SEC Filing | Altaba Inc.

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (date of earliest event reported): July 14, 2003

YAHOO! INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		000-28018		77-0398689
(State or Other Jurisdiction of Incorporation or Organization)		(Commission File Number)		(I.R.S. Employer Identification No.)

701 First Avenue

Sunnyvale, California 94089

(Address of Principal Executive Offices) (Zip Code)

(408) 349-3300

(Registrant’s telephone number including area code)

Not Applicable

(Former name or former address, if changed since last report)

Item 2. Acquisitions and Dispositions.

On July 14, 2003, Yahoo! Inc., a Delaware corporation (the “Company”), July 2003 Merger Corp., a Delaware corporation and a wholly-owned subsidiary of the Company, and Overture Services, Inc., a Delaware corporation (“Overture”), a provider of commercial search services on the Internet, entered into an agreement (the “Agreement and Plan of Merger”) under which the Company will acquire Overture. Under the terms of the Agreement and Plan of Merger, each outstanding common share of Overture will receive 0.6108 shares of the Company’s common stock and $4.75 in cash (the “Acquisition”). The Acquisition reflects an aggregate purchase price of approximately $1.7 billion. The Acquisition is subject to customary closing conditions, including regulatory approval and the approval of Overture’s stockholders. Although the Acquisition is expected to be completed in the fourth quarter of 2003, there can be no assurance that the Acquisition will be completed in the fourth quarter of 2003, if at all.

The foregoing description of the Acquisition does not purport to be complete and is qualified in its entirety by reference to the Agreement and Plan of Merger attached as Exhibit 2.1 to this Current Report on Form 8-K.

Item 5. Other Events

On July 14, 2003, Yahoo! Inc. and Overture Services, Inc. issued a joint press release. The press release is attached as an exhibit to this Current Report on Form 8-K and is incorporated herein by reference.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

(a) Pro Forma Financial Information.

The unaudited pro forma financial information required by this Item 7 is included as follows:

(i) Yahoo! Inc. and Overture Services, Inc. unaudited pro forma consolidated financial information as Exhibit 99.1(i)

(ii) Yahoo! Inc. and Inktomi Corporation unaudited pro forma consolidated financial information as Exhibit 99.1(ii)

(iii) Overture Services, Inc., Alta Vista Company and FAST IBU unaudited pro forma consolidated financial information as Exhibit 99.1 (iii)

(b) Financial Statements.

The following financial statements of Overture are included as Exhibits:

(i) Unaudited condensed consolidated financial statements of Overture Services, Inc. as of June 30, 2003 and for the three and six months ended June 30, 2003 and 2002 as Exhibit 99.2.

(ii) Consolidated financial statements of Overture Services, Inc. as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002 as Exhibit 99.3.

The following financial statements of businesses acquired by Overture are included as Exhibits:

(i) Financial Statements of Alta Vista Company as Exhibit 99.4.

(ii) Financial Statements of Fast IBU as Exhibit 99.5.

2.1* Agreement and Plan of Merger, dated as of July 14, 2003, by and among Yahoo! Inc., July 2003 Merger Corp. and Overture Services, Inc.

2.2* Form of Voting Agreement, dated as of July 14, 2003, by and between Yahoo! Inc., July 2003 Merger Corp. and each of certain individual stockholders of Overture Services, Inc.

2.3* Voting Agreement, dated as of July 14, 2003, by and between Yahoo! Inc., July 2003 Merger Corp. and Idealab.

2.4* Voting Agreement, dated as of July 14, 2003, by and between Yahoo! Inc., July 2003 Merger Corp. and Bill Gross.

23.1 Consent of Ernst & Young LLP, independent accountants of Overture Services, Inc.

23.2 Consent of KPMG LLP, independent accountants of Alta Vista Company.

23.3 Consent of Deloitte and Touche AS, independent auditors of FAST IBU.

99.1(i) Yahoo! Inc. and Overture Services, Inc. unaudited pro forma consolidated financial information.

99.1(ii) Yahoo! Inc. and Inktomi Corporation unaudited pro forma consolidated financial information.

99.1(iii) Overture Services, Inc., Alta Vista Company and Fast IBU unaudited pro forma consolidated financial information.

99.2 Unaudited condensed consolidated financial statements of Overture Services, Inc. as of June 30, 2003 and for the three and six months ended June 30, 2003 and 2002.

99.3 Consolidated financial statements of Overture Services, Inc. as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002.

99.4 Financial Statements of Alta Vista Company.

99.5 Financial Statements of Fast IBU.

* Previously filed.

SIGNATURES

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

	YAHOO! INC.


	By:	/s/ SUSAN DECKER
		Susan Decker Executive Vice President, Finance and Administration and Chief Financial Officer

Date: August 8, 2003

INDEX TO EXHIBITS

Exhibit No.		Description

2.1*		Agreement and Plan of Merger, dated as of July 14, 2003, by and among Yahoo! Inc., July 2003 Merger Corp. and Overture Services, Inc.

2.2*		Form of Voting Agreement, dated as of July 14, 2003, by and between Yahoo! Inc., July 2003 Merger Corp. and each of certain individual stockholders of Overture Services, Inc.

2.3*		Voting Agreement, dated as of July 14, 2003, by and between Yahoo! Inc., July 2003 Merger Corp. and Idealab.

2.4*		Voting Agreement, dated as of July 14, 2003, by and between Yahoo! Inc., July 2003 Merger Corp. and Bill Gross.

23.1		Consent of Ernst & Young LLP, independent accountants of Overture Services, Inc.

23.2		Consent of KPMG LLP, independent accountants of Alta Vista Company.

23.3		Consent of Deloitte and Touche AS, independent auditors of Fast IBU.

99.1(i)		Yahoo! Inc. and Overture Services, Inc. unaudited pro forma consolidated financial information.

99.1(ii)		Yahoo! Inc. and Inktomi Corporation unaudited pro forma consolidated financial information.

99.1(iii)		Overture Services, Inc., Alta Vista Company and Fast IBU unaudited pro forma consolidated financial information.

99.2		Unaudited condensed consolidated financial statements of Overture Services, Inc. as of June 30, 2003 and for the three and six months ended June 30, 2003 and 2002.

99.3		Consolidated financial statements of Overture Services, Inc. as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002.

99.4		Financial Statements of Alta Vista Company.

99.5		Financial Statements of Fast IBU.

* Previously filed

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statements of Yahoo! Inc. (Form S-3 No. 333-34364, No. 333-46458, No. 333-81644, No. 333-100298, No. 333-105766), (Form S-8 No. 333-3694, No. 333-39105, No. 333-46492, No. 333-54426, No. 333-56781, No. 333-60828, No. 333-66067, No.333-76995, No. 333-79675, No. 333-80227, No. 333-81635, No. 333-83770, No. 333-89948, No. 333-93497), and (Form S-4 No. 333-62694) of our report dated January 30, 2003, and to the use our report dated January 30, 2003, with respect to the financial statements of Overture Services, Inc. included in the Form 8-K/A of Yahoo! Inc., dated August 8, 2003.

/s/ Ernst & Young LLP

Los Angeles, CA

August 8, 2003

Exhibit 23.2

Independent Auditors’ Consent

The Board of Directors

AltaVista Company:

We consent to the incorporation by reference in the registration statements (No. 333-3694, No. 333-39105, No. 333-46492, No. 333-54426, No. 333-56781, No. 333-60828, No. 333-66067, No. 333-76995, No. 333-79675, No. 333-80227, No. 333-81635, No. 333-83770, No. 333-89948, No. 333-93497) on Form S-8 of Yahoo! Inc. of our report dated April 16, 2003 with respect to the consolidated balance sheets of AltaVista Company and subsidiaries as of July 31, 2002 and July 31, 2001, and the related consolidated statements of operations, changes in owners’ equity (deficit), and cash flows for the years ended July 31, 2002 and July 31, 2001 and for the period from August 19, 1999 to July 31, 2000, which report appears in the Form 8-K/A of Yahoo! Inc. dated August 8, 2003.

Our report dated April 16, 2003 contains an explanatory paragraph that states that the Company has suffered recurring losses from operations and has a net capital deficiency, which raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.

/s/ KPMG LLP

Mountain View, California

August 7, 2003

Exhibit 23.3

Consent of Independent Auditors

We consent to the incorporation by reference in the Yahoo! Inc. Registration Statements on Form S-3 (No. 333-34364, No. 333-46458, No. 333-81644, No. 333-100298, No. 333-105766); on Registration Statements on Form S-8 (No. 333-3694, No. 333-39105, No. 333-46492, No. 333-54426, No. 333-56781, No. 333-60828, No. 333-66067, No. 333-76995, No. 333-79675, No. 333-80227, No. 333-81635, No. 333-83770, No. 333-89948, No. 333-93497); Registration Statement on Form S-4 (No. 333-62694) and to the use of our report dated March 25, 2003 (except for Note 10 which is as of April 21, 2003), with respect to the combined financial statements of the Internet Business Unit of Fast Search & Transfer ASA for the year ended December 31, 2002 appearing in the Current Report on Form 8-K/A of Yahoo! Inc.

/s/ Deloitte & Touche AS

Oslo, Norway
August 8, 2003

Exhibit 99.1 (i)

YAHOO! INC. AND OVERTURE SERVICES, INC. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma combined condensed consolidated financial statements have been prepared to give effect to the proposed merger of Yahoo! Inc. (“Yahoo!”) and Overture Services, Inc. (“Overture”), using the purchase method of accounting, and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed consolidated financial statements. These pro forma statements were prepared as if the merger had been completed as of January 1, 2002 for statements of operations purposes and as of June 30, 2003 for balance sheet purposes.

These unaudited pro forma combined condensed consolidated financial statements include pro forma statements of operations which were prepared by combining pro forma statements of operations for both Yahoo! and Overture, which are presented in Exhibit 99.1(ii) and Exhibit 99.1(iii), respectively, included elsewhere in this filing. The Yahoo! pro forma statements of operations included in Exhibit 99.1(ii) of this filing were prepared to give effect to Yahoo!'s acquisition of Inktomi Corporation, which was consummated on March 19, 2003. The Overture pro forma statements of operations included in Exhibit 99.1(iii) of this filing were prepared to give effect to Overture's acquisitions of the business of Alta Vista Company and the Web search unit of Fast Search & Transfer, ASA, which were consummated on April 25, 2003 and April 21, 2003, respectively.

The unaudited pro forma combined condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations that would have actually been reported had the merger occurred on January 1, 2002 for statements of operations purposes and as of June 30, 2003 for balance sheet purposes, nor are they necessarily indicative of the future financial position or results of operations. The pro forma combined condensed consolidated financial statements include adjustments, which are based upon preliminary estimates, to reflect the allocation of purchase price to the acquired assets and assumed liabilities of Overture. The final allocation of the purchase price will be determined after the completion of the merger and will be based upon actual net tangible and intangible assets acquired and liabilities assumed. The preliminary purchase price allocation for Overture is subject to revision as more detailed analysis is completed and additional information on the fair values of Overture’s assets and liabilities becomes available. Any change in the fair value of the net assets of Overture will change the amount of the purchase price allocable to goodwill. Additionally, changes in Overture’s working capital, including the results of operations from June 30, 2003 through the date the merger is completed, will change the amount of goodwill recorded. The final purchase price is dependent on the actual amount of cash to be paid, the actual number of shares of Yahoo! common stock issued, the actual number of options assumed and actual direct merger costs. The final purchase price will be determined upon completion of the merger. Final purchase accounting adjustments may differ materially from the pro forma adjustments presented herein.

These unaudited pro forma combined condensed consolidated financial statements are based upon the respective historical consolidated and pro forma combined condensed consolidated financial statements of Yahoo! and Overture and should be read in conjunction with the historical consolidated and pro forma combined condensed consolidated financial statements of Yahoo! and Overture and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained herein and in the reports and other information Yahoo! and Overture have on file with the SEC, including the Yahoo! Form 8-K/A filed on August 8, 2003.

