##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-Q/A

Amendment No. 1


|  |  |                                                                                                
|- |  | -----------------------------------------------------------------------------------------------
|þ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the quarterly period ended June 30,
    2002                                               

Commission file number 0-24339



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Inktomi Corporation

(Exact name of Registrant as specified in its
charter)




---

|                         |  |                                         
|------------------------ |  | ----------------------------------------
|Delaware                 |  | 94-3238130                              
|(State of Incorporation) |  | (I.R.S. Employer
    Identification No.)

4100 East Third Avenue

Foster City, California 94404


(Address of principal executive
offices)


(650) 653-2800

(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 þ          No o

The number of shares outstanding of the
Registrants Common Stock, $0.001 par value, as of
July 31, 2002 was 146,355,996.



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Explanatory Note

The Amendment No. 1 to Inktomis
Quarterly Report on Form 10-Q/A is being filed in order to
amend Items 1 and 2 of Part I of the Inktomis
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002 in order to change the presentation of
certain line items on Inktomis Financial Statements and to
supplement the disclosure provided in Items 1 and 2
relating to, among other things, certain restructurings
implemented by Inktomi in fiscal 2002 and 2001, the discussion
of Inktomis Other Income, Net, certain impairment charges
recorded by Inktomi, Inktomis banking and loan
arrangements, Inktomis stock option exchange program,
Managements discussion and analysis of financial condition
and results of operations as well as the discussion of certain
risks and uncertainties that may affect Inktomis operating
results. These amendments have not adversely affected the
financial information presented herein. Unless otherwise
specifically set forth herein, information contained in this
Form 10-Q/A speaks only to matters existing at
June 30, 2002. For additional or more current information
about Inktomi, please refer to Inktomis public filings
made with the Securities and Exchange Commission after
June 30, 2002.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | 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 3. Defaults Upon Senior Securities                                                      
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                    
|EXHIBIT INDEX                
|EXHIBIT 99.1                 



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##### Table of Contents



INKTOMI CORPORATION

FORM 10-Q/A

For the Quarterly Period Ended June 30,
2002


TABLE OF CONTENTS

|                                |         |                                                                                                                              |                                                                                           |      |   |    | 
|------------------------------- | ------- | ---------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---- | - | -- | 
|                                |         |                                                                                                                              |                                                                                           | Page
|                                |         |                                                                                                                              |                                                                                           |     
|PART I.  FINANCIAL INFORMATION: |         |                                                                                                                              |                                                                                           |     
|                                | Item 1. |                                                                                                                              | Financial Statements (Unaudited)                                                          |      |   |    | 
|                                |         | a) Condensed Consolidated Statements of
    Operations for the three months and nine months ended
    June 30, 2002 and 2001 |                                                                                           |      | 2 |   
|                                |         | b) Condensed Consolidated Balance Sheets as
    of June 30, 2002 and September 30, 2001                                      |                                                                                           |      | 3 |   
|                                |         | c) Condensed Consolidated Statements of Cash
    Flows for the nine months ended June 30, 2002 and 2001                      |                                                                                           |      | 4 |   
|                                |         | d) Notes to Condensed Consolidated Financial
    Statements                                                                  |                                                                                           |      | 5 |   
|                                | Item 2. |                                                                                                                              | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |      |   | 17 | 
|                                | Item 3. |                                                                                                                              | Quantitative and Qualitative Disclosures About
    Market Risk                            |      |   | 38 | 
|PART II.  OTHER INFORMATION:    |         |                                                                                                                              |                                                                                           |     
|                                | Item 1. |                                                                                                                              | Legal Proceedings                                                                         |      |   | 38 | 
|                                | Item 3. |                                                                                                                              | Defaults in Senior Securities                                                             |      |   | 38 | 
|                                | Item 6. |                                                                                                                              | Exhibits and Reports on Form 8-K                                                          |      |   | 39 | 
|Signature                       |         |                                                                                                                              | 40                                                                                        |     

This report on Form 10-Q/A and other oral
and written statements made by the Company to the public contain
and incorporate forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and
Section 21E of the Securities Exchange Act of 1934. When
used in this report, the words anticipate,
believe, expect, intend,
may, will and similar expressions
identify forward-looking statements. Forward-looking statements
in this report include, but are not limited to, those relating
to the general direction of our business; our ability to
successfully penetrate the information retrieval market; our
ability to continue to support the service provider market; our
success generating sales through our alliances and partners; our
ability to introduce new products and services and enhance
existing products and services to meet customer needs; the
changing composition and purchasing trends of our customer base;
the composition of our revenues; our expected expenses for
future periods; the outcome of our restructuring efforts; our
ability to improve our sales and distribution capabilities; our
focus on both domestic and international markets; our ability to
develop and maintain productive relationships with providers of
leading technologies; the possibility of acquiring complementary
businesses, products, services and technologies; and the
conditions of markets that impact our business. Although we
believe our plans, intentions and expectations reflected in
these forward-looking statements are reasonable, we can give no
assurance that these plans, intentions or expectations will be
achieved. Actual results, performance or achievements could
differ materially from those contemplated, expressed or implied
by the forward-looking statements contained in this report.
Important factors that could cause actual results to differ
materially from our forward-looking statements are set forth in
this report under the headings Factors Affecting Operating
Results, Managements Discussion and Analysis
of Financial Condition and Results of Operations and in
other reports filed with the Securities and Exchange Commission.
These factors are not intended to represent a complete list of
the general or specific factors that may affect us. Other
factors, including general economic factors and business
strategies, may be significant, presently or in the future, and
the factors set forth in this report may affect us to a greater
extent than indicated. You should not rely on these
forward-looking statements, which reflect our position as of the
date of this report. We do not assume any obligation to revise
forward-looking statements.

1



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##### Table of Contents






PART I.     FINANCIAL
INFORMATION




Item 1.     Financial
Statements

INKTOMI CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |         |         | 
|------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------- | -------- | ------------ | ------- | ---- | -------- | ------ | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                                    |                                              |                                          |          |             
|                                                                    |                                              | For the Three                            |          | For the Nine
|                                                                    |                                              | Months Ended                             |          | Months Ended
|                                                                    |                                              | June 30,                                 |          | June 30,    
|                                                                    |                                              |                                          |          |             
|                                                                    |                                              | 2002                                     |          | 2001         |         | 2002 |          | 2001  
|                                                                    |                                              |                                          |          |              |         |      |          |       
|                                                                    |                                              |                                          |          |             
|                                                                    |                                              | (Unaudited)                              |          | (Unaudited) 
|                                                                    |                                              |                                         
|                                                                    |                                              | (In thousands, except per share amounts)
|Revenues                                                            |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|                                                                    | Licenses                                     |                                          | $        | 4,772        |         |      | $        | 20,068 |         |   | $        | 37,032  |         |   | $        | 88,965  |        
|                                                                    | Web search services                          |                                          |          | 13,139       |         |      |          | 11,374 |         |   |          | 35,562  |         |   |          | 39,276  |        
|                                                                    | Maintenance services                         |                                          |          | 4,470        |         |      |          | 4,745  |         |   |          | 13,225  |         |   |          | 15,789  |        
|                                                                    | Other services                               |                                          |          | 1,440        |         |      |          | 3,373  |         |   |          | 6,437   |         |   |          | 15,519  |        
|                                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|                                                                    |                                              | Total revenues                           |          |              | 23,821  |      |          |        | 39,560  |   |          |         | 92,256  |   |          |         | 159,549 | 
|Cost of Revenues                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|                                                                    | Licenses                                     |                                          |          | 882          |         |      |          | 1,845  |         |   |          | 2,932   |         |   |          | 4,576   |        
|                                                                    | Web search services                          |                                          |          | 3,608        |         |      |          | 6,369  |         |   |          | 11,304  |         |   |          | 19,081  |        
|                                                                    | Maintenance services                         |                                          |          | 1,119        |         |      |          | 1,544  |         |   |          | 3,587   |         |   |          | 4,640   |        
|                                                                    | Other services                               |                                          |          | 1,044        |         |      |          | 1,635  |         |   |          | 4,468   |         |   |          | 10,727  |        
|                                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|                                                                    |                                              | Total cost of revenues                   |          |              | 6,653   |      |          |        | 11,393  |   |          |         | 22,291  |   |          |         | 39,024  | 
|Gross Profit                                                        |                                              |                                          | 17,083   |              |         |      | 27,917   |        |         |   | 69,455   |         |         |   | 119,775  |        
|Operating expenses                                                  |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|                                                                    | Sales and marketing                          |                                          |          | 17,224       |         |      |          | 29,837 |         |   |          | 57,434  |         |   |          | 112,323 |        
|                                                                    | Research and development                     |                                          |          | 13,635       |         |      |          | 17,776 |         |   |          | 41,191  |         |   |          | 61,557  |        
|                                                                    | General and administrative                   |                                          |          | 2,973        |         |      |          | 5,733  |         |   |          | 12,373  |         |   |          | 18,469  |        
|                                                                    | Impairment of intangibles and other assets   |                                          |          | 200,865      |         |      |          | 42,315 |         |   |          | 202,615 |         |   |          | 42,315  |        
|                                                                    | Amortization of intangibles and other assets |                                          |          | 16,709       |         |      |          | 18,353 |         |   |          | 50,127  |         |   |          | 53,869  |        
|                                                                    | Restructuring                                |                                          |          | 2,220        |         |      |          | 5,249  |         |   |          | 80,840  |         |   |          | 5,249   |        
|                                                                    | Acquisition related costs                    |                                          |          |             |         |      |          |       |         |   |          |        |         |   |          | 19,497  |        
|                                                                    | Purchase in-process research and development |                                          |          |             |         |      |          |       |         |   |          |        |         |   |          | 430     |        
|                                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|                                                                    |                                              | Total operating expenses                 |          |              | 253,626 |      |          |        | 119,263 |   |          |         | 444,580 |   |          |         | 313,709 | 
|                                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|Operating loss                                                      |                                              |                                          | (236,458 | )            |         |      | (91,096  | )      |         |   | (374,615 | )       |         |   | (193,184 | )      
|Impairment of investments                                           |                                              |                                          |         |              |         |      | (65,895  | )      |         |   |         |         |         |   | (65,895  | )      
|Other income, net                                                   |                                              |                                          | 901      |              |         |      | 2,101    |        |         |   | 5,992    |         |         |   | 8,416    |        
|                                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|Loss before income tax provision                                    |                                              |                                          | (235,557 | )            |         |      | (154,890 | )      |         |   | (368,623 | )       |         |   | (250,663 | )      
|Income tax provision                                                |                                              |                                          | (118     | )            |         |      | (141     | )      |         |   | (540     | )       |         |   | (793     | )      
|                                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|Net loss                                                            |                                              | $                                        | (235,675 | )            |         | $    | (155,031 | )      |         | $ | (369,163 | )       |         | $ | (251,456 | )      
|                                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|Net loss per share Basic and diluted net loss per
    share         |                                              | $                                        | (1.62    | )            |         | $    | (1.22    | )      |         | $ | (2.61    | )       |         | $ | (2.00    | )      
|                                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        
|Shares used in calculating basic and diluted net
    loss per share |                                              |                                          | 145,666  |              |         |      | 126,755  |        |         |   | 141,304  |         |         |   | 125,590  |        
|                                                                    |                                              |                                          |          |              |         |      |          |        |         |   |          |         |         |   |          |        

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

2



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##### Table of Contents



INKTOMI CORPORATION






CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                                                                                                                                                                  |                                              |                                                                |          |               |         |  |          |        |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------------------------- | -------- | ------------- | ------- |  | -------- | ------ | ------- | 
|                                                                                                                                                                                  |                                              | June 30,                                                       |          | September 30,
|                                                                                                                                                                                  |                                              | 2002                                                           |          | 2001         
|                                                                                                                                                                                  |                                              |                                                                |          |              
|                                                                                                                                                                                  |                                              | (Unaudited)                                                    |          |              
|                                                                                                                                                                                  |                                              |                                                               
|                                                                                                                                                                                  |                                              | (In thousands, except per                                     
|                                                                                                                                                                                  |                                              | share amounts)                                                
|ASSETS                                                                                                                                                                           
|Current assets                                                                                                                                                                    |                                              |                                                                |          |               |         |  |          |       
|                                                                                                                                                                                  | Cash and cash equivalents                    |                                                                | $        | 15,316        |         |  | $        | 18,518 |        
|                                                                                                                                                                                  | Short-term investments                       |                                                                |          | 74,708        |         |  |          | 65,995 |        
|                                                                                                                                                                                  |                                              |                                                                |          |               |         |  |          |       
|                                                                                                                                                                                  |                                              | Total cash and cash equivalents and short-term
    investments |          |               | 90,024  |  |          |        | 84,513  | 
|                                                                                                                                                                                  | Accounts receivable, net                     |                                                                |          | 14,323        |         |  |          | 22,449 |        
|                                                                                                                                                                                  | Prepaid expenses and other current assets    |                                                                |          | 6,616         |         |  |          | 5,915  |        
|                                                                                                                                                                                  |                                              |                                                                |          |               |         |  |          |       
|                                                                                                                                                                                  |                                              | Total current assets                                           |          |               | 110,963 |  |          |        | 112,877 | 
|Restricted cash                                                                                                                                                                   |                                              |                                                                | 128,957  |               |         |  | 128,957  |       
|Investments in equity securities                                                                                                                                                  |                                              |                                                                |         |               |         |  | 1,381    |       
|Property and equipment, net                                                                                                                                                       |                                              |                                                                | 52,921   |               |         |  | 76,101   |       
|Intangibles and other assets, net                                                                                                                                                 |                                              |                                                                | 5,173    |               |         |  | 259,472  |       
|Loans to related parties                                                                                                                                                          |                                              |                                                                | 6,009    |               |         |  | 4,335    |       
|                                                                                                                                                                                  |                                              |                                                                |          |               |         |  |          |       
|                                                                                                                                                                                  |                                              | Total assets                                                   |          | $             | 304,023 |  |          | $      | 583,123 | 
|                                                                                                                                                                                  |                                              |                                                                |          |               |         |  |          |       
|                                                                                                                                                                                 
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                                                         
|Current liabilities                                                                                                                                                               |                                              |                                                                |          |               |         |  |          |       
|                                                                                                                                                                                  | Accounts payable                             |                                                                | $        | 10,324        |         |  | $        | 7,979  |        
|                                                                                                                                                                                  | Accrued liabilities                          |                                                                |          | 45,293        |         |  |          | 58,646 |        
|                                                                                                                                                                                  | Deferred revenue                             |                                                                |          | 27,667        |         |  |          | 34,610 |        
|                                                                                                                                                                                  | Current portion of notes payable             |                                                                |          | 15,375        |         |  |          | 2,500  |        
|                                                                                                                                                                                  | Current portion of capital lease obligations |                                                                |          | 1,469         |         |  |          | 1,470  |        
|                                                                                                                                                                                  |                                              |                                                                |          |               |         |  |          |       
|                                                                                                                                                                                  |                                              | Total current liabilities                                      |          |               | 100,128 |  |          |        | 105,205 | 
|Notes payable, less current portion                                                                                                                                               |                                              |                                                                |         |               |         |  | 4,231    |       
|Capital lease obligations, less current portion                                                                                                                                   |                                              |                                                                | 432      |               |         |  | 1,418    |       
|Other liabilities                                                                                                                                                                 |                                              |                                                                | 34,136   |               |         |  | 288      |       
|                                                                                                                                                                                  |                                              |                                                                |          |               |         |  |          |       
|                                                                                                                                                                                  |                                              | Total liabilities                                              |          |               | 134,696 |  |          |        | 111,142 | 
|Commitments and contingencies (Note 6)                                                                                                                                            |                                              |                                                                |          |               |         |  |          |       
|Stockholders equity                                                                                                                                                              |                                              |                                                                |          |               |         |  |          |       
|Common Stock, $0.001 par value; 1,500,000
    authorized at June 30, 2002 and September 30, 2001;
    146,292 and 129,110 outstanding at June 30, 2002 and
    September 30, 2001 |                                              |                                                                | 146      |               |         |  | 129      |       
|Additional paid-in capital                                                                                                                                                        |                                              |                                                                | 950,569  |               |         |  | 897,241  |       
|Deferred compensation and other                                                                                                                                                   |                                              |                                                                | (7,658   | )             |         |  | (20,824  | )     
|Accumulated other comprehensive loss                                                                                                                                              |                                              |                                                                | (2,547   | )             |         |  | (2,545   | )     
|Accumulated deficit                                                                                                                                                               |                                              |                                                                | (771,183 | )             |         |  | (402,020 | )     
|                                                                                                                                                                                  |                                              |                                                                |          |               |         |  |          |       
|                                                                                                                                                                                  |                                              | Total stockholders equity                                     |          |               | 169,327 |  |          |        | 471,981 | 
|                                                                                                                                                                                  |                                              |                                                                |          |               |         |  |          |       
|                                                                                                                                                                                  |                                              | Total liabilities and stockholders equity                     |          | $             | 304,023 |  |          | $      | 583,123 | 
|                                                                                                                                                                                  |                                              |                                                                |          |               |         |  |          |       

