##### Table of Contents



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-Q



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

For the quarterly period ended June 30, 2001

Commission File Number 000-26365



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GOTO.COM, INC.

(Exact name of Registrant as specified in its charter)


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

74 North Pasadena Avenue 3rd Floor
Pasadena, California 91103

(Address of principal executive offices)


Telephone: (626) 685-5600

(Registrants telephone number, including area code)


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

Yes [X] No [   ]

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

53,020,821 shares of Common Stock,$0.0001 par value, as of June 30, 2001.




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TABLE OF CONTENTS



|                             |                                                                                               |                                                      |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                             | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                             | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION  
|                             | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                             | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                  



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##### Table of Contents



GOTO.COM, INC.

TABLE OF CONTENTS

|        |  |                                                                                                           |  |         
|------- |  | --------------------------------------------------------------------------------------------------------- |  | --------
|        |  |                                                                                                           |  | PAGE NO.
|        |  |                                                                                                           |  |         
|PART I  |  | FINANCIAL INFORMATION                                                                                     |  |         
|       
|       
|       
|       
|Item 1. |  | Financial Statements:                                                                                     |  |         
|       
|       
|       
|       
|        |  | Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000                           |  | 3       
|       
|       
|       
|       
|        |  | Condensed Consolidated Statements of Operations for the three and six months ended
June 30, 2001 and 2000 |  | 4       
|       
|       
|       
|       
|        |  | Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2001 and 2000           |  | 5       
|       
|       
|       
|       
|        |  | Notes to Condensed Consolidated Financial Statements                                                      |  | 6       
|       
|       
|       
|       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                     |  | 10      
|       
|       
|       
|       
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risks                                               |  | 23      
|       
|       
|       
|       
|PART II |  | OTHER INFORMATION                                                                                         |  |         
|       
|       
|       
|       
|Item 1. |  | Legal Proceedings                                                                                         |  | 24      
|       
|       
|       
|       
|Item 4. |  | Submission of Matters To a Vote of Security Holders                                                       |  | 24      
|       
|       
|       
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                          |  | 25      



2



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##### Table of Contents









PART I FINANCIAL INFORMATION







ITEM 1. FINANCIAL STATEMENTS


GOTO.COM, INC.







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

|                                           |                                                             |                                                                                                         |         |          |             |   |              |          |   |  | 
|------------------------------------------ | ----------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------- | -------- | ----------- | - | ------------ | -------- | - |  | 
|                                           |                                                             |                                                                                                         |         |          | June 30,    |   | December 31,
|                                           |                                                             |                                                                                                         |         |          | 2001        |   | 2000        
|                                           |                                                             |                                                                                                         |         |          |             |   |             
|                                           |                                                             |                                                                                                         |         |          | (unaudited) |   |              |          |  
|                                          
|                                          
|                                          
|                                          
|ASSETS                                    
|                                          
|                                          
|                                          
|                                          
|Current assets:                            |                                                             |                                                                                                         |         |          |             |   |              |         
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and cash equivalents                                   |                                                                                                         | $       | 17,818   |             |   | $            | 12,986   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Short-term investments                                      |                                                                                                         |         | 40,560   |             |   |              | 41,694   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable, net                                    |                                                                                                         |         | 7,925    |             |   |              | 5,365    |  
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses and other                                  |                                                                                                         |         | 3,293    |             |   |              | 1,970    |  
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid marketing expenses                                  |                                                                                                         |         | 14,275   |             |   |              | 23,605   |  
|                                           |                                                             |                                                                                                         |         |          |             |   |              |         
|Total current assets                       |                                                             |                                                                                                         | 83,871  |          |             |   | 85,620       |         
|                                          
|                                          
|                                          
|                                          
|Property and equipment, net                |                                                             |                                                                                                         | 29,002  |          |             |   | 26,076       |         
|                                          
|                                          
|                                          
|                                          
|Intangible assets, net                     |                                                             |                                                                                                         | 2,625   |          |             |   | 3,234        |         
|                                          
|                                          
|                                          
|                                          
|Restricted investments                     |                                                             |                                                                                                         | 5,720   |          |             |   | 5,564        |         
|                                          
|                                          
|                                          
|                                          
|Long-term investments                      |                                                             |                                                                                                         | 2,533   |          |             |   | 293          |         
|                                          
|                                          
|                                          
|                                          
|Other assets                               |                                                             |                                                                                                         | 700     |          |             |   | 626          |         
|                                           |                                                             |                                                                                                         |         |          |             |   |              |         
|Total assets                               |                                                             | $                                                                                                       | 124,451 |          |             | $ | 121,413      |         
|                                           |                                                             |                                                                                                         |         |          |             |   |              |         
|                                          
|                                          
|                                          
|                                          
|LIABILITIES AND STOCKHOLDERS EQUITY      
|                                          
|                                          
|                                          
|                                          
|Current liabilities:                       |                                                             |                                                                                                         |         |          |             |   |              |         
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts payable                                            |                                                                                                         | $       | 29,509   |             |   | $            | 23,284   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued expenses                                            |                                                                                                         |         | 5,280    |             |   |              | 4,148    |  
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred revenue                                            |                                                                                                         |         | 6,460    |             |   |              | 4,441    |  
|                                          
|                                          
|                                          
|                                          
|                                           | Current portion of capital lease obligations                |                                                                                                         |         | 446      |             |   |              | 791      |  
|                                           |                                                             |                                                                                                         |         |          |             |   |              |         
|Total current liabilities                  |                                                             |                                                                                                         | 41,695  |          |             |   | 32,664       |         
|                                          
|                                          
|                                          
|                                          
|Other long-term liabilities                |                                                             |                                                                                                         | 211     |          |             |   | 576          |         
|                                          
|                                          
|                                          
|                                          
|Long-term capital lease obligations        |                                                             |                                                                                                         |        |          |             |   | 78           |         
|                                          
|                                          
|                                          
|                                          
|Stockholders equity:                      |                                                             |                                                                                                         |         |          |             |   |              |         
|                                          
|                                          
|                                          
|                                          
|                                           | Common Stock, $0.0001 par value,
200,000 shares authorized: |                                                                                                         |         |          |             |   |              |          |   | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                             | Shares issued and outstanding  53,021 and 52,566
for June 30, 2001 and December 31, 2000, respectively |         | 5        |             |   |              | 5        |  
|                                          
|                                          
|                                          
|                                          
|                                           | Additional paid-in capital                                  |                                                                                                         |         | 595,442  |             |   |              | 591,239  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred compensation, net                                  |                                                                                                         |         | (1,175   | )           |   |              | (1,128   | )
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated deficit                                         |                                                                                                         |         | (511,605 | )           |   |              | (502,026 | )
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated other comprehensive income (loss)               |                                                                                                         |         | (122     | )           |   |              | 5        |  
|                                           |                                                             |                                                                                                         |         |          |             |   |              |         
|Total stockholders equity                 |                                                             |                                                                                                         | 82,545  |          |             |   | 88,095       |         
|                                           |                                                             |                                                                                                         |         |          |             |   |              |         
|Total liabilities and stockholders equity |                                                             | $                                                                                                       | 124,451 |          |             | $ | 121,413      |         
|                                           |                                                             |                                                                                                         |         |          |             |   |              |         

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



3



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##### Table of Contents



GOTO.COM, INC.







CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts; unaudited)


|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |        |     | 
|---------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------------------------------- | ------ | ------------------ | --- | ---------------- | ------- | ------ | --- | ---- | ------- | ------ | --- | - | ------- | ------ | --- | 
|                                                                             |                                                                                                  |                                             |        | Three Months Ended |     | Six Months Ended
|                                                                             |                                                                                                  |                                             |        | June 30,           |     | June 30,        
|                                                                             |                                                                                                  |                                             |        |                    |     |                 
|                                                                             |                                                                                                  |                                             |        | 2001               |     | 2000             |         | 2001   |     | 2000
|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |     
|Revenue                                                                      |                                                                                                  | $                                           | 62,463 |                    |     | $                | 21,011  |        |     | $    | 114,422 |        |     | $ | 38,226  |       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cost of revenue (A)                                                          |                                                                                                  |                                             | 5,157  |                    |     |                  | 2,813   |        |     |      | 9,870   |        |     |   | 5,418   |       
|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|Gross profit                                                                 |                                                                                                  |                                             | 57,306 |                    |     |                  | 18,198  |        |     |      | 104,552 |        |     |   | 32,808  |       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Operating expenses:                                                          |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Marketing, sales and service (A)                                                                 |                                             |        | 43,638             |     |                  |         | 18,267 |     |      |         | 85,213 |     |   |         | 34,581 |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | General and administrative (A)                                                                   |                                             |        | 12,053             |     |                  |         | 8,055  |     |      |         | 21,118 |     |   |         | 14,322 |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Product development (A)                                                                          |                                             |        | 3,240              |     |                  |         | 4,262  |     |      |         | 6,939  |     |   |         | 6,463  |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Amortization of deferred compensation (A)                                                        |                                             |        | 202                |     |                  |         | 375    |     |      |         | 438    |     |   |         | 800    |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Write-off of acquired in-process research
and development                                        |                                             |        |                   |     |                  |         |       |     |      |         |       |     |   |         | 7,550  |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Amortization of intangible assets                                                                |                                             |        | 292                |     |                  |         | 30,578 |     |      |         | 609    |     |   |         | 44,532 |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Loss on closure of GoTo Shopping                                                                 |                                             |        | 1,499              |     |                  |         |       |     |      |         | 1,499  |     |   |         |       |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Loss on disposition of GoTo Auctions                                                             |                                             |        | 2,112              |     |                  |         |       |     |      |         | 2,112  |     |   |         |       |    
|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|                                                                             |                                                                                                  |                                             | 63,036 |                    |     |                  | 61,537  |        |     |      | 117,928 |        |     |   | 108,248 |       
|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|Loss from operations                                                         |                                                                                                  |                                             | (5,730 | )                  |     |                  | (43,339 | )      |     |      | (13,376 | )      |     |   | (75,440 | )     
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Other income:                                                                |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Interest income, net                                                                             |                                             |        | 833                |     |                  |         | 1,511  |     |      |         | 1,788  |     |   |         | 3,058  |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other income, net                                                                                |                                             |        | 2,017              |     |                  |         | 21,512 |     |      |         | 2,009  |     |   |         | 21,557 |    
|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|Net loss                                                                     |                                                                                                  | $                                           | (2,880 | )                  |     | $                | (20,316 | )      |     | $    | (9,579  | )      |     | $ | (50,825 | )     
|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|Basic and diluted net loss per share                                         |                                                                                                  | $                                           | (0.06  | )                  |     | $                | (0.42   | )      |     | $    | (0.19   | )      |     | $ | (1.09   | )     
|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|Weighted average shares used to compute
basic and diluted net loss per share |                                                                                                  |                                             | 50,906 |                    |     |                  | 48,007  |        |     |      | 50,562  |        |     |   | 46,657  |       
|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|(A)                                                                          | If deferred compensation were allocated to
expense categories, it would be allocated as follows: |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Cost of revenue                                                                                  |                                             | $      |                   |     |                  | $       | 1      |     |      | $       | 1      |     |   | $       | 3      |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Marketing, sales and service                                                                     |                                             |        | 36                 |     |                  |         | 148    |     |      |         | 90     |     |   |         | 251    |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | General and administrative                                                                       |                                             |        | 166                |     |                  |         | 214    |     |      |         | 336    |     |   |         | 509    |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Product development                                                                              |                                             |        |                   |     |                  |         | 12     |     |      |         | 11     |     |   |         | 37     |    
|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       
|                                                                             |                                                                                                  | Total amortization of deferred compensation |        | $                  | 202 |                  |         | $      | 375 |      |         | $      | 438 |   |         | $      | 800 | 
|                                                                             |                                                                                                  |                                             |        |                    |     |                  |         |        |     |      |         |        |     |   |         |       

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

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##### Table of Contents



GOTO.COM, INC.







CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)


|                                                             |                                                                                           |                                       |         |                  |        |      |        |         |        |  
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ------------------------------------- | ------- | ---------------- | ------ | ---- | ------ | ------- | ------ | -
|                                                             |                                                                                           |                                       |         | Six Months Ended
|                                                             |                                                                                           |                                       |         | June 30,        
|                                                             |                                                                                           |                                       |         |                 
|                                                             |                                                                                           |                                       |         | 2001             |        | 2000
|                                                             |                                                                                           |                                       |         |                  |        |     
|Cash Flows from Operating Activities:                        |                                                                                           |                                       |         |                  |        |      |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net loss                                                                                  |                                       | $       | (9,579           | )      |      | $      | (50,825 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: |                                       |         |                  |        |      |        |         |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Amortization of deferred stock option compensation                                        |                                       |         | 438              |        |      |        | 800     |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accretion of discounts from the purchase of
short-term and long-term investments          |                                       |         | (345             | )      |      |        | (797    | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Non-cash portion of closure and disposition charges                                       |                                       |         | 2,999            |        |      |        |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Write-off of acquired in-process research
and development                                 |                                       |         |                 |        |      |        | 7,550   |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation and amortization                                                             |                                       |         | 7,062            |        |      |        | 3,097   |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Amortization of intangible assets                                                         |                                       |         | 609              |        |      |        | 44,532  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Changes in operating assets and liabilities:                                              |                                       |         |                  |        |      |        |         |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                           | Accounts receivable                   |         |                  | (2,561 | )    |        |         | (2,184 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                           | Prepaid expenses and other            |         |                  | (1,418 | )    |        |         | (317   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                           | Prepaid marketing expenses            |         |                  | 9,330  |      |        |         | 1,691  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                           | Accounts payable and accrued expenses |         |                  | 6,438  |      |        |         | (1,291 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                           | Deferred revenues                     |         |                  | 2,193  |      |        |         | 583    |  
|                                                             |                                                                                           |                                       |         |                  |        |      |        |        
|Net cash provided by (used in) operating activities          |                                                                                           |                                       | 15,166  |                  |        |      | (2,839 | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Cash Flows from Investing Activities:                        |                                                                                           |                                       |         |                  |        |      |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Proceeds from (purchases of) short-term and long-term
investments, net                    |                                       |         | (922             | )      |      |        | 21,436  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Capital expenditures for property and equipment                                           |                                       |         | (11,998          | )      |      |        | (13,123 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net cash used in acquisition                                                              |                                       |         |                 |        |      |        | (863    | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other assets                                                                              |                                       |         | (119             | )      |      |        | (542    | )     
|                                                             |                                                                                           |                                       |         |                  |        |      |        |        
|Net cash (used in) provided by investing activities          |                                                                                           |                                       | (13,039 | )                |        |      | 6,908  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Cash Flows from Financing Activities:                        |                                                                                           |                                       |         |                  |        |      |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Proceeds from the issuance of common stock                                                |                                       |         | 3,221            |        |      |        | 1,930   |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Repayments under lease line                                                               |                                       |         | (394             | )      |      |        | (339    | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Repayment of debt                                                                         |                                       |         |                 |        |      |        | (767    | )     
|                                                             |                                                                                           |                                       |         |                  |        |      |        |        
|Net cash provided by financing activities                    |                                                                                           |                                       | 2,827   |                  |        |      | 824    |        
|                                                            
|                                                            
|                                                            
|                                                            
|Effect of exchange rate changes on cash and cash
equivalents |                                                                                           |                                       | (122    | )                |        |      |       |        
|                                                            
|                                                            
|                                                            
|                                                            
|Net increase in cash and cash equivalents                    |                                                                                           |                                       | 4,832   |                  |        |      | 10,571 |        
|                                                            
|                                                            
|                                                            
|                                                            
|Cash and cash equivalents at beginning of period             |                                                                                           |                                       | 12,986  |                  |        |      | 11,914 |        
|                                                             |                                                                                           |                                       |         |                  |        |      |        |        
|Cash and cash equivalents at end of period                   |                                                                                           | $                                     | 17,818  |                  |        | $    | 22,485 |        
|                                                             |                                                                                           |                                       |         |                  |        |      |        |        

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



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GOTO.COM, INC.







NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY, BASIS OF PRESENTATION

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

GoTo was incorporated on September 15, 1997 in the state of Delaware and
officially launched its service on June 1, 1998. The Company operates in one
reportable business segment. GoTo plans to change its corporate name and
expects to make such a change in the third quarter of 2001. In April 2001, GoTo
entered into an agreement with a third-party, whereby GoTo agreed to assign its
rights in the GoTo name to such third-party and to change its name by October
15, 2001.

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 necessary to present fairly
the Companys financial position, results of operations and cash flows for the
periods shown. The adjustments include only normal recurring adjustments except
that the unaudited condensed consolidated financial statements also include the
following adjustments: the write-off during the quarter ended March 31, 2000 of
approximately $7.6 million of in-process research and development associated
with GoTos acquisition of Cadabra Inc. (Cadabra), which GoTo operated as GoTo
Shopping and other income during the second quarter of 2000 of approximately
$21.5 million for the settlement of GoTos trademark infringement lawsuit
against The Walt Disney Company. The results of operations for such periods are
not necessarily indicative of the results expected for a full year or for any
future period.

These financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2000.

2. COMPREHENSIVE INCOME (LOSS)

The Company accounts for comprehensive income (loss) in accordance with
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income. SFAS 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined therein, refers to revenues, expenses, gains and losses that
are not included in net income (loss) but rather are recorded directly in
stockholders equity. Total comprehensive loss for the quarter ended June 30,
2001 approximated net loss.

3. EARNINGS (LOSS) PER SHARE COMPUTATION

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 and unvested stock are excluded from the calculation of diluted net
loss per share for the periods presented, as their inclusion would be
antidilutive.

Options to purchase approximately 7.8 million and 5.2 million shares of
common stock were outstanding as of June 30, 2001 and 2000, respectively. In
addition, as of June 30, 2001, there were approximately 1.2 million shares of
unvested common stock outstanding, which are subject to repurchase by GoTo.



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4. LITIGATION

On November 3, 2000, GoTo was served with a summons and complaint by
MercExchange, L.L.C., alleging patent infringement relating to GoTos online
auction and shopping services. On June 1, 2001, GoTo entered into a settlement
agreement and release with MercExchange, under which MercExchange agreed to
dismiss the litigation in exchange for a cash payment, the amount of which was
paid from the escrow funds created in connection with GoTos acquisitions of
AuctionRover and Cadabra. In addition, legal fees and other expenses paid by
GoTo to defend this litigation were reimbursed to GoTo from the escrow funds
and are recorded in other income, net.

On June 19, 2001, InternetFuel.com, Inc. filed a complaint against GoTo in
the Superior Court of the State of California for the County of Los Angeles.
The complaint alleges that GoTo wrongfully terminated an agreement pursuant to
which InternetFuel participated in GoTos affiliate program. The complaint also
alleges libel for messages allegedly placed by GoTo on an Internet forum, and
it contains claims of unfair business practices. The complaint seeks, among
other remedies, monetary damages for the value of the terminated agreement and
for alleged harm to InternetFuels reputation, punitive and exemplary relief
and an injunction against alleged unfair business practices. GoTo is currently
investigating InternetFuel.coms allegations and believes that it has
meritorious defenses to the complaint. GoTo intends to contest the allegations
vigorously.

Although GoTo has not been served, GoTo understands that in July 2001,
several purported class action lawsuits were filed in the United States
District Court, Southern District of New York against certain underwriters
involved in GoTos initial public offering, GoTo and certain of GoTos current
directors and officers. The lawsuits allege, among other things, violations of
the Securities Act of 1933 and the Securities Exchange Act of 1934 involving
undisclosed compensation to the underwriters, and improper practices by the
underwriters and seek unspecified damages. GoTo believes that it has
meritorious defenses to the allegations and intends to vigorously defend
against the actions

5. RELATED PARTY TRANSACTIONS

In January 2000, GoTo entered into an arrangement to lease approximately
58,000 square feet of office space from Bill Gross idealab!. GoTo is obligated
to make total lease payments of approximately $7.1 million commencing on
January 15, 2000 and terminating on October 31, 2004. Total payments for the
lease were approximately $1.0 million and $0.9 million for the six months ended
June 30, 2001 and 2000, respectively. Management believes these amounts were
materially representative of the fair value of the lease.

During the six months ended June 30, 2001 and 2000, GoTo recorded
approximately $146,000 and $211,000, respectively, of search listing
advertising revenue from Bill Gross idealab!. Management believes the amounts
paid by Bill Gross idealab! 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:



| |  |  | become a beneficial owner of 35% or more of the outstanding common
stock of GoTo;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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
|
| |  |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



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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
shareholders, 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.

6. RESTRICTED INVESTMENTS

In August 2000, GoTo entered into a 19-month agreement under which America
Online, Inc. (AOL) will display GoTos Pay-For-Performance search listings on
the search results page of AOL, AOL.com and Netscape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
payment of the letter of credit, GoTo holds approximately $5.7 million on
deposit with a bank, which funds are restricted until the termination of the
letter of credit in March 2002.

7. AFFILIATE COMMITMENTS

GoTo is obligated to make guaranteed payments totaling approximately $25.6
million, $25.1 million and $12.3 million for the remainder of 2001, and in 2002
and 2003, respectively, under contracts to provide search services to its
affiliates.

8. ASSET WRITE-DOWN

GoTo is in dispute over equipment purchased from MTI Technology Corp. that
did not meet its technical specifications. GoTo recorded a charge of
approximately $1.3 million to write-down the equipment during the quarter ended
June 30, 2001. The charge was recorded in General and Administrative expenses
in the condensed consolidated statement of operations.

9. LOSS ON CLOSURE OF GOTO SHOPPING AND DISPOSITION OF GOTO AUCTIONS

GoTo operated a consumer-shopping site, GoTo Shopping, which began
operations in January 2000. On April 30, 2001, GoTo closed the GoTo Shopping
operations and recorded a charge for restructuring and exit costs. The charge
included approximately $208,000 of cash termination benefits associated with
the involuntary termination of 21 GoTo Shopping employees. The terminations of
these positions, primarily in sales and service and product development
functions, were completed by June 30, 2001. The charge also included
approximately $486,000 for non-cash termination benefits related to the
acceleration of options; approximately $256,000 for fixed asset write-downs;
approximately $485,000 for the remaining lease payments on a facility lease
which GoTo has not been able to sub-lease which was accrued as of
June 30, 2001; and other exit costs of
approximately $64,000. These costs were included in the Loss on Closure of GoTo
Shopping in the condensed consolidated statement of operations. Cash payments
were funded from operations and did not have a significant impact on GoTos
liquidity.