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET

AS OF JUNE 30, 2003

(In thousands)

	Historical						Pro Forma
	Yahoo!			Overture			Adjustments			Combined
ASSETS
Current assets:
Cash and cash equivalents	$	1,075,582		$	83,138		$	(303,885	)(a)	$	854,835
Short-term investments in marketable securities	497,400			23,099			—			520,499
Accounts receivable, net	142,372			56,096			(23,468		)(b)	175,000
Prepaid expenses and other current assets	103,407			23,555			—			126,962
Prepaid traffic acquisition expense	—			37,576			—			37,576
Total current assets	1,818,761			223,464			(327,353		)	1,714,872

Long-term investments in marketable securities	744,237			7,194			—			751,431
Restricted investments	—			8,535			—			8,535
Property and equipment, net	371,794			73,143			—			444,937
Goodwill	636,434			187,303			(187,303		)(c)	1,795,774
							1,159,340		(c)
Intangible assets, net	130,939			34,049			(34,049		)(c)	452,539
							321,600		(c)
Long-term prepaid traffic acquisition costs	—			38,366			(30,000		)(b)	8,366
Other assets	219,356			12,988			—			232,344
Total assets	$	3,921,521		$	585,042		$	902,235		$	5,408,798

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	19,086		$	124,260		$	(1,876	)(b)	$	141,470
Accrued expenses and other current liabilities	302,640			29,938			(21,592		)(b)	337,486
							12,500		(d)
							14,000		(d)
Deferred revenue	155,997			19,141			(1,914		)(e)	173,224
Total current liabilities	477,723			173,339			1,118			652,180

Long-term debt	750,000			—			—			750,000
Other liabilities	102,374			859			(30,000		)(b)	73,233
Minority interests in consolidated subsidiaries	34,591			—			—			34,591

Stockholders’ equity:
Common stock	624			6			(6		)(f)	663
							39		(i)
Additional paid-in capital	2,623,520			795,775			(795,775		)(f)	4,012,076
							1,388,556		(i)
Treasury stock	(159,988		)	—			—			(159,988		)
Retained earnings (accumulated deficit)	90,038			(389,955		)	389,955		(f)	90,038
Deferred compensation, net	(1,960		)	(818		)	818		(f)	(48,594		)
							(46,634		)(j)
Accumulated other comprehensive income	4,599			5,836			(5,836		)(f)	4,599
Total stockholders’ equity	2,556,833			410,844			931,117			3,898,794

Total liabilities and stockholders’ equity	$	3,921,521		$	585,042		$	902,235		$	5,408,798

The accompanying notes are an integral part of these unaudited pro forma combined condensed consolidated financial statements.

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2002

(In thousands, except per share amounts)

	Pro Forma						Combined Pro Forma
	Yahoo! (1)			Overture (2)			Adjustments			Combined

Net revenues	$	1,023,740		$	724,454		$	(143,408	)(b)	$	1,604,786

Costs and expenses:
Cost of revenues	185,022			50,485			(2,965		)(b)	236,263
							3,721		(j)
Traffic acquisition	—			368,843			(134,673		)(b)	234,170
Sales and marketing	470,087			93,281			(5,770		)(b)	568,085
							10,487		(j)
Product development	179,538			41,749			9,472		(j)	230,759
General and administrative	118,781			94,977			10,149		(j)	223,907
Amortization of intangibles	36,653			5,472			70,827		(h)	112,952
Restructuring costs	115,668			8,087			—			123,755
Loss on litigation ruling	—			8,700			—			8,700
Impairment of goodwill and other intangibles	8,440			—			—			8,440
Impairment of property, plant and equipment	107,040			632			—			107,672
Total operating expenses	1,221,229			672,226			(38,752		)	1,854,703

Income (loss) from operations	(197,489		)	52,228			(104,656		)	(249,917		)

Other income, net	83,413			(6,185		)	(14,283		)(a)	62,945
Minority interests in operations of consolidated subsidiaries	(1,551		)	—			—			(1,551		)

Income (loss) before income taxes	(115,627		)	46,043			(118,939		)	(188,523		)

Provision (benefit) for income taxes	5,409			4,248			(34,044		)(g)	(24,387		)

Income (loss) from continuing operations	$	(121,036	)	$	41,795		$	(84,895	)	$	(164,136	)

Income (loss) per share from continuing operations - basic	$	(0.20	)	$	0.67					$	(0.26	)

Income (loss) per share from continuing operations - diluted	$	(0.20	)	$	0.65					$	(0.26	)

Shares used in per share calculation - basic	593,838			61,949			(22,873		)	632,914
Shares used in per share calculation - diluted	593,838			63,878			(24,802		)	632,914

(1) Yahoo! and Inktomi pro forma combined condensed consolidated statement of operations are included in Exhibit 99.1(ii) of this filing.

(2) Overture, Alta Vista and Fast pro forma combined condensed consolidated statement of operations are included in Exhibit 99.1(iii) of this filing.

The accompanying notes are an integral part of these unaudited pro forma combined condensed consolidated financial statements.

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2003

(In thousands, except per share amounts)

	Pro Forma						Combined Pro Forma
	Yahoo! (1)			Overture (2)			Adjustments			Combined

Net revenues	$	619,285		$	502,792		$	(127,321	)(b)	$	994,756

Costs and expenses:
Cost of revenues	94,078			36,356			(1,533		)(b)	129,543
							642		(j)
Traffic acquisition	—			307,046			(119,929		)(b)	187,117
Sales and marketing	237,861			47,087			(5,859		)(b)	280,899
							1,810		(j)
Product development	86,733			23,935			1,634		(j)	112,302
General and administrative	66,739			60,254			1,751		(j)	128,744
Amortization of intangibles	17,135			3,137			35,012		(h)	55,284
Restructuring costs	—			(103		)	—			(103		)
Reversal of loss on litigation ruling	—			(3,941		)	—			(3,941		)
Total operating expenses	502,546			473,771			(86,472		)	889,845

Income from operations	116,739			29,021			(40,849		)	104,911

Other income, net	41,952			(2,574		)	(3,662		)(a)	35,716
Minority interests in operations of consolidated subsidiaries	(3,034		)	—			—			(3,034		)

Income before income taxes	155,657			26,447			(44,511		)	137,593

Provision for income taxes	59,150			13,290			(15,470		)(g)	56,970

Income from continuing operations	$	96,507		$	13,157		$	(29,041	)	$	80,623

Income per share from continuing operations - basic	$	0.16		$	0.21					$	0.13

Income per share from continuing operations - diluted	$	0.16		$	0.20					$	0.12

Shares used in per share calculation - basic	600,330			63,639			(24,563		)	639,406
Shares used in per share calculation - diluted	622,183			64,707			(24,631		)	662,259

(1) Yahoo! and Inktomi pro forma combined condensed consolidated statement of operations are included in Exhibit 99.1(ii) of this filing.

(2) Overture, Alta Vista and Fast pro forma combined condensed consolidated statement of operations are included in Exhibit 99.1(iii) of this filing.

The accompanying notes are an integral part of these unaudited pro forma combined condensed consolidated financial statements.

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Pro Forma Presentation

On July 14, 2003, Yahoo! announced the signing of a definitive agreement to acquire Overture, a provider of commercial search services on the Internet. Under the terms of the agreement, each share of Overture common stock outstanding upon the effective date will be exchanged for 0.6108 shares of Yahoo! common stock and $4.75 in cash. Based on the current number of shares outstanding of Overture common stock and options outstanding, Yahoo! would make a cash payment of approximately $300 million, issue approximately 39.1 million shares of Yahoo! common stock and issue options to purchase approximately 8.5 shares of Yahoo! common stock. Together with direct transaction costs this will result in an aggregate purchase price of approximately $1.7 billion. The actual amount of cash to be paid and Yahoo! shares and options to be issued will be determined on the effective date of the merger based on the number of shares of Overture common stock and options actually outstanding on such date. Yahoo! will account for the merger under the purchase method of accounting.

The unaudited pro forma combined condensed consolidated balance sheet at June 30, 2003 is presented to give effect to the proposed merger of Yahoo! and Overture as if the transaction had been consummated on that date. The unaudited pro forma combined condensed consolidated balance sheet at June 30, 2003 has been prepared by combining the historical unaudited consolidated balance sheet data of Yahoo! and Overture as of June 30, 2003. The unaudited pro forma combined condensed consolidated statements of operations of Yahoo! and Overture for the year ended December 31, 2002 and the six-months ended June 30, 2003 are presented as if these transactions and the significant acquisitions of Yahoo! and Overture which were consummated during the period from January 1, 2002 through June 30, 2003 had been consummated on January 1, 2002. The unaudited pro forma combined condensed consolidated statements of operations of Yahoo! and Overture for the year ended December 31, 2002 and the six-months ended June 30, 2003 have been prepared using the unaudited pro forma consolidated statement of operations data for Yahoo! and Overture for the year ended December 31, 2002 and the six-months ended June 30, 2003 which present the historical consolidated results of operations of Yahoo! and Overture and the results of significant acquisitions consummated by Yahoo! and Overture during the period from January 1, 2002 through June 30, 2003. These pro forma consolidated financial statements are included elsewhere in this filing.

2. Preliminary Purchase Price

The unaudited pro forma combined condensed consolidated financial statements reflect an estimated purchase price of approximately $1.7 billion. The preliminary cash payment was determined based on the number of outstanding shares of Overture common stock as of July 9, 2003. The preliminary fair value of the Yahoo! common stock to be issued was based on the current shares of Overture common stock outstanding, the exchange ratio and the average market price of the Company's common stock for a range of trading days from two days before and after July 14, 2003, the announcement date of the proposed merger. The preliminary fair value of Yahoo! options to be issued was determined using the Black-Scholes model and the number of outstanding Overture options as of July 9, 2003. As the actual amount of common stock to be issued, cash to be paid and Yahoo! options to be issued will be determined on the effective date of the merger based on the number of shares of Overture common stock and options actually outstanding on such date, the final amount of common stock to be issued, cash to be paid and Yahoo! options to be issued will not be determined until that date. The estimated total purchase price of the proposed Overture merger is as follows (in thousands):

Cash	$	303,885
Fair value of Yahoo! common stock to be issued	1,259,011
Fair value of Yahoo! options to be issued	129,584
Estimated direct merger costs	12,500
Total estimated purchase price	$	1,704,980

The final purchase price is dependent on the actual amount of cash to be paid, the actual number of shares of Yahoo! common stock issued, the actual number of options assumed and actual direct merger costs. The final purchase price will be determined upon completion of the merger. Under the purchase method of accounting, the total estimated purchase price is allocated to Overture’s net tangible and intangible assets based upon their estimated fair value as of the date of completion of the merger. Based upon the estimated purchase price and the preliminary valuation, the preliminary purchase price allocation, which is subject to change based on Yahoo!’s final analysis, is as follows (in thousands):

Cash acquired	$	83,138
Tangible assets acquired	280,552
Amortizable intangible assets:
Existing technology and patents	125,400
Affiliate contracts and related relationships	144,100
Advertiser contracts and related relationships	35,800
Trade name, trademark, domain name	16,300
Goodwill	1,159,340
Total assets acquired	1,844,630

Liabilities assumed	(186,284		)
Deferred stock-based compensation	46,634

Net assets acquired	$	1,704,980

A preliminary estimate of $322 million has been allocated to amortizable intangible assets consisting of existing technology, patents, affiliate and advertiser contracts and related relationships, trade names, trademarks and domain names with useful lives not exceeding five years.

Tangible assets acquired of $281 million includes long-term prepaid traffic acquisition costs paid by Overture to Yahoo! of approximately $30 million. Liabilities assumed of $186 million includes a current liability for traffic acquisition costs owed by Overture to Yahoo! of approximately $23 million.