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

3



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##### Table of Contents



INKTOMI CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                                |                                                                                            |                                                           |          |          |         |   |          |          |         |  
|------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | --------------------------------------------------------- | -------- | -------- | ------- | - | -------- | -------- | ------- | -
|                                                                                |                                                                                            |                                                          
|                                                                                |                                                                                            | For the Nine Months                                      
|                                                                                |                                                                                            | Ended June 30,                                           
|                                                                                |                                                                                            |                                                          
|                                                                                |                                                                                            | 2002                                                      |          | 2001    
|                                                                                |                                                                                            |                                                           |          |         
|                                                                                |                                                                                            |                                                          
|                                                                                |                                                                                            | (Unaudited)                                              
|                                                                                |                                                                                            | (In thousands)                                           
|CASH FLOWS FROM OPERATING ACTIVITIES                                            |                                                                                            |                                                           |          |          |         |   |          |         
|Net loss                                                                        |                                                                                            | $                                                         | (369,163 | )        |         | $ | (251,456 | )       
|Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                | Restructuring                                                                              |                                                           |          | 80,840   |         |   |          | 5,016    |        
|                                                                                | Amortization of intangibles and other assets                                               |                                                           |          | 50,127   |         |   |          | 53,869   |        
|                                                                                | Depreciation and amortization                                                              |                                                           |          | 19,800   |         |   |          | 23,824   |        
|                                                                                | Stock based compensation                                                                   |                                                           |          | 4,646    |         |   |          | 8,519    |        
|                                                                                | Impairment of intangibles and other assets                                                 |                                                           |          | 202,615  |         |   |          | 42,315   |        
|                                                                                | Impairment of investments                                                                  |                                                           |          |         |         |   |          | 65,895   |        
|                                                                                | Impairment of property and equipment                                                       |                                                           |          | 791      |         |   |          | 198      |        
|                                                                                | Provision for doubtful accounts                                                            |                                                           |          | (222     | )       |   |          | 6,801    |        
|Changes in assets and liabilities:                                              |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                | Accounts receivable                                                                        |                                                           |          | 8,348    |         |   |          | 19,298   |        
|                                                                                | Prepaid expenses and other assets                                                          |                                                           |          | 2,630    |         |   |          | (5,552   | )      
|                                                                                | Accounts payable                                                                           |                                                           |          | 2,345    |         |   |          | (3,348   | )      
|                                                                                | Accrued liabilities and other                                                              |                                                           |          | (46,936  | )       |   |          | (644     | )      
|                                                                                | Deferred revenue                                                                           |                                                           |          | (6,943   | )       |   |          | (17,878  | )      
|                                                                                |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                |                                                                                            | Net cash used in operating activities                     |          |          | (51,122 | ) |          |          | (53,143 | )
|CASH FLOWS FROM INVESTING ACTIVITIES                                            |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                | Purchases of property and equipment                                                        |                                                           |          | (10,820  | )       |   |          | (28,052  | )      
|                                                                                | Purchases of short-term investments                                                        |                                                           |          | (183,460 | )       |   |          | (540,430 | )      
|                                                                                | Proceeds from sales of short-term investments                                              |                                                           |          | 174,519  |         |   |          | 628,224  |        
|                                                                                | Purchases of investments in equity securities                                              |                                                           |          | (500     | )       |   |          | (4,247   | )      
|                                                                                | Restriction of cash for lease agreements                                                   |                                                           |          |         |         |   |          | (9,341   | )      
|                                                                                | Proceeds from sales of investments in equity
    securities                                |                                                           |          | 2,177    |         |   |          |         |        
|                                                                                | Loans to related parties                                                                   |                                                           |          | (7,700   | )       |   |          | (2,600   | )      
|                                                                                | Payments received on loans to related parties                                              |                                                           |          | 4,252    |         |   |          |         |        
|                                                                                | Acquisition of a company, net of acquired cash                                             |                                                           |          |         |         |   |          | (23,500  | )      
|                                                                                |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                |                                                                                            | Net cash provided from (used in) investing
    activities |          |          | (21,532 | ) |          |          | 20,054  |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                            |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                | Payments on notes payable                                                                  |                                                           |          | (2,356   | )       |   |          | (9,106   | )      
|                                                                                | Proceeds from notes payable                                                                |                                                           |          | 11,000   |         |   |          | 7,500    |        
|                                                                                | Payments on obligations under capital leases                                               |                                                           |          | (987     | )       |   |          | (2,282   | )      
|                                                                                | Proceeds from issuance of common stock, net of
    issuance costs                          |                                                           |          | 52,839   |         |   |          | 455      |        
|                                                                                | Proceeds from exercises of stock options and
    warrants                                  |                                                           |          | 9,026    |         |   |          | 7,088    |        
|                                                                                | Proceeds from notes receivable for stock                                                   |                                                           |          |         |         |   |          | 65       |        
|                                                                                |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                |                                                                                            | Net cash provided by financing activities                 |          |          | 69,522  |   |          |          | 3,720   |  
|                                                                                | Effect of exchange rates on cash and cash
    equivalents                                  |                                                           |          | (70      | )       |   |          | (836     | )      
|                                                                                |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                | Decrease in cash and cash equivalents                                                      |                                                           |          | (3,202   | )       |   |          | (30,205  | )      
|                                                                                | Cash and cash equivalents at beginning of period                                           |                                                           |          | 18,518   |         |   |          | 41,879   |        
|                                                                                |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                | Cash and cash equivalents at end of period                                                 |                                                           | $        | 15,316   |         |   | $        | 11,674   |        
|                                                                                |                                                                                            |                                                           |          |          |         |   |          |         
|SUPPLEMENTAL CASH FLOW INFORMATION                                              |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                | Net assets (liabilities) acquired for Common
    Stock as a result of purchase acquisition |                                                           | $        |         |         |   | $        | (1,845   | )      
|                                                                                |                                                                                            |                                                           |          |          |         |   |          |         
|                                                                                | Assets acquired under capital leases                                                       |                                                           | $        |         |         |   | $        | 995      |        
|                                                                                |                                                                                            |                                                           |          |          |         |   |          |         

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

4



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##### Table of Contents



INKTOMI CORPORATION






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)


Note 1.     The
Company and Basis of Presentation

Inktomi Corporation (Inktomi or the
Company) was incorporated in California in February
1996 and reincorporated in Delaware in February 1998. We develop
and market information retrieval software and services for
global enterprises, service providers and corporate portals. In
addition, we license and support network infrastructure software
and services.

We have prepared the condensed consolidated
financial statements included herein pursuant to the rules and
regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In
the opinion of management, the condensed consolidated financial
statements reflect all adjustments that are necessary for the
fair presentation of results for the periods shown. The results
of operations for such periods are not necessarily indicative of
the results expected for the full fiscal year or for any future
period. These financial statements should be read in conjunction
with our audited consolidated financial statements and notes
thereto included in our annual report on Form 10-K for the
year ended September 30, 2001 filed with the SEC on
December 31, 2001.

The accompanying condensed consolidated financial
statements include the accounts of Inktomi Corporation and its
wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated. Historical financial
information including weighted average shares outstanding and
loss per share amounts have been restated to reflect all stock
splits and acquisitions accounted for as poolings of interest.
Certain prior period balances have been reclassified to conform
to the current period presentation.

In June 2001, we acquired eScene Networks, Inc.
(eScene), a developer of advanced streaming media
applications and services. The following unaudited pro forma
information reflects the results of operations for the quarter
and nine month periods ended June 30, 2001, as if the
acquisition of eScene had occurred on October 1, 2000, and
after giving effect to purchase accounting adjustments,
principally amortization of goodwill and other intangibles. We
have not presented the pro forma financial information for the
Adero asset purchase (December 2000) required under APB
No. 16 since we have effectively ceased the assumed
operator role of the acquired Adero division, Content Bridge,
and have recognized the related full impairment of goodwill and
other assets.

These unaudited pro forma results have been
prepared for comparative purposes only and may not be indicative
of future operating results (in thousands, except per share
data).

|                                               |  |                    |          |                   |  |   |          |  
|---------------------------------------------- |  | ------------------ | -------- | ----------------- |  | - | -------- | -
|                                               |  | For the            |          | For the          
|                                               |  | Three Months Ended |          | Nine Months Ended
|                                               |  | June 30,           |          | June 30,         
|                                               |  | 2001               |          | 2001             
|                                               |  |                    |          |                  
|Pro forma revenues                             |  | $                  | 39,882   |                   |  | $ | 159,978  |  
|Pro forma net loss                             |  |                    | (158,275 | )                 |  |   | (258,650 | )
|Pro forma basic and diluted net loss per share |  | $                  | (1.24    | )                 |  | $ | (2.04    | )

Note 2.     Public
Offering

In November 2001, we completed a public offering
of our Common Stock in which we sold approximately
13.2 million shares raising net proceeds after issuance
costs and underwriters discounts of $52.8 million.

5



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note
3.     Restructurings

For the nine month period ended June 30,
2002, we accrued $80.8 million of restructuring charges. At
June 30, 2002, $52.2 million remained outstanding as
an accrued liability on our balance sheet.



| |                                            
| | -------------------------------------------
| | Fiscal 2002 Third Quarter
    Restructuring

In April 2002, we announced a restructuring and a
workforce reduction of approximately 50 employees to reduce our
operating expenses to adjust to lower revenue levels. Headcount
in all of our functional areas was affected by the reduction. As
a result of this workforce reduction, we incurred a charge of
$2.2 million comprised of cash-related severance costs and
underutilized space. As of June 30, 2002, we had paid
$1.0 million of cash-related severance costs and
approximately $1.2 million of the restructuring accrual
remained outstanding as an accrued liability on our balance
sheet for cash-related severance and under-utilized space. These
payouts are expected to be made over the next six to nine months.

The following table sets forth an analysis of the
components of the fiscal 2002 third quarter restructuring charge
and the payments made against the accrual through June 30,
2002 (in thousands):

|                                 |                             |           |        |               |       |       |     |     |     |   |        |       |       | 
|-------------------------------- | --------------------------- | --------- | ------ | ------------- | ----- | ----- | --- | --- | --- | - | ------ | ----- | ----- | 
|                                 |                             | Severance |        | Underutilized |       |      
|                                 |                             | Related   |        | Space         |       | Total
|                                 |                             |           |        |               |       |      
|Restructuring Provision:         |                             |           |        |               |       |       |     |     |     |   |        |      
|                                 | Severance related           |           | $      | 1,952         |       |       | $   |    |     |   | $      | 1,952 |      
|                                 | Committed excess facilities |           |        |              |       |       |     | 268 |     |   |        | 268   |      
|                                 |                             |           |        |               |       |       |     |     |     |   |        |      
|                                 |                             | Total     |        |               | 1,952 |       |     |     | 268 |   |        |       | 2,220 | 
|Cash paid                        |                             |           | (1,007 | )             |       |       |    |     |     |   | (1,007 | )    
|                                 |                             |           |        |               |       |       |     |     |     |   |        |      
|Accrual balance at June 30, 2002 |                             | $         | 945    |               |       | $     | 268 |     |     | $ | 1,213  |      
|                                 |                             |           |        |               |       |       |     |     |     |   |        |      



| |                                             
| | --------------------------------------------
| | Fiscal 2002 Second Quarter
    Restructuring

In April 2000, we entered into a lease agreement
commencing January 1, 2002 for 381,050 square feet of
office space in two mid-rise office buildings known as Parkside
Towers in Foster City, California. Payments under the lease
commenced on January 1, 2002, when the property was
delivered to Inktomi by the developer and continue over the
lease term ending October 31, 2014 for one building and
October 31, 2016 for the second building. As of
June 30, 2002, aggregate payments to be made under the
lease were approximately $315.7 million over the remaining
lease term.

During the quarter ended March 31, 2002, we
completed our assessment of our current and future anticipated
needs for operating facilities and adopted a plan to consolidate
our operating facilities. In accordance with this plan, we
recorded a restructuring charge of $74.6 million during the
quarter ended March 31, 2002 related to the abandonment of
our lease for 381,050 square feet of office space at
Parkside Towers described above. Lease abandonment costs for
this facility were estimated to include the remaining lease
liabilities through the term of the lease, impairment of
leasehold improvements, estimated future leasehold improvements
and brokerage fees offset by estimated sublease income.
Estimates related to sublease costs and income are based on
assumptions regarding the period required to locate sub-lessees
and sublease rates which were derived from market trend
information provided by a commercial real estate broker. These
estimates will be reviewed on a periodic basis and to the extent
that these assumptions materially change due to changes in the
market, the ultimate restructuring expense for the abandoned
facility could be adjusted. Of the $11.4 million in
restructuring charges that have been paid through June 30,
2002, $7.1 million was paid during the quarter ended
June 30, 2002. As of June 30, 2002, approximately
$50.9 million of the restructuring accrual remained
outstanding.

6



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth an analysis of the
components of the fiscal 2002 second quarter restructuring
charge and the payments made against the accrual through
June 30, 2002 (in thousands):

|                                                                  |                                         |           |         |            |        |       |         |        |        |   |         |          |        | 
|----------------------------------------------------------------- | --------------------------------------- | --------- | ------- | ---------- | ------ | ----- | ------- | ------ | ------ | - | ------- | -------- | ------ | 
|                                                                  |                                         | Abandoned |         | Asset      |        |      
|                                                                  |                                         | Space     |         | Write-offs |        | Total
|                                                                  |                                         |           |         |            |        |      
|Restructuring Provision:                                          |                                         |           |         |            |        |       |         |        |        |   |         |         
|                                                                  | Remaining lease liabilities             |           | $       | 284,615    |        |       | $       |       |        |   | $       | 284,615  |       
|                                                                  | Estimated future leasehold improvements |           |         | 3,781      |        |       |         |       |        |   |         | 3,781    |       
|                                                                  | Brokerage fees                          |           |         | 3,792      |        |       |         |       |        |   |         | 3,792    |       
|                                                                  | Estimated sublease income               |           |         | (229,895   | )      |       |         |       |        |   |         | (229,895 | )     
|                                                                  | Leasehold improvement impairment        |           |         |           |        |       |         | 12,315 |        |   |         | 12,315   |       
|                                                                  |                                         |           |         |            |        |       |         |        |        |   |         |         
|                                                                  |                                         | Total     |         |            | 62,293 |       |         |        | 12,315 |   |         |          | 74,608 | 
|Cash paid                                                         |                                         |           | (11,432 | )          |        |       |        |        |        |   | (11,432 | )       
|Non-cash charges                                                  |                                         |           |        |            |        |       | (12,315 | )      |        |   | (12,315 | )       
|                                                                  |                                         |           |         |            |        |       |         |        |        |   |         |         
|Accrual balance at June 30, 2002                                  |                                         | $         | 50,861  |            |        | $     |        |        |        |   | 50,861  |         
|                                                                  |                                         |           |         |            |        |       |         |        |        |   |         |         
|Less: current portion                                             |                                         |           |         |            |        |       |         |        |        |   | 16,910  |         
|                                                                  |                                         |           |         |            |        |       |         |        |        |   |         |         
|Accrued restructuring included in other long-term
    liabilities |                                         |           |         |            |        |       |         |        |        | $ | 33,951  |         
|                                                                  |                                         |           |         |            |        |       |         |        |        |   |         |         



| |                                            
| | -------------------------------------------
| | Fiscal 2002 First Quarter
    Restructuring

During the quarter ended December 31, 2001,
we announced and substantially completed a restructuring and a
workforce reduction of approximately 115 employees to reduce our
operating expenses to adjust to lower revenue levels. Headcount
in all of our functional areas was affected by the reduction. As
a result of this workforce reduction, we incurred a charge of
$4.0 million, including $2.7 million of cash related
charges for severance and underutilized space. The
$1.3 million non-cash write-down represents computer
equipment consisting of $0.5 million of abandoned assets
from our London office, which was downsized as a result of this
restructuring, and $0.8 million of abandoned assets related
to Content Bridge services which ceased being a revenue
opportunity during the quarter.

Of the $2.6 million in restructuring charges
that have been paid through June 30, 2002,
$0.2 million was paid during the third quarter of fiscal
2002. The remaining accrual of approximately $0.1 million
for committed excess facilities is expected to be paid in the
fourth quarter of fiscal 2002.

The following table sets forth an analysis of the
components of the fiscal 2002 first quarter restructuring charge
and the payments made against the accrual through June 30,
2002 (in thousands):

|                                 |                                   |           |        |            |       |               |        |       |       |   |      |     |     |   |        |       |       | 
|-------------------------------- | --------------------------------- | --------- | ------ | ---------- | ----- | ------------- | ------ | ----- | ----- | - | ---- | --- | --- | - | ------ | ----- | ----- | 
|                                 |                                   | Severance |        | Asset      |       | Underutilized |        |      
|                                 |                                   | Related   |        | Write-Offs |       | Space         |        | Total
|                                 |                                   |           |        |            |       |               |        |      
|Restructuring Provision:         |                                   |           |        |            |       |               |        |       |       |   |      |     |     |   |        |      
|                                 | Severance related                 |           | $      | 2,497      |       |               | $      |      |       |   | $    |    |     |   | $      | 2,497 |      
|                                 | Property and equipment impairment |           |        |           |       |               |        | 1,300 |       |   |      |    |     |   |        | 1,300 |      
|                                 | Committed excess facilities       |           |        |           |       |               |        |      |       |   |      | 215 |     |   |        | 215   |      
|                                 |                                   |           |        |            |       |               |        |       |       |   |      |     |     |   |        |      
|                                 |                                   | Total     |        |            | 2,497 |               |        |       | 1,300 |   |      |     | 215 |   |        |       | 4,012 | 
|Cash paid                        |                                   |           | (2,497 | )          |       |               |       |       |       |   | (116 | )   |     |   | (2,613 | )    
|Non-cash charges                 |                                   |           |       |            |       |               | (1,300 | )     |       |   |     |     |     |   | (1,300 | )    
|                                 |                                   |           |        |            |       |               |        |       |       |   |      |     |     |   |        |      
|Accrual balance at June 30, 2002 |                                   | $         |       |            |       | $             |       |       |       | $ | 99   |     |     | $ | 99     |      
|                                 |                                   |           |        |            |       |               |        |       |       |   |      |     |     |   |        |      

7



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                             
| | --------------------------------------------
| | Fiscal 2001 Fourth Quarter
    Restructuring

During the quarter ended September 30, 2001,
we announced a restructuring and a workforce reduction of
approximately 35 employees in order to reduce our operating
expenses to adjust to lower revenue levels. The reduction in
workforce primarily affected our employees working on wireless
related products. As a result of this restructuring, we incurred
a charge of approximately $7.3 million in the quarter ended
September 30, 2001, including $6.6 million of cash
related charges for severance and underutilized space. The
$0.7 million of non-cash write-offs represent abandoned Web
search assets, net of salvage, for our London office.

Of the $4.7 million of restructuring charges
that have been paid through June 30, 2002,
$0.5 million was paid during our fiscal third quarter. The
remaining accrual of approximately $1.8 million for
committed excess facilities is expected to be paid through
September 2003.