GoTo operated an auction service, GoTo Auctions, which began operations in
May 2000. On June 29, 2001, GoTo completed a management buyout of GoTo
Auctions, whereby the operating management of GoTo Auctions purchased GoTo
Auctions assets from GoTo. The newly formed company is called ChannelAdvisor
Corporation. GoTo received a minority stake of 18.5% in this new corporation,
whose goal is to provide online and offline businesses with the ability to
leverage online auctions as a channel of distribution. In connection with the
management buyout, GoTo recorded a charge for the disposition of certain assets
and exit costs. The charge included approximately $280,000 of cash termination
benefits associated with the involuntary termination of 31 GoTo Auctions
employees. The terminations of these positions, primarily in sales and service
and product development functions, were completed by June 30, 2001. The charge
also included approximately $1.8 million for fixed asset write-downs and
$80,000 for other exit costs. These costs were included in Loss on Disposition
of GoTo Auctions in the condensed consolidated statement of operations. Cash
payments were funded from operations and did not have a significant impact on
GoTos liquidity.



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10. SUBSEQUENT EVENT

On July 5, 2001, GoTo completed a follow-on offering of 3,750,000 primary
shares of its common stock. GoTos sale of its shares raised net proceeds of
approximately $58.2 million for the company. In addition, as part of the
offering, Bill Gross idealab! sold 4,875,000 of its shares in GoTo and
decreased its ownership stake in GoTo to approximately 15.4% of the outstanding
common stock in GoTo.



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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 INCLUDING STATEMENTS RELATED TO THE EXPECTED GROWTH OF OUR
AFFILIATE PROGRAM, THE AMOUNT OF TRAFFIC THAT WILL BE DIRECTED TO US FROM OUR
AFFILIATES IN THE FUTURE, THE TIMING AND AMOUNT OF ANY INCREASE IN OUR AVERAGE
MONTHLY PRICE PER PAID INTRODUCTION, THE TIMING AND AMOUNT OF OUR NUMBER OF
PAID INTRODUCTIONS, THE AMOUNT OF FUTURE ADVERTISER SPENDING WITH GOTO,
FLUCTUATION IN THE PRICE OF OUR COMMON STOCK, CHANGES IN OUR QUARTER-TO-QUARTER
FINANCIAL RESULTS AND THE LIKELIHOOD OF INCREASED COMPETITION. 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 is the leader in Pay-For-Performance search on the Internet. We
introduce consumers and businesses that search the Internet to advertisers who
bid for placement in our search results, which are ranked by the advertisers
bid price. Advertisers pay us only when consumers and businesses click through
to the advertisers search listings, so we refer to our service as
Pay-For-Performance search. We provide consumers and businesses with relevant
search results by charging advertisers for each paid introduction, or
clickthrough, and by requiring advertisers to bid only on keywords that are
relevant to their offering. We distribute our search results to consumers and
businesses through our affiliates, a network of portals, Web browsers, Internet
service providers and other Web properties, as well as through our own Web
site. We believe our service offers advertisers a highly targeted, controllable
and cost-effective marketing solution and provides affiliates with incremental
revenue and a relevant search service.

GoTo was incorporated in September 1997 and has approximately a three-year
operating history. We launched a proof-of-concept version of our search service
in the fiscal year ended December 31, 1997. Our Pay-For-Performance service was
announced in February 1998, and following further proof-of-concept testing, was
officially launched in June 1998. GoTo has devoted significant resources to
launching and expanding its search service, including developing an
infrastructure and building a management team. GoTos losses for the six months
ended June 30, 2001 and the year ended December 31, 2000 were approximately
$9.6 million and $458.6 million, respectively. GoTo intends to change its
corporate name and Nasdaq symbol by October 15, 2001. In April 2001, GoTo
entered into an agreement with a third party, whereby GoTo agreed to assign its
rights in the GoTo name to such third party and to change its name by October
15, 2001.

The losses in 2000 include $432.4 million of non-cash charges, consisting
of $115.6 million of amortization of intangibles resulting from our
acquisitions of Cadabra, AuctionRover and the assets of SearchUP, a write-off
of approximately $7.6 million for acquired in-process research and development
and a $309.3 million write-down of impaired goodwill associated with the
Cadabra and AuctionRover acquisitions. Through the acquisition of Cadabra in
January 2000, GoTo operated a comparison-shopping site, GoTo Shopping. On April
30, 2001, GoTo closed its comparison-shopping site. Through the acquisition of
AuctionRover in May 2000, GoTo operated an auction service, GoTo Auctions. On
June 29, 2001, GoTo completed a management buyout of GoTo Auctions, whereby the
operating management of GoTo Auctions purchased GoTo Auctions assets from
GoTo. The newly formed company is called ChannelAdvisor Corporation. GoTo
retains a minority stake of 18.5% in this new corporation, whose goal is to
provide online and offline businesses with the ability to leverage online
auctions as a channel of distribution. In connection with the disposition of
the GoTo Auctions and closure of GoTo Shopping operations, GoTo incurred a
one-time charge of approximately $2.1 million and $1.5 million, respectively,
in the quarter ending June 30, 2001.

A significant component of our expenses
consists of costs incurred to attract consumers and businesses to our service
through our affiliate network. We expect to continue to rely upon these sources
for a significant proportion of searches conducted on our service. Our future
success is dependent upon increasing the revenue we derive from this traffic.



10



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International Expansion

We launched our service in the United Kingdom in November 2000 and plan to
launch our German-speaking search service during the first half of 2002. Our
international expansion will require continued investment, and we expect to
incur losses to build internal infrastructure and grow our advertiser and
affiliate bases overseas.

RESULTS OF OPERATIONS

Revenue.Revenue was approximately $62.5 million for the quarter ended
June 30, 2001 compared to approximately $21.0 million for the quarter ended
June 30, 2000. Revenue was approximately $114.4 million for the six months
ended June 30, 2001 compared to approximately $38.2 million for the six months
ended June 30, 2000. The increase was the result of continued growth of our
search service and the corresponding constituents, our advertisers and the
number of consumers and businesses using our services. We do not anticipate our
historical revenue growth rate, expressed on a percentage basis, to continue.

Revenue is generated primarily through paid introductions, that is, the
number of clickthroughs that users make on advertisers search listings.
Revenue is recognized when earned based on clickthrough activity to the extent
that the advertiser has deposited sufficient funds with us or collection is
probable. Revenue also consists of banner advertising, which constituted less
than 5 percent of our revenue for the quarter ended June 30, 2001. GoTo has no
barter transactions. 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.

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

|                             |  |                      
|---------------------------- |  | ---------------------
|NUMBER OF PAID INTRODUCTIONS |  | FOR THE QUARTER ENDED
|                             |  |                      
|323 million                  |  | June 30, 2001        
|                            
|                            
|                            
|                            
|314 million                  |  | March 31, 2001       
|                            
|                            
|                            
|                            
|228 million                  |  | December 31, 2000    
|                            
|                            
|                            
|                            
|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 twelve fiscal quarters is as follows:

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



We believe the increase in the number of paid introductions from March 31,
2001 to June 30, 2001 was primarily due to the full quarter effects of our
affiliate partnerships with Direct Hit, Net Zero, iWon, and The Walt Disney
Company (operators of go.com) and the expansion of our browser deal with
Microsoft, which increase was partially offset by seasonality. Based on our
experience, Internet usage is generally lower from April to September. GoTo
believes the number of paid introductions in the third quarter of 2001 could be
flat or slightly lower than the previous quarter due to what we believe will be
a downward seasonality trend of general Internet usage in the third quarter. We
believe that the average price per paid introduction increased as a result of a
more stable supply of traffic; new advertisers coming online at higher price
per click due to our new sales programs; and the raising of the minimum bid



11



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##### Table of Contents



price for new advertisers for a search listing from $0.01 to $ 0.05. In addition,
advertisers are increasing their budgets with GoTo, as the average spend per
advertiser in the quarter ended June 30, 2001 rose by 10% over the previous
quarter and by 14% in the quarter ended March 31, 2001 compared to the quarter
ended December 31, 2000. GoTo believes that the continued increase in the
number of advertisers promotes competition among advertisers for priority
placement in search results and therefore causes our average price per paid
introduction to increase. We believe the average price per click will increase
modestly throughout the remainder of this year. However, we cannot assure that
the average price per click will increase, that it will not decrease from
historical levels or the rate of any increase.