A preliminary estimate of $1.2 billion has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair market value of the net tangible and amortizable intangible assets acquired. Goodwill will not be amortized and will be tested for impairment at least annually. The preliminary purchase price allocation for Overture is subject to revision as more detailed analysis is completed and additional information on the fair values of Overture’s assets and liabilities becomes available. Any change in the fair value of the net assets of Overture will change the amount of the purchase price allocable to goodwill. Final purchase accounting adjustments may therefore differ materially from the pro forma adjustments presented here.

3. Pro Forma Adjustments

Certain reclassifications have been made to conform Overture’s historical and pro forma amounts to Yahoo!’s financial statement presentation.

The accompanying unaudited pro forma combined condensed consolidated financial statements have been prepared as if the merger was completed on June 30, 2003 for balance sheet purposes and as of January 1, 2002 for statements of operations purposes and reflect the following pro forma adjustments:

(a) To reflect the estimated cash portion for the proposed merger of $4.75 per outstanding Overture share and resulting decrease in interest income.

(b) To eliminate intercompany revenues, expenses and balance sheet amounts arising from transactions between Yahoo! and Overture.

(c) To eliminate the Overture existing intangible assets and to establish amortizable intangible assets and non-amortizable goodwill resulting from the proposed merger.

(d) To record estimated direct merger costs of approximately $12.5 million to be incurred by Yahoo! and $14.0 million of estimated merger costs to be incurred by Overture directly related to the proposed acquisition by Yahoo!. Actual amounts could differ significantly upon close of the proposed merger.

(e) To adjust Overture deferred revenue to estimated fair value.

(f) To eliminate the historical stockholders’ equity of Overture.

(g) To adjust the provision (benefit) for taxes to reflect the impact of the pro forma adjustments using the federal and state statutory tax rates.

(h) To eliminate the amortization of Overture's historical intangibles and reflect amortization of the amortizable intangible assets on a straight-line basis resulting from the proposed merger. The weighted average life of amortizable intangible assets approximates 4 years.

(i) To record the estimated fair value of Yahoo! shares of common stock and options to be issued in the proposed merger.

(j) To record the deferred compensation based on the intrinsic value related to Yahoo! options issued in connection with the proposed merger and to reflect the amortization of the deferred compensation calculated using an accelerated amortization method. The weighted average remaining vesting period of unvested employee stock options approximates 3 years.

4. Pro Forma Combined Net Income (Loss) Per Share

Shares used to calculate unaudited pro forma net income (loss) per basic share were computed by adding 39.1 million shares assumed to be issued in exchange for the outstanding Overture shares to Yahoo!’s weighted average shares outstanding. Shares used to calculate unaudited pro forma net income per diluted share were computed by adding 39.1 million shares and approximately 1.0 million options (using the treasury stock method) assumed to be issued to Yahoo!’s weighted average shares outstanding. Shares used to calculate unaudited pro forma net loss per diluted share were computed by adding 39.1 million shares assumed to be issued to Yahoo!’s weighted average shares outstanding.

Exhibit 99.1(ii)

YAHOO! INC. AND INKTOMI CORPORATION UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma combined condensed consolidated statements of operations have been prepared to give effect to the merger of Yahoo! Inc. ("Yahoo!") and Inktomi Corporation ("Inktomi"), using the purchase method of accounting and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed consolidated statements of operations. These pro forma consolidated statements were prepared as if the transaction had been completed as of January 1, 2002.

The unaudited pro forma combined condensed consolidated statements of operations are presented for illustrative purposes only and are not necessarily indicative of the results of operations that would have actually been reported had the transaction occurred on January 1, 2002, nor are they necessarily indicative of the future results of operations. The pro forma combined condensed consolidated statements of operations include adjustments, which are based upon estimates, to reflect the allocation of purchase price to the acquired assets and assumed liabilities of Inktomi. The preliminary purchase price allocation for Inktomi is subject to revision as more detailed analysis is completed and additional information on the fair values of Inktomi’s assets and liabilities becomes available. Any change in the fair value of the net assets of Inktomi will change the amount of the purchase price allocable to goodwill. Final purchase accounting adjustments may differ materially from the pro forma adjustments presented herein.

These unaudited pro forma combined condensed consolidated statements of operations are based upon the respective historical consolidated statements of operations of Yahoo! and Inktomi and should be read in conjunction with the historical consolidated financial statements of Yahoo! and Inktomi and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the reports and other information Yahoo! and Inktomi have on file with the SEC.

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2002

(In thousands, except per share amounts)

	Historical						Pro Forma
	Yahoo!			Inktomi(2)			Adjustments			Combined

Net revenues	$	953,067		$	71,092		$	(419	)(b)	$	1,023,740

Costs and expenses:
Cost of revenues	162,881			22,141			—			185,022
Sales and marketing	431,392			38,695			—			470,087
Product development	143,468			36,070			—			179,538
General and administrative	105,952			12,829			—			118,781
Amortization of intangibles	21,186			729			14,738		(c)	36,653
Restructuring costs	—			115,668			—			115,668
Impairment of goodwill and other intangibles	—			8,440			—			8,440
Impairment of property, plant and equipment	—			107,040			—			107,040
Total operating expenses	864,879			341,612			14,738			1,221,229

Income (loss) from operations	88,188			(270,520		)	(15,157		)	(197,489		)

Other income, net	91,588			4,653			(12,828		)(a)	83,413
Minority interests in operations of consolidated subsidiaries	(1,551		)	—			—			(1,551		)

Income (loss) before income taxes	178,225			(265,867		)	(27,985		)	(115,627		)

Provision (benefit) for income taxes	71,290			527			(66,408		)(d)	5,409

Income (loss) from continuing operations (1)	$	106,935		$	(266,394	)	$	38,423		$	(121,036	)

Income (loss) per share from continuing operations - basic (1)	$	0.18		$	(1.79	)				$	(0.20	)

Income (loss) per share from continuing operations - diluted (1)	$	0.18		$	(1.79	)				$	(0.20	)

Shares used in per share calculation - basic	593,838			149,099						593,838
Shares used in per share calculation - diluted	610,060			149,099						593,838

(1) Income (loss) from continuing operations for Yahoo! is presented before cumulative effect of accounting change.

(2) Inktomi’s results of operations for the twelve months ended December 31, 2002 were calculated by adding the results of operations for the three months ended December 31, 2002, and deducting the results of operations for the three months ended December 31, 2001, to the results of operations for the twelve months ended September 30, 2002. The Enterprise Search Division of Inktomi has been accounted for as a discontinued operation in the historical financial statements of Inktomi and therefore, the results of operations presented includes Inktomi’s results from continuing operations.

The accompanying notes are an integral part of these unaudited pro forma combined condensed consolidated financial statements.

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2003

(In thousands, except per share amounts)

	Historical					Pro Forma
	Yahoo!			Inktomi(1)		Adjustments			Combined

Net revenues	$	604,354		$	14,931	$	—		$	619,285

Costs and expenses:
Cost of revenues	89,974			4,104		—			94,078
Sales and marketing	235,906			1,955		—			237,861
Product development	82,371			4,362		—			86,733
General and administrative	62,845			3,894		—			66,739
Amortization of intangibles	15,509			—		1,626		(c)	17,135
Total operating expenses	486,605			14,315		1,626			502,546

Income from operations	117,749			616		(1,626		)	116,739

Other income, net	42,594			2,099		(2,741		)(a)	41,952
Minority interests in operations of consolidated subsidiaries	(3,034		)	—		—			(3,034		)

Income before income taxes	157,309			2,715		(4,367		)	155,657

Provision for income taxes	59,778			30		(658		)(d)	59,150

Income from continuing operations	$	97,531		$	2,685	$	(3,709	)	$	96,507

Income per share from continuing operations - basic	$	0.16							$	0.16
Income per share from continuing operations - diluted	$	0.16							$	0.16

Shares used in per share calculation - basic	600,330								600,330
Shares used in per share calculation - diluted	622,183								622,183

(1) Represents Inktomi’s results of operations for the period from January 1, 2003 to March 19, 2003, the acquisition date.

The accompanying notes are an integral part of these unaudited pro forma combined condensed consolidated financial statements.

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

1. Basis of Pro Forma Presentation

On March 19, 2003, Yahoo! acquired Inktomi for a purchase price of $1.65 per share in cash for each share of Inktomi common stock outstanding upon the effective date of the merger. Each outstanding option to purchase shares of Inktomi common stock has been assumed using an exchange ratio based on the ten day trading average of Yahoo! common stock immediately preceding and excluding the effective date of the merger using a $1.65 value. Based upon the number of shares of Inktomi common stock and options outstanding as of the acquisition date, Yahoo! made a cash payment of approximately $272.9 million and issued options to purchase approximately 1.2 million shares of Yahoo! common stock. Yahoo! has accounted for the merger under the purchase method of accounting.

The unaudited pro forma combined condensed consolidated statements of operations of Yahoo! and Inktomi for the year ended December 31, 2002 and the six months ended June 30, 2003 are presented as if the transaction had been consummated on January 1, 2002. The unaudited pro forma combined consolidated statement of operations for the twelve months ended December 31, 2002 combines the results of operations of Yahoo! for the fiscal year ended December 31, 2002 and Inktomi’s results of operations for the twelve months ended December 31, 2002. Inktomi’s results of operations for the twelve months ended December 31, 2002 were calculated by adding the results of operations for the three months ended December 31, 2002, and deducting the results of operations for the three months ended December 31, 2001, to the results of operations for the twelve months ended September 30, 2002. On December 17, 2002, Inktomi consummated the divestiture of its Enterprise Search division to Verity Inc. in a transaction accounted for as a sale of assets. The Enterprise Search division of Inktomi has been accounted for as a discontinued operation in the historical consolidated financial statements of Inktomi and therefore, the results of operations of Inktomi included herein only reflect Inktomi’s results from continuing operations for all periods presented in this document. The Inktomi statement of operations for the six months ended June 30, 2003 include Inktomi’s results of operations for the period from January 1, 2003 to March 19, 2003, the acquisition date.

The unaudited pro forma combined condensed consolidated financial statements reflect an estimated purchase price of approximately $289.6 million. The cash payment was determined based on the number of outstanding shares of Inktomi common stock as of the acquisition date. The fair value of Yahoo! options issued was determined using the Black-Scholes model and the number of outstanding Inktomi options as of the acquisition date. Using the number of Inktomi shares and options as noted above, the estimated total purchase price of the Inktomi merger is as follows (in thousands):

Cash	$	272,925
Fair value of Yahoo! options to be issued	13,368
Estimated direct merger costs	3,313
Total estimated purchase price	$	289,606

Under the purchase method of accounting, the total estimated purchase price is allocated to Inktomi’s net tangible and intangible assets based upon their estimated fair value as of the date of completion of the merger. Based upon the estimated purchase price and the preliminary valuation, the preliminary purchase price allocation, which is subject to change based on Yahoo!’s final analysis, is as follows (in thousands):

Cash acquired	$	44,610
Tangible assets acquired	26,990
Amortizable intangible assets:
Customer-related intangible assets	23,500
Developed technology	25,900
Goodwill	216,921
Total assets acquired	337,921

Liabilities assumed	(49,602		)
Deferred stock-based compensation	1,287

Net assets acquired	$	289,606

Amortizable intangible assets consist of customer-related intangible assets and developed technology with useful lives not exceeding five years. A preliminary estimate of $216.9 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired, and is not deductible for tax purposes. Goodwill will not be amortized and will be tested for impairment at least annually. The preliminary purchase price allocation for Inktomi is subject to revision as more detailed analysis is completed and additional information on the fair values of Inktomi’s assets and liabilities becomes available. Any change in the fair value of the net assets of Inktomi will change the amount of the purchase price allocable to goodwill. Liabilities assumed includes approximately $12.7 million of restructuring costs associated with the merger.

2. Pro Forma Adjustments

Certain reclassifications have been made to conform Inktomi’s historical amounts to Yahoo!’s financial statement presentation.