The following table sets forth an analysis of the
components of the fiscal 2001 fourth quarter restructuring
charge and the payments made against the accrual through
June 30, 2002 (in thousands):

|                                 |                                   |           |        |            |       |               |      |       |     |   |        |       |       |   |        |       |       | 
|-------------------------------- | --------------------------------- | --------- | ------ | ---------- | ----- | ------------- | ---- | ----- | --- | - | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                 |                                   | Severance |        | Asset      |       | Underutilized |      |      
|                                 |                                   | Related   |        | Write-Offs |       | Space         |      | Total
|                                 |                                   |           |        |            |       |               |      |      
|Restructuring Provision:         |                                   |           |        |            |       |               |      |       |     |   |        |       |       |   |        |      
|                                 | Severance related                 |           | $      | 2,201      |       |               | $    |      |     |   | $      |      |       |   | $      | 2,201 |      
|                                 | Committed excess facilities       |           |        |           |       |               |      |      |     |   |        | 4,375 |       |   |        | 4,375 |      
|                                 | Property and equipment impairment |           |        |           |       |               |      | 706   |     |   |        |      |       |   |        | 706   |      
|                                 |                                   |           |        |            |       |               |      |       |     |   |        |       |       |   |        |      
|                                 |                                   | Total     |        |            | 2,201 |               |      |       | 706 |   |        |       | 4,375 |   |        |       | 7,282 | 
|Cash paid                        |                                   |           | (2,201 | )          |       |               |     |       |     |   | (2,541 | )     |       |   | (4,742 | )    
|Non-cash charges                 |                                   |           |       |            |       |               | (706 | )     |     |   |       |       |       |   | (706   | )    
|Accrual balance at June 30, 2002 |                                   | $         |       |            |       | $             |     |       |     | $ | 1,834  |       |       | $ | 1,834  |      
|                                 |                                   |           |        |            |       |               |      |       |     |   |        |       |       |   |        |      



| |                                            
| | -------------------------------------------
| | Fiscal 2001
    Third Quarter Restructuring

In the quarter ended June 30, 2001, we
announced and completed a restructuring and a workforce
reduction of approximately 200 employees to reduce our
operating expenses to adjust to lower revenue levels. Headcount
in all of our functional areas was affected by the reduction. As
a result of this workforce reduction, we incurred a charge of
$5.2 million, including $5.0 million of cash charges
for severance, professional fees and committed excess
facilities. The $0.2 million of non-cash charges represent
abandoned assets related to the Commerce division that was sold
during the quarter ended March 31, 2001.

Of the $5.0 million of restructuring charges
that have been paid through June 30, 2002,
$0.1 million was paid for committed excess facilities
during the third quarter of fiscal 2002. As of June 30,
2002, no amount remained outstanding as an accrued liability on
our balance sheet.

8



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth an analysis of the
components of the fiscal 2001 third quarter restructuring charge
and the payments made against the accrual through June 30,
2002 (in thousands):

|                                 |                                   |           |        |            |       |         |      |       |     |   |        |     |       |   |        |       |       | 
|-------------------------------- | --------------------------------- | --------- | ------ | ---------- | ----- | ------- | ---- | ----- | --- | - | ------ | --- | ----- | - | ------ | ----- | ----- | 
|                                 |                                   | Severance |        | Asset      |       | Other   |      |      
|                                 |                                   | Related   |        | Write-Offs |       | Charges |      | Total
|                                 |                                   |           |        |            |       |         |      |      
|Restructuring Provision:         |                                   |           |        |            |       |         |      |       |     |   |        |     |       |   |        |      
|                                 | Severance related                 |           | $      | 3,999      |       |         | $    |      |     |   | $      |    |       |   | $      | 3,999 |      
|                                 | Professional fees                 |           |        |           |       |         |      |      |     |   |        | 601 |       |   |        | 601   |      
|                                 | Committed excess facilities       |           |        |           |       |         |      |      |     |   |        | 416 |       |   |        | 416   |      
|                                 | Property and equipment impairment |           |        |           |       |         |      | 198   |     |   |        |    |       |   |        | 198   |      
|                                 |                                   |           |        |            |       |         |      |       |     |   |        |     |       |   |        |      
|                                 |                                   | Total     |        |            | 3,999 |         |      |       | 198 |   |        |     | 1,017 |   |        |       | 5,214 | 
|Cash paid                        |                                   |           | (3,999 | )          |       |         |     |       |     |   | (1,017 | )   |       |   | (5,016 | )    
|Non-cash charges                 |                                   |           |       |            |       |         | (198 | )     |     |   |       |     |       |   | (198   | )    
|                                 |                                   |           |        |            |       |         |      |       |     |   |        |     |       |   |        |      
|Accrual balance at June 30, 2002 |                                   | $         |       |            |       | $       |     |       |     | $ |       |     |       | $ |       |      
|                                 |                                   |           |        |            |       |         |      |       |     |   |        |     |       |   |        |      

Note
4.     Impairment of Intangibles and
Other Assets

We record impairments or write-downs of
intangibles and other assets when events and circumstances
indicate that an impairment assessment should be performed and
that assessment indicates that there is an impairment. Events
and circumstances that would trigger an impairment assessment
include, but are not limited to, a significant decrease in the
market value of an asset, sustained decrease in our market value
relative to our net book value, a significant change in the
manner or extent that an asset is used including a decision to
abandon acquired products, services or technologies, a
significant adverse change in operations or business climate
affecting the asset not considered temporary, and historical
operating or cash flow losses expected to continue for the
foreseeable future associated with the asset. An asset is
considered impaired when the undiscounted cash flows projected
to be generated from the asset over its remaining useful life is
less than the recorded amount of that asset. Impairment losses
are measured based on the difference between the assets
fair value and carrying amount and are recorded as impairment
write-downs in the consolidated statements of operations in the
period that an indication of impairment arises.

At June 30, 2002, we recorded a charge of
$200.9 million in addition to the quarterly amortization of
$16.7 million to reflect the impairment of intangibles and
other assets, primarily related to goodwill created from our
purchase of Ultraseek, Inc. In fiscal 2000, we integrated
Ultraseeks product offerings and operations into our
entire organization and, therefore, the associated goodwill from
this purchase transaction was accounted for as enterprise
goodwill. In the quarter ended June 30, 2002, we
experienced a sustained decline in our market capitalization to
amounts well below our net book value. In addition, other
factors occurred in the quarter ended June 30, 2002 that
led us to assess whether an enterprise goodwill impairment
charge was appropriate. In particular, America Online, one of
our largest customers announced in April 2002, that it would not
renew its Web search contract with Inktomi upon expiration in
August 2002. In addition, we were experiencing continued
negative cash flows during the third quarter ended June 30,
2002. We believe that both of these factors affected our overall
enterprise value leading to further decreases in market
capitalization. Because of these factors we recorded an
enterprise goodwill impairment charge in the quarter related to
the goodwill created from our purchase of Ultraseek.

During the three months ended December 31,
2001, we evaluated the remaining goodwill associated with our
asset purchase from Adero in December 2000 and recorded a
$1.8 million charge to write-off the remaining net book
value as there will be no further revenue streams related to
this intangible asset.

9



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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note
5.     Calculation of Net Loss Per
Share

Shares of common stock used in computing basic
and diluted net loss per share (EPS) are based on
the weighted average shares of common stock outstanding in each
period. Basic net loss per share is calculated by dividing net
loss by the average number of outstanding shares of common stock
during the period. Diluted net loss per share is calculated by
adjusting the average number of outstanding shares of common
stock assuming conversion of all potentially dilutive stock
options and warrants under the treasury stock method. Excluded
from the computation of diluted earnings per share for the
quarter and nine months ended June 30, 2002 and 2001, are
options and warrants to acquire 26.6 and 12.7 million
shares, respectively, of common stock as their effects would be
anti-dilutive.

Note
6.     Commitments and
Contingencies

On August 2, 2001, an amended complaint was
filed by Network Caching Technology, L.L.C. in the United States
District Court for the Northern District of California against
Inktomi as well as other providers of caching technologies
including Novell, Inc., Akamai Technologies, Inc., Volera, Inc.,
and Cacheflow, Inc. Plaintiff alleges that certain products
marketed by Inktomi and the other defendants violate one or more
patents owned by plaintiff. The complaint seeks compensatory and
other damages and injunctive relief. We were served the
complaint on August 7, 2001. We subsequently filed a
response denying the allegations and asserting a number of
defenses. At this time it is too early to estimate any potential
losses from this action and whether this action may have a
material impact on the results of operations. We are vigorously
defending against this action.

On June 25, 2002, we entered into a Loan
Modification Agreement with a bank that amended our existing
loan arrangements with this bank. The Loan Modification
Agreement allows for an increase in borrowings up to
$6.0 million to finance expenditures for various equipment,
software, and furniture and fixtures. Borrowings under the Loan
Modification Agreement are collateralized by all of the
equipment, software and furniture and fixtures purchased with
the proceeds of the loan, which bears interest at prime rate
plus 35 basis points.

The agreement also contains a material adverse
change clause whereby the Company will be in default under the
loan agreement if any of the following conditions exist:
(i) there occurs a material adverse change in the business
operations or condition (financial or otherwise) of the Company,
(ii) there is a material impairment of the prospect of
repayment of any portion of the obligations outstanding under
the loan facility, or (iii) there is a material impairment
of the value or priority of the banks security interest in
the collateral.

The terms of the Loan Modification Agreement
include various covenants that provide, among other things,
(i) that we must maintain, on a monthly basis, a balance of
unrestricted cash, unrestricted short term cash equivalents and
unrestricted short term investments equal to 3.5 times the
commitment amount, (ii) that we do not incur a net loss of
more than $37.0 million, $36.5 million,
$32.0 million, $22.0 million for the quarters ending
June 30, 2002, September 30, 2002, December 31,
2002, March 31, 2003, respectively and $15.0 million
for the quarter ended June 30, 2003 and every quarter
thereafter and (iii) that we maintain no less than
$6.0 million in cash deposits with the bank. We are
currently in compliance with these covenants after receiving a
waiver in July 2002 for a breach of the profitability covenant.

On July 31, 2002, we entered into a new Loan
Modification Agreement with the bank. This agreement provides a
waiver of the profitability covenant for the quarter ended
June 30, 2002 to the extent that the default arose out of
non-cash charges for the write-off of goodwill, non-cash lease
expenses or other non-cash charges relating to the anticipated
termination of the synthetic lease with respect to our Bayside
facilities and our subsequent purchase of these facilities. We
are in compliance with the conditions of this waiver as
$200.9 million of non-cash charges related to the
impairment of goodwill and $1.3 million of non-cash charges
related to the synthetic lease residual value guarantee loss,
are not included in the loss calculation used to

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INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

measure compliance with this covenant. The loss
without these non-cash charges is $33.5 million for the
quarter ended June 30, 2002.

In August 2000, we entered into a synthetic lease
agreement for the land and facilities of our corporate
headquarters, known as Bayside, in Foster City, California.
Under the lease terms, we are required to pay lease payments for
five years to the lessor. The payments are calculated based on a
floating interest rate applied against a $114 million
principal value. The agreement was assigned to a third party
lessor under the terms of a lease finance structure. This
structure also required the creation and maintenance of a cash
collateral account that limits the liquidity of
$119.6 million of our cash, which is classified as
long-term on our balance sheet. During the term of the lease, we
have a purchase option to buy the building for $114 million
plus breakup fees or to extend the lease. If we elect not to
purchase the building or extend the lease term, we have
guaranteed to compensate the lessor for the difference between
the market value of the building and $114 million, limited
upwards to a maximum amount of $101 million (residual value
guarantee). The agreement qualifies for operating lease
accounting treatment and, as such, the buildings are not
included on our balance sheet.

Due to the declining commercial real estate
market in the Bay Area, we believe that it is probable at the
end of the lease term by August 2005 that the market value of
Bayside will be less than the $114 million guaranteed. We
will accrue for this loss on a straight-line basis from
April 1, 2002 to the end of the lease term. Accordingly we
have accrued $1.3 million in the quarter ended June 30,
2002 as the total estimated future probable loss amounted to
$18.8 million. This loss was based on the difference
between the residual value guarantee amount and the value of the
building determined through the use of estimated future sublease
income at the end of lease term provided by a commercial real
estate broker.

This agreement is subject to specific financial
covenants that are reported to the lessor quarterly and relate
to tangible net worth, fixed charge ratio, EBITDA, and minimum
net cash balances. In the event that we are in default of these
financial covenants, the lessor has the right to demand payment
of the $114 million principle value which is being held as
long-term restricted cash and transfer the ownership of the
building to us, which may trigger the recognition of a loss in
our financial statements. At June 30, 2002, we were in
violation of a financial covenant on our synthetic lease
arrangement related to the Bayside facility. The covenant
required a minimum level of profitability. We received a waiver
from the financial institution through August 30, 2002 and
are required under the waiver to exercise the purchase option
under the arrangement. Unless we can replace the financial
participants in the synthetic lease, we will exercise the
purchase option on or before August 30, 2002. We are
investigating other financial options for the Bayside facility,
as well.

Note 7.     Related
Party Transactions

In March 2000, we provided a relocation loan to
an officer of the Company totaling $1.5 million. The
officer left the Company in June 2001 and the loan was repaid in
full in March 2002.

In March 2002 we began separation and severance
discussions with an officer of the Company. As of March 31,
2002, we had accrued $3.1 million related to this severance
as a general and administrative expense. The severance agreement
totaling $3.1 million, which was executed by the parties in
April 2002, provides for a general release of the Company in
exchange for, among other things, the release of the
officers loan obligation of $1.7 million. Any
proceeds, up to $1.0 million, from the sale of Company
stock by the officer this calendar year will offset the final
amount owed to the officer.

In December 2001, we provided loans to our Chief
Executive Officer totaling $4.7 million of which
$2.7 million was repaid prior to December 31, 2001.
During the quarter ended March 31, 2002, we provided loans
to our Chief Executive Officer totaling $0.9 million of
which $0.1 was repaid prior to March 31, 2002. During the
quarter ended June 30, 2002, we provided loans to our Chief
Executive Officer totaling $2.1 million. As of
June 30, 2002, total loans outstanding and total accrued
interest to our Chief Executive Officer were approximately $4.9
and $0.1 million, respectively. These loans are represented
by full recourse

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INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

promissory notes accruing interest at the rate of
6% per annum. Each loan, plus any accrued unpaid interest, will
become due the earlier of either two years from the grant date
of the individual loan or the date that our Chief Executive
Officer leaves the Company. All after tax proceeds of
compensatory bonuses and 50% of after tax proceeds from sales of
Company stock must be used to pay down the loans outstanding.
The first loans will become due in December 2003. These loans
are included in loans to related parties. These loans were made
pursuant to a $5 million revolving line of credit approved
by our Board of Directors in December 2001.

During the quarter and nine month periods ended
June 30, 2002, we recognized revenues of approximately
$0.1 million and $4.5 million, respectively, on
contracts, development, and licensing arrangements with
customers in which we are equity shareholders. During the
quarter and nine month periods ended June 30, 2001, we
recognized net revenues of approximately $1.3 million and
$23.8 million, respectively, on contracts and licensing
arrangements with customers in which we are equity shareholders.
During the three months ended December 31, 2000, we also
recognized installment basis revenue from Adero on an agreement
consummated in December 1999. Prices and terms on these
contracts and arrangements were comparable to those given to
other similarly situated customers.

In January 2001, we provided a relocation loan to
an employee totaling $0.9 million. This note bears interest at
5.61% per annum. As a result of separation and severance
discussions with this employee, we had accrued the
$0.9 million related to this loan as an expense in the
quarter ended September 30, 2001. Final separation and
severance discussions with this employee resulted in a reversal
of $0.6 million of this accrual during the quarter ended
June 30, 2002.

Note
8.     Comprehensive Net Loss

Comprehensive loss includes foreign currency
translation gains and losses and unrealized gains and losses on
debt and equity securities that have been excluded from net loss
and reflected instead in stockholders equity. The
components of comprehensive loss are as follows (in thousands):

|                                                                                                                         |  |                      |          |                     |  |      |          |      |  |   |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------ |  | -------------------- | -------- | ------------------- |  | ---- | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                                                                         |  |                      |          |                    
|                                                                                                                         |  | For the Three Months |          | For the Nine Months
|                                                                                                                         |  | Ended June 30,       |          | Ended June 30,     
|                                                                                                                         |  |                      |          |                    
|                                                                                                                         |  | 2002                 |          | 2001                |  | 2002 |          | 2001
|                                                                                                                         |  |                      |          |                     |  |      |          |     
|Net loss                                                                                                                 |  | $                    | (235,675 | )                   |  | $    | (155,031 | )    |  | $ | (369,163 | ) |  | $ | (251,456 | )
|Unrealized gain (loss) on available-for-sale
    securities, net of reclassification adjustment included in net
    loss |  |                      | 561      |                     |  |      | 25,413   |      |  |   | 68       |   |  |   | (60,101  | )
|Foreign currency translation loss                                                                                        |  |                      | (91      | )                   |  |      | (470     | )    |  |   | (70      | ) |  |   | (836     | )
|                                                                                                                         |  |                      |          |                     |  |      |          |      |  |   |          |   |  |   |          |  
|Comprehensive net loss                                                                                                   |  | $                    | (235,205 | )                   |  | $    | (130,088 | )    |  | $ | (369,165 | ) |  | $ | (312,393 | )
|                                                                                                                         |  |                      |          |                     |  |      |          |      |  |   |          |   |  |   |          |  

Note 9.     Stock
Option Exchange Program

In February 2001, the Inktomi Board of Directors
approved a stock option exchange program. Under this program,
all employees (including executive officers and outside
directors) were given the opportunity to cancel one or more
stock options previously granted to them in exchange for one or
more new stock options to be granted at least six months and one
day from the date the old options are cancelled, provided the
individual is still employed or providing service on such date.
The participation deadline for the program was February 28,
2001. The number of shares subject to the new options were equal
to the number of shares subject to the old options, and the
exercise price of the new options was the fair market value of
Inktomi Common Stock on the date they were granted. The new
options have the same vesting schedule as the old options and
are immediately exercisable as to vested shares when granted
(however, new options granted to executive officers and outside
directors lost three months of vesting and were subject to a
trading blackout of three months following the grant). The
exchange resulted in the voluntary cancellation of options to
purchase

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INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

approximately 12.8 million shares of Common
Stock with exercise prices ranging from $12.25 to $211.00 per
share. Approximately 10.6 million replacement options were
granted on August 29, 2001, of which 7.5 million
shares are outstanding as of June 30, 2002, at an exercise
price of $4.21 per share of Common Stock. Under SFAS
Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, stock options
granted to participants of the option exchange program during
the six month period prior to implementation of the option
exchange program that were not cancelled as part of the program,
and during the six month period following implementation of the
option exchange program, are subject to variable plan accounting
beginning in the fiscal quarter when the grant occurred.
Accordingly, the 10.6 million replacement options that were
granted outside the six month period following the
implementation of the option exchange program, were subject to
fixed plan accounting.