We believe the quarterly number of paid introductions and average monthly
price per paid introduction listed above are not necessarily indicative of
future results. While we believe our average monthly price per paid
introduction will grow throughout this year; it is difficult to forecast this
growth, since advertisers, rather than GoTo, determine the price paid for each
introduction. We do not anticipate our historical revenue growth rate,
expressed on a percentage basis, 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 and businesses who use our service. We anticipate these variables to
fluctuate, affecting our growth rate and results.

Our growth is dependent on obtaining additional traffic and increasing the
average price per paid introduction. During the quarter ended June 30, 2001
approximately 30% of GoTos total traffic came from our portal affiliates, including but
not limited to AOL, AltaVista and Terra Lycos; approximately 25 % came from
browser affiliates, Microsofts Internet Explorer and Netscapes browser product;
approximately 40% of the total traffic came from other affiliates; and less
than 5% came directly to the GoTo Web site. In August 2000, GoTo and AOL
entered into a 19-month distribution agreement under which AOL displays GoTos
listings on the search results pages of AOL, AOL.com and Netscapes Netcenter.
In November 2000, GoTo and Terra Lycos entered into a three-year distribution
agreement under which GoTos listings were added to Lycos.com and HotBot search
results. In November 2000, GoTo and AltaVista entered into an 18-month
distribution agreement under which GoTo provides AltaVistas search service
users with GoTos listings on select search results pages of AltaVista. In
January 2001, we extended our existing agreement with Microsoft for an
additional year, which will allow for continued traffic from their Internet
Explorer 4 and Internet Explorer 5 browsers until January 2002. In June 2001,
GoTo entered into an additional agreement with Microsoft, which expires on June
30, 2002, to include the GoTo search service on the Internet Explorer 4 and
Internet Explorer 5 MSN Search Pane. Our Premier Provider Agreement with
Netscape expired on June 30, 2001, however we continue to receive traffic from
this source and are currently negotiating to extend this agreement. We must
renew our affiliate agreements or replace any lost 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 costs associated
with serving our search results and maintaining our Web site, plus fees paid to
outside service providers that provide and manage the unpaid listings that we
distribute on our Web site and those of some of our affiliates. Costs
associated with serving our search results and maintaining our Web site include
depreciation of Web site equipment, co-location charges for our Web site
equipment, software license fees and salaries of related personnel. Cost of
revenue was approximately $5.2 million for the quarter ended June 30, 2001
compared to approximately $2.8 million for the quarter ended June 30, 2000.
Cost of revenue was approximately $9.9 million for the six months ended June
30, 2001 compared to approximately $5.4 million for the six months ended June
30, 2000. The increase was primarily due to increased database and hardware
capacity requirements, an increase in the number of personnel required to
support our service and increased fees paid to outside service providers. We
anticipate cost of revenue to continue to increase in absolute dollars as our
traffic increases.

Marketing, Sales and Service.Marketing, sales and service expenses
consist primarily of our payments to affiliates and payroll and related
expenses for personnel engaged in marketing, sales and customer service
functions. Marketing sales and service expenses were approximately $43.6
million for the quarter ended June 30, 2001 compared to approximately $18.3
million for the quarter ended June 30, 2000. Marketing, sales and service
expenses were approximately $85.2 million for the six months ended June 30,
2001 compared to approximately $34.6 million for the six months ended June 30,
2000. The increase was primarily due to an increased number of affiliates and
associated traffic directed from these affiliates. We believe that continued
investment in marketing, sales and service and in the increased distribution of
our search services, which includes our recent agreements with AOL, AltaVista, Terra Lycos and MSN are critical to attaining our strategic objectives and, as a
result, expect these costs to continue to increase in the future. In August
2000, GoTo and AOL entered into a 19-month distribution agreement under which
AOL displays GoTos listings on the search results pages of AOL, AOL.com and
Netscapes Netcenter. The agreement calls for a guaranteed payment by GoTo of
$50 million over the term of the agreement. In November 2000, GoTo and Terra
Lycos entered into a three-year distribution agreement under which GoTos
listings were added to Lycos.com and HotBot search results. In November 2000,
GoTo and AltaVista entered into an 18-month distribution agreement under which
GoTo provides AltaVistas search service users with GoTos listings on select
search results pages of AltaVista. In January 2001, we extended our existing agreement with Microsoft for an
additional year, which will allow for continued traffic from their Internet
Explorer 4 and Internet Explorer 5 browsers until January 2002. In June 2001,
GoTo entered into an additional agreement with Microsoft, which expires on June
30, 2002, to include the GoTo search service on the Internet Explorer 4 and
Internet Explorer 5 MSN Search Pane. Costs associated with payments to
affiliates were approximately $36.9 million or 59% of revenue for the quarter
ended



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June 30, 2001 compared to approximately $11.3 million or 54% of revenue
for the quarter ended June 30, 2000. Costs associated with payments to
affiliates were approximately $71.6 million or 63% of revenue for the six
months ended June 30, 2001, compared to approximately $20.3 million or 53% of
revenue for the six months ended June 30, 2000. We anticipate these costs will
increase in absolute dollars as traffic volume increases, but anticipate costs
as a percentage of revenue to slightly decrease throughout 2001.

General and Administrative.General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; facilities; professional services, including legal; and insurance
and other general corporate expenses. General and administrative expenses were
approximately $12.1 million for the quarter ended June 30, 2001 compared to
approximately $8.1 million for the quarter ended June 30, 2000. General and
administrative expenses were approximately $21.1 million for the six months
ended June 30, 2001 compared to approximately $14.3 million for the six months
of June 30, 2000. The increase was the result of increased headcount and
related expenses, as well as a non-recurring charge for the write-down of
assets (see Note 8) and legal costs related to the MercExchange litigation,
which legal costs were completely reimbursed as result of the settlement (see
Note 4). The reimbursement of legal costs were recorded in other income. We
expect general and administrative expenses, excluding the non-recurring charge
for the write-down of assets and legal costs related to the MercExchange
litigation, to continue to increase as we incur additional costs related to the
growth of our business.

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
$3.2 million for the quarter ended June 30, 2001 compared to approximately $4.3
million for the quarter ended June 30, 2000. Product development expenses were
approximately $6.9 million for the six months ended June 30, 2001 compared to
$6.5 million for the six months ended June 30, 2000. The decrease was
primarily due to reduction in staff from the closing of the GoTo Shopping and
GoTo Auctions operations. We expect product
development expenses will increase for the remainder of 2001.

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 $7.8 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 $202,000 and $375,000 were
amortized and charged to operations for the quarters ended June 30, 2001 and
2000, respectively. Approximately $438,000 and $800,000 were amortized and
charged to operations for the six months ended June 30, 2001 and 2000,
respectively.

Amortization of Intangible Assets.In October 2000, GoTo acquired
substantially all the assets of SearchUP, Inc. for approximately $3.5 million.
GoTo allocated the purchase price to intangible assets acquired based on their
estimated fair values as determined by GoTo and is amortizing such amounts on a
straight-line basis over three years. Approximately $292,000 and $30.6 million
were amortized and charged to operations for the quarters ended June 30, 2001
and 2000, respectively. Approximately $609,000 and $44.5 million were amortized
and charged to operations for the six months ended June 30, 2001 and 2000,
respectively As a result of the complete write-down of the remaining Cadabra
and AuctionRover intangible assets in the quarter ended December 31, 2000, we
expect the amortization of intangible assets to remain constant at
approximately $300,000 per quarter through 2003 due to the SearchUP
acquisition, unless we incur charges associated with the acquisition of
additional businesses, assets or technologies.