The accompanying unaudited pro forma combined condensed consolidated financial statements have been prepared as if the merger was completed as of January 1, 2002 for statements of operations purposes, and reflect the following pro forma adjustments:

(a) To reflect the decrease in interest income related to the cash payment for the merger of $272.9 million.

(b) To eliminate Yahoo! revenues from Inktomi, for which the related costs were eliminated through inclusion within sales and marketing expense related to the Enterprise Search Business sold to Verity, Inc.

(c) To eliminate the amortization of Inktomi historical intangibles and reflect amortization of the amortizable intangible assets and deferred compensation resulting from the merger. The weighted average life of amortizable intangible assets approximates 4 years and the remaining vesting period of unvested employee stock options approximates 3.5 years.

(d) To adjust the provision (benefit) for taxes to reflect the impact of Inktomi’s net income (loss) and the pro forma adjustments.

3. Pro Forma Combined Net Income (Loss) Per Share

Shares used to calculate unaudited pro forma combined net income (loss) per basic and diluted share were computed using Yahoo!’s weighted average shares outstanding during the respective periods.

Exhibit 99.1(iii)

OVERTURE SERVICES, INC. ALTA VISTA COMPANY AND FAST IBU UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma combined condensed consolidated statements of operations gives effect to the acquisitions by Overture Services, Inc. (“Overture”) of the business of AltaVista Company (“AltaVista”) and the Web search unit of Fast Search and Transfer (“Fast”) using the purchase method of accounting. These pro forma statements were prepared as if the transactions had occurred on January 1, 2002.

The unaudited pro forma combined condensed consolidated statements of operations are for illustrative purposes only and reflect certain estimates and assumptions regarding the transactions as described in the notes to the unaudited pro forma combined condensed consolidated statements of operations. The unaudited pro forma combined condensed consolidated statements of operations are based on the audited and unaudited historical consolidated financial statements of Overture, Fast and AltaVista and should be read in conjunction with those consolidated financial statements and related notes. Overture’s historical consolidated financial statements and related notes are contained in Overture’s Annual Report on Form 10-K for the year ended December 31, 2002 and Overture’s Quarterly Report on Form 10-Q for the six months ended June 30, 2003 on file with the SEC. Alta Vista's and Fast's historical audited and unaudited consolidated financial statements and related notes are included elsewhere in this filing as required. The unaudited pro forma combined condensed consolidated statements of operations are not necessarily indicative of the operating results that would have been achieved had the transactions occurred on January 1, 2002 and should not be construed as being representative of future financial position or operating results.

The pro forma adjustments are based on preliminary estimates and certain assumptions to reflect the allocation of the purchase price to the acquired assets and assumed liabilities of AltaVista and Fast. The final allocation of purchase price will be determined as additional information on the fair values of AltaVista and Fast become available and will be based upon the actual net tangible assets acquired and liabilities assumed. Final purchase accounting adjustments may differ materially from the pro forma adjustments presented herein.

In order to be more comparable to Overture’s historical consolidated statements of operations for the twelve months ended December 31, 2002, the consolidated statement of operations information for AltaVista included in the unaudited pro forma combined condensed consolidated financial information reflects the twelve months ended January 31, 2003. The consolidated statements of operations for the six months ended June 30, 2003 for Fast and Alta Vista were derived from the unaudited statement of operations for the period from January 1, 2003 through the date of each acquisition.

Overture disposed of the AltaVista Software business unit (“AVS”). Approximately 11% of AltaVista’s revenues were derived from the activities of AVS in the 12 months ended January 31, 2003. The unaudited pro forma combined condensed consolidated financial information for the periods prior to Overture's acquisition of Alta Vista included herein does not include any adjustments for the disposition of this business.

OVERTURE SERVICES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(in thousands, except per share amounts)

						Fast								AltaVista
						Pro Forma			Pro Forma					Pro Forma			Pro Forma
	Overture		Fast			Adjustments			Balances		AltaVista			Adjustments			Combined
Revenue	$	667,730	$	8,788		$	(186	)(c)	$	676,332	$	63,862		$	(15,740	)(f)	$	724,454
Operating expenses:
Search Serving	32,723		8,525			(4,349		)(b),(c)	36,899		21,449			(7,863		)(h)	50,485
Traffic acquisition	384,583		—			—			384,583		—			(15,740		)(f)	368,843
Marketing, sales and services	55,245		3,248			—			58,493		36,023			(1,235		)(h)	93,281
General and administrative	75,618		2,351			—			77,969		17,381			(373		)(h)	94,977
Product development	19,372		1,678			—			21,050		24,117			(3,418		)(h)	41,749
Amortization of deferred compensation and intangible assets	1,753		883			555		(a)	3,191		34,435			(32,154		)(g)	5,472
Impairment of long lived assets	—		—			—			—		632			—			632
Restructuring charges	—		—			—			—		8,087			—			8,087
Loss on litigation ruling	8,700		—			—			8,700		—			—			8,700

	577,994		16,685			(3,794		)	590,885		142,124			(60,783		)	672,226

Income (loss) from Operations	89,736		(7,897		)	3,608			85,447		(78,262		)	45,053			52,228
Other income:
Interest income (expense), net	3,938		—			(1,325		)(e)	2,613		(7,647		)	(1,186		)(i)	(6,220		)
Impairment of long-lived assets	—		—			—			—		(704		)	—			(704		)
Other income	974		—			—			974		(235		)	—			739

Net income (loss) before provision for income taxes	94,648		(7,897		)	2,283			89,034		(86,848		)	43,857			46,043
Provision for income taxes	21,501		—			(1,789		)(d)	19,712		(4		)	(15,460		)(j)	4,248

Net income (loss)	$	73,147	$	(7,897	)	$	4,072		$	69,322	$	(86,844	)	$	59,317		$	41,795

Net income per share
Basic	$	1.27							$	1.20							$	0.67
Diluted	$	1.23							$	1.16							$	0.65
Weighted average shares
Basic	57,674								57,674					4,275			61,949
Diluted	59,603								59,603					4,275			63,878

See accompanying notes.

OVERTURE SERVICES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(in thousands, except per share amounts)

	Overture			Fast			Fast Pro Forma Adjustments			Pro Forma Balances			AltaVista			AltaVista Pro Forma Adjustments			Pro Forma Combined

Revenue	$	490,057		$	2,615		$	(318	)(c)	$	492,354		$	16,522		$	(6,084	)(f)	$	502,792
Operating expenses:
Search Serving	30,220			1,937			(872		)(b)(c)	31,285			7,266			(2,195		)(h)	36,356
Traffic acquisition	313,130			—			—			313,130			—			(6,084		)(f)	307,046
Marketing, sales and services	38,968			914			—			39,882			7,482			(277		)(h)	47,087
General and administrative	56,050			670			—			56,720			3,556			(22		)(h)	60,254
Product development	18,030			422			—			18,452			6,198			(715		)(h)	23,935
Amortization of deferred compensation and intangible assets	2,016			176			185		(a)	2,377			—			760		(g)	3,137
Impairment of long lived assets	—			—			—			—			—			—			—
Restructuring charges	—			—			—			—			(103		)	—			(103		)
Loss on litigation ruling	(3,941		)	—			—			(3,941		)	—			—			(3,941		)
	454,473			4,119			(687		)	457,905			24,399			(8,533		)	473,771

Income (loss) from Operations	35,584			(1,504		)	369			34,449			(7,877		)	2,449			29,021
Other income:
Interest income (expense), net	1,231			—			(355		)(e)	876			(2,764		)	(417		)(i)	(2,305		)
Impairment of long-lived assets	—			—			—			—			—			—			—
Other income	213			—			—			213			(482		)	—			(269		)

Net income (loss) before provision for income taxes	37,028			(1,504		)	14			35,538			(11,123		)	2032			26,447
Provision for income taxes	18,267			—			(648		)(d)	17,619			1			(4,330		)(j)	13,290
Net income (loss)	$	18,761		$	(1,504	)	$	662		$	17,919		$	(11,124	)	$	6,362		$	13,157

Net income per share
Basic	$	0.31								$	0.29								$	0.21
Diluted	$	0.30								$	0.29								$	0.20
Weighted average shares
Basic	60,923									60,923						2,716			63,639
Diluted	61,991									61,991						2,716			64,707

See accompanying notes.

OVERTURE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION

Note 1 – Pro forma adjustments and assumptions

On April 21, 2003, Overture completed its purchase of the Web search unit of Fast Search & Transfer (“Fast”), a Norway based developer of search and real-time filtering technologies. In the transaction, Overture acquired Fast for approximately $70 million in cash, as well as a contingent performance-based cash incentive payment of up to $30 million over three years.

On April 25, 2003, Overture completed its purchase of the business of AltaVista Company (“AltaVista”), a developer and provider of Web search technologies. In the transaction, Overture acquired the business of AltaVista for approximately $60 million in cash and 4,274,670 shares of Overture common stock.

Certain reclassifications have been made to conform Fast’s and AltaVista’s historical consolidated balance sheet and consolidated income statement information previously reported to Overture’s consolidated financial statement presentation.

Pro forma adjustments giving effect to the acquisition of Fast in the unaudited pro forma combined condensed consolidated statements of operations for the twelve months ended December 31, 2002 and the six months ended June 30, 2003, reflect the following:

The purchase price reflects the cash paid to Fast and the estimated direct expenses of the transaction. The purchase price excludes contingent payments of up to $30 million over three years or up to $2.5 million per quarter.

Estimated purchase price (in thousands):
Cash	$	70,000
Estimated acquisition expenses	627
Total estimated purchase price	$	70,627

The following represents the preliminary allocation of the aggregate purchase price to the acquired net assets of Fast.

Purchase price allocation (in thousands):
Fair value of net tangible assets	$	2,018
Technology and patents	4,600
Customer contracts	6,200
Goodwill	57,809
Net assets acquired	$	70,627

The allocation of the purchase price is preliminary due to the recent timing of the acquisition and is subject to more detailed analysis of intangible assets. Management valued the identifiable intangible assets acquired based on a preliminary valuation performed with the assistance of an independent appraiser. Identifiable intangible assets consist of technology and patents of $4.6 million to be amortized over six (6) years on a proportional method based on cash flows and customer contracts of $6.2 million to be amortized over four (4) years on a proportional method based on cash flows. The value of fixed assets is estimated to be $1.0 million to be depreciated on a

straight-line basis over eighteen (18) months. The remaining net tangible assets were valued at their respective carrying amounts that management believes approximate their current fair values.

(a) To record amortization expense based on the fair market value of the intangible assets acquired. The difference in amortization expense for the next five years using the proportional method based on cash flows compared to the straight-line method results in approximately $(1.1) million, $1.2 million, $2.2 million, $(0.3) million and $(0.3) million of additional amortization.

(b) To eliminate the historical depreciation of Fast’s fixed assets and to record depreciation expense based on the fair market value of the fixed assets acquired.

(d) To adjust the provision for taxes to reflect the impact of Fast’s net loss and the related pro forma adjustments based on the applicable statutory rates.

(e) To adjust interest income to reflect a reduction in cash from the acquisitions, which would not have been earned during the period.

Pro forma adjustments giving effect to the acquisition of AltaVista in the unaudited pro forma combined condensed consolidated statements of operations for the twelve months ended December 31, 2002 and the six months ended June 30, 2003, reflect the following:

The purchase price reflects the cash paid to AltaVista and the value of Overture common stock issued based on the average stock price for the 2 days before and after the measurement date of February 19, 2003 when the number of shares to be issued was fixed and determinable.

Estimated purchase price (in thousands):
Cash	$	60,000
Stock issued	82,715
Estimated acquisition expenses	3,229
Total estimated purchase price	$	145,944

The following represents the preliminary allocation of the aggregate purchase price to the acquired net assets of AltaVista. No cash or debt was acquired in the acquisition.