During the six months prior to implementation of
the program, Inktomi granted approximately 2.8 million
options, of which 1.5 million are outstanding as of
June 30, 2002, at an average price of $23.65 per
option, that are subject to variable plan accounting. Also
subject to variable plan accounting are 1.4 million
options, of which 1.1 million shares are outstanding as of
June 30, 2002, at an average price of $7.18 per
option, that were granted to participants of the program during
the six months following implementation of the program. These
options are subject to variable plan accounting. Under variable
plan accounting, we are required to record a non-cash
compensation charge for the options until the options are
exercised, forfeited or cancelled without replacement. The
compensation charge will be based on any excess of the closing
stock price at the end of the reporting period or date of
exercise, forfeiture or cancellation without replacement, if
earlier, over the fair market value of our Common Stock on the
options issuance date. The resulting compensation charge
to earnings will be recorded as the underlying options vest.
Depending upon movements in the market value of our Common
Stock, this accounting treatment may result in significant
compensation charges in future periods. As of June 30,
2002, we have recorded no compensation charges related to this
program.



|         |                                 
|-------- | --------------------------------
|Note 10. | Recent Accounting Pronouncements

In November 2001, the Financial Accounting
Standards Board (FASB) Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue 01-09,
Accounting for Consideration Given by a Vendor to a Customer
or a Reseller of the Vendors Products,which is a
codification of EITF 00-14, 00-22 and 00-25. This
issue presumes that consideration from a vendor to a customer or
reseller of the vendors products to be a reduction of the
selling prices of the vendors products and, therefore,
should be characterized as a reduction of revenue when
recognized in the vendors income statement and could lead
to negative revenue under certain circumstances. Revenue
reduction is required unless consideration relates to a separate
identifiable benefit and the benefits fair value can be
established. We implemented EITF 01-09 during the nine
month period ended June 30, 2002. As a result of this
implementation, Web search revenues and cost of revenues were
reclassified for the quarters ended December 31, 2001 and
March 31, 2002 in the amounts of $1.0 million and
$1.3 million, respectively, which are included in the
results of operations for the nine month period ended
June 30, 2002.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible
Assets, which is effective for fiscal years beginning after
December 15, 2001. SFAS 142 requires, among other
things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the testing for
impairment of existing goodwill and other intangibles. We intend
to adopt SFAS 142 on October 1, 2002, the beginning of
our fiscal 2003. We are currently assessing, but have not yet
determined, the impact of SFAS 142 on our financial
position and results of operations.

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INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In October 2001, the FASB issued SFAS 144,
Accounting for the Impairment or Disposal of Long-lived
Assets. The objectives of SFAS 144 are to address
significant issues relating to the implementation of
SFAS 121, Accounting for the Impairment of Long-lived
Assets to be Disposed of, and to develop a single accounting
model, based on the framework established by SFAS 121, for
long-lived assets to be disposed of by sale, whether previously
held and used or newly acquired. Although SFAS 144
supercedes SFAS 121, it retains some fundamental provisions
of SFAS 121. SFAS 144 is effective for financial
statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal
years. We are currently assessing, but have not yet determined,
the impact of SFAS 144 on our financial position and
results of operations.

In June 2002, the FASB issued SFAS 146,
Accounting for Exit or Disposal Activities. SFAS 146
addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with
exit and disposal activities, including restructuring activities
that are currently accounted for under EITF No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The scope of
SFAS 146 also includes costs related to terminating a
contract that is not a capital lease and termination benefits
that employees who are involuntarily terminated receive under
the terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS 146 will be effective
for exit or disposal activities that are initiated after
December 31, 2002 and early application is encouraged. We
plan to adopt SFAS 146 during the second quarter ending
March 31, 2003. The provisions of EITF No. 94-3 shall
continue to apply for an exit activity initiated under an exit
plan that met the criteria of EITF No. 94-3 prior to the
adoption of SFAS 146. The effect on adoption of
SFAS 146 will change on a prospective basis the timing of
when restructuring charges are recorded from a commitment date
approach to when the liability is incurred.

The lessors associated with lease agreements
relating to our Bayside facilities (see Note 6) are
structured using special purpose entities or equivalent
structures. Presently, we account for these leases as operating
leases, while the special purpose entities or equivalent
structures own and account for the leased assets and related
liabilities in their records. The FASB has indicated that it
will issue proposed new rules on accounting for Entities
That Lack Sufficient Independent Economic Substance,
including special purpose entities, in the form of an
interpretation to SFAS No. 94, Consolidation of All
Majority-Owned Subsidiaries, and Accounting Research Bulletin
No. 51, Consolidated Financial Statements.

Based on public comments from the FASB to date,
the proposed interpretation will provide guidance for
determining when an entity (such as us), the Primary
Beneficiary, should consolidate another entity, a special
purpose entity or equivalent structure (such as the lessor),
that functions to support the activities of the Primary
Beneficiary. The expected proposed interpretation may result in
us having to consolidate the operating results of the special
purpose entities and equivalent structures, which are the
lessors under the aforementioned operating lease agreements
(i.e. record the building and related obligation on our
consolidated balance sheet). The effective date of these
proposed new rules on our current operating leases could be as
early as the beginning of our quarter ending June 30, 2003,
and sooner on any new leases entered into after the new
rules effective date which utilize special purpose
entities or equivalent structures.



|         |                    
|-------- | -------------------
|Note 11. | Segment Information

Effective September 30, 1999, we adopted
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131
established standards for reporting information about operating
segments in annual financial statements and requires selected
information about operating segments in interim financial
reports issued to stockholders. It also established standards
for related disclosures about products and services, and
geographic areas. Operating segments are defined as components
of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. Our chief

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INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

operating decision-maker is our Chief Executive
Officer. Our reportable segments are organized primarily by
technology. Each of these segments is managed separately because
they offer and distribute distinct technologies and services
with different methods of delivery and customer bases.

We have two reportable operating segments:
Software Products and Portal Services. Software Products
revenues are composed of license, consulting, support and
upgrade fees in connection with the Traffic Server network cache
platform, Content Delivery Suite software solutions, Media
Products, enterprise search products, Personal Edge, Traffic
Core, Traffic Edge, Traffic Controller and Inktomi Media
Publisher. Portal Services revenues are composed of revenues
generated through our Web search services and Commerce Engine.
We completed the sale of our Commerce Division in March 2001 and
therefore, Portal Services revenues for the nine months ended
June 30, 2002 consisted of only Web search services
revenues.

We evaluate performance and allocate resources to
our operating segments based on a variety of factors, including
revenues, operating profit, market potential, customer
commitments and strategic direction.

Acquisition-related costs, purchased in-process
research and development, amortization of intangibles and other
assets, impairment of intangibles and other assets, impairment
of fixed assets, restructuring, losses on residual value
guarantee on operating leases and amortization of deferred
compensation expense are not included in managements
evaluation of performance by the operating divisions, as they
are primarily organizational in nature. The accounting policies
of the reportable segments are the same as those described in
the summary of significant accounting policies in our annual
report on Form 10-K for the year ended September 30,
2001, as filed on December 31, 2001. We do not track assets
by operating segments.

Financial information about segments (in
thousands):

|                        |  |                                          |         |                |  |           |        |               |  |              |          |           |  |       |        |   |  |   |        |   |  |   |        |   |  |   |          |  
|----------------------- |  | ---------------------------------------- | ------- | -------------- |  | --------- | ------ | ------------- |  | ------------ | -------- | --------- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | -------- | -
|                        |  |                                         
|                        |  | For the Three Months Ended June 30, 2002
|                        |  |                                         
|                        |  |                                          |         | Accrual for    |  |          
|                        |  |                                          |         | Amort. &       |  |           |        | Residual      |  |             
|                        |  |                                          |         | Impairment     |  |           |        | Value         |  |             
|                        |  |                                          |         | of Intangibles |  |           |        | Amortization  |  | Guarantee on |          |          
|                        |  | Software                                 |         | Portal         |  | and Other |        |               |  | of Deferred  |          | Operating |  |      
|                        |  | Products                                 |         | Services       |  | Assets    |        | Restructuring |  | Compensation |          | Lease     |  | Total
|                        |  |                                          |         |                |  |           |        |               |  |              |          |           |  |      
|                        |  |                                         
|                        |  | (Unaudited)                             
|Revenues                |  | $                                        | 10,682  |                |  | $         | 13,139 |               |  | $            |         |           |  | $     |       |   |  | $ |       |   |  | $ |       |   |  | $ | 23,821   |  
|Operating income (loss) |  | $                                        | (19,496 | )              |  | $         | 5,297  |               |  | $            | (217,574 | )         |  | $     | (2,220 | ) |  | $ | (1,125 | ) |  | $ | (1,340 | ) |  | $ | (236,458 | )

|               |  |                                          |         |                |  |             |        |           |  |               |         |              |  |       |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|-------------- |  | ---------------------------------------- | ------- | -------------- |  | ----------- | ------ | --------- |  | ------------- | ------- | ------------ |  | ----- | ------- | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|               |  |                                         
|               |  | For the Three Months Ended June 30, 2001
|               |  |                                         
|               |  |                                          |         | Impairment     |  |            
|               |  |                                          |         | Amortization   |  | of          |        |          
|               |  |                                          |         | of Intangibles |  | Intangibles |        |           |  | Amortization  |         |             
|               |  | Software                                 |         | Portal         |  | and Other   |        | and Other |  |               |         | of Deferred  |  |      
|               |  | Products                                 |         | Services       |  | Assets      |        | Assets    |  | Restructuring |         | Compensation |  | Total
|               |  |                                          |         |                |  |             |        |           |  |               |         |              |  |      
|               |  |                                         
|               |  | (Unaudited)                             
|Revenues       |  | $                                        | 28,186  |                |  | $           | 11,374 |           |  | $             |        |              |  | $     |        |   |  | $ |       |   |  | $ |       |   |  | $ | 39,560  |  
|Operating loss |  | $                                        | (21,613 | )              |  | $           | (1,711 | )         |  | $             | (18,353 | )            |  | $     | (42,315 | ) |  | $ | (5,249 | ) |  | $ | (1,855 | ) |  | $ | (91,096 | )

|                        |  |                                         |         |                |  |           |        |               |  |              |          |           |  |       |         |   |  |   |        |   |  |   |        |   |  |   |          |  
|----------------------- |  | --------------------------------------- | ------- | -------------- |  | --------- | ------ | ------------- |  | ------------ | -------- | --------- |  | ----- | ------- | - |  | - | ------ | - |  | - | ------ | - |  | - | -------- | -
|                        |  |                                        
|                        |  | For the Nine Months Ended June 30, 2002
|                        |  |                                        
|                        |  |                                         |         | Accrual for    |  |          
|                        |  |                                         |         | Amort. &       |  |           |        | Residual      |  |             
|                        |  |                                         |         | Impairment     |  |           |        | Value         |  |             
|                        |  |                                         |         | of Intangibles |  |           |        | Amortization  |  | Guarantee on |          |          
|                        |  | Software                                |         | Portal         |  | and Other |        |               |  | of Deferred  |          | Operating |  |      
|                        |  | Products                                |         | Services       |  | Assets    |        | Restructuring |  | Compensation |          | Lease     |  | Total
|                        |  |                                         |         |                |  |           |        |               |  |              |          |           |  |      
|                        |  |                                        
|                        |  | (Unaudited)                            
|Revenues                |  | $                                       | 56,694  |                |  | $         | 35,562 |               |  | $            |         |           |  | $     |        |   |  | $ |       |   |  | $ |       |   |  | $ | 92,256   |  
|Operating income (loss) |  | $                                       | (46,909 | )              |  | $         | 11,862 |               |  | $            | (252,742 | )         |  | $     | (80,840 | ) |  | $ | (4,646 | ) |  | $ | (1,340 | ) |  | $ | (374,615 | )

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##### Table of Contents



INKTOMI CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|               |  |                                         |         |             |  |            |         |              |  |              |         |              |  |               |      |       |  |   |         |   |  |   |        |   |  |   |        |   |  |   |          |  
|-------------- |  | --------------------------------------- | ------- | ----------- |  | ---------- | ------- | ------------ |  | ------------ | ------- | ------------ |  | ------------- | ---- | ----- |  | - | ------- | - |  | - | ------ | - |  | - | ------ | - |  | - | -------- | -
|               |  |                                        
|               |  | For the Nine Months Ended June 30, 2001
|               |  |                                        
|               |  |                                         |         | Amort. &    |  |           
|               |  |                                         |         | Impairment  |  | Purchased  |         |             
|               |  |                                         |         | of          |  | In-Process |         |             
|               |  |                                         |         | Intangibles |  | Research   |         | Acquisition- |  | Amortization |         |             
|               |  | Software                                |         | Portal      |  | and Other  |         | and          |  | Related      |         | of Deferred  |  |              
|               |  | Products                                |         | Services    |  | Assets     |         | Development  |  | Charges      |         | Compensation |  | Restructuring |      | Total
|               |  |                                         |         |             |  |            |         |              |  |              |         |              |  |               |      |      
|               |  |                                        
|               |  | (Unaudited)                            
|Revenues       |  | $                                       | 113,213 |             |  | $          | 46,336  |              |  | $            |        |              |  | $             |     |       |  | $ |        |   |  | $ |       |   |  | $ |       |   |  | $ | 159,549  |  
|Operating loss |  | $                                       | (46,541 | )           |  | $          | (16,763 | )            |  | $            | (96,184 | )            |  | $             | (430 | )     |  | $ | (19,497 | ) |  | $ | (8,520 | ) |  | $ | (5,249 | ) |  | $ | (193,184 | )

At June 30, 2002, less than 10% of our
long-term assets were located outside the United States.

The following table sets forth revenue
information for geographic areas: (in thousands):

|               |  |                      |        |                     |  |      |        |      |  |   |        |  |  |   |         | 
|-------------- |  | -------------------- | ------ | ------------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------- | 
|               |  |                      |        |                    
|               |  | For the Three Months |        | For the Nine Months
|               |  | Ended June 30,       |        | Ended June 30,     
|               |  |                      |        |                    
|               |  | 2002                 |        | 2001                |  | 2002 |        | 2001
|               |  |                      |        |                     |  |      |        |     
|               |  |                      |        |                    
|               |  | (Unaudited)          |        | (Unaudited)        
|United States  |  | $                    | 20,231 |                     |  | $    | 32,295 |      |  | $ | 76,814 |  |  | $ | 109,982 | 
|International  |  |                      | 3,590  |                     |  |      | 7,265  |      |  |   | 15,442 |  |  |   | 49,567  | 
|               |  |                      |        |                     |  |      |        |      |  |   |        |  |  |   |         | 
|Total Revenues |  | $                    | 23,821 |                     |  | $    | 39,560 |      |  | $ | 92,256 |  |  | $ | 159,549 | 
|               |  |                      |        |                     |  |      |        |      |  |   |        |  |  |   |         | 



|         |                  
|-------- | -----------------
|Note 12. | Subsequent Events

In July 2002, we commenced a restructuring. Our
intention is to reduce our workforce by approximately
270 employees in order to reduce operating expenses. We
expect to incur a one-time charge of approximately $25 to
$35 million for severance, under utilized space, and asset
write-offs in the quarter ending September 30, 2002.

On August 13, 2002, we consummated the
acquisition of Quiver, Inc., a developer of information
categorization and taxonomy solutions. The total purchase price
is approximately $10.5 to $12.0 million, comprised of a
combination of approximately $5.0 million in stock and up
to approximately $7.0 million in cash which is subject to
adjustment for certain events. We will account for the
transaction under the purchase method of accounting.

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

This Report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of
1934, including, without limitation, statements regarding our
expectations, beliefs, intentions or future strategies that are
signified by the words expects,
anticipates, intends,
believes, may, will or
similar language. All forward-looking statements included in
this document are based on information available to us on the
date hereof, and we assume no obligation to update any such
forward-looking statements. Actual results could differ
materially from those projected in any such forward-looking
statements. In evaluating our business, prospective investors
should carefully consider the information set forth below under
the caption Factors Affecting Operating Results set
forth herein. We caution investors that our business and
financial performance are subject to substantial risks and
uncertainties.

Overview

Inktomi Corporation develops, markets, licenses
and supports a range of leading information retrieval solutions.
Our software products and services are utilized by leading
global customers to find the right information across multiple
applications, portals, systems and networks. We are a leading
OEM provider of search listings and marketing solutions for
consumer portals, Internet destinations and e-commerce sites.
Inktomi also licenses and supports a range of network
infrastructure software applications and services that enhance
the performance and intelligence of large-scale networks.

Licenses revenues are composed of license and
upgrade fees in connection with our software products, which
includes our content networking products and our enterprise
search products. Our content networking products include our
Traffic Server network cache platform, our Content Delivery
Suite software solutions, our Media Products, Traffic Core,
Traffic Edge, Traffic Controller, Inktomi Media Publisher, and
our Personal Edge product. License fees are generally based on
the number of CPUs or nodes running the software, or on network
traffic throughput across our products, depending on customer
deployment, and are generally recognized upon shipment of the
software assuming all other revenue recognition criteria have
been met. License fees for our enterprise search products are
typically based on the capacity of documents purchased that can
be indexed and searched by a customer.

Maintenance service revenues are generated
through maintenance fees related to our software products.
Maintenance service fees are recognized ratably over the term of
the maintenance agreement.

Other services revenues are composed of revenues
generated through consulting and, for some historical periods,
through fees generated from our Commerce Engine. Consulting fees
are recognized as the services are performed or upon customer
acceptance. We completed the sale of our Commerce Division in
March 2001 and therefore, other services revenues for the nine
months ended June 30, 2002 consisted only of consulting
revenues. Our contracts for the Commerce Engine provided for
payments consisting of annual infrastructure service fees, per
query search fees, transaction fees from participating online
merchants, per-query search fees, advertising fees, and general
service fees.

Web search services revenues consisting of
revenues from our Web search and search marketing solutions
businesses are generated through a variety of contractual
arrangements, which include general service fees, per-query
search fees, various forms of click through fees and search
service hosting fees. Subscription fees and other fixed
periodical fees are recognized ratably over the contract period.
Per-query fees and click through fees are recognized based on
the activity in the period.

Over the last year, the business climate in
general and the service provider market in particular, have
experienced dramatic declines. This has adversely impacted our
ability to generate revenues and achieve positive earnings. In
July 2002, we commenced a number of initiatives to adjust to
this business environment including instituting a strategy of
focusing our business on the established Web services and
enterprise search software markets, reducing expenses through
strong cost cutting measures, consolidating operations and
undertaking work force reductions. Our work force reductions
were particularly significant in our content networking group,
which has historically generated revenues from the now
struggling service provider market.

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With the remaining personnel in our content
networking group, we expect to continue to support our installed
base of content networking customers and partners. We believe
that it will take several quarters before we will see positive
results from these initiatives. Whether we see such results will
be subject to a number of risks and uncertainties. See the
materials under the caption Factors Affecting Operating
Results set forth herein.


