2000, approximately 90% of all of GoTo's traffic
came from our affiliates. Of GoTo's total traffic, approximately 10% of the
total traffic came from the browsers, Microsoft's Internet Explorer and
Netscape, approximately 80% of the total traffic came from other affiliates and
the remaining 10% of the total traffic came directly to the GoTo Web site. We
generally obtain traffic from the browsers and other affiliates through
short-term agreements. There can be no assurance that we will be successful in
renewing any of these agreements or entering into new distribution agreements on
commercially acceptable terms.

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

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

OUR FUTURE SUCCESS IS DEPENDENT UPON FURTHER DEVELOPING AND ENHANCING THE
AFFILIATE NETWORK.

    We believe that our future success in penetrating our target markets depends
in part on our ability to further develop and maintain relationships with
affiliates, who provide their users with GoTo services on their sites or direct
their traffic to our Web site. We believe these relationships are important in
order to facilitate broad market acceptance of our services and enhance our
sales. Our future ability to attract consumers to our services is dependent upon
the growth of our affiliate network, which is new and unproven. Our agreements
with some of our affiliates are generally terminable at will by either party at
any time. The loss of our agreements with our existing affiliates could damage
our business. If we are unable to successfully develop and maintain
relationships with affiliates, our business, operating results and financial
condition may be materially and adversely affected.

WE MAY HAVE DIFFICULTY IMPLEMENTING GOTO (TM) SHOPPING AND GOTO (TM) AUCTIONS,
AND CONSUMERS AND ADVERTISERS MAY NOT ADOPT EITHER GOTO (TM) SHOPPING OR
GOTO(TM) AUCTIONS.

    We extended our pay-for-placement model for Web search to GoTo (TM) Shopping
and GoTo (TM) Auctions, which services were acquired in recent acquisitions.
GoTo (TM) Shopping permits advertisers to bid for placement in search results
generated from a consumer's search for products. GoTo (TM) Auctions allows GoTo
to carry listings of major auction sites. We may not be able to successfully
implement this model for GoTo (TM) Shopping or GoTo (TM) Auctions. Moreover,
advertisers may not accept this model as a means to sell their products. Failure
to successfully implement GoTo (TM) Shopping or GoTo (TM) Auctions, or to
achieve market acceptance of GoTo (TM) Shopping or GoTo (TM) Auctions on a
cost-effective basis could have a material adverse affect on our business,
operating results and financial condition.




                                       18
<PAGE>   19


WE CANNOT ASSURE YOU THAT OUR STOCK PRICE WILL NOT DECLINE OR WILL NOT BE
EXTREMELY VOLATILE.

    The price of our common stock may decline or may be extremely volatile.
Since our initial public offering in June 1999, the per share closing price of
our common stock has ranged from a low of $8.625 as of October 17, 2000 to a
high of $114.50 as of November 15, 1999. In addition, an active public market
for GoTo's common stock may not continue.

WE ARE DEPENDENT UPON OTHER COMPANIES WHO SUPPLY SERVICES TO US.

    We also depend on non-distribution related relationships. For example,
following the paid advertising search results offered to consumers on our search
service, we offer search results provided by Inktomi Corporation. We currently
rely on Inktomi as the sole source of these additional search results, which
constitute a very high percentage of the search results displayed by GoTo. For
example, Inktomi results were shown on approximately 37% of September 2000
searches. Our agreement with Inktomi expires in May 2003. The loss of this or
any other key relationship could damage our business. If we are unable to
develop future key relationships or maintain and enhance our existing
relationships, our business, operating results and financial condition may be
materially and adversely affected.

OUR INDUSTRY IS HIGHLY COMPETITIVE, AND WE CANNOT ASSURE YOU THAT WE WILL BE
ABLE TO COMPETE EFFECTIVELY.

    The market for Internet products, services and advertising is new, rapidly
evolving and intensely competitive. GoTo currently or potentially competes with
many other providers of Web directories, search, shopping, auction and
information services, as well as traditional media, for consumer attention and
advertising expenditures. We expect competition to intensify in the future.
Barriers to entry may not be significant, and current and new competitors may be
able to launch new Web sites at a relatively low cost. Accordingly, we believe
that our success will depend heavily upon achieving significant market
acceptance before our competitors and potential competitors introduce competing
services.