Purchase price allocation (in thousands):
Fair value of net tangible assets (liabilities)	$	86
Technology and patents	11,100
Trademarks	4,300
Customer contracts	6,200
Goodwill	124,258
Net assets acquired	$	145,944

The allocation of the purchase price is preliminary due to the recent timing of the acquisition and is subject to more detailed analysis of intangible assets. Management valued the identifiable intangible assets acquired based on a preliminary valuation. Identifiable intangible assets consist of technology and patents of $11.1 million to be amortized over six (6) years on a proportional method based on cash flows, trademarks of $4.3 million to be amortized over six (6) years on a proportional method based on cash flows customer contracts of $6.2 million to be amortized over four (4) years on a proportional method based on cash flows. The value of fixed assets is estimated to be $7.3 million to be depreciated on a straight-line basis over eighteen (18) months. The remaining net tangible assets were valued at their respective carrying amounts that management believes approximate their current fair values.

(f) To eliminate traffic acquisition costs paid to AltaVista, and the related revenue recognized by AltaVista.

(g) To record amortization expense based on the fair market value of the intangible assets acquired. The difference in amortization expense for the next five years using the proportional method based on cash flows compared to the straight-line method results in approximately $0.3 million, $3.6 million, $0.5 million, $(0.8) million and $(1.8) million of additional amortization.

(h) To eliminate the historical depreciation of AltaVista’s fixed assets and to record depreciation expense based on the fair market value of the fixed assets acquired.

(i) To adjust interest income to reflect a reduction in cash from the acquisitions, which would not have been earned during the period.

(j) To adjust the provision for taxes to reflect the impact of AltaVista’s net loss and the related pro forma adjustments based on the applicable statutory rates.

Exhibit 99.2

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF OVERTURE SERVICES, INC.

	INDEX TO FINANCIAL STATEMENTS


	Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002		2
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002		3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002		4
	Notes to Condensed Consolidated Financial Statements		5

OVERTURE SERVICES, INC.

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

	June 30,			December 31,
	2003			2002
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	83,138		$	78,987
Short-term investments	23,099			118,905
Accounts receivable, net	56,096			31,682
Prepaid expenses, deferred tax assets and other	23,555			23,483
Prepaid traffic acquisition expense	37,576			25,372
Total current assets	223,464			278,429
Property and equipment, net	73,143			55,656
Intangible assets, net	34,049			1,393
Goodwill	187,303			—
Restricted investments	8,535			—
Long-term investments	7,194			52,852
Long-term prepaid traffic acquisition expense	38,366			36,738
Long-term deferred tax assets and other	12,988			10,648
Total assets	$	585,042		$	435,716
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	124,260		$	93,293
Accrued expenses	29,938			21,010
Deferred revenue	19,141			16,672
Total current liabilities	173,339			130,975
Long-term liabilities	859			1,203
STOCKHOLDERS’ EQUITY:
Preferred Stock; $0.0001 par value, 10,000 shares authorized as of June 30, 2003 and December 31, 2002.	—			—
Common stock, $0.0001 par value, 200,000 shares authorized as of June 30, 2003 and December 31, 2002; 63,794 and 59,249 shares issued and outstanding as of June 30, 2003 and December 31, 2002, respectively	6			6
Additional paid-in capital	795,775			709,568
Deferred compensation, net	(818		)	(210		)
Accumulated other comprehensive income	5,836			2,890
Accumulated deficit	(389,955		)	(408,716		)
Total stockholders’ equity	410,844			303,538
Total liabilities and stockholders’ equity	$	585,042		$	435,716

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

OVERTURE SERVICES, INC.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2003		2002		2003			2002
Revenue	$	265,332	$	152,496	$	490,057		$	295,341
Operating expenses:
Search serving	17,252		8,701		30,220			14,694
Traffic acquisition	169,105		81,437		313,130			158,440
Marketing, sales and service	21,168		12,438		38,968			23,867
General and administrative	31,979		17,324		56,050			33,631
Product development	10,241		5,005		18,030			9,372
Amortization of deferred compensation and intangible assets	1,316		396		2,016			819
Reduction in loss on litigation ruling	—		—		(3,941		)	—

	251,061		125,301		454,473			240,823

Income from operations	14,271		27,195		35,584			54,518
Other income:
Interest income, net	371		588		1,231			1,837
Other income, net	249		129		213			847

Income before income taxes	14,891		27,912		37,028			57,202
Provision for income taxes	7,267		10,429		18,267			10,429

Net income	$	7,624	$	17,483	$	18,761		$	46,773

Basic net income per share	$	0.12	$	0.30	$	0.31		$	0.81

Diluted net income per share	$	0.12	$	0.29	$	0.30		$	0.78

Weighted average shares used to compute basic net income per share	62,532		58,078		60,923			57,746
Weighted average shares used to compute diluted net income per share	63,218		60,159		61,991			60,322

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

OVERTURE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)

	Six Months Ended
	June 30,
	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	18,761		$	46,773
Adjustments to reconcile net income to net cash provided by operating activities:
Tax benefits from stock options	494			10,429
Loss from sale of property and equipment	—			1,059
Accretion of discounts from the purchase of short-term and long-term investments	230			398
Depreciation and amortization	20,190			9,629
Changes in operating assets and liabilities net of effect of acquisition:
Accounts receivable	(17,662		)	(9,845		)
Prepaid expenses and other	1,430			(4,331		)
Prepaid traffic acquisition expense	(13,832		)	(37,885		)
Accounts payable and accrued expenses	22,150			20,084
Deferred revenues	2,283			3,390
Net cash provided by operating activities	34,044			39,701
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of short-term and long-term investments	175,721			148,805
Purchases of short-term, long-term and restricted investments	(42,472		)	(185,006		)
Capital expenditures for property and equipment	(26,102		)	(26,356		)
Payment for acquisitions, net of cash acquired	(140,723		)	—
Net cash used in investing activities	(33,576		)	(62,557		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net	2,074			10,565
Repayments of debt	(1,971		)	(89		)
Net cash provided by financing activities	103			10,476
Effect of exchange rate changes on cash and cash equivalents	3,580			628
Net increase in cash and cash equivalents	4,151			(11,752		)
Cash and cash equivalents at beginning of period	78,987			61,974
Cash and cash equivalents at end of period	$	83,138		$	50,222

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

OVERTURE SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. THE COMPANY, BASIS OF PRESENTATION

Overture Services, Inc. (“Overture” or the “Company”) is a global leader in commercial search services on the Internet. Overture’s paid placement search service is comprised of advertisers’ listings, which are screened for relevance and accessed by consumers and businesses through Overture’s affiliates, a network of Web properties that have integrated Overture’s search service into their sites or that direct user traffic to Overture’s sites. In some cases, consumers and businesses access our search listings directly at our sites. The search listings are ranked according to the advertiser’s bid; the higher the bid, the higher the ranking. Advertisers pay Overture the bid price for clicks on the advertiser’s search listing (also known as a paid introduction, click-through or a paid click). As of June 30, 2003, Overture and its wholly owned subsidiaries operated the Overture service in the United States, Ireland, United Kingdom, Germany, France, Italy, Japan and South Korea. The Company reports in one reportable business segment.

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

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

On April 25, 2003, Overture acquired the business of AltaVista Company (“AltaVista”), a provider of search services and technology, for $60 million in cash and $82.7 million in common stock issued based on Overture’s average stock price for the two days before and after the measurement date of February 19, 2003 when the number of shares to be issued was fixed and determinable.

AltaVista and Fast both use algorithmic search technology to crawl the Web and return relevant search results in response to users’ queries through syndicated networks or through the AltaVista and Fast Web sites, AltaVista.com and alltheweb.com, respectively. Overture believes these technologies complement its own technology in commercial search and will enhance its core paid placement search business, as well as allow Overture to develop new products and services for its advertisers and affiliates.

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

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

These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

2. COMPREHENSIVE INCOME

The Company accounts for comprehensive income using Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (SFAS 130). SFAS 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined therein, refers to revenues, expenses, gains and losses that are not included in net income but rather are recorded directly in stockholders’ equity. The differences between total comprehensive income and net income for the six months ended June 30, 2003 and June 30, 2002 were $2.9 million and $0.9 million, respectively. As of June 30, 2003, accumulated other comprehensive income was comprised of $0.1 million of unrealized gains on investments and $5.7 million of cumulative translation adjustments.

3. EARNINGS PER SHARE COMPUTATION

Shares used in computing basic and diluted net income per share are based on the weighted average shares outstanding in each period. Basic net income per share is calculated by dividing net income by the average number of outstanding shares during the period. Diluted net income per share is calculated by adjusting the average number of outstanding shares assuming conversion of all potentially dilutive stock options and unvested stock under the treasury stock method. Options to purchase 11.4 million and 8.2 million shares of common stock were outstanding as of June 30, 2003 and 2002, respectively.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2003		2002		2003		2002
Numerator:
Net income	$	7,624	$	17,483	$	18,761	$	46,773
Denominator:
Denominator for basic calculation – weighted average shares	62,532		58,078		60,923		57,746
Common stock equivalents	686		2,081		1,068		2,576
Denominator for diluted calculation – weighted average shares	63,218		60,159		61,991		60,322
Net income per share:
Basic net income per share	$	0.12	$	0.30	$	0.31	$	0.81
Diluted net income per share	$	0.12	$	0.29	$	0.30	$	0.78

4. INCOME TAXES

Overture generated taxable income during the three and six months ended June 30, 2003. A tax provision was recorded that was more than the statutory rate primarily due to the effect of foreign net operating losses (“NOLs”) which carry a benefit at a lower tax rate. The tax provision recorded for the six months ended June 30, 2002 was less than the statutory rate primarily due to the release of the valuation allowance associated with prior years losses.

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

	Six Months Ended
	June 30,
	2003		2002
Statutory federal rate	35	%	35	%
State income taxes (net of federal benefit)	5		4
Valuation allowance	(—	)	(23	)
Foreign rate differential	10		5
Non-deductible expense and other	(1	)	(3	)
	49	%	18	%

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
Current:
Federal	$	5,785		$	11,198		$	15,826		$	16,418
State	629			1,324			2,067			1,884
Foreign	(228		)	—			363			—
Total current	6,186			12,522			18,256			18,302
Deferred:
Federal	2,647			—			3,230			(4,800		)
State	385			—			538			(550		)
Foreign	(1,951		)	(2,093		)	(3,757		)	(2,523		)
Total deferred	1,081			(2,093		)	11			(7,873		)
	$	7,267		$	10,429		$	18,267		$	10,429

5. LITIGATION

The Company is currently in separate litigations with Google and FindWhat in which the Company is alleging that these parties infringe on the Company’s U.S. Patent No. 6,269,361 (“the ‘361 Patent”) entitled “System And Method For Influencing A Position On A Search Result List Generated By A Computer Network Search Engine.” The ‘361 Patent protects various features and innovations relating to bid-for-placement products and Overture’s paid placement search technologies, including its DirecTraffic Center account management system and tools. In each litigation, the respective parties, Google and FindWhat, have alleged invalidity and unenforceability of the ‘361 Patent. In addition, FindWhat has also alleged that the Company has violated the Sherman Act, 15 U.S.C. § 2. When the validity and enforceability of the ‘361 Patent is determined, in either litigation, that determination may have a material effect on the Company’s competitive position.

The complaint against FindWhat was filed on January 25, 2002, in the United States District Court for the Central District of California. The lawsuit charges FindWhat with willful infringement of the ‘361 Patent. The Company also seeks a permanent injunction against FindWhat, an award of increased damages, and an award of attorney’s fees, costs and expenses. Also on January 25, 2002, FindWhat served the Company with an amended complaint filed in the United States District Court for the Southern District of New York for declaratory judgment of invalidity, unenforceability and non-infringement relating to the Company’s ‘361 Patent. On February 13, 2003, the New York Court ordered FindWhat’s declaratory judgment to be transferred to the Central District of California. Subsequently, after transfer, FindWhat dismissed its action in favor of the Company’s California action, which is now the only case pending between the parties. FindWhat answered the Company’s Complaint on March 25, 2003, and asserted counterclaims alleging non-infringement, invalidity and unenforceability of the Company’s patent as well as alleging that the Company has violated the Sherman Act, 15 U.S.C. § 2. On April 17, 2003, the Company filed its reply and denied the allegations of these counterclaims. The parties continue to progress through the discovery process.