Critical Accounting Policies

The consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United States, which require management to make
estimates and assumptions. On an on-going basis, we evaluate our
estimates and assumptions, including those related to revenue
recognition, impairment of long-lived assets, allowance for
doubtful accounts and contingent liabilities related to lease
obligation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable
under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. We believe
that the following critical accounting policies may involve a
higher degree of judgment and complexity.

Revenue Recognition

Licenses revenues are composed of license and
upgrade fees in connection with our software products including
Traffic Server network cache platform, Content Delivery Suite
software solutions, Media Products, Traffic Core, Traffic Edge,
Traffic Controller, Inktomi Media Publisher, enterprise search
products and Personal Edge. License fees are generally based on
the number of CPUs or nodes running the software, or on network
traffic throughput across our products, depending on customer
deployment, and are generally recognized upon shipment of the
software assuming all other revenue recognition criteria have
been met. License fees for our enterprise search products are
typically based on the capacity of documents purchased that can
be indexed and searched by a customer.

We recognize revenues from software licenses when
the licensed product is delivered, collection is reasonably
assured, the fee for each element of the transaction is fixed or
determinable, persuasive evidence of an arrangement exists, and
vendor-specific objective evidence exists to allocate the total
fee to any undelivered elements of the arrangement.

Fees from licenses sold together with support and
upgrade rights, consulting and implementation services are
generally recognized upon delivery provided that the above
criteria have been met, payment of the license fees is not
dependent upon the performance of the services and the services
are not essential to the functionality of the licensed software.
Services are unbundled from these arrangements based on the
price sold separately, or in some instances for support and
upgrades, substantive renewal rates using the residual method.
Our support service agreements typically have a term of one
year. Any new or renewed service agreements are expected to also
have terms of one year.

Maintenance services revenues are generated
through the sale of support services in connection with initial
license sales and renewals of support services after the initial
service period. Support services generally have a term of
one-year and are recognized over the term of the support
agreement.

Other services revenues are composed of revenues
generated through consulting services and commerce revenues,
prior to the divestiture of our Commerce Division in March 2001.
Consulting fees are recognized as the services are performed or
upon customer acceptance.

In instances where the criteria for recognizing
license revenues separate from the consulting or implementation
revenues have not been met, both the licenses and consulting
fees, excluding the maintenance and support elements, are
recognized using contract accounting. When management can make
reliable estimates on the extent of consulting services required
for full functionality, the revenue for the licenses and
consulting fees is recognized on a percentage-of-completion
based on labor hours incurred compared to total estimated hours.
When management cannot make reliable estimates on the extent of
consulting services required for full functionality, the revenue
for the licenses and consulting is deferred until the consulting

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services are completed. We classify revenue from
these arrangements as licenses and services revenues,
respectively, based upon the vendor-specific objective evidence
of each element.


Web search services revenues are generated
through a variety of contractual arrangements, which include
general service fees, per-query search fees, database inclusion
fees, maintenance fees and search service hosting fees.

General services fees and per-query search fees
are based, and recognized, on the query volume in the period or
the minimum payments of the respective contract. Database
inclusion fees are generated from customers who pay on a
click-through basis and customers who pay a flat rate per page
to be included in the Inktomi database. Fees based on
click-throughs are recognized based on the activity for that
period. Fees based on a flat rate per universal resource locator
(URL) are recognized ratably over the term of the contract.
Maintenance fees and search services hosting fees are recognized
ratably over the term of the contract.

For all Web search services, revenue is
recognized when persuasive evidence of an arrangement exists,
the services have been delivered, performance obligations have
been satisfied, no refund obligations exist and collection is
reasonably assured.

Impairment of Long-Lived Assets

We review our long-lived assets, including
property and equipment, goodwill and other intangibles, for
impairment whenever events or changes in circumstances indicate
that the carrying amount of such an asset may not be
recoverable. Events or changes in circumstances that we consider
as impairment indicators include, but are not limited to the
following:



| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | significant underperformance relative to expected
    historical or projected future operating results;                                                                                     
|
| |  | significant changes in the manner of use of the
    acquired assets or the strategy for our overall business;                                                                               
|
| |  | a significant decrease in the market price of a
    long-lived asset;                                                                                                                       
|
| |  | significant adverse economic and industry trends;                                                                                                                                           
|
| |  | a current expectation that, more likely than not,
    a long-lived asset will be sold or otherwise disposed of
    significantly before the end of its previously estimated useful
    life;
|
| |  | significant decline in our stock price for a
    sustained period; and                                                                                                                      
|
| |  | our net book value relative to our market
    capitalization.                                                                                                                               

When we determine that the carrying amount of the
long-lived asset may not be recoverable based upon the existence
of one or more of the above indicators of impairment, we measure
any impairment based on a projected discounted cash flow method
using a discount rate commensurate with the risk inherent in our
current business model. Significant judgment is required in the
development of projected cash flows for these purposes including
assumptions regarding the appropriate level of aggregation of
cash flows, their term and discount rate as well as the
underlying forecasts of expected future revenue and expense.

At June 30, 2002, due primarily to the
sustained decrease in our market value as well as other factors,
we recorded a charge of $200.9 million in addition to the
quarterly amortization of $16.7 million to reflect the
impairment of intangibles and other assets, primarily related to
our goodwill which was created from our purchase of Ultraseek,
Inc. See Note 4 to our June 30, 2002 financial
statements for further information.

Effective October 1, 2002, we will adopt
SFAS No. 142, Goodwill and Other Intangible
Assets, which requires, among other things, that goodwill
and other intangibles determined to have an indefinite life are
no longer to be amortized but are to be tested for impairment at
least annually. In addition, the standard includes provisions
upon adoption for assessing the impairment of goodwill at the
reporting unit level as compared to the enterprise level under
the current rules. We are currently assessing, but have not yet
determined, the impact of SFAS 142 on our financial position and
results of operations.

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In October 2001, the FASB issued SFAS 144,
Accounting for the Impairment or Disposal of Long-lived Assets.
The objectives of SFAS 144 are to address significant
issues relating to the implementation of SFAS 121,
Accounting for the Impairment of Long-lived Assets to be
Disposed of, and to develop a single accounting model, based on
the framework established by SFAS 121, for long-lived
assets to be disposed of by sale, whether previously held and
used or newly acquired. Although SFAS 144 supercedes
SFAS 121, it retains some fundamental provisions of
SFAS 121. SFAS 144 is effective for financial
statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal
years. We are currently assessing, but have not yet determined,
the impact of SFAS 144 on our financial position and
results of operations.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers
to make required payments. Management regularly reviews the
adequacy of the allowance after considering the size of the
accounts receivable balance, historical bad debts,
customers expected ability to pay and our collection
history with each customer. Management reviews significant
individual invoices that are past due to determine whether an
allowance should be made based on the factors described above.
The allowance for doubtful accounts represents our best
estimate, but changes in circumstances discussed above may
result in a change to the amount of the allowance.

Accounting for Leases

In August 2000, we entered into a synthetic lease
agreement for the land and facilities of our corporate
headquarters, known as Bayside, in Foster City, California.
Under the lease terms, we are required to pay lease payments for
five years to the lessor. The payments are calculated based on a
floating interest rate applied against a $114 million
principle value. The agreement was assigned to a third party
lessor under the terms of a lease finance structure. This
structure also required the creation and maintenance of a cash
collateral account that limits the liquidity of
$119.6 million of our cash, which is classified as
long-term on our balance sheet. During the term of the lease, we
have a purchase option to buy the building for $114 million
plus breakup fees or to extend the lease. If we elect not to
purchase the building or extend the lease term, we have
guaranteed to compensate the lessor for the difference between
the market value of the building and $114 million, limited
upwards to a maximum amount of $101 million (residual value
guarantee). The agreement qualifies for operating lease
accounting treatment, and as such the buildings are not included
on our balance sheet.

Due to the declining commercial real estate
market in the Bay Area, we believe that it is probable that, at
the end of the lease term on August 2005, the market value of
Bayside will be less than the residual value guarantee. We will
accrue for this loss on a straight-line basis from April 1,
2002 to the end of the lease term. Accordingly we have accrued
$1.3 million in the quarter ended June 30, 2002 as the
total estimated future probable loss amounted to
$18.7 million. This loss was based on the difference
between the residual value guarantee amount and the value of the
building determined through the use of estimated future sublease
income at the end of lease term provided by a commercial real
estate broker. We will continue to assess the value and accrue
additional amounts each quarter until the end of the lease term.

This agreement is subject to specific financial
covenants that are reported to the lessor quarterly and relate
to tangible net worth, fixed charge ratio, EBITDA, and minimum
net cash balances. In the event that we are in default of these
financial covenants, the lessor has the right to demand payment
of the $114 million principle value which is being held as
long-term restricted cash and transfer the ownership of the
building to us at fair market value, which may trigger the
recognition of a loss in our financial statements. At
June 30, 2002, we were in violation of a financial covenant
on our synthetic lease arrangement related to the Bayside
facility. The covenant required a minimum level of
profitability. We received a waiver from the financial
institution through August 30, 2002 and are required under
the waiver to exercise the purchase option under the
arrangement. Unless we can replace the financial participants in
the synthetic lease, we will exercise the purchase option on or
before August 30, 2002. We are investigating other
financial options for the Bayside facility, as well.

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In April 2000, we entered into a lease agreement
commencing January 1, 2002 for 381,050 square feet of
office space in two mid-rise office buildings in Foster City,
California, known as Parkside Towers. Payments under the lease
commenced on January 1, 2002, when the property was
delivered to Inktomi by the developer and continue over the
lease term ending October 31, 2014 for one building and
October 31, 2016 for the second building. As of
June 30, 2002, aggregate payments to be made under the
lease are approximately $315.7 million over the remaining
lease term.

In the quarter ending March 31, 2002, we
completed our assessment of our current and future anticipated
needs for operating facilities and adopted a plan to consolidate
our operating facilities. In accordance with this plan, we have
recorded a restructuring charge of $74.6 million during the
quarter ended March 31, 2002 related to the abandonment of
our lease for 381,050 square feet of office space in Parkside
Towers described above. Lease abandonment costs for this
facility were estimated to include the remaining lease
liabilities through the term of the lease, impairment of
leasehold improvements, estimated future leasehold improvements
and brokerage fees offset by estimated sublease income.
Estimates related to sublease costs and income are based on
assumptions regarding the period required to locate sub-lessees
and sublease rates which were derived from market trend
information provided by a commercial real estate broker. These
estimates will be reviewed on a periodic basis and to the extent
that these assumptions materially change due as to changes in
the market, the ultimate restructuring expense for the abandoned
facility could be adjusted. As of June 30, 2002,
approximately $50.9 million of the restructuring accrual
remained outstanding.

Results of Operations



| |         
| | --------
| | Revenues

Total revenues were $23.8 million and
$92.3 million in the quarter and nine month periods ended
June 30, 2002. This represents a decrease of
$15.7 million or 40% in the quarter ended June 30,
2002, and a decrease of $67.3 million or 42% in the nine
month period ended June 30, 2002, over the comparable
periods in fiscal 2001. The weakness in revenue for the quarter
was due largely to low levels of license sales in both our
content networking and enterprise search businesses.

For the quarter ended June 30, 2002, two
separate customers, America Online (AOL) and Microsoft, each
exceeded 10% of total revenues with AOL representing 16.4% of
total revenues and Microsoft representing 10.2% of total
revenues. During this quarter, AOL represented 12.5% of total
license revenues, 15.3% of total services revenue and 18.3% of
total Web search services revenue and Microsoft represented
18.3% of total Web search services revenue. AOL also represented
24.9% of our total revenues for the nine month period ended
June 30, 2002. For both the three month and nine month
period ended June 30, 2001 no customer represented more
than 10% of our revenues.

We market and sell our products to customers
located in the United States and abroad, both through our direct
sales force and through our channel partners. Historically, the
percentage of sales to customers located outside of the United
States has varied substantially. We expect this variation to
continue for the foreseeable future. We have generated most of
our revenues through direct sales efforts, except in Asia where
our revenues have been principally generated through our channel
partners.

Licenses revenues were $4.8 million and
$37.0 million in the quarter and nine month periods ended
June 30, 2002. This represents a decrease of
$15.3 million or 76% in the quarter ended June 30,
2002, and a decrease of $51.9 million or 58% in the nine
month period ended June 30, 2002, over the comparable
periods in fiscal 2001. The period to period decreases were
primarily due to lower demand for our content networking
products across all market segments. In July 2002, we announced
a restructuring where we intend to focus our efforts on the Web
search services and enterprise search software markets while
maintaining support for our content networking software
customers and partners. We expect our license revenues in future
periods to be increasingly comprised of enterprise search
software licenses as we emphasize that market.

Maintenance services revenues were
$4.5 million and $13.2 million in the quarter and nine
month periods ended June 30, 2002. This represents a
decrease of $0.3 million or 6% in the quarter ended
June 30, 2002, and a decrease of $2.6 million or 16%
in the nine month period ended June 30, 2002, over the
comparable periods

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in fiscal 2001. The quarterly period to period
decrease resulted from a decrease in our content networking
maintenance revenue of $1.0 million offset by growth in our
enterprise search maintenance revenues of $0.7 million. The
nine month period to period decrease resulted from a decrease in
our content networking maintenance revenue of $4.9 million
offset by growth in our enterprise search maintenance revenues
of $2.3 million. Our future emphasis on Web search markets
will reduce future maintenance revenues when current maintenance
agreements expire from our content network software business.


Other services revenues were $1.4 million
and $6.4 million in the quarter and nine month periods
ended June 30, 2002. This represents a decrease of
$1.9 million or 57% in the quarter ended June 30,
2002, and a decrease of $9.1 million or 59% in the nine
month period ended June 30, 2002, over the comparable
periods in fiscal 2001. The quarterly period to period decrease
resulted from the decline in our consulting revenues arising out
of less software license activity. The nine month period to
period decrease resulted from the decline in our consulting
revenues of $2.1 million arising out of less software
licenses and a decline in our Commerce Division revenues of
$7.0 million (which we sold in March 2001). We expect other
services revenues to be insignificant going forward.

Web search services revenues were
$13.1 million and $35.6 million in the quarter and
nine month periods ended June 30, 2002. This represents an
increase of $1.8 million or 16% in the quarter ended
June 30, 2002, and a decrease of $3.7 million or 9% in
the nine month period ended June 30, 2002, over the
comparable periods in fiscal 2001. The quarterly period to
period increase was the result of growth in our database
inclusion fee business of $5.2 million, or 598%, offset by
a decline in our general Web search business of
$3.5 million, or 33%. The nine-month period to period
decrease was the result of a decline in our general Web search
business of $15.8 million, or 42%, offset by growth in our
database inclusion fee business of $12.1 million, or 880%.
The decline in our general Web search business was primarily due
to weakness in the Internet portal market, particularly from
smaller or poorly funded companies who either ceased to operate
or reduced their expenditures. In the future, we expect revenues
from our search marketing solutions services to continue to
become a greater percentage of our total Web search services
revenues.

We have received notice from AOL, one of our
major portal customers, that it does not intend to renew its Web
search services agreement with us when it expires in August
2002. In the three month period ended June 30, 2002, AOL
represented 18.3% of our total Web search services revenues. In
the nine-month period ended June 30, 2002, AOL represented
20.2% of our Web search services revenues. We expect that
AOLs cancellation will decrease revenues in our Web search
services business beginning in the quarter ending
September 30, 2002.

During the quarter and nine month periods ended
June 30, 2002, we recognized revenues of approximately
$0.1 million and $4.5 million, respectively, on
contracts, development, and licensing arrangements with
customers in which we are equity shareholders. During the
quarter and nine month periods ended June 30, 2001, we
recognized net revenues of approximately $1.3 million and
$23.8 million, respectively, on contracts and licensing
arrangements with customers in which we are equity shareholders.
During the three months ended December 31, 2000, we also
recognized installment basis revenue from Adero on an agreement
consummated in December 1999. Prices and terms on these
contracts and arrangements were comparable to those given to
other similarly situated customers.



| |                 
| | ----------------
| | Cost of Revenues

Cost of revenues were $6.7 million and
$22.8 million in the quarter and nine month periods ended
June 30, 2002, a decrease of $4.9 million or 42% and
$17.0 million or 43% over the comparable periods in fiscal
2001.

Licenses cost of revenues generally consist of
royalties or license fees associated with licensed technologies
used in our software applications. License cost of revenues were
$0.9 million and $2.9 million in the quarter and nine
month periods ended June 30, 2002, a decrease of
$1.0 million or 52% and a decrease of $1.6 million or
36% over the comparable periods in fiscal 2001. The period to
period decrease in license cost of revenues as compared to the
same period in fiscal 2001 was due to decreased license sales in
fiscal 2002.

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Licenses cost of revenues do not necessarily
fluctuate proportionately with licenses revenue due to
guaranteed minimum royalty obligations we have with certain
licensed technologies.


Maintenance services cost of revenues consists of
expenses associated with our technical support department.
Maintenance services cost of revenues were $1.1 million and
$3.6 million in the quarter and nine month periods ended
June 30, 2002. This represents a decrease of
$0.4 million or 28% in the quarter ended June 30,
2002, and a decrease of $1.1 million or 23% in the nine
month period ended June 30, 2002, over the comparable
periods in fiscal 2001. The decrease was primarily due to
reduced headcount in our technical support department.

Other services cost of revenues generally
consists of expenses associated with our consulting services as
well as depreciation and network and hosting charges associated
with the operation of our former Commerce business. Other
services cost of revenues were $1.0 million and
$4.5 million in the quarter and nine month periods ended
June 30, 2002. This represents a decrease of
$0.6 million or 36% in the quarter ended June 30,
2002, and a decrease of $6.3 million or 58% in the nine
month period ended June 30, 2002, over the comparable
periods in fiscal 2001. The quarterly period to period decrease
resulted from reduced headcount in our consulting department.
The nine month period to period decrease resulted from reduced
headcount and related costs of $3.1 million and a decline
in our Commerce Division cost of revenues of $3.2 million
(which we sold in March 2001).