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

    GoTo also competes with providers of Web directories, search, shopping,
auction and information services, all of whom offer services competitive with
GoTo, including, among others, About, AltaVista, Amazon.com, Inc., Ask Jeeves,
Inc., AuctionWatch, Bidder's Edge, CNET, Inc. (including mySimon Inc.),
DealTime.com, Excite@Home, Inc. (including WebCrawler and Magellan), Google,
Inc., Inktomi Corporation, LookSmart, Ltd., Lycos, Inc. (including HotBot),
Microsoft Corporation (LinkExchange, Inc. and msn.com), NBCi, OpenDirectory,
Inc., ShopNow.com Inc. (bottomdollar.com), The Walt Disney Company (Go.com) and
Yahoo! Inc. In addition, we expect that other companies will offer directly
competing services in the future.

    Many of these competitors, as well as potential entrants into our market,
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially greater resources to promotion and Web site and systems
development than we can. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with providers of Web
directories, search, shopping, auction and information services or advertising
solutions, and existing providers of Web directories, search, shopping, auction
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 GoTo 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 affect on our business, operating results and financial condition.




                                       19
<PAGE>   20


WE ARE DEPENDENT UPON MAINTAINING AND EXPANDING OUR COMPUTER AND COMMUNICATIONS
SYSTEMS.

    Our failure to achieve or maintain high capacity data transmission without
system downtime and achieve improvements to our transaction processing systems
and network infrastructure would adversely affect our business and results of
operations. We believe that our current transaction-processing systems and
network infrastructure are insufficient to support our future growth. Although
we are enhancing and expanding our transaction-processing systems and network
infrastructure, we have experienced occasional systems interruptions and
infrastructure failures, which we believe will continue to occur.

WE MUST MAINTAIN AND CONTINUE TO UPGRADE OUR NEW FINANCIAL AND ACCOUNTING
SYSTEMS.

    If we are not able to maintain or continue to automate our sales, financial
and accounting systems and processes, and upgrade those systems in accordance
with our growth, including the integration of any acquired companies' systems
and data, we may not have adequate, accurate or timely financial information.
Failure to have adequate, accurate or timely financial information would harm
our business and could lead to volatility in our stock price. If we grow
rapidly, we will face additional challenges in upgrading and maintaining these
systems.

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

    If our major advertisers were to substantially cut back advertising or stop
using our services, our business would be seriously harmed. A significant
majority of our total revenue is derived from a small proportion of our
advertisers. We believe that a substantial amount of revenue from advertising
sales in any given future period may come from a relatively small number of
advertisers. We do not have formal contractual relationships with many of our
advertisers and when we do have contracts; most are terminable at any time by
the advertiser. As a result, we cannot assure you that any of our advertisers
will purchase advertising from us in the future.

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 adversely affect our business. 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 our individual advertisers' and consumers' networking infrastructures
to alleviate overloading and congestion.

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, 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 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 security could deter people from using 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.




                                       20
<PAGE>   21


WE FACE THE RISKS OF SYSTEM FAILURES.

    We currently do not have a disaster recovery plan in effect and do not have
fully redundant systems for our services at an alternate site. A disaster such
as fire, flood, earthquake, power loss, telecommunications failure, break-in,
sabotage or a similar event could severely damage our business and results of
operations because our services could be interrupted for an indeterminate length
of time. Our operations depend upon our ability to maintain and protect our
computer systems, all of which are located in our principal headquarters in
Pasadena, California and at four offsite locations. These offsite locations are
managed by third parties. They are managed by:

     GlobalCenter, in Sunnyvale, California
     Qwest Communications International, Inc., in Burbank, California
     Cable and Wireless USA, Inc., in Reston, Virginia
     ESAT Net, in Dublin, Ireland (expected opening in the 4th quarter of 2000).

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

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.

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

    A key component of our strategy is to expand our operations into selected
international markets. We launched our service in the United Kingdom in November
2000 and plan to launch our service in Germany during the first half of 2001.
Our strategy is to align with partners that will accelerate the timing of
expansion, provide key distribution channels for our products and provide
additional financing. At this stage the structure of potential partnerships are
not known, but it is intended that the partners will take an equity position in
us, which may reduce the start-up losses that we would incur. If appropriate
partnerships with terms acceptable to us are not obtained, our share of
international start-up costs may be higher. To date, we have not operated
internationally, and we may be unable to execute our business model in these
markets. Further, foreign providers of competing online services may have a
substantial advantage over us in attracting users in their country due to more
established branding in that country, greater knowledge with respect to the
cultural differences of users residing in that country and/or their focus on a
single market. We expect to continue to experience higher costs as a percentage
of revenues in connection with the development and maintenance of international
online services. International markets we have selected may not develop at a
rate that supports our level of investment. In particular, international markets
typically have been slower than domestic markets in adopting the Internet as an
advertising and commerce medium.