The complaint against Google was filed on April 23, 2002 in the United States District Court for the Northern District of California. The lawsuit charges Google with willful infringement of the ‘361 Patent. The Company also seeks a permanent injunction against Google, an award of increased damages, and an award of attorney’s fees, costs and expenses. On June 7, 2002, Google filed its answer to the Overture complaint, denying that it infringes the ‘361 Patent and alleging counterclaims of non-infringement, invalidity and unenforceability relating to the ‘361 Patent. On June 25, 2002, the Company filed its reply and denied the allegations of these counterclaims. On March 28, 2003 the Company filed an Amended Complaint. On April 14, 2003 Google answered the amended complaint and re-asserted its same counterclaims. The Company filed its reply denying the allegations of these counterclaims. The parties continue to move through the discovery process. A hearing regarding the interpretation of the claims contained in the ‘361 Patent (commonly referred to as a “Markman” hearing) currently is scheduled for October 2003.

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

The Company has also been named as a defendant in six trade name infringement actions filed in Los Angeles County Superior Court (Spreen Inc., McCoy Motor Co., Apaulo Inc., Puente Hills Imports, Superior Auto of Carson LLC and Gordon Automotive Group, Inc.). The plaintiffs in these actions have alleged, among other things, that they have rights in certain search terms and that the Company violates these rights by allowing other entities to bid on these search terms. The complaints contain causes of action for trade name infringement and dilution, trademark infringement and dilution, service mark infringement and dilution, unfair business practices, intentional interference with prospective business advantage, negligence; injunction, declaratory relief, constructive trust and conspiracy. Unspecified compensatory and punitive damages as well as injunctive relief is sought. Overture believes it has meritorious defenses to the complaints and is vigorously defending the actions.

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

On June 19, 2001, InternetFuel.com, Inc. filed a complaint against Overture in the Superior Court of the State of California for the County of Los Angeles. The complaint alleges that Overture wrongfully terminated an agreement pursuant to which InternetFuel participated in Overture’s affiliate program and that Overture did not properly account for monies owed under that agreement. In December 2001, the Court transferred the case to arbitration. InternetFuel.com thereafter supplemented its claims, alleging fraud under California law. This matter was arbitrated in late December 2002 and early January 2003. On January 10, 2003, the arbitrator issued an interim award. Although the arbitrator found in Overture’s favor on InternetFuel’s claims for fraud and unfair business practices, the arbitrator found for InternetFuel on the breach of contract claim and awarded InternetFuel $8.7 million, which was recorded as an expense in the three months ended December 31, 2002. On January 16, 2003, InternetFuel filed an application with the arbitrator seeking approximately $840,000 in pre-judgment interest on the award. As a result of several motions filed by Overture, on April 2, 2003, the Arbitrator issued a Corrected Final Award, reducing the damage award against Overture to $4.8 million. This $3.9 million reduction in the award was recorded as a reduction in loss of litigation ruling in the three months ended March 31, 2003. On May 20, 2003, the Superior Court granted InternetFuel’s petition to confirm the arbitration award. On June 4, 2003, the Court entered a judgment on the arbitration award in favor of InternetFuel and against the Company in the amount of $4.8 million, plus interest of $0.1 million. The Company has appealed the Court’s ruling and deposited $7.3 million with the Court in lieu of an appeal bond.

On July 12, 2001, the first of several purported securities class action lawsuits was filed in the United States District Court, Southern District of New York against certain underwriters involved in Overture’s initial public offering, Overture, and certain of Overture’s current and former officers and directors. The Court consolidated the cases against Overture into case number 01 Civ. 6339. Plaintiffs allege, among other things, violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 involving undisclosed compensation to the underwriters, and improper practices by the underwriters, and seek unspecified damages. Similar complaints were filed in the same court against numerous public companies that conducted initial public offerings of their common stock since the mid-1990s. All of these lawsuits were consolidated for pretrial purposes before Judge Shira Scheindlin. On April 19, 2002, plaintiffs filed an amended complaint, alleging Rule 10b-5 claims of fraud. On July 15, 2002, the issuers filed an omnibus motion to dismiss for failure to comply with applicable pleading standards. On October 8, 2002, the Court entered an Order of Dismissal as to all of the individual defendants in the Overture IPO litigation, without prejudice. On February 19, 2003, the Court largely denied the motion to dismiss, including the Rule 10b-5 claims against Overture, and Overture remains a defendant in the case. Overture continues to deny the allegations against it, believes that it has meritorious defenses to the amended complaint, and intends to contest the allegations vigorously. The parties have continued to engage in settlement discussions, and the plaintiffs, insurers, and defendant issuers (including individual officers and directors) are considering a final draft of a settlement memo of understanding.

On February 20, 2002, Overture filed a complaint against Did-It.com, Inc. for trespass, unfair competition and violations of the Computer Fraud and Abuse Act. In response to Overture’s complaint, on June 14, 2002, Did-It filed a counterclaim against Overture alleging federal and state antitrust violations, violations of the Unfair Trade Practices Act, fraud and deceit, negligent misrepresentation, false and misleading advertising, unfair competition, interference with contract and prospective economic advantage and violations of California Civil Code Section 1812.600, et.seq. On August 7, 2002, Overture filed a motion to dismiss various claims contained in Did-It’s counterclaim, including claims for antitrust violations. On August 30, 2002, Did-It filed its first amended counterclaim, which omitted some of the antitrust causes of action contained in its initial counterclaim. On October 2, 2002, Overture filed its answer to Did-It’s first amended counterclaim. The parties are entering the early phase of discovery. Overture believes that it has meritorious defenses to the allegations contained in the counterclaim and is contesting these allegations vigorously.

In August 2001, Jeffrey Black, a former employee of AltaVista, filed a complaint in Superior Court of the State of California (Santa Clara County) in his individual capacity as well as in his capacity as a trustee of two family trusts against the AltaVista Company and CMGI, Inc. alleging certain claims arising out of the termination of his employment with AltaVista. As set forth in the complaint, Mr. Black is seeking monetary damages in excess of $70 million. Overture believes that these claims are without merit and is vigorously defending the action. In March 2002, the Court ordered the entire case to binding arbitration in California. An arbitrator was appointed in January 2003 and an arbitration hearing is scheduled to commence on August 13, 2003. On June 3, 2003, Overture was named as a defendant in the State Court action as successor in interest to AltaVista. Overture filed its answer to the third amended complaint on July 3, 2003, denying the allegations of the third amended complaint and asserting that the action was stayed pending the arbitration hearing.

On March 11, 2002, Sean Barger filed suit in Superior Court of the State of California against AltaVista and a number of other defendants alleging (1) violation of state securities statutes, (2) fraudulent inducement, deceit, fraud, (3) negligent misrepresentation, (4) unfair competition and (5) breach of fiduciary duty. Mr. Barger is claiming an unspecified amount of damages. Mr. Barger was

the principal shareholder of Equilibrium Technologies, Inc. (“Equilibrium”) which was a company purchased by AltaVista’s majority shareholder, CMGI, Inc. Mr. Barger claims that AltaVista and the other defendants made false representations to induce him to allow Equilibrium to be acquired by CMGI. On April 3, 2003, defendants filed their answer to plaintiff’s second amended complaint. The court has set a trial date for January 12, 2004. Overture believes it has meritorious defenses to Mr. Barger’s amended complaint and intends to defend the action vigorously.

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

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

On July 17, 2003, Bubble My Wedding and Connie Ciccone filed a complaint in the Federal District Court in Cincinnati against Overture, American Express Company and Huntington Bank. The complaint contains claims for breach of contract, fraudulent conveyance, tortious interference with business, fraud and misrepresentation, racketeer influencing and corrupt organizations, and other tortious conduct based on the alleged misappropriation of monies and properties. Overture believes it has meritorious defenses to the complaint and is vigorously defending the action.

AltaVista is indemnifying its Brazilian law firm, Lobos & Ibeas, after it was sued by Bianca Rothier, a Brazilian fashion model, in the Eighth Civil Court of the State of Rio de Janeiro in Brazil for “moral damages” caused by the display of her name in connection with adult content Web sites in AltaVista search results. Lobos & Ibeas registered the AltaVista.br domain name on behalf of AltaVista and was named as defendant in the suit on that basis. Defendants have raised their defenses to the complaint and plaintiff has recently presented her reply to those defenses. Overture believes it has meritorious defenses to the complaint and is vigorously defending the action.

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

6. RELATED PARTY TRANSACTIONS

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

During the three months ended June 30, 2003 and 2002, Overture recorded approximately $0.2 million and $0.2 million, respectively, and for the six months ended June 30, 2003 and 2002, Overture recorded approximately $0.4 million and $0.5 million, respectively, of search listing advertising revenue from affiliates of Idealab, which with its affiliate, Idealab! Holdings, L.L.C., is a stockholder of Overture. Management believes these amounts are materially representative of the fair value of advertising services provided. During the three and six months ended June 30, 2003, Overture paid $3.4 million and $5.1 million of traffic acquisition costs to Idealab and Idealab affiliated companies. Management believes these amounts are materially representative of fair value.

7. AFFILIATE COMMITMENTS

The Company is obligated to make guaranteed payments totaling $101.0 million, $209.4 million, $25.5 million and $3.8 million for the remainder of 2003, 2004, 2005 and 2006, respectively, under contracts to provide search services to its affiliates.

8. ACCOUNTING FOR STOCK-BASED COMPENSATION

At June 30, 2003, the Company had one stock-based compensation plan. The company accounts for the plan under the recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25 “Accounting for Stock Issued to Employees” (APB 25). The following table sets forth the effect on net income and earnings per share if the Company had applied the fair value provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation” (SFAS 123), to stock-based employee compensation. For purposes of pro forma disclosures, the fair value of the options is amortized to expense on a graded methodology basis over the vesting period of the options.

	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002			2003			2002
	(in thousands)						(in thousands)
Net income, as reported	$	7,624		$	17,483		$	18,761		$	46,773
Additional stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(6,653		)	(6,118		)	(13,130		)	(11,058		)
Pro forma net income	971			11,365			5,631			35,715
Earnings per share:
Basic – as reported	0.12			0.30			0.31			0.81
Basic – pro forma	0.02			0.20			0.09			0.62
Earnings per share:
Diluted – as reported	0.12			0.29			0.30			0.78
Diluted – pro forma	$	0.02		$	0.19		$	0.09		$	0.59

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2003		2002		2003		2002
Risk free interest rate	1.75	%	3.75	%	1.75	%	3.75	%
Expected lives (in years)	3.0		3.0		3.0		3.0
Dividend yield	—		—		—		—
Expected volatility	0.80		0.80		0.80		0.80

Under SFAS 123, the Company would have incurred additional pre-tax compensation expense of $11.1 million and $10.2 million for the three months ended June 30, 2003 and 2002, respectively, and $21.9 million and $18.4 million for the six months ended June 30, 2003 and 2002, respectively.

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

9. ACQUISITIONS

Keylime Software, Inc.

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

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

Fast Search and Transfer ASA

On April 21, 2003, Overture completed its purchase of the Web search unit of Fast Search & Transfer (“Fast”), a Norway based developer of search and real-time filtering technologies. In the transaction, Overture acquired Fast for approximately $70 million in cash, and a contingent performance-based cash incentive payment of up to $30 million over three years based on a volume metric measured quarterly. No payments have been made through June 30, 2003.

The total estimated purchase price of $70.7 million consisted of $70.0 million in cash and $0.7 million in direct transaction costs. The following represents the allocation of the aggregate purchase price to the fair value of assets acquired and liabilities assumed.