Web search cost of revenues generally consist of
expenses related to the operation of our Web search business,
primarily depreciation, and network and hosting charges. Web
search services cost of revenues were $3.6 million and
$11.3 million in the quarter and nine month periods ended
June 30, 2002, a decrease of $2.8 million or 43% and
$7.8 million or 41% over the comparable periods in fiscal
2001. The period to period decreases were primarily the result
of lower depreciation and hosting charges. We expect this to
increase in the near term as we convert much of our capacity
from Sun to Linux.



| |         
| | --------
| | Expenses

Operating expenses include sales and marketing
expenses, research and development expenses, general and
administrative expenses, impairment of intangibles and other
assets, amortization of intangibles and other assets,
restructuring costs, acquisition-related costs and purchased
in-process research and development. Research and development,
sales and marketing and general and administrative expenses
primarily consist of personnel and related costs.

In connection with stock option grants and our
business acquisitions, certain options granted have been
considered to be compensatory. Compensation associated with such
options was $1.1 million and $4.6 million for the
quarter and nine month periods ended June 30, 2002, a
decrease of $0.8 million or 42% and $3.9 million or
46% over the comparable periods in fiscal 2001. As of
June 30, 2002, we had unamortized deferred compensation of
$7.7 million, which will be charged to operations as the
underlying options vest.

Over the next several quarters, expenses are
expected to decrease due to our workforce reduction and our
narrower business focus.



| |                             
| | ----------------------------
| | Sales and Marketing Expenses

Sales and marketing expenses consist of personnel
and related costs for our direct sales force and marketing staff
as well as expenses related to our marketing programs, including
trade shows, demand creation activities, and advertising. Sales
and marketing expenses were $17.2 million and
$57.4 million in the quarter and nine month periods ended
June 30, 2002, a decrease of $12.6 million or 42% and
$54.9 million or 49% over the comparable periods of fiscal
2001. Of the $12.6 million quarterly decrease,
approximately 54% was due to reduced sales and marketing
headcount, 17% from reduced bad debt expense, 16% from lower
commissions on reduced sales, and 13% from miscellaneous other
savings. Of the $54.9 million nine-month decrease,
approximately 57% was due to reduced sales, 14% from reduced
marketing program spending, 11% from lower commissions on
reduced sales, 10% from miscellaneous other savings, and 8% from
reduced bad debt expense.

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The reduction in bad debt expense in fiscal 2002
was the result of improved collections, a change in the
remaining revenue mix and lower revenue.




| |                                      
| | -------------------------------------
| | Research and Development
    Expenses

Research and development expenses consist
primarily of personnel and related costs for our development
efforts. Our current research and development efforts are
focused on adding features and functionality across each of our
current applications, developing new applications, and adapting
our products to work with additional products and platforms. In
connection with our July 2002 restructuring, we have
significantly reduced our research and development efforts
related to our content network products. Research and
development expenses were $13.6 million and
$41.2 million in the quarter and nine month periods ended
June 30, 2002, a decrease of $4.1 million or 23% and
$20.4 million or 33% over the comparable periods of fiscal
2001. Both the quarterly and nine-month decrease was primarily
due to reduced research and development headcount.



| |                                        
| | ---------------------------------------
| | General and Administrative
    Expenses

General and administrative expenses consist
primarily of personnel and related costs for general corporate
functions, including accounting, facilities, finance, human
resources and legal. General and administrative expenses were
$3.0 million and $12.4 million in the quarter and nine
month periods ended June 30, 2002, a decrease of
$2.8 million or 48% and $6.1 million or 33% over the
comparable periods of fiscal 2001. The quarterly decrease was
primarily due to reduced general and administrative headcount.
Of the $6.1 million nine-month decrease, approximately 43%
was due to reduced bad debt expense, 29% from reduced general
and administrative headcount, 25% from reduced outside services,
and 3% from miscellaneous other savings. The reduction in bad
debt expense in fiscal 2002 was the result of a change in the
remaining revenue mix, lower revenue and improved collections.



| |                                                 
| | ------------------------------------------------
| | Amortization of Intangibles and Other
    Assets

Amortization of intangibles and other assets
primarily relates to amortization of goodwill acquired through
our purchase acquisitions of Ultraseek Corporation and eScene
Networks and through our asset purchase from Adero. Amortization
of intangibles and other assets totaled $16.7 million and
$50.1 million in the quarter and nine month periods ended
June 30, 2002, a decrease of $1.6 million or 9% and
$3.7 million or 7% over the comparable periods of fiscal
2001. The period to period decreases were primarily due to our
impairment of our Adero goodwill in the quarter ended
December 31, 2001, offset partially by our acquisition of
eScene in June 2001.



| |                                               
| | ----------------------------------------------
| | Impairment of Intangibles and Other
    Assets

During the three months ended December 31,
2001, we evaluated the remaining goodwill associated with our
asset purchase from Adero in December 2000 and recorded a
$1.8 million charge to write-off the remaining net book
value of this intangible asset as there will be no further
revenue streams related to this asset.

At June 30, 2002, we recorded a charge of
$200.9 million in addition to the quarterly amortization of
$16.7 million to reflect the impairment of intangibles and
other assets, primarily related to our goodwill which was
created from our purchase of Ultraseek, Inc. in July 2000. In
connection with this purchase, we integrated Ultraseeks
product offerings and operations into our entire organization
and, therefore, the associated goodwill from this purchase
transaction was accounted for as enterprise goodwill. In the
quarter ended June 30, 2002, we experienced a sustained
decline in our market capitalization to amounts well below our
net book value. In addition, other factors occurred in the
quarter ended June 30, 2002 that led us to assess whether
an enterprise goodwill impairment charge was appropriate. In
particular, America Online, one of our largest customers,
announced in April 2002, that it would not renew its Web search
contract with Inktomi upon expiration in August 2002. In
addition, we were experiencing continued negative cash flows
during the third quarter ended June 30, 2002. We believe
that both of these factors affected our overall enterprise value
leading

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to further decreases in market capitalization.
Because of these factors, we recorded an enterprise goodwill
impairment charge in the quarter related to the goodwill created
from our purchase of Ultraseek.




| |                    
| | -------------------
| | Restructuring Costs



| |                                            
| | -------------------------------------------
| | Fiscal 2002 First Quarter
    Restructuring

During the quarter ended December 31, 2001,
in light of a continuing economic slowdown, we announced and
substantially completed a restructuring and a workforce
reduction of approximately 115 employees to reduce our
operating expenses to adjust to lower revenue levels. Headcount
in all functional areas was affected by the reduction.

As a result of this workforce reduction, we
incurred a charge of $4.0 million. The restructuring charge
included $2.7 million of cash related charges for severance
and underutilized space. Of the $2.6 million of
restructuring charges that have been paid through June 30,
2002, $0.2 million was paid during the fiscal third quarter
of fiscal 2002. The remaining accrual of approximately
$0.1 million for committed excess facilities is expected to
be paid during the fiscal fourth quarter.

The $1.3 million non-cash write down
represents computer equipment consisting of $0.5 million of
abandoned assets in the London office that was downsized in this
restructuring and $0.8 million of abandoned assets related to
Content Bridge services that ceased being a revenue opportunity
in the quarter.

As a result of the restructuring we expected to
reduce compensation related expenses of approximately
$3.3 million per quarter. We also expected to reduce
facility related operating expenses through the end of the
related lease term and depreciation, through the end of the
related useful lives, in the respective amounts of
$0.2 million and $0.1 million per quarter. We realized
the expected benefits from this restructuring effort.



| |                                             
| | --------------------------------------------
| | Fiscal 2002 Second Quarter
    Restructuring

In the quarter ending March 31, 2002, we
completed our assessment of our current and future anticipated
needs for operating facilities and adopted a plan to consolidate
our operating facilities. In accordance with this plan, we have
recorded a restructuring charge of $74.6 million during the
quarter ended March 31, 2002 related to the abandonment of our
lease for 381,050 square feet of office space in Parkside Towers
described above. Lease abandonment costs for this facility were
estimated to include the remaining lease liabilities through the
term of the lease, impairment of leasehold improvements,
estimated future leasehold improvements and brokerage fees
offset by estimated sublease income. Estimates related to
sublease costs and income are based on assumptions regarding the
period required to locate sub-lessees and sublease rates which
were derived from market trend information provided by a
commercial real estate broker. These estimates will be reviewed
on a periodic basis and to the extent that these assumptions
materially change due to changes in the market, the ultimate
restructuring expense for the abandoned facility could be
adjusted. Of the $11.4 million of cash-related
restructuring charges that have been paid through June 30,
2002, $7.1 million was paid during the fiscal third
quarter. As of June 30, 2002, approximately
$50.9 million of the restructuring accrual remained
outstanding. As a result of the restructuring, we expected to
reduce our expenses by $5.2 million per quarter including
lease payments and the amortization of leasehold improvements
through the end of the remaining lease term. We realized the
expected benefits of these restructuring efforts.



| |                                            
| | -------------------------------------------
| | Fiscal 2002 Third Quarter
    Restructuring

In the quarter ended June 30, 2002, in light
of a continuing economic slowdown, we announced and
substantially completed a restructuring and a workforce
reduction of approximately 50 employees to reduce our operating
expenses to adjust to lower revenue levels. Headcount in all
functional areas were affected by the reduction.

As a result of this workforce reduction, we
incurred a charge of $2.2 million comprised of cash-related
severance and underutilized space. As of June 30, 2002,
$1.0 million of cash-related restructuring charges have
been paid, with the remaining $1.2 million accrual to be
paid over the next six to nine months. As a result of the
restructuring, we expected to reduce compensation related
expenses by approximately $1.6 million per

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quarter. We also expected to reduce facility
related operating expenses in the amount of $0.3 million
per quarter through the end of the remaining lease term.


See Note 3 to the condensed financial
statements included in this quarterly report for further
information.



| |                          
| | -------------------------
| | Acquisition-Related Costs

As a result of our Fast Forward Networks
acquisition in October 2000, we recorded acquisition-related
costs of $19.5 million in the three months ended
December 31, 2000, primarily for investment banking fees,
accounting, legal and other expenses. As of June 30, 2002,
no accrued liabilities relating to FastForward
acquisition-related costs remained outstanding.



| |                                                  
| | -------------------------------------------------
| | Purchased In-Process Research and
    Development

A portion of the purchase price we paid for
various assets of Adero have been allocated to developed
technology and in-process research and development
(IPRD). We identified and valued the developed
technology and IPRD by conducting extensive interviews,
analyzing data provided by the acquired companies concerning
developmental products, considering the stage of development of
such products and the time and resources needed to complete
them, and assessing the expected income generating ability of
the products, target markets and associated risks. The income
approach, which includes an analysis of the markets, cash flows,
and risks associated with achieving such cash flows, was the
primary technique utilized in valuing the developed technology
and IPRD. Based on our analysis of these variables, we recorded
a one-time purchased IPRD charge of $0.4 million in the
three months ended December 31, 2000 for the assets of
Adero because technological feasibility had not been established
and no future alternative uses existed.



| |                          
| | -------------------------
| | Impairment of Investments

In late 1999 and early 2000, we made numerous
equity investments in both public and private companies for
strategic purposes. Our approach was to invest in companies that
were working to expand the markets that we believed to be
strategically beneficial to us. Market conditions for technology
companies began to deteriorate in late 2000 and this
deterioration continued during the first half of 2001. During
our quarter ended June 30, 2001 we determined that there
was an other-than-temporary decline, or impairment, in value of
most of our strategic investments in the amount of
$65.9 million. The $65.9 million impairment charge
consists of $39.7 million related to 4 public company
investments and $26.2 million related to 9 private
company investments. We considered the prolonged decline in
overall technology market conditions as well as factors such as
liquidity and market acceptance on a company specific basis.



| |                  
| | -----------------
| | Other Income, Net

Other income, net generally includes interest on
our cash and cash equivalents, short-term investments and
long-term restricted cash, interest expenses related to our
debt, capital lease obligations and realized gains or losses on
disposal of assets. Other income, net totaled $0.9 million
and $6.0 million in the quarter and nine month periods
ended June 30, 2002, a decrease of $1.2 million or 57%
and $2.4 million or 29% over the comparable periods of
fiscal 2001. The nine-month period to period decrease was
primarily the result of a decrease in interest income of
$9.4 million in fiscal 2002, offset by realized losses on
investments of $2.9 million in fiscal 2001, a
$2.8 million gain relating principally to the settlement of
accruals from previous one-time charges, a $0.8 million
reversal of an accrual related to our former Commerce division,
and a decrease of interest expense of $0.4 million in
fiscal 2002. The decrease in interest income was the result of
decreased cash balances.



| |                     
| | --------------------
| | Income Tax Provision

Our income taxes totaled $0.1 million and
$0.5 million in the quarter and nine month periods ended
June 30, 2002, the same as and a decrease of
$0.3 million and 32% over the comparable periods in fiscal
2001. Our income taxes primarily are a result of our
international operations. Our effective income tax rate may

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change during the remainder of fiscal 2002 if
operating results differ significantly from current projections.
We expect income taxes to remain minimal until we begin to
generate taxable income.


Liquidity and Capital Resources

Cash and cash equivalents and short-term
investments totaled $90.0 million at June 30, 2002, an
increase of $5.5 million or 7% from $84.5 million at
September 30, 2001. At June 30, 2002 and
September 30, 2001, our long-term restricted cash was
$129.0 million.

In November 2001, we completed a public offering
of our Common Stock in which we sold approximately
13.2 million shares raising net proceeds after issuance
costs and underwriters discounts of $52.8 million.

For the nine months ended June 30, 2002, net
cash used in operations of $51.1 million was primarily
attributable to our net loss for the period and a net change in
assets and liabilities offset partially by restructuring costs,
depreciation and amortization, impairment of intangibles and
other assets, stock based compensation, and impairment of
property and equipment. For the nine months ended June 30,
2001, net cash used in operations of $53.1 million was
primarily attributable to our net loss for that period offset
partially by a net change in assets and liabilities,
amortization of intangibles and other assets, impairment of
intangibles and other assets, depreciation and amortization, and
stock based compensation.

For the nine months ended June 30, 2002, net
cash used in investing activities of $21.5 million was
primarily attributable to net purchases of short-term
investments, purchases of property and equipment and loans to
related parties. For the nine months ended June 30, 2001,
net cash provided by investing activities of $20.1 million
was attributable to net proceeds from the sales of short term
investments offset partially by purchases of property and
equipment, and a business acquisition.

For the nine months ended June 30, 2002, net
cash provided by financing activities of $69.5 million was
primarily attributable to proceeds raised relating to our public
offering, exercises of stock options and warrants and net
proceeds from our notes payable. For the nine months ended
June 30, 2001, net cash provided by financing activities of
$3.7 million was primarily attributable to exercises of
stock options and warrants offset by net payments on our notes
payable and capital leases.

From time to time, we have used debt and leases
to partially finance capital purchases. At June 30, 2002,
we had $17.3 million in total loans and capitalized lease
obligations outstanding. Our underlying assets collateralize the
loans, and the underlying equipment obtained through the lease
agreements collateralizes each capitalized lease. Approximately
$15.4 million of our debt at June 30, 2002 was in the
form of bank loans. The loans are subject to specific financial
covenants that are reported to the bank quarterly. The covenants
(i) require minimum unrestricted cash, cash equivalents and
short term investments of 3.5 times the commitment amount,
(ii) provide that we cannot incur GAAP loss of more than
$37.0 million, $36.5 million, $32.0 million,
$22.0 million for the quarters ended June 30, 2002,
September 30, 2002, December 31, 2002, March 31,
2003, respectively and $15.0 million for the quarter ended
June 30, 2003 and every quarter thereafter, and
(iii) require that we maintain no less than
$6.0 million in cash deposits with the bank. We are
currently in compliance with these covenants after receiving a
waiver in July 2002 for a breach of profitability covenant.

Any one or more of the following events would
constitute a default under the bank facility: payment default,
covenant default, the occurrence of a material adverse change,
default under certain other agreements, subordinated debt and
judgments, misrepresentations regarding information we have
disclosed to the bank, and insolvency. Upon the occurrence of a
default the bank may declare all obligations due and payable
immediately, cease to advance money or credit to the company in
the future, demand a deposit cash in the amount equal to the
amount of any Letters of Credit remaining undrawn including all
fees due over the term of the Letters of Credit, settle or
adjust disputes and claims directly with account debtors for
amounts that the bank considers advisable, make such payments as
necessary to protect its security interest in the collateral,
apply company balances held by the bank to the obligations, and
sell the collateral. The Company is currently in compliance with
these covenants after receiving a waiver in July 2002 for a
breach of a profitability

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covenant. The Company is currently negotiating to
restructure its loan covenants as it is probable that it will be
in violation of the existing covenants for the quarter ended
September 30, 2002. Accordingly, we have classified all
amounts due as current under this facility at June 30,
2002. If we are required to repay the amounts borrowed under
these loan arrangements, it would reduce the amount of cash we
have available for our operations.


In April 2000, we entered into a lease agreement
commencing January 1, 2002 for 381,050 square feet of
office space in two mid-rise office buildings known as Parkside
Towers in Foster City, California. Payments under the lease
commenced on January 1, 2002, when the property was
delivered to Inktomi by the developer and continue over the
lease term ending October 31, 2014 for one building and
October 31, 2016 for the second building. Aggregate
payments to be made under the lease are approximately
$315.7 million over the remaining lease term.

In the quarter ending March 31, 2002, we
completed our assessment of our current and future anticipated
needs for operating facilities and adopted a plan to consolidate
our operating facilities. In accordance with this plan, we have
recorded a restructuring charge of $74.6 million during the
quarter ended March 31, 2002 related to the abandonment of
our lease for 381,050 square feet of office space in Parkside
Towers described above. Lease abandonment costs for this
facility were estimated to include the remaining lease
liabilities through the term of the lease, impairment of
leasehold improvements, estimated future leasehold improvements
and brokerage fees offset by estimated sublease income.
Estimates related to sublease costs and income are based on
assumptions regarding the period required to locate sub-lessees
and sublease rates which were derived from market trend
information provided by a commercial real estate broker. These
estimates will be reviewed on a periodic basis and to the extent
that these assumptions materially change due as to changes in
the market, the ultimate restructuring expense for the abandoned
facility could be adjusted. As of June 30, 2002,
approximately $50.9 million of the restructuring accrual
remained outstanding.

In August 2000, we entered into a synthetic lease
agreement for the land and facilities of our corporate
headquarters, known as Bayside, in Foster City, California.
Under the lease terms, we are required to pay lease payments for
five years to the lessor. The payments are calculated based on a
floating interest rate applied against a $114 million
principal value. The agreement was assigned to a third party
lessor under the terms of a synthetic lease finance structure.
This structure also required the creation and maintenance of a
cash collateral account that limits the liquidity of
$119.6 million of our cash, which is classified as
long-term on the Companys balance sheet. During the term
of the lease, we have a purchase option to buy the building for
$114 million or to extend the lease. If we elect not to
purchase the building or extend the lease term, we have
guaranteed to compensate the lessor for the difference between
the market value of the building and $114 million, limited
upwards to a maximum amount of $101 million (residual value
guarantee). The agreement qualifies for operating lease
accounting treatment, and as such the buildings are not included
on our balance sheet.