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

     o    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;

     o    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;




                                       21
<PAGE>   22


     o    our potential inability to aggregate a large amount of Internet
          traffic and find and develop relationships with international
          advertising and distribution partners;

     o    competition in international markets from a broad range of
          competitors, including Yahoo!, LookSmart, AltaVista and other United
          States and foreign search engines, content aggregators and portals,
          some of which have greater local experience than we do;

     o    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;

     o    higher costs of doing business in foreign countries;

     o    trade barriers and unexpected changes and differences in regulatory,
          tax and legal requirements applicable to Internet services; and

     o    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.

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

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

WE ARE EXPOSED TO RISKS ASSOCIATED WITH CREDIT CARD FRAUD.

    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 could have a material adverse affect on our business, operating
results and financial condition.

MANY OF OUR ADVERTISERS ARE EMERGING INTERNET COMPANIES THAT REPRESENT CREDIT
RISKS.

    Some of our advertisers have limited operating histories, are operating at a
loss, have limited cash reserves or have limited access to capital. If any
significant part of our customer base experiences financial difficulties, is not
commercially successful or is unable to pay our advertising fees for any reason,
our business, operating results and financial condition may be materially and
adversely affected.




                                       22
<PAGE>   23


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. Any claims could result in costly
litigation and be time consuming to defend, divert management's attention and
resources, cause delays in releasing new or upgrading existing services or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
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 affect on our business, operating results and
financial condition.

On November 3, 2000 GoTo was served with a summons and complaint by
MercExchange, Inc. The action is pending in the U.S. District Court in the
Eastern District of Virginia. The action alleges patent infringement and
apparently relates to online auction and online shopping. GoTo is currently
investigating the merits of this claim.

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

    The Internet domain name we use, "www.goto.com," is an extremely important
part of our business and we may not be able to protect it. We may be unable to
acquire or maintain relevant domain names in all countries in which we conduct
business. We may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights. Third parties have acquired domain
names that include "goto" or varieties thereof both in the United States and
elsewhere.

    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 and trademark law. We have no patents
issued to date on our technology. There can be no assurance that we will
adequately be able to protect our technology and data resources.

     We are aware that certain other companies are using or may have plans to
use the terms "GoTo," "Go," "Go2" and variations of these terms as part of a
company name, domain name, trademark or service mark. In addition, we have
received notice from companies claiming superior rights to marks such as these.
In particular, Go2 Systems, Inc. has recently threatened to file a claim against
GoTo for violating its trademark rights. GoTo denies that it is violating Go2
systems' rights. In the event a lawsuit is filed, GoTo will contest the calim
vigorously. We cannot assure you that additional companies will not claim such
superior rights or that we will not be subject to infringement claims. A
successful infringement claim by the owner of a mark including "GoTo," "Go,"
"Go2" or a variation could require us to change our name or our logo, which
would be expensive and disruptive to our business, and could result in damages.
Further, 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.

     On October 26, 2000, GoTo announced its intent to change its corporate name
and expects to officially change its name by the middle of next year. This
change will need the approval of Goto's shareholders.

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

    We require substantial working capital to fund our business. If we raise
additional funds through the issuance of equity, equity-related or convertible
debt securities, these securities may have rights, preferences or privileges
senior to those of the rights of our common stock, and our stockholders may
experience additional dilution. We cannot be certain that additional financing
will be available to us on favorable terms when required, or at all. Since our
inception, we have experienced negative cash flow from operations and expect to
experience significant 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 at least
the next 12 months. However, we may choose to raise additional funds prior to
the expiration of this period or at a later date.




                                       23
<PAGE>   24


THE ACQUISITIONS OF CADABRA AND AUCTIONROVER COULD BE DIFFICULT TO INTEGRATE,
DISRUPT OUR BUSINESS AND ADVERSELY AFFECT OUR OPERATING RESULTS.