Loss on Closure of GoTo Shopping. On April 30, 2001, GoTo closed the GoTo
Shopping operations and recorded a charge for restructuring and exit costs. The
charge included approximately $208,000 of cash termination benefits associated
with the involuntary termination of 21 GoTo Shopping employees. The
terminations of these positions, primarily in sales and service and product
development functions, were completed by June 30, 2001. The charge also
included approximately $486,000 for non-cash termination benefits related to
the acceleration of options; approximately $256,000 for fixed asset
write-downs; approximately $485,000 for the remaining lease payments on a
facility lease which GoTo has not been able to sub-lease which was
accrued as of June 30, 2001; and other exit costs
of approximately $64,000. These costs were included in the Loss on Closure of
GoTo Shopping in the condensed consolidated statement of operations. Cash
payments were funded from operations and did not have a significant impact on
GoTos liquidity.

Loss on Disposition of GoTo Auctions. On June 29, 2001, GoTo completed a
management buyout of GoTo Auctions, whereby the operating management of GoTo
Auctions purchased GoTo Auctions assets from GoTo. The newly formed company
is called ChannelAdvisor Corporation. GoTo received a minority stake of 18.5%
in this new corporation, whose goal is to provide online and offline businesses
with the ability to leverage online auctions as a channel of distribution. In
connection with the management buyout,



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GoTo recorded a charge for the disposition of certain assets and exit
costs. The charge included approximately $280,000 of cash termination benefits
associated with the involuntary termination of 31 GoTo Auctions employees. The
terminations of these positions, primarily in sales and service and product
development functions, were completed by June 30, 2001. The charge also
included approximately $1.8 million for fixed asset write-downs and $80,000 for
other exit costs. These costs were included in Loss on Disposition of GoTo
Auctions in the condensed consolidated statement of operations. Cash payments
were funded from operations and did not have a significant impact on GoTos
liquidity.

Other Income. Other income typically consists of returns on cash, cash
equivalents and short-term and long-term investments, net of interest expense
attributable to leased equipment and debt. Other income was approximately $2.9
million for the quarter ended June 30, 2001 compared to approximately $20.3
million for the quarter ended June 30, 2000. Other income was approximately
$2.0 million for the six months ended June 30, 2001 compared to approximately
$21.6 million for the six months ended June 30, 2000. In the quarter ended and
six months ended June 30, 2001, other income included reimbursement for legal
costs associated with the settlement of the MercExchange litigation (see Note
8). Comparatively, in the quarter and six months ended June 30, 2000, other
income included the settlement of litigation with The Walt Disney Company.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities totaled approximately $15.2
million and net cash used in operating activities totaled approximately $2.8
million for the six months ended June 30, 2001 and 2000, respectively. The change
was due primarily to the improved operating results, rapid growth and increased
size and scope of operations partially offset by amortization of prepaid
marketing expenses, or affiliate costs, and increase in accrued affiliate
payables. Net cash used in investing activities totaled approximately $13.0
million and net cash provided by investing activities totaled approximately
$6.9 million for the six months ended June 30, 2001 and 2000, respectively. The
change resulted primarily from proceeds of short-term and long-term investments
in the six months ended June 30, 2000. Net cash provided by financing
activities totaled approximately $2.8 million and $824,000 for the six months
ended June 30, 2001 and 2000, respectively. The increase was due primarily to
an increase in the amount of proceeds from the exercise of options in 2001
compared to 2000.

Our principal sources of liquidity consisted of unrestricted cash, cash
equivalents and short-term and long-term investments of approximately
$60.9 million as of June 30, 2001 and approximately $55.0 million as of
December 31, 2000. In addition, on July 5, 2001, GoTo completed a follow-on offering of
3,750,000 primary shares of its common stock. GoTos sale of its shares raised
net proceeds of approximately $58.2 million for the company. We believe that
our cash and liquid investment reserves are sufficient to sustain operations
through the foreseeable future. We are obligated to make guaranteed payments
totaling approximately $25.6 million, $25.1 million and $12.3 million for the
remainder of 2001, and in 2002 and 2003, respectively, under contracts to
provide search services to our affiliates.

RISKS THAT COULD AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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:



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



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

OUR 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 and/or significantly fluctuate. Our
operating results have varied widely in the past, and we expect that they will
continue to vary widely from quarter to quarter due to a number of factors,
including:



| |  |  | demand for our services by advertisers, consumers and businesses,
including the number of searches performed by consumers and businesses
and the rate at which they click through to paid search results;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | prices paid by advertisers using the GoTo services, which are not determined by GoTo;                                                                                                                    
|
| |  |  | our costs of attracting consumers and businesses to use GoTos services, including costs of exposure on affiliate Web sites;                                                                             
|
| |  |  | decrease in traffic from our affiliates for any reason, including
loss of our agreements with affiliates or demand for the services of
affiliates;                                                       
|
| |  |  | costs related to agreements with affiliates;                                                                                                                                                             
|
| |  |  | ability to protect our business model from competitors;                                                                                                                                                  
|
| |  |  | the percentage of GoTos search listings that are bidded listings;                                                                                                                                       
|
| |  |  | our ability to significantly increase our affiliate programs;                                                                                                                                            
|
| |  |  | seasonal fluctuations in the use of our service, typical of our
industry, in which online traffic has typically been lower in the second
and third quarters of the calendar year;                        
|
| |  |  | the amount and timing of operating costs and capital expenditures relating to expansion of our operations;                                                                                               
|
| |  |  | costs and delays in introducing any new GoTo services and improvements to existing services;                                                                                                             
|
| |  |  | our ability to successfully introduce new products or services;                                                                                                                                          
|
| |  |  | changes in the growth rate of Internet usage and acceptance by consumers of e-commerce;                                                                                                                  



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| |  |  | technical difficulties, system failures or Internet downtime;                                                                                                                                                                                                                                                    
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | government regulations related to the Internet;                                                                                                                                                                                                                                                                  
|
| |  |  | our ability to upgrade and develop our information technology systems and infrastructure;                                                                                                                                                                                                                        
|
| |  |  | costs related to any acquisitions or dispositions of technologies or
businesses (including one-time charges in the quarter ended June 30,
2001 of approximately $2.1 million and $1.5 million in connection with
the disposition of the GoTo Auctions operations and GoTo Shopping
operations, respectively); and
|
| |  |  | 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 and broaden our customer support capabilities. We base our current
and future expense levels on our operating plans and estimates of future
revenue. Other than a portion of our affiliate costs, our expenses are
relatively fixed. Revenue and operating results are difficult to forecast
because they generally depend upon the volume of the searches conducted on our
service, the amounts bid by advertisers for search listings on the service and
the number of advertisers that bid on the service, each of which we cannot
control directly. As a result, we may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfall. We also may
be unable to increase our spending and expand our operations in a timely manner
to adequately meet user demand, to the extent such demand exceeds our
expectations.