Purchase price (in thousands):
Property and equipment	$	917
Amortizable intangible assets	10,800
Goodwill	59,942
Liabilities assumed	(957		)
Total	$	70,702

Identifiable intangible assets consist of technology and patents of $4.6 million to be amortized over six years on a proportional method based on cash flows and customer contracts of $6.2 million to be amortized over four years on a proportional method based on cash flows.

AltaVista Company, Inc.

On April 25, 2003, Overture acquired the business of AltaVista Company (“AltaVista”), a provider of search services and technology. The total estimated purchase price of $145.9 million consisted of $60.0 million in cash, $82.7 million in common stock issued and $3.2 million in direct transaction costs. The value of the common stock was based on Overture’s average stock price for the two days before and after the measurement date of February 19, 2003 when the number of shares to be issued was fixed and determinable. The following represents the allocation of the aggregate purchase price to the fair value of assets acquired and liabilities assumed.

Purchase price (in thousands):
Cash	$	583
Tangible assets acquired	17,547
Amortizable intangible assets	21,400
Goodwill	122,828
Liabilities assumed	(16,493		)
Total	$	145,865

Identifiable intangible assets consist of technology and patents of $11.1 million to be amortized over six years on a proportional method based on cash flows, trademarks of $4.3 million to be amortized over six years on a proportional method based on cash flows and customer contracts of $6.0 million to be amortized over four years on a proportional method based on cash flows.

In June 2003, the Company sold AltaVista’s enterprise search business, which was obtained as a part of the acquisition of the business of AltaVista to Fast Search and Transfer ASA. The net assets of this business were recorded at fair value upon acquisition as an asset held for sale. As a result, there was no gain or loss on the sale. The impact of the disposition and the discontinued operations was immaterial and have not been reflected as discontinued operations in the accompanying consolidated statement of operations.

AltaVista and Fast both use algorithmic search technology to crawl the Web and return relevant search results in response to users’ queries through syndication networks or through their Web sites, AltaVista.com and alltheweb.com. Overture believes these technologies complement its own technology in commercial search and will enhance its core paid placement search business, as well as allow Overture to develop new products and services for its advertisers and affiliates.

These factors contributed to a purchase price in excess of the fair value of the net intangible and intangible assets acquired, and as a result, the Company has recorded goodwill in connection with these transactions.

The results of operations of Fast and AltaVista have been included in the Company’s condensed consolidated statement of operations since the completion of the acquisitions. The following unaudited pro forma information presents a summary of the results of operations of the Company assuming the acquisitions of Fast and AltaVista occurred on January 1, 2003 and 2002, respectively (in thousands, except per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2003		2002		2003		2002
Net revenue	$	267,885	$	168,765	$	502,792	$	326,249
Net income	5,666		570		13,157		19,836
Net income per share
Basic net income per share	$	0.09	$	0.01	$	0.21	$	0.32
Diluted net income per share	$	0.09	$	0.01	$	0.20	$	0.31
Weighted average shares used to compute pro forma basic net income per share	63,706		62,353		63,639		62,021
Weighted average shares used to compute pro forma diluted net income per share	64,392		64,434		64,707		64,597

10. AMORTIZATION OF INTANGIBLE ASSETS AND GOODWILL

The Company applies Statement of Financial Accounting Standard 142 (“SFAS 142”), “Goodwill and Other Intangible Assets,” which was effective for acquisitions after June 30, 2001. Under SFAS 142, goodwill is determined to have an indefinite useful life and should not be amortized but rather tested annually for impairment. An impairment loss should be recognized if the carrying amount of the reporting unit for which the goodwill is assigned exceeds its fair value. Purchased intangible assets are carried at cost and amortized over the economic useful lives of the respective assets.

Intangible assets consisted of the following (in thousands):

	Three Months Ended June 30,							December 31, 2002
	Gross Carrying		Accumulated			Net Carrying
Amortizable intangible assets	Amount		Amortization			Amount		Net
Technology and Patents	$	21,340	$	(4,175	)	$	17,165	$	1,393
Trademarks	5,278		(594		)	4,684		—
Customer contracts	12,200		—			12,200		—
	$	38,818	$	(4,769	)	$	34,049	$	1,393
Goodwill	$	187,303

Technology and patents of $15.7 million acquired as part of the acquisitions of Fast and AltaVista are being amortized on a proportional method based on cash flows over a weighted average period of six years. The remaining technology and patents are being amortized on a straight-line method over a weighted average period of approximately three years. Trademarks are being amortized on a proportional method based on cash flows over a weighted average period of approximately six years. Customer contracts are being amortized on a proportional method based on cash flows over a weighted average period of approximately four years. Amortization expense for the intangible assets for the three months ended June 30, 2003 and 2002 was $1.3 million and $0.3 million, respectively. Amortization expense for the intangible assets for the six months ended June 30, 2003 and 2002 was $1.7 million and $0.6 million, respectively. As of June 30, 2003, annual amortization of the intangible assets is expected to be $2.8 million, $6.3 million, $11.8 million, $9.2 million and $2.5 million for the remainder of the fiscal year ended December 31, 2003 and for the years ended 2004, 2005, 2006 and 2007, respectively.

11. RESTRUCTURING ACCRUAL

Prior to the closing of the acquisition of the business of AltaVista and Fast, management had begun to formulate a plan to exit certain activities. The Company recorded a restructuring accrual during the six months ended June 30, 2003 in conjunction with the acquisitions. The following table summarizes the activity in the restructuring accrual included in accrued expenses from January 1, 2003 through June 30, 2003 (in thousands):

	Employee
	Related			Contractual
	Payments			Obligations			Total
Accrued restructuring at December 31, 2002	$	—		$	—		$	—
Restructuring accrual	2,184			4,554			6,738
Cash payments	(947		)	(117		)	(1,064		)
Accrued restructuring at June 30, 2003	$	1,237		$	4,437		$	5,674

Restructuring initiatives involved decisions to reduce expenses and increase operational efficiencies of the Company as a result of the acquisitions of the businesses of AltaVista and Fast. In June 2003, the Company sold the AltaVista enterprise search business. The restructuring accrual consisted primarily of severance payments related to workforce reductions of approximately 100 employees, contract terminations, payments remaining on noncancellable leases for idle or abandoned facilities and vendor contracts on unutilized capacity.

The Company anticipates that the remaining restructuring accruals will be paid by September 2005. The remaining contractual obligations primarily relate to severance, facility lease obligations and vendor contracts.

12. GEOGRAPHICAL SEGMENT INFORMATION

The following table sets forth revenue by geographic area:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2003		2002		2003		2002
	(in thousands)				(in thousands)
United States	$	233,293	$	146,397	$	435,908	$	285,139
International	32,039		6,099		54,149		10,202
Total	$	265,332	$	152,496	$	490,057	$	295,341

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

	June 30, 2003		December 31, 2002
	(in thousands)
United States	$	317,961	$	82,339
International	16,828		13,857
Total	$	334,789	$	96,196

13. SUBSEQUENT EVENTS

On July 14, 2003, Overture announced that it had entered into a definitive agreement for Yahoo! Inc. (“Yahoo!”) to acquire Overture. Subject to the terms and conditions of an Agreement and Plan of Merger among Overture, Yahoo! and July 2003 Merger Corp., a wholly-owned subsidiary of Yahoo!, upon completion of the acquisition, Overture stockholders will receive 0.6108 of a share of Yahoo! common stock and $4.75 cash for each share of Overture common stock and associated Overture preferred stock purchase right owned. Shares of Yahoo! common stock will be issued with associated Yahoo! preferred stock purchase rights. In addition, Yahoo! will assume Overture’s outstanding stock options.

The consummation of the transaction is subject to the approval of the stockholders of Overture, receipt of necessary approvals under applicable antitrust laws, effectiveness of a registration statement with the SEC and other customary closing conditions.

Exhibit 99.3

CONSOLIDATED FINANCIAL STATEMENTS OF OVERTURE SERVICES, INC.

INDEX TO FINANCIAL STATEMENTS


Report of Independent Auditors	F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Stockholders’ Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Overture Services, Inc.

We have audited the accompanying consolidated balance sheets of Overture Services, Inc. (formerly GoTo.com, Inc.) as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Overture Services, Inc. at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Los Angeles, California
January 30, 2003

F-2

OVERTURE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)

	December 31, 2002			December 31, 2001

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	78,987		$	61,974
Short-term investments	118,905			71,837
Accounts receivable, net	31,682			10,973
Prepaid expenses, deferred tax assets and other	23,483			1,920
Prepaid traffic acquisition expense	25,372			8,590

Total current assets	278,429			155,294

Property and equipment:
Computer hardware	58,427			30,452
Computer software	30,789			15,497
Furniture and fixtures	6,319			3,974
	95,535			49,923
Accumulated depreciation and amortization	(39,879		)	(21,957		)
	55,656			27,966
Intangible assets, net	1,393			2,042
Restricted investments	—			5,744
Long-term investments	52,852			36,476
Long-term prepaid traffic acquisition expense	36,738			3,373
Other assets	10,648			1,032

Total assets	$	435,716		$	231,927

LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES:
Accounts payable	$	93,293		$	38,111
Accrued payroll expenses	10,868			3,774
Accrued expenses	10,142			1,497
Deferred revenue	16,672			8,949
Current portion of capital lease obligations	—			89

Total current liabilities	130,975			52,420
Long-term liabilities	1,203			64

STOCKHOLDERS’ EQUITY:
Preferred Stock; $0.0001 par value, 10,000 shares authorized as of December 31, 2002 and 2001, respectively	—			—
Common stock, $0.0001 par value, 200,000 shares authorized as of December 31, 2002 and December 31, 2001; 59,249 and 57,616 shares issued and outstanding as of December 31, 2002 and December 31, 2001, respectively	6			6
Additional paid-in capital	709,568			662,039
Deferred compensation, net	(210		)	(763		)
Accumulated other comprehensive income	2,890			24
Accumulated deficit	(408,716		)	(481,863		)

Total stockholders’ equity	303,538			179,443

Total liabilities and stockholders’ equity	$	435,716		$	231,927

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

F-3

OVERTURE SERVICES, INC.

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

	FOR THE YEAR ENDED DECEMBER 31,
	2002		2001		2000

Revenue	$	667,730	$	288,133	$	103,052
Operating expenses:
Search serving	32,723		20,962		13,109
Traffic acquisition	384,583		162,072		66,433
Marketing, sales and service	55,245		28,078		28,098
General and administrative	75,618		44,917		33,798
Product development	19,372		12,811		13,523
Amortization of deferred compensation and intangible assets	1,753		2,041		116,976
Write-off of acquired in-process research and development	—		—		7,550
Impairment of intangible assets	—		—		309,253
Loss on disposition of GoTo Auctions and GoTo Shopping	—		3,010		—
Loss on litigation ruling	8,700		—		—
	577,994		273,891		588,740

Income (loss) from operations	89,736		14,242		(485,688		)
Other income:
Interest income, net	3,938		4,260		5,809
Other income, net	974		2,561		21,259

Income (loss) before provision for income taxes	94,648		21,063		(458,620		)
Provision for income taxes	21,501		900		1

Net income (loss)	$	73,147	$	20,163	$	(458,621	)

Basic net income (loss) per share	$	1.27	$	0.38	$	(9.54	)

Diluted net income (loss) per share	$	1.23	$	0.36	$	(9.54	)

Weighted average shares used to compute historical basic net income (loss) per share	57,674		53,363		48,065
Weighted average shares used to compute historical diluted net income (loss) per share	59,603		55,533		48,065

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

F-4

OVERTURE SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS)