    We completed the acquisitions of Cadabra and AuctionRover in 2000. We are in
the process of integrating Cadabra's and AuctionRover's products, technology and
personnel, and the process may be delayed, disrupt our ongoing business, cost
more than expected and distract management. None of Cadabra's or AuctionRover's
personnel is subject to an employment agreement for any specific term. If we
lost the services of any of the key personnel of either Cadabra or AuctionRover,
it could have a significant adverse effect on the integration of Cadabra and
AuctionRover and on our business.

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

    We may make investments in or acquire complementary products, technologies
and businesses. These acquisitions and investments could disrupt our ongoing
business, distract our management and employees and increase our expenses. If we
acquire a company, we could face difficulties in assimilating that company's
personnel and operations. In addition, the key personnel of the acquired company
may decide not to work for us. Acquisitions of additional services or
technologies also involve risks of incompatibility and the need for integration
into our existing services and marketing, sales and support efforts. If we
finance the acquisitions by issuing equity securities, this could dilute our
existing stockholders. Any amortization of goodwill or other assets, or other
charges resulting from the costs of these acquisitions could adversely affect
our operating results.

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:

o    license and internally develop leading technologies useful in our business;

o    enhance our existing services;

o    develop new services and technologies that address the increasingly
     sophisticated and varied needs of prospective consumers; and

o    respond to technological advances and emerging industry standards and
     practices on a cost-effective and timely basis.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY DAMAGE OUR BUSINESS.

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

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

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




                                       24
<PAGE>   25


WE HAVE BROAD DISCRETION TO USE OUR CAPITAL AND HOW WE INVEST THESE PROCEEDS MAY
NOT YIELD A FAVORABLE RETURN.

    Our management can spend our capital in ways with which the stockholders may
not agree.

FUTURE SALES OF OUR COMMON STOCK BY OUR STOCKHOLDERS MAY DEPRESS OUR STOCK
PRICE.

    If our stockholders sell substantial amounts of common stock in the public
market, including shares issued upon the exercise of outstanding options, the
market price of our common stock could fall. Up to approximately 52.2 million
shares of common stock outstanding at September 30, 2000 may be available for
sale in the public market, except for 2.9 million shares that are subject to
repurchase by GoTo and transfer restrictions as a result of vesting agreements.

OUR CHARTER DOCUMENTS AND CHANGE OF CONTROL SEVERANCE AGREEMENTS WITH OUR
MANAGEMENT WILL MAKE IT MORE DIFFICULT TO ACQUIRE US.

    Provisions of our Amended and Restated Certificate of Incorporation and
Bylaws could 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
GoTo.

    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 providing for certain benefits, including acceleration of
option vesting, to these members if they are terminated other than for cause
following an acquisition of GoTo. 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 more expensive.

    Furthermore, in March 2000, we entered into a Stockholder Agreement with
Bill Gross' idealab!, which limits Bill Gross' idealab!'s and its affiliates'
ability to beneficially own 35% or more of our outstanding common stock, to
transfer shares of our common stock or to knowingly assist or advise, or
knowingly provide or arrange financing to facilitate any other person or entity
to beneficially own 15% or more of our outstanding common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    GoTo's exposure to market risk for interest rate changes relates primarily
to its investment portfolio. GoTo had no derivative financial instruments as of
September 30, 2000 or December 31, 1999. GoTo places its investment portfolio in
high quality credit instruments, which are spread to many issuers. GoTo's
investments are principally confined to cash equivalents and available-for-sale
debt securities.




                                       25
<PAGE>   26


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On November 3, 2000 GoTo was served with a summons and complaint by
MercExchange, Inc. The action is pending in the U.S. District Court in the
Eastern District of Virginia. The action alleges patent infringement and
apparently relates to online auction and online shopping. GoTo is currently
investigating the merits of this claim.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

    During the quarter ended September 30, 2000, GoTo used approximately $23.0
million of the proceeds from its initial public offering to fund on-going
operations and capital expenditures for computer hardware, software and
leasehold improvements.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

Exhibit
Number                Description
-------               -----------
27                    Financial Data Schedule

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended September 30, 2000.



                                       26
<PAGE>   27




                                   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 3, 2000                       GOTO.COM, INC.


                                             By /s/ TODD TAPPIN
                                                ----------------------------
                                                Todd Tappin
                                                Chief Financial Officer
                                                (Duly Authorized Officer and
                                                Principal Financial Officer)




                                       27