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

The consumers and businesses who conduct searches on our service come
primarily from a limited number of sources. Our sources for consumers and
businesses conducting searches are members of our affiliate network, including
portals, such as AltaVista Company, America Online, Inc. (AOL), Terra Lycos,
S.A. and The Walt Disney Company (operator of go.com); providers of Internet
browsers such as Microsoft Internet Explorer and Netscapes browser product;
aggregators of search offerings of various providers; Internet Service
Providers (ISPs), such as Earthlink, Inc.; and from GoTos Web site. In any
given month, we typically depend upon one or a few of these sources for a
significant amount of traffic and searches conducted on our service. Revenue is
generated from clickthroughs that users make on advertisers listings, and
generally, the more traffic from any given source, the greater number of
clickthroughs we will generate. Of GoTos total traffic, for the three months
ended June 30, 2001, approximately 30% came from our portal affiliates, including but not
limited to AOL, AltaVista and Terra Lycos; approximately 25% came from our
browser affiliates, Microsofts Internet Explorer and Netscapes browser product;
approximately 40% came from other affiliates; and less than 5% came directly to
the GoTo Web site. In January 2001, we extended our existing agreement with
Microsoft for an additional year, which will allow for continued traffic from
their Internet Explorer 4 and Internet Explorer 5 browsers until January 2002.
In June 2001, GoTo entered into an additional agreement with Microsoft, which
expires on June 30, 2002, to include the GoTo search service on the Internet
Explorer 4 and Internet Explorer 5 MSN Search Pane. Our Premier Provider
Agreement with Netscape expired on June 30, 2001, however we continue to
receive traffic from this source and are currently negotiating to extend this
agreement. We depend on each of our portal and browser affiliates and the loss
of any of these affiliates could harm our revenues and business.

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



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

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

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

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

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

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

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

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

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 decline. GoTo completed a follow-on
offering on July 5, 2001. In connection with this offering, our officers and
directors and the selling stockholder, Bill Gross idealab!, entered into
lock-up agreements under which our officers and directors have generally agreed
not to sell an aggregate of 3,241,933 shares of our common stock and Bill
Gross idealab! has generally agreed not to sell an aggregate of 8,804,915
shares for a period of 90 days after the offering. The lock-up agreements do
not apply to 485,265 shares held by our officers and directors. Credit Suisse
First Boston Corporation, the lead underwriter of the follow-on offering, may,
in its sole discretion, permit these officers and directors and Bill Gross
idealab! to sell shares prior to the expiration of the lock-up agreements.
Other than the shares subject to the lock-up agreements, substantially all of
our outstanding shares will continue to be freely tradeable after the follow-on
offering. In addition, our



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officers and directors and other optionees will be able to sell additional
shares after expiration of the lock-up period as their restricted shares and
options vest over time. If a material amount of shares are sold at any time,
including when the lock-up period expires, the market price of our common stock
may decline.

WE HAVE A HISTORY OF LOSSES AND WE CANNOT ASSURE YOU WE WILL NOT INCUR NET
LOSSES IN ANY PARTICULAR FUTURE PERIOD

We have a history of losses and we cannot assure you we will not incur net
losses in any particular future period. We incurred a net loss of approximately
$2.9 million and $20.3 million for the three months ended June 30, 2001 and
2000, respectively, and as of June 30, 2001, we had an accumulated deficit of
approximately $511.6 million. Because our expense levels are relatively fixed
in the short term, if our revenues do not keep pace with our expense levels, we
may incur losses or we may not sustain or increase profitability in any
particular quarter. We expect to continue to increase our marketing, sales and
service and general and administrative expenses and we cannot be certain that
revenue growth will continue. If our revenue growth does not continue, we may
experience a loss in one or more future periods and it may as a result cause
our stock price to decline. This may in turn impact our ability to implement
our business strategy.

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

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

GoTo also competes with providers of Web directories, search, and
information services, all of which offer services competitive to GoTo,
including, among others, AltaVista, Ask Jeeves, Inc., CNET, Inc., Excite@Home,
Inc. (including WebCrawler and Magellan), Google, Inc., Inktomi Corporation,
LookSmart, Ltd., Microsoft Corporation (LinkExchange, Inc. and msn.com), Terra
Lycos (including HotBot) and Yahoo!, Inc. In addition, FindWhat.com, Inc. and
PRIMEDIA, through its About.com Sprinks product, each offer a pay-per-click
advertising service. There are also other companies that offer directly
competing services. We have affiliate arrangements with companies that may be
considered potential competitors.

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 and information services or advertising solutions, and
existing providers of Web directories, search and information services or
advertising solutions may continue to consolidate. In addition, providers of
Internet browsers and other Internet products and services who are affiliated
with providers of Web directories and information services in competition with
the 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 effect on
our business, operating results and financial condition.

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 to achieve improvements to our transaction processing
systems, network infrastructure and accounting systems could have a material
adverse effect on our business, operating results and financial condition. Our
transaction processing systems are currently operating at a high capacity.
Should we add a significant amount of traffic in a short period of time, our
network infrastructure could be insufficient to support our growth, and we
could potentially experience system failures, which could harm our revenues,
and incur significant expenses to add capacity. We have experienced occasional
systems interruptions and infrastructure failures, which we believe could occur
from time to time.

WE FACE THE RISKS OF SYSTEM FAILURES

We currently do not have a comprehensive 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, which are located in Pasadena,
California and at four offsite locations. These offsite locations are managed
by third parties in California, Virginia and Ireland.

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



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

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

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

FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT OUR FUTURE GROWTH

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

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 completely
secure from security breaches or sabotage, and we occasionally experience
attempts at hacking or security breaches. We may be required to incur
significant costs to protect against security breaches or to alleviate problems
caused by breaches. Any well-publicized compromise of our security or the
security of any other Internet provider could deter people from using our
services or the Internet to conduct transactions that involve transmitting
confidential information or downloading sensitive materials, which would
adversely affect the business of our advertisers and, accordingly, our
business.

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND
CALIFORNIAS CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE
OUR EXPENSES

California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
California has on some occasions implemented, and may in the future continue to
implement, rolling blackouts throughout California. Our computer systems are
supplied primary power by the local power company. In addition, the systems are
connected to battery backup and diesel generators. These alternative sources of
power are provided by our hosting provider and are subject to their upkeep and
maintenance. Our current insurance does not provide coverage for any damages
our customers or we may suffer as a result of any interruption in our power
supply. If blackouts interrupt our third-party power supply, we would be
temporarily unable to continue operations at our affected facilities. Any such
interruption in our ability to continue operations at our affected facilities
could damage our reputation and could result in lost revenue, which could have
a material adverse effect on our business, operating results and financial
condition. Similar interruption to our affiliates services could also
adversely impact us.

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



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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

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

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



| |  |  | lower per capita Internet usage in many countries abroad, due to a
variety of causes such as lower disposable incomes, lack of
telecommunications and computer infrastructure and questions regarding
adequate online security for e-commerce transactions;              
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | relatively small Internet markets in some countries, which may
prevent us from aggregating sufficient traffic and advertising revenues
and scaling our business model in those countries;                                                                                
|
| |  |  | our potential inability to aggregate a large amount of Internet
traffic and find and develop relationships with international
advertisers, consumers and businesses, and affiliates;                                                                                     
|
| |  |  | competition in international markets from a broad range of
competitors, including Yahoo, LookSmart, AltaVista, Espotting.com and
other United States and foreign search engines, content aggregators and
portals, some of which have greater local experience than we do;
|
| |  |  | difficulties in recruiting qualified and knowledgeable staff and in
building locally relevant products and services, which could prevent us
from aggregating a large advertiser base;                                                                                    
|
| |  |  | higher costs of doing business in foreign countries;                                                                                                                                                                                                                     
|
| |  |  | trade barriers and unexpected changes and differences in regulatory,
tax and legal requirements applicable to Internet services; and                                                                                                                                     
|
| |  |  | longer payment cycles and foreign currency fluctuations.                                                                                                                                                                                                                 

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

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

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



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

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

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

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

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

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

Our success and ability to compete also are substantially dependent upon
our internally developed technology and data resources, which we protect
through a combination of copyright, trade secret, patent and trademark law. We
may not adequately be able to protect our technology and data resources.