	Common Stock		Additional Paid-in		Deferred Compen-sation,		Accumulated Other Comprehensive		Accumulated
	Shares	Amount	Capital		net		Income (Loss)		Deficit		Total
BALANCE AT DECEMBER 31, 1999	45,519	$5	$158,799		$(2,584	)	$(41	)	$(43,405	)	$112,774
Exercise of common stock, net of repurchases and issuance of common stock pursuant to Employee Stock Purchase Plan	768	—	2,863		—		—		—		2,863
Issuance of common stock for acquisitions	6,279	—	429,657		—		—		—		429,657
Amortization of deferred compensation	—	—	(80	)	1,456		—		—		1,376
Unrealized gains on short-term and long-term investments	—	—	—		—		87		—		87
Cumulative translation adjustment	—	—	—		—		(41	)	—		(41	)
Net loss	—	—	—		—		—		(458,621	)	(458,621	)

BALANCE AT DECEMBER 31, 2000	52,566	5	591,239		(1,128	)	5		(502,026	)	88,095
Exercise of common stock, net of repurchases and issuance of common stock pursuant to Employee Stock Purchase Plan	1,300	—	11,627		—		—		—		11,627
Issuance of common stock, net of issuance costs of $3,684	3,750	1	58,191		—		—		—		58,192
Amortization of deferred compensation	—	—	(18	)	867		—		—		849
Stock option compensation	—	—	1,000		(502	)	—		—		498
Unrealized losses on short-term and long-term investments	—	—	—		—		(16	)	—		(16	)
Cumulative translation adjustment	—	—	—		—		35		—		35
Net income	—	—	—		—		—		20,163		20,163

BALANCE AT DECEMBER 31, 2001	57,616	6	662,039		(763	)	24		(481,863	)	179,443
Exercise of common stock, net of repurchases and issuance of common stock pursuant to Employee Stock Purchase Plan	1,633	—	21,251		—		—		—		21,251
Amortization of deferred compensation	—	—	—		553		—		—		553
Stock option tax benefit	—	—	26,278		—		—		—		26,278
Unrealized losses on short-term and long-term investments	—	—	—		—		325		—		325
Cumulative translation adjustment	—	—	—		—		2,541		—		2,541
Net income	—	—	—		—		—		73,147		73,147

BALANCE AT DECEMBER 31, 2002	59,249	$6	$709,568		$(210	)	$2,890		$(408,716	)	$303,538

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

F-5

OVERTURE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

	FOR THE YEAR ENDED DECEMBER 31,
	2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	73,147		$	20,163		$	(458,621	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Tax benefit from stock options	21,501			—			—
Accretion (amortization) of premiums/(discounts) from the purchase of short-term and long-term investments	940			335			(1,357		)
Non-cash portion of closure & disposition charges	—			2,398			—
Losses from disposition of property and equipment	1,059			199			351
Depreciation and amortization	23,122			15,589			125,398
Write-off of acquired in-process research and development	—			—			7,550
Impairment of intangible assets	—			—			309,359
Changes in operating assets and liabilities:
Accounts receivable	(20,709		)	(5,608		)	(2,415		)
Prepaid expenses and other	(25,023		)	(51		)	(1,026		)
Prepaid traffic acquisition expense	(50,147		)	11,643			(21,571		)
Accounts payable and accrued expenses	72,060			15,429			9,541
Deferred revenues	7,723			4,682			2,383

Net cash provided by (used in) operating activities	103,673			64,779			(30,408		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales/(purchases) of short-term and long-term investments net	(58,315		)	(66,767		)	52,194
Capital expenditures for property and equipment and other assets	(52,048		)	(17,601		)	(20,575		)
Net cash used in acquisition	—			—			(863		)
Other assets	—			(436		)	(596		)

Net cash provided by (used in) investing activities	(110,363		)	(84,804		)	30,160
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net	21,251			69,819			2,863
Repayments under lease line	(89		)	(751		)	(708		)
Repayment of debt	—			—			(835		)

Net cash provided by financing activities	21,162			69,068			1,320
Effect of exchange rate changes on cash and cash equivalents	2,541			(55		)	—
Net increase in cash and cash equivalents	17,013			48,988			1,072
Cash and cash equivalents at beginning of period	61,974			12,986			11,914

Cash and cash equivalents at end of period	$	78,987		$	61,974		$	12,986

Cash paid during the period for:
Income taxes	$	9,386		$	4		$	1
Interest	$	4		$	64		$	178
Non-cash investing and financing activities:
Issuance of common stock for acquisition of businesses	$	—		$	—		$	422,106

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

F-6

OVERTURE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

GENERAL

Overture Services, Inc. (Overture or the Company) is the global leader in Pay-For-Performance search (also known as paid search) on the Internet. Overture’s search service is comprised of advertiser’s listings, which are screened for relevance and accessed by consumers and businesses through Overture’s affiliates, a network of Web properties that have integrated Overture’s search service into their sites or that direct user traffic to Overture’s own site. In some cases, consumers and businesses access our search listings directly at our site. The search listings are ranked by the advertisers’ bid; the higher the bid, the higher the ranking. Advertisers pay Overture the bid price for clicks on the advertisers’ search listing (also known as a paid introduction, click-through or a paid click). As of December 31, 2002, Overture and its wholly owned subsidiaries, operated the Overture service in the United States, United Kingdom, Germany, France and Japan. Subsequent to the end of the year, Overture announced its intention to operate its service in South Korea, Italy, Spain, and other European markets. The Company reports in one reportable business segment.

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

On February 18, 2003, Overture announced its plans to acquire the business of AltaVista Company (“AltaVista”), a pioneer in Web search technology, for $140 million in cash and stock.

On February 25, 2003, Overture announced its plan to acquire the Web search unit of Norway-based Fast Search and Transfer (“Fast”), a developer of search and real-time filtering technologies, for $70.0 million in cash, plus a potential performance-based cash incentive payment of up to $30 million over three years.

AltaVista and Fast both use advanced algorithmic search technology to crawl the Web and return relevant search results in response to users’ queries. The Company believes these technologies complement its own market-leading technology in commercial search and will enhance its core Pay-For-Performance search business as well as allow Overture to develop new products and services for its advertisers and affiliates.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Overture and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

FOREIGN CURRENCY

Generally, the functional currency of the Company’s international subsidiaries is the local currency. The financial statements of these subsidiaries are translated to United States dollars using year-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues, costs and expenses. Translation gains (losses) are deferred and accumulated in accumulated other comprehensive income as a component of stockholders’ equity. Net gains and losses resulting from foreign exchange transactions would be included in the consolidated statements of operations. The Company did not incur significant net gains or losses resulting from foreign exchange transactions during the periods presented.

ESTIMATES AND ASSUMPTIONS

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

RECLASSIFICATION

Certain reclassifications have been made in prior years’ financial statements to conform to classifications used in the current year.

F-7

REVENUE RECOGNITION

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101). SAB 101 became effective for the fourth quarter of the year ending December 31, 2000. The adoption of SAB 101 did not have a material impact on the Company’s consolidated financial statements.

Revenue is generated primarily through paid introductions, that is, Overture generates revenue when a user clicks on an advertiser’s listings after an advertiser has bid for priority placement in search results by making or committing to make a payment based on the amount bid for each click-through. Revenue is recognized when earned based on click-through activity to the extent that the advertiser has deposited sufficient funds with us or collection is probable. Revenue also consists of listing fees and banner advertising, which together constituted less than 1%, 1% and 5% of our revenue for the years ended December 31, 2002, 2001 and 2000, respectively. Banner advertising revenue is recognized when earned under the terms of the contractual arrangement with the advertiser or advertising agency, provided that collection is probable. Listing services revenue is recognized when Overture has provided all of the services under the terms of the arrangement. Overture has no barter transactions.

The Company has entered into agreements with various affiliates to provide advertisers’ listings. The Company pays affiliates based on click-throughs on these listings. In accordance with Emerging Issue Task Force No. 99-19, “Reporting Revenue Gross as a Principal Versus Net as an Agent,” the revenues derived from advertisers who receive paid introductions through Overture as supplied by affiliates are reported gross of the payment to affiliates.

COMPREHENSIVE INCOME (LOSS)

The Company accounts for comprehensive income (loss) using Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income”. SFAS 130 establishes standards for reporting comprehensive income (loss) and its components in financial statements. Comprehensive income (loss), as defined therein, refers to revenues, expenses, gains and losses that are not included in net income (loss) but rather are recorded directly in shareholders’ equity. The differences between total comprehensive income (loss) and net income (loss) for 2002, 2001 and 2000 were approximately $2.9 million, $19,000 and $46,000, respectively. As of December 31, 2002, accumulated other comprehensive income comprised of $2.5 million of unrealized gains on short-term investments and $0.4 million of cumulative translation adjustments.

SEARCH SERVING

Search serving costs consist primarily of costs associated with serving our search results, maintaining our Web site and fees paid to outside service providers that provide and manage unpaid listings. Costs associated with serving our search results and maintaining our Web site include depreciation of Web site equipment, co-location charges for equipment, software licensing fees and salaries of related personnel.

TRAFFIC ACQUISITION

The Company enters into agreements of varying durations with affiliates that integrate Overture’s search service into their sites or that direct consumer and business traffic to the Company’s Web site. There are generally three economic structures of the affiliate agreements, 1) fixed payments, based on a guaranteed minimum amount of traffic delivered, which often carry reciprocal performance guarantees from the affiliate, 2) variable payments based on a percentage of our revenue or based on a certain metric, such as number of searches or paid clicks, or 3) a combination of the above.

The Company expenses traffic acquisition costs under two methods; agreements with fixed payments are generally expensed pro-rata over the term the fixed payment covers, and agreements based on a percentage of revenue, number of paid introductions, number of searches, or other metric are generally expensed based on the volume of the underlying activity or revenue multiplied by the agreed-upon price or rate.

Approximately 60% of the Company’s revenue earned from advertisers for the year ended December 31, 2002 was supplied by two companies. The Company may not be successful in renewing any of these agreements, or if they are renewed, they may not be on as favorable terms. The Company may not be successful in entering into agreements with new affiliates on commercially acceptable terms. In addition, several of these affiliates may be considered potential competitors.

F-8

ADVERTISING COSTS

The Company expenses advertising media costs as incurred and production costs upon first airing or printing. For the years ended December 31, 2002, 2001 and 2000, the Company incurred advertising costs of approximately $17.0 million, $6.1 million and $14.8 million, respectively.

PRODUCT DEVELOPMENT

Product development expenses consist of expenses incurred by the Company in the development, creation and enhancement of its Internet site and service. Product development expenses include compensation and related expenses, costs of computer hardware and software, and costs incurred in developing features and functionality of the service. Product development costs are expensed as incurred or capitalized into property and equipment in accordance with Statement of Position 98-1 “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” (SOP 98-1). SOP 98-1 requires that cost incurred in the preliminary project and post-implementation stages of an internal use software project be expensed as incurred and that certain costs incurred in the application development stage of a project be capitalized.

AVAILABLE FOR SALE SECURITIES

The Company considers those investments that are highly liquid, readily convertible to cash and which mature within three months from the original date of purchase to be cash equivalents. All of the Company’s cash equivalents, short-term and long-term investments are classified as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses included in “unrealized losses on short-term and long-term investments” as a separate component of stockholders’ equity net of applicable income taxes. As of December 31, 2002, the fair value of these securities approximated cost and the net unrealized holding gains were approximately $404,000. Realized gains and losses on sales of available-for-sale investments are calculated using the specific identification method and were not significant to the Company’s results of operations in any period presented. Long-term investments have original maturities of up to 24 months.

The estimated fair value of cash, cash equivalents, short-term and long-term investments and restricted investments, which approximate the carrying costs as of December 31, 2002 and 2001, are as follows (in thousands):

	December 31, 2002
	CASH AND CASH		SHORT-TERM		LONG-TERM		RESTRICTED
	EQUIVALENTS		INVESTMENTS		INVESTMENTS		INVESTMENTS
Cash	$	53,741	$	—	$	—	$	—
Commercial Paper	11,599		15,838		—		—
Certificates of deposit	—		11,504		2,949		—
Asset Backed Securities	3,147		89		1,835		—
Corporate Bonds	—