This agreement, as amended, is subject to
specific financial covenants that are reported to the lessor
quarterly. The covenants require (i) tangible net worth to
be not less than the lesser of $125 million, plus 50% of
the net proceeds from any equity offering after October 19,
2001, and $200 million, (ii) a minimum fixed charge
ratio of at least 1.50 to 1.00, (iii) EBITDA of not less
than a $3 million loss, and (iv) minimum net cash
balances of an amount no less than the lesser of
$30 million, plus 50% of the net cash proceeds from the
equity offering after October 19, 2001, and
$50 million. Net cash proceeds from an equity offering in
November 2001 were $52.8 million. In the event that we are
in default of these financial covenants, the lessor has the
right to demand payment of the $114 million principal value
that is being held as long-term restricted cash, and to transfer
the ownership of the building to us at fair market value, which
may trigger the recognition of a loss in our financial
statements. At June 30, 2002, we were in violation of the
covenant that required a minimum level of not less than a
$3 million loss EBITDA. Our actual EBITDA was a
$7.9 million loss for the quarter. We received a waiver
from the financial institution through August 30, 2002 and
were required under the waiver to exercise the purchase option
under the synthetic lease arrangement. We were in compliance
with other financial covenants in the agreement.

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In December 2001, we provided loans to our Chief
Executive Officer totaling $4.7 million of which
$2.7 million was repaid prior to December 31, 2001.
During the quarter ended March 31, 2002, we provided loans
to our Chief Executive Officer totaling $0.9 million of
which $0.1 was repaid prior to March 31, 2002. During the
quarter ended June 30, 2002, we provided loans to our Chief
Executive Officer totaling $2.1 million. As of
June 30, 2002, total loans outstanding and total accrued
interest to our Chief Executive Officer were approximately $4.9
and $0.1 million, respectively. These loans are represented
by full recourse promissory notes accruing interest at the rate
of 6% per annum. Each loan, plus any accrued unpaid interest,
will become due the earlier of either two years from the grant
date of the individual loan or the date that our Chief Executive
Officer leaves the Company. All after tax proceeds of
compensatory bonuses and 50% of after tax proceeds from sales of
Company stock must be used to pay down the loans outstanding.
The first loans will become due in December 2003. These loans
are included in intangibles and other assets, net. These loans
were made pursuant to a $5 million revolving line of credit
approved by our Board of Directors in December 2001.

A goal of the fiscal 2002 fourth quarter
restructuring was to significantly lower the cash expense rate
of the business. In the fiscal 2002 fourth quarter, we expect to
use a significant amount of cash for severance and related
costs. After the fiscal 2002 fourth quarter, we expect to
substantially reduce the cash required to operate our business.

Our capital and liquidity requirements depend on
numerous factors, including market acceptance of our products
and services, economic conditions impacting our revenue
generation, the resources we devote to developing, marketing,
selling and supporting our products and services, the resources
we commit to facilities, the timing and extent of our
investments, the value of our investments in equity securities
and real estate, acquisition and restructuring costs,
restructuring opportunities related to our real estate, and the
ability to raise capital and other factors. We believe that we
have adequate cash resources to fund operations for at least the
next twelve months.

Other Matters

In connection with the engagement of our
independent auditors, our audit committee has reviewed both the
audit and non-audit services provided pursuant to this
engagement to ensure that our auditors satisfy the independence
requirements mandated by generally accepted accounting
principles and the SEC. However, our audit committee has not had
the opportunity to formally approve the non-audit services
provided by our auditors, as required under new federal law that
was enacted July 30, 2002. We intend to seek the approval
of these services by our audit committee at its next meeting
which is scheduled to occur in December 2002.

Factors Affecting Operating Results

Interested persons should carefully consider the
risks described below in evaluating us. Additional risks and
uncertainties not presently known to us or that we currently
consider immaterial may also impair our business operations. If
any of the following risks actually occur, our business,
financial condition or results of operations could be materially
adversely affected. In that case, the trading price of our
common stock could decline.

The risks described below are intended to discuss
those risks and uncertainties known to us as of June 30,
2002 which could materially and adversely affect our business,
financial condition and operating results. For additional and
more current information regarding the risks and uncertainties
facing Inktomis business please refer to our most recent
public filings made with the SEC.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | If we do not increase our revenues, we will
    fail to achieve or sustain operating
    profitability.

We are not currently profitable, and our revenues
have declined in recent periods. To achieve and sustain
operating profitability on a quarterly and annual basis, we will
need to increase our revenues, particularly our enterprise
search software license revenue and search marketing solutions
revenue associated with our Web search services. We plan to
continue to invest in technology and marketing to develop and
improve our products and increase market share, but these
investments and expenditures may not result in increased
revenues. In the future, our revenues may continue to decline,
remain flat, or grow at a slow rate, particularly

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in light of the current market environment. In
the absence of substantial and sustained revenue growth, we
cannot predict when or if we will become profitable. If we fail
to achieve profitability or display significant progress towards
profitability, our stock price may fall due to a lower perceived
value, customers may defer or delay purchases based on our
financial condition, our relationships with our partners and
distributors may suffer, and we may breach financial covenants
in our financial arrangements.




| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Our quarterly operating results may
    fluctuate significantly, and these fluctuations may cause our
    stock price to fall.

A substantial portion of our revenues is
dependent on new licenses to a relatively small number of
customers, which is consistent with our historical performance
to date. The volume and timing of orders are difficult to
predict because the markets for our products are in their early
stages and the sales cycle varies substantially from customer to
customer. In addition, many customers in our target markets are
scrutinizing their capital spending budgets in light of the
current economic conditions, and other customers have limited
access to capital to fund operational needs. These companies are
shifting their buying patterns as a result, taking a more
cautious and measured approach to their upgrade and expansion
plans. The cancellation, deferral or reduction of even a small
number of licenses of any of our products would reduce our
expected revenues, which would adversely affect our quarterly
financial performance. To the extent significant sales occur
earlier than expected, operating results for later quarters may
not compare favorably with operating results from earlier
quarters.

Our operating expenses are largely based on
anticipated revenue trends and a high percentage of our expenses
are fixed in the short term. Despite our recent workforce
reductions, we expect to continue to make appropriate
investments to develop and market products for the information
retrieval markets, improve our customer support capabilities,
develop new distribution channels, and fund of research and
development. These investments and expenditures may not result
in increased revenues in the near term, if at all. A delay in
generating or recognizing revenue for the reasons discussed
herein or for any other reason could cause significant
variations in our operating results from quarter-to-quarter and
could result in substantial operating losses.

Due to these factors, 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 or investors, and the
price of our common stock may fall.



| |                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Recent restructuring efforts have resulted
    in our recognizing substantial charges. These restructuring
    efforts may not improve our operating results or financial
    condition and there exists uncertainty as to whether these
    actions will be successful.

In order to reduce our recurring losses, we have
taken a number of actions to reduce our expenses over the coming
quarters. In July 2002, we undertook a significant restructuring
where we consolidated operations, closed certain branch offices,
reduced headcount across all business units and reduced our
content networking products group. In the event this
restructuring was implemented too late or at insufficient
levels, our expenses will be too great over coming periods to
achieve profitability. In addition, there is a risk that these
cost-cutting actions will impair our ability to effectively
develop and market products and remain competitive in the
industries in which we compete. In the future, we may undertake
additional expense reducing actions that may involve one-time
expenditures related to severance, facilities or real estate.
The impact of these one-time expenses on our financial
statements may adversely impact our perceived value.



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Our future growth depends on the commercial
    success of our search software products.

Our ability to increase revenues depends, among
other things, upon the growth of sales of our enterprise search
software products. With our recent restructuring, an
increasingly greater percentage of our license revenues will
derive from our enterprise search software products. Such
revenues are derived from software license fees and fees derived
from support and upgrades of such software. A number of factors
could cause sales of our enterprise search products to slow or
decline. We face intense competition from companies with

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more experience in the marketplace and who offer
a broad set of integrated products and services to our target
customers. In addition, these companies have deeper strategic
relationships and have established well developed channels to
sell and distribute their products and services. We historically
have sold our enterprise search products primarily at the
departmental level within large enterprises, through a direct
sales force. To expand our market opportunities, we will need to
enhance our product and service offerings, effectively market
our products as enterprise wide search and navigation solutions,
develop channel and licensing programs to extend our reach, and
partner with companies offering complementary products to
collectively offer a broader set of integrated products. We may
not be successful with these efforts.




| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | If customers choose not to use or promote
    our Web search services, our revenue will decrease and our
    growth opportunities will suffer.

Revenues from our Web search services result
primarily from the number of end-user searches processed by our
Search Engine. Our agreements with customers do not require them
to direct end-users to our search services or to use our search
services exclusively or at all. Accordingly, revenues from
search services are highly dependent upon the willingness of
customers to promote and use the search services we provide, the
ability of our customers to attract end-users to their online
services, the volume of end-user searches that are processed by
our Web search services, and the ability of customers to
monetize traffic from their Web site search pages. Some of our
customers have selected competing search and directory services
to operate in combination with our services, which has reduced
the number of queries available for us to serve and may erode
future revenue growth opportunities. The technological barriers
for customers to implement additional services or to replace our
services are not substantial.



| |                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The declining market for Internet portals
    has limited the market opportunities for our Web search services
    business and has adversely affected demand for our services.
    Consequently, our Web search revenues are largely dependent upon
    a relatively small number of large portal
    customers.

Many of our smaller search services customers
have elected not to renew their contracts and our market
opportunity from portals has become more limited. Many smaller
and medium size portals are not profitable, suffer from
declining revenue growth and have limited access to capital to
fund operational needs, which has resulted in consolidation in
the portal industry. In addition, many portals are terminating
their operations. As a result, our Web search revenues have
become increasingly dependent on a relatively few number of
major customers. Economic conditions may lead such customers to
stop paying for Web search services, to only pay for such
services at highly reduced rates or to leave our services in
favor of competitors offering Web search services bundled with
other offerings. In order for us to increase revenues from our
Web search services business, we will need to attract new
customers, develop and deliver new search services, products and
features to existing and future customers, establish deeper
strategic relationships with our customers, and increase the
adoption of our Index Connect and Search Submit search marketing
solutions for content publishers.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | If significant portal customers stop
    utilizing our search services, our revenues could
    decline.

We expect that over time our search marketing
solutions for content publishers will comprise a greater
percentage of our total Web search services revenues. Our search
marketing solutions revenue is dependent upon the distribution
channel afforded us through the portal customers serving our
search queries. Should any significant portal customers reduce
or stop utilizing our search services or if such portals decline
to participate in our search marketing solutions offerings, our
search marketing solutions revenues would decline. In addition,
we have received notice from AOL, one of our largest portal
customers, that it does not intend to renew its Web search
services agreement with us when it expires in August 2002. For
the three month period ended June 30, 2002, America Online
represented $2.4 million in Web search services revenue
(18.3% of total Web search services revenue) and for the nine
month period ended June 30, 2002, America Online
represented $7.2 million in Web search services revenue
(20.2% of total Web search services revenue). We expect that
revenues from our Web search services will decrease as a result.

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| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The shift in our focus away from the
    content networking market to the web search services and
    enterprise search software markets could have a material adverse
    effect on our operating results.

Our shift in strategy away from content
networking will likely reduce the average size of our software
transactions and corresponding services revenue. In order to
maintain existing revenue levels or achieve any revenue growth,
we will need to significantly increase the average size and
number of our enterprise search software licenses. Since the
quarter ended December 2000, we have experienced a decline in
licenses revenue from sales of our content networking software
products. In July 2002, we announced a shift in our strategy to
reduce our investment in our content networking products group
and focus our business on the Web search services and enterprise
search software markets. Our content networking software
products typically had a larger per-transaction size and a
larger services component than our enterprise search software
products. We may not be able to increase our Web search and
enterprise software revenues in amounts sufficient to offset
lost revenues from our content networking business. In addition,
our sales force has historically focused on selling our content
networking software products. If our sales force is unable to
quickly adapt to our new focus on enterprise search software
products, our business and operating results will be harmed.
Although we intend to continue to support customers who
purchased our content networking software products and partners
marketing such products, such customers and partners may view
our strategic shift as a breach of certain obligations we have
to them. If these customers and partners were to bring or
threaten legal action against us, defending these actions could
be costly to defend, time-consuming and distracting to our
management team.



| |                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We operate in a highly competitive and
    rapidly changing market, and our inability to compete
    successfully against new entrants and established companies
    could result in a loss of market share, fewer customer orders,
    price reductions, reduced gross margins and otherwise adversely
    harm our financial results.

We compete in markets that are new, intensely
competitive, highly fragmented and rapidly changing. We have
experienced and expect to continue to experience increased
competition from current and potential competitors in each of
our market segments, many of which are bringing new solutions to
market, establishing technology alliances and OEM relationships
with larger companies, and focusing on specific segments of our
target markets. In some cases, our competitors are implementing
aggressive pricing and other strategies that are focused in the
short term on building customer bases, name recognition in the
market and capturing market share. This may cause some price
pressure on our products and services in the future.

In the search software market, our primary
competitors include AltaVista, Autonomy, Convera, FAST Search,
Google, Hummingbird, Lotus, Microsoft and Verity. Other
well-funded and brand recognizable companies have announced
their intention to enter the search software market. We also
indirectly compete in this market with Oracle, SAP, and other
database vendors that offer information search and retrieval
capabilities with their core database products.

We compete with a number of companies to provide
Internet search and directory services and technology. In the
Web services marketplace, our primary competitors include a
variety of established and newer companies, including AltaVista,
Ask Jeeves, FAST Search and Transfer, Google, Overture,
LookSmart, and Northern Light. These companies and other
competitors have focused on search result relevance, database
size metrics and ease of use to differentiate their services. In
addition, several large media and other Internet-based companies
have made investments in, or acquired, Internet search engine
companies and may seek to develop or customize their products
and services to deliver to our target customers.

We directly or indirectly compete against
multiple companies with our software infrastructure products,
including Akamai, CacheFlow, Cisco Systems, InfoLibria,
Microsoft, Netscape, Network Appliance, Novell, RealNetworks and
Volera. We are aware of numerous other major software developers
as well as smaller entrepreneurial companies that are focusing
significant resources on developing and marketing products and
services that will compete with our products. We also believe
that we may face competition from other providers of competing
solutions to network infrastructure problems, including
networking hardware and software manufacturers, traditional
hardware manufacturers, telecommunications providers, cable
TV/communications providers, software database companies, and
large diversified software and technology

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companies. Many of these companies provide or
have announced their intentions to provide a range of software
and hardware products based on Internet protocols and to compete
in the broad Internet/ intranet software market as well as in
specific market segments in which we compete.


Our competitors may be able to respond more
quickly to new or emerging technologies and changes in customer
requirements than we can. In addition, our current and potential
competitors may bundle their products with other software or
hardware, including operating systems, browsers and network
hardware in a manner that may discourage users from purchasing
products offered by us. Also, current and potential competitors
have or may have greater name recognition, more extensive
customer bases and access to proprietary content. Increased
competition could result in price reductions, fewer customer
orders, fewer search queries served, reduced gross margins and
loss of market share.



| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may lose customers and our business will
    suffer if we do not develop, license or acquire new services,
    products or technologies or deliver enhancements to existing
    products on a timely and cost-effective basis.

The markets that we target for our software
products are characterized by rapid technological change,
frequent new product introductions, changes in customer
requirements and evolving industry standards. The introduction
of products embodying new technologies and the emergence of new
industry standards could render our existing products obsolete.
Our future success and revenue growth will depend upon our
ability to develop, acquire and introduce a variety of new
products and product enhancements to address the increasingly
sophisticated needs of our customers. We have experienced delays
in releasing new products and product enhancements and may
experience similar delays in the future. Material delays in
introducing new products and enhancements may cause customers to
forego purchases of our products or to purchase those of our
competitors.



| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the use of the internet, intranets,
    extranets, corporate portals and web portals does not grow as
    anticipated, our business opportunities would be seriously
    limited.

Sales of our search software products are
dependent upon the development of corporate intranets,
extranets, portals and Websites. Global acceptance and use of
these mediums may not continue to develop at recent historical
rates and our targeted business customers may not adopt or
continue to use these mediums in the operation of their
business. The lack of continued use or initial adoption of these
mediums by our targeted customers would impair demand for our
products and would adversely affect our ability to sell our
products. Demand and market acceptance for software products and
services aimed at servicing intranets, extranets, portals and
Websites are subject to a high level of uncertainty and there
exist few proven services and products.



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not continue to improve the
    effectiveness and breadth of our sales personnel, we will have
    difficulty acquiring and retaining customers.

Our products and services often require
sophisticated sales efforts targeted at a limited number of key
people within a prospective customers organization.
Because the market for our products and services is relatively
new, many prospective customers are unfamiliar with the services
we offer. As a result, our sales effort requires highly trained
sales personnel. Competition for qualified sales personnel is
intense, and we might not be able to hire the kind and number of
sales personnel we are targeting. In addition, we will need to
effectively train and educate our sales force if we are to be
successful in our sales related initiatives including focusing
our sales efforts on our search software products, building out
our lease management system, completing the deployment of our
inside sales force, and streamlining our overseas sales efforts.
If we are unable to continue to improve and expand our direct
sales operations, we may not be able to increase market
awareness and sales of our products and services, which may
prevent us from growing our revenue and achieving and
maintaining profitability.

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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not attract and retain highly
    trained customer service and support personnel, we will have
    difficulty acquiring and retaining customers.

We require highly trained customer service and
support personnel to support our services and products and these
personnel are difficult to replace. We currently have a
relatively small customer service and support organization and
will need to continue to provide extensive training to our staff
to enable them to support new customers, new product lines, and
the expanding needs of existing customers. Competition for
customer service and support personnel is intense in our
industry due to the limited number of people available with the
necessary technical skills and understanding of the relevant
industries.



| |                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not establish and maintain
    productive relationships with distribution partners who have
    technical and marketing expertise and who we are able to train
    in our products and services, we will be unable to develop our
    business and increase revenue.