GoTo intends to change its corporate name by October 15, 2001. If the new
name has a URL or other rights that belongs to a third party, URL or other
rights may be difficult to acquire and may delay our planned name change. There
are also certain costs associated with the planned name change, which may
increase, depending on, among other things, the availability of the URL and
other rights belonging to third parties. We may also be unable to enforce
rights related to any new name we choose. We may not be free to use the name in
all jurisdictions or the use of the name may be challenged, requiring us to
spend significant resources in defending the use of the name.

OUR INTENTION TO CHANGE OUR CORPORATE NAME AND NASDAQ SYMBOL COULD RESULT IN
CONFUSION TO CURRENT ADVERTISERS, CONSUMERS AND BUSINESSES, AFFILIATES AND
INVESTORS AND COULD DISRUPT OUR BUSINESS AND CAUSE OUR STOCK PRICE TO DECLINE

When we complete our planned name change, the possible loss of public
recognition with our advertisers, consumers and businesses, and affiliates
could have a material adverse effect on our business, operating results and
financial condition. In addition, any name change will also involve a change in
our Nasdaq National Market trading symbol. Any name change or change in our
trading symbol could result in confusion to investors, which could harm the
market price of the common stock.



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

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

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 have a material
adverse effect on our business, operating results and financial condition. In
addition, we may pay more for an acquisition than an acquired product,
technology or business is ultimately worth. For example, we recently ceased
operations of GoTo Shopping, and we recently completed a management buyout of
the GoTo Auctions, whereby the operating management of GoTo Auctions purchased
GoTo Auctions assets from GoTo. We have incurred charges related to the
impairment of the assets acquired in connection with our exit from the auctions
operations and comparison shopping operations, and incurred approximately $2.1
million and $1.5 million in charges relating to our exit from the GoTo Auctions
and GoTo Shopping operations, respectively in the quarter ending June 30, 2001.

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

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



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

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY DAMAGE OUR BUSINESS

The laws and regulations applicable to the Internet and our services are
evolving and unclear and could damage our business. There are currently few
laws or regulations directly applicable to access to, or commerce on, the
Internet. Due to the increasing popularity and use of the Internet, it is
possible that Internet laws and regulations may be adopted, covering issues
such as user privacy, defamation, database protection, 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.



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

The law relating to the liability of providers of online services for
activities of their users is currently unsettled and could damage our business.
We do not carry insurance that will indemnify us for liability for activities
of our users. GoTo may not 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
effect on our business, operating results and financial condition.

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

Provisions of our 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 and certain other key employees. These agreements
provide for certain benefits, including acceleration of option vesting, to
these persons if they are terminated other than for cause following an
acquisition of 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 and other personnel 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.

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 trading price of
our common stock has ranged from an intra-day high of $114.50 on November 15,
1999 to an intra-day low of $4.81 on December 21, 2000. In addition, an active
public market for GoTos common stock may not continue.







ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

International revenues from GoTos foreign subsidiaries were less than 2%
of total revenues in the quarter ended June 30, 2001. International sales are
made from GoTos United Kingdom operations and are denominated in the local
currency. This subsidiary and our other foreign subsidiary in Ireland also
incur most of their expenses in the local currency. Accordingly, all foreign
subsidiaries use the local currency as their functional currency.



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

GoTos exposure to foreign exchange rate fluctuations arises in part from
intercompany accounts in which costs incurred in the United States are charged
to GoTos foreign sales subsidiaries. These intercompany accounts are
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
GoTo is also exposed to foreign exchange rate fluctuations as the financial
results of foreign subsidiaries are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall expected profitability. The
effect of foreign exchange rate fluctuations on GoTo in the quarter ended June
30, 2001 was not material.







PART II. OTHER INFORMATION







ITEM 1. LEGAL PROCEEDINGS

On November 3, 2000, GoTo was served with a summons and complaint by
MercExchange, L.L.C., alleging patent infringement relating to GoTos online
auction and shopping services. On June 1, 2001, GoTo entered into a settlement
agreement and release with MercExchange, under which MercExchange agreed to
dismiss the litigation in exchange for a cash payment, the amount of which was
paid from the escrow funds created in connection with GoTos acquisitions of
AuctionRover and Cadabra. In addition, legal fees and other expenses paid by
GoTo to defend this litigation were reimbursed to GoTo from the escrow funds
and are recorded in other income, net.

On June 19, 2001, InternetFuel.com, Inc. filed a complaint against GoTo in
the Superior Court of the State of California for the County of Los Angeles.
The complaint alleges that GoTo wrongfully terminated an agreement pursuant to
which InternetFuel participated in GoTos affiliate program. The complaint also
alleges libel for messages allegedly placed by GoTo on an Internet forum, and
it contains claims of unfair business practices. The complaint seeks, among
other remedies, monetary damages for the value of the terminated agreement and
for alleged harm to InternetFuels reputation, punitive and exemplary relief
and an injunction against alleged unfair business practices. GoTo is currently
investigating InternetFuel.coms allegations and believes that it has
meritorious defenses to the complaint. GoTo intends to contest the allegations
vigorously.

Although GoTo has not been served, GoTo understands that in July 2001,
several purported class action lawsuits were filed in the United States
District Court, Southern District of New York against certain underwriters
involved in GoTos initial public offering, GoTo and certain of GoTos current
directors and officers. The lawsuits allege, among other things, violations of
the Securities Act of 1933 and the Securities Exchange Act of 1934 involving
undisclosed compensation to the underwriters, and improper practices by the
underwriters and seek unspecified damages.







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



| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | At the annual meeting of stockholders held on May 24, 2001, the following
proposals were adopted by the margins indicated:



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

|              |  |           |            |                |  |  |           | 
|------------- |  | --------- | ---------- | -------------- |  |  | --------- | 
|              |  | Votes For |            | Votes Withheld
|              |  |           |            |               
|William Gross |  |           | 37,519,832 |                |  |  | 4,244,465 | 
|             
|             
|             
|             
|William Elkus |  |           | 41,627,526 |                |  |  | 136,771   | 



| |  |  | Linda Fayne Levinson and Ted Meisel continue serving as directors
until the annual meeting of stockholders in the year 2002 (Class III
directors). Jeffrey Brewer, Robert Kavner and Steve Aleiso continue
serving as directors until the annual meeting of stockholders in the
year 2003 (Class I directors).
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (2) |  | Ratification of appointment of Ernst & Young LLP as the GoTos independent
auditors for the 2001 fiscal year.
| | --- |  | -------------------------------------------------------------------------------------------------------------

|           |  |               |        |         |  |                  |        |  |  |  |   | 
|---------- |  | ------------- | ------ | ------- |  | ---------------- | ------ |  |  |  | - | 
|Votes For  |  | Votes Against |        | Abstain |  | Broker Non-Votes
|           |  |               |        |         |  |                 
|41,640,797 |  |               | 79,589 |         |  |                  | 43,911 |  |  |  | 0 | 







ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



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

None



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

The Company filed a Current Report on Form 8-K dated June 5, 2001 to
report under Item 5 thereof updating pro forma and historical financial
information related to GoTos acquisition of AuctionRover, on May 3, 2000. This
updated information was required in conjunction with GoTos concurrently filed
Registration Statement (Form S-3) and related Prospectus.







SIGNATURES

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

|                      |  |                |  |                                                                                              
|--------------------- |  | -------------- |  | ---------------------------------------------------------------------------------------------
|Date:  August 7, 2001 |  | GOTO.COM, INC.
|                     
|                     
|                     
|                     
|                      |  | By             |  | /s/   Todd Tappin                                                                            
|                      |  |                | 
|                      |  |                |  | Todd Tappin
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)



25