Our future revenue growth is dependent upon
establishing and maintaining productive relationships with a
variety of distribution partners, including OEMs, resellers,
systems integrators and joint marketing partners. We seek to
sign up distribution partners that have a substantial amount of
technical and marketing expertise. Even with this expertise, our
distribution partners generally require a significant amount of
training and support from us and this training often takes
several quarters before our distribution partners develop the
expertise and skills necessary to effectively sell our products.
We may be adversely affected if our distribution partners fail
to ship products in a timely manner or according to agreed upon
schedules. We have entered into OEM relationships with prominent
network hardware providers to bundle our software products into
their hardware offerings. Several risks arise in connection with
these relationships including long-term support obligations,
conflicts with our other sales channels, unpredictable product
support obligations and reliance on such third parties for sales
results.



| |                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We generate a significant portion of our
    revenue from a limited number of customers and, consequently,
    the loss of a key customer could adversely affect our revenues
    and be perceived as a loss of momentum in our
    business.

We have generated a substantial portion of our
historical revenues from a limited number of customers. We
expect that a small number of customers will continue to account
for a substantial portion of revenues for the foreseeable
future. As a result, if we lose a major customer for any reason,
including non-renewal of a customer contract or a failure to
meet performance requirements, or in the case of our Web search
business if there is a decline in usage of any customers
search service, our revenues would be adversely affected. We
have received notice from AOL, one of our major portal
customers, that it does not intend to renew its Web search
services agreement when it expires. Our potential customers and
public market analysts or investors may perceive any such loss
as a loss of momentum in our business, which may adversely
affect future opportunities to sell our products and services
and cause our stock price to decline. We cannot be sure that
customers that have accounted for significant revenues in past
periods, individually or as a group, will continue to generate
revenues in any future period.



| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to maintain our
    relationships with partners, companies that supply and
    distribute our products, and customers, we may have difficulty
    selling our products and services.

We believe that our success in penetrating our
target markets depends in part on our ability to develop and
maintain strategic relationships with key hardware and software
vendors, system integrators, Internet technology and service
providers, distribution partners and customers. We believe these
relationships are important in order to validate our technology,
facilitate broad market acceptance of our products, enhance our
product and service offerings, and expand our sales, marketing
and distribution capabilities. If we are unable to develop these
key relationships or maintain and enhance existing relationships
across all of our product and service offerings, we may have
difficulty generating revenues.

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| |                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We license software components that are
    necessary to our products and services, and the loss of access
    to this software or any decline or obsolescence in its
    functionality could harm our revenues and increase our
    costs.

We have from time to time licensed components
from others such as reporting functions, security features, and
internalization capabilities, and incorporated them into our
products and services. If these licensed components are not
maintained, it could impair the functionality of our products
and services and require us to obtain alternative products from
other sources or to develop this software internally. In either
case, this could involve costs and delays and divert the
attention of our engineering resources.



| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Governmental regulation and the application
    of existing laws to the Internet may increase our costs of doing
    business and create potential liability for the dissemination of
    information over the Internet.

Our products and services operate in part by
making copies of material available on the Internet and other
networks and making this material available to end-users from a
central location or local systems. In addition, our Web search
services collect end-user information, which we use to deliver
services to our customers, and our customers use to deliver
services to their users. This creates the potential for claims
to be made against us (either directly or through contractual
indemnification provisions with customers) for defamation,
negligence, copyright or trademark infringement, personal
injury, invasion of privacy or under other legal theories based
on the nature, content, copying, dissemination, collection or
use of these materials. These claims have been threatened
against us from time to time and have been brought, and
sometimes successfully pressed, against online service
providers. It is also possible that if any information provided
through any of our products or services contains errors, third
parties could make claims against us for losses incurred in
reliance on this information. Although we carry general
liability insurance, our insurance may not cover potential
claims of this type or be adequate to protect us from all
liability that may be imposed.



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Internet-related laws could adversely
    affect our business by increasing our costs of doing business
    and resulting potential liability.

Laws and regulations that apply to communications
and commerce over the Internet are becoming more prevalent. The
United States Congress has enacted Internet laws regarding
childrens privacy, copyrights, taxation and the
transmission of sexually explicit material. The European Union
has enacted its own privacy regulations as well as legislation
governing e-commerce, copyrights and caching. The law of the
Internet, however, remains largely unsettled, even in areas
where there has been some legislative action. It may take years
to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation
apply to the Internet. In addition, the growth and development
of the market for online commerce may prompt calls for more
stringent consumer protection laws, both in the United States
and abroad, that may impose additional burdens on companies
conducting business online. The adoption, implementation or
modification of laws and regulations relating to the Internet,
or interpretations of existing law, could adversely affect our
business.



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Any acquisitions we make could disrupt our
    business, increase our expenses, and create difficulties in
    integrating the acquired technology or products into our
    operations.

We have purchased seven companies since September
1998 and may invest in or acquire complementary companies,
products and technologies in the future. If we buy a company, we
could have difficulty in assimilating that companys
personnel and operations and maintaining acceptable standards,
controls, procedures and policies. In addition, the key
personnel of the acquired company may decide not to work for us.
Also, we could have difficulty in integrating the acquired
technology or products into our operations. There could be
potential unknown liabilities associated with the purchased
company. These difficulties could disrupt our ongoing business,
distract our management and employees and increase our expenses.
Furthermore, we may have to incur debt or issue equity
securities to pay for any future acquisitions, the issuance of
which could be dilutive to our stockholders.

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| |                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our future success is dependent on our
    ability to attract and retain experienced and capable personnel
    and our business will therefore suffer if we are unable to
    attract or retain the highest qualified personnel necessary for
    our success.

Our primary asset is the intellectual
capabilities of our employees. We are therefore dependent on
recruiting and retaining a strong team of personnel across all
functional areas. Competition for these individuals is intense,
and we may not be able to attract or retain the highly qualified
personnel necessary for our success. Our employment
relationships are generally at-will. We have had key employees
leave us in the past and we can make no assurance that one or
more will not leave us in the future. If any of our key
employees were to leave us, we could face substantial difficulty
in hiring qualified successors and could experience a loss in
productivity while any such successor obtains the necessary
training and experience. Many of our key employees have reached
or will soon reach the four-year anniversary of their hiring
date and will be fully vested in their initial stock option
grants. While our key employees are typically granted additional
stock options to provide additional incentive to remain with us,
the initial option grant is typically the largest and an
employee may be more likely to leave us upon completion of the
vesting period for the initial option grant. In addition, we
must continue to motivate employees and keep them focused on our
strategies and goals, which may be difficult due to morale
challenges posed by our workforce reductions and general
uncertainty about the economy. In light of current market
conditions, we may undertake programs to retain our employees
that may be viewed as dilutive to our shareholders. We do not
have key person life insurance policies covering any of our
employees other than our Chief Executive Officer.



| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | Our efforts to increase our presence in
    markets outside of the United States may be unsuccessful and
    could result in losses.

We market and sell our products in the United
States and internationally, principally Europe and Asia.
Historically, the percentage of sales to customers located
outside of the United States has varied from quarter to quarter,
reflecting the limited build-out of our international
operations. We have limited experience in developing localized
versions of our products and marketing and distributing our
products internationally. We are more dependent on third party
resellers for international sales. Should our third party
reseller partners not promote our products for any reason our
international sales could suffer. In addition, other inherent
risks may apply to international markets and operations,
including:



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | the impact of recessions in economies outside the
    United States;                           
|
| |  | greater difficulty in accounts receivable
    collection and longer collection periods;        
|
| |  | the impact of changes in foreign currencies, in
    particular the EUs conversion to the Euro;
|
| |  | unexpected changes in regulatory requirements;                                                 
|
| |  | difficulties and costs of staffing and managing
    foreign operations;                        
|
| |  | potentially adverse tax consequences; and                                                      
|
| |  | political and economic instability.                                                            

We also have limited experience operating in
foreign countries and managing multiple offices with facilities
and personnel in disparate locations. We may have difficulties
coordinating our efforts, supervising and training our personnel
or otherwise successfully managing our resources in these
foreign countries. The laws and cultural requirements in foreign
countries can vary significantly from those in the United
States. The inability to integrate our business in these
jurisdictions and to address cultural differences may adversely
affect the success of our international operations.

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| |                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are currently the subject of a lawsuit
    by Network Caching Technology and other third parties could
    assert that our products infringe their intellectual property
    rights. Such claims could be expensive to defend, distracting to
    management, and adversely affect our ability to sell our
    products.

Substantial litigation regarding intellectual
property rights exists in the software industry. We expect that
software products may be increasingly vulnerable to third party
infringement claims as the number of competitors in our industry
segments grow and the functionality of products in different
industry segments overlaps. We believe that many companies have
filed or intend to file patent applications covering aspects of
their technology that they may claim our technology infringes.
Some of these companies have sent copies of their patents to us
for informational purposes. We cannot be sure that these parties
will not make a claim of infringement against us with respect to
our products and technology. In August 2001, Network Caching
Technology L.L.C. (NCT) initiated an action against us that our
caching products violate one or more patents owned by NCT. The
complaint seeks compensatory and other damages and injunctive
relief. This case, and any future actions initiated against us,
will be time consuming and expensive to defend, will distract
managements attention and resources, and could cause
product shipment delays or require us to reengineer our products
or enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on
acceptable terms, if at all.



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Anti-takeover provisions contained in our
    charter and under Delaware law could impair a takeover
    attempt.

We are subject to the provisions of
Section 203 of the Delaware General Corporation Law
prohibiting, under some circumstances, publicly held Delaware
corporations from engaging in business combinations with some
stockholders for a specified period of time without the approval
of the holders of substantially all of our outstanding voting
stock. Such provisions could delay or impede the removal of
incumbent directors and could make more difficult a merger,
tender offer or proxy contest involving us, even if such events
could be beneficial, in the short term, to the interests of the
stockholders. In addition, such provisions could limit the price
that some investors might be willing to pay in the future for
shares of our Common Stock. These provisions, in addition to
provisions contained in our charter, may have the effect of
deterring hostile takeovers or delaying changes in our control
or management.



| |                             
| | ----------------------------
| | Our stock price is volatile.

The market price of our Common Stock has been and
may continue to be subject to wide fluctuations. Our stock price
may fluctuate in response to a number of events and factors,
such as quarterly variations in operating results, announcements
of technological innovations, new products or changing customer
relationships by us or our competitors, announcements of
technological alliances and partnerships, changes in financial
estimates and recommendations by securities analysts, the
operating and stock price performance of other companies that
investors may deem comparable, and news reports relating to
trends in our markets. In addition, the stock market in general,
and the market prices for technology-related companies in
particular, have experienced extreme volatility that often has
been unrelated to the operating performance of such companies.
These broad market and industry fluctuations may adversely
affect the price of our stock, regardless of our operating
performance. In the past, companies that have experienced
volatility in the market price of their stock have been the
subjects of securities class action litigation. If we were the
subject of securities class action litigation, it could result
in substantial costs and a diversion of managements
attention and resources.




Item 3.     Quantitative
and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to interest rate risk primarily in
our investment portfolio and synthetic lease. We do not use
derivative financial instruments to hedge interest rate risk.
The primary objective of our investment activities is to
preserve the principal while maximizing yields without
significantly increasing risk. This is

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accomplished by placing our marketable securities
investments with high quality issuers principally in United
States government and corporate debt securities with terms of
less than two years.


Under the synthetic lease finance structure, we
are required to pay lease payments for five years from
August 24, 2000. The payments are calculated based on a
floating interest rate applied against a $114 million
principle value. We have the option of choosing interest rates,
which are fixed for various terms not to exceed 12 months.
Upon the expiration of those various rate terms, a new interest
rate will be selected for the corresponding underlying principle
value.

Under our notes payable agreements, we have
borrowed $15.4 million as of June 30, 2002. The notes
payable have a variable interest rate at approximately zero to
35 basis points above prime.

The following table presents the amounts of our
cash and cash equivalents, short-term investments and synthetic
lease, that are subject to interest rate risk by year of
expected maturity/expiration of the selected interest rate terms
on the synthetic lease and average interest rates as of
June 30, 2002:

|                        |                       |                |        |         |   |         |        |       |   |   |        |      |   |   |         |  | 
|----------------------- | --------------------- | -------------- | ------ | ------- | - | ------- | ------ | ----- | - | - | ------ | ---- | - | - | ------- |  | 
|                        |                       | FY 2002        |        | FY 2003 |   | FY 2004 |        | Total
|                        |                       |                |        |         |   |         |        |      
|                        |                       |               
|                        |                       | (In thousands)
|Cash & Cash Equivalents |                       | $              | 15,316 |         |   |         |       |       |   |   |       |      |   | $ | 15,316  | 
|                        | Average Interest Rate |                |        | 0.38    | % |         |        |      |   |   |        |     |   |   |         |  | 
|Short-term Investments  |                       | $              | 39,803 |         |   | $       | 17,125 |       |   | $ | 17,780 |      |   | $ | 74,708  | 
|                        | Average Interest Rate |                |        | 1.75    | % |         |        | 3.13  | % |   |        | 3.15 | % |   |         |  | 
|Restricted Cash         |                       | $              | 95,699 |         |   | $       | 33,258 |       |   |   |       |      |   | $ | 128,957 | 
|                        | Average Interest Rate |                |        | 1.63    | % |         |        | 1.73  | % |   |        |     |   |   |         |  | 
|Synthetic Lease         |                       | $              | 67,374 |         |   | $       | 46,626 |       |   |   |       |      |   | $ | 114,000 | 
|                        | Average Interest Rate |                |        | 2.08    | % |         |        | 2.64  | % |   |        |     |   |   |         |  | 

Foreign Currency Risk

We have foreign operations both in Europe and
Asia. We currently transact substantially all of our revenues
abroad in United States currency. We are exposed to fluctuations
in foreign exchange rates for our expenditures and thus our
consolidated financial results could be affected by a change in
foreign exchange rates.




PART II.     OTHER
INFORMATION




Item 1.     Legal
Proceedings

On August 2, 2001, an amended complaint was
filed by Network Caching Technology, L.L.C. in the United States
District Court for the Northern District of California against
Inktomi as well as other providers of caching technologies
including Novell, Inc., Akamai Technologies, Inc., Volera, Inc.,
and Cacheflow, Inc. Plaintiff alleges that certain products
marketed by Inktomi and the other defendants violate one or more
patents owned by plaintiff. The complaint seeks compensatory and
other damages and injunctive relief. We were served the
complaint on August 7, 2001. We subsequently filed a
response denying the allegations and asserting a number of
defenses. At this time it is too early to estimate any potential
losses from this action and whether this action may have a
material impact on the results of operations. We are vigorously
defending against this action.




Item 3.     Defaults
Upon Senior Securities

See Managements Discussion and Analysis of
Financial Condition and Results of Operations; Liquidity and
Capital Resources.

38



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##### Table of Contents






Item 6.     Exhibits
and Reports on Form 8-K

|        |        |             |  |                                                                                                                                                                                                                                                            
|------- | ------ | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 10.39* |             |  | Promissory Note dated May 14, 2002, executed
    by David Peterschmidt for the benefit of Inktomi Corporation.                                                                                                                                             
|        | 10.40* |             |  | Conditional Waiver and Amendment by and among
    Inktomi Corporation, Wilmington Trust FSB, Deutsche Bank AG, New
    York Branch, Deutsche Bank AG, New York and/or Cayman Islands
    Branch and Deutsche Bank Securities Inc. dated August 13,
    2002
|        | 10.41* |             |  | Third Loan Modification Agreement and Fourth Loan
    Modification Agreement between Inktomi and Silicon Valley Bank
    dated June 25, 2002 and July 31, 2002, respectively.                                                                              
|        | 99.1   |             |  | Certification of Chief Executive Officer and
    Chief Financial Officer Pursuant to 18 U.S.C.
    Section 1350                                                                                                                                            



---



|  |                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------
|* | Previously filed with the original Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2002 filed August 14, 2002.

(b) Reports on Form 8-K

None in the quarter ending June 30, 2002

39



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##### Table of Contents






SIGNATURE

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 undersigned, thereunto duly
authorized.



| |                    
| | -------------------
| | INKTOMI CORPORATION



| |     |                    
| | --- | -------------------
| | By: | /s/ RANDY GOTTFRIED

| |                                                      
| | -----------------------------------------------------
| |                                                      
| | Randy Gottfried                                      
| | Senior Vice President and Chief Financial
    Officer
| | (duly authorized officer and                         
| | principal financial officer)                         

Date: January 16, 2002

40



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##### Table of Contents



CERTIFICATIONS

I, Randy Gottfried, certify that:



| |                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this quarterly report on Form 10-Q/A of Inktomi Corporation;                                                                                                                                                                                                                                                                          
|
| | 2.     Based on my
    knowledge, this quarterly report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this quarterly
    report; and
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this quarterly report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for the
    periods presented in this quarterly report.                            

Date: January 16, 2003



| |                                                      
| | -----------------------------------------------------
| | /s/ RANDY GOTTFRIED                                  
| |                                                      
| | Randy Gottfried                                      
| | Senior Vice President and Chief Financial
    Officer

I, David Peterschmidt, certify that:



| |                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this quarterly report on Form 10-Q/A of Inktomi Corporation;                                                                                                                                                                                                                                                                          
|
| | 2.     Based on my
    knowledge, this quarterly report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this quarterly
    report; and
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this quarterly report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for the
    periods presented in this quarterly report.                            

Date: January 16, 2003



| |                        
| | -----------------------
| | /s/ DAVID PETERSCHMIDT 
| |                        
| | David Peterschmidt     
| | Chief Executive Officer

41



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##### Table of Contents






EXHIBIT INDEX

|        |    |             |  |                                                                                                                                                                                                                                                            
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .39*        |  | Promissory Note dated May 14, 2002, executed
    by David Peterschmidt for the benefit of Inktomi Corporation.                                                                                                                                             
|        | 10 | .40*        |  | Conditional Waiver and Amendment by and among
    Inktomi Corporation, Wilmington Trust FSB, Deutsche Bank AG, New
    York Branch, Deutsche Bank AG, New York and/or Cayman Islands
    Branch and Deutsche Bank Securities Inc. dated August 13,
    2002
|        | 10 | .41*        |  | Third Loan Modification Agreement and Fourth Loan
    Modification Agreement between Inktomi and Silicon Valley Bank
    dated June 25, 2002 and July 31, 2002, respectively.                                                                              
|        | 99 | .1          |  | Certification of Chief Executive Officer and
    Chief Financial Officer Pursuant to 18 U.S.C.
    Section 1350                                                                                                                                            



---



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| | * | Previously filed with the original Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2002 as filed August 14, 2002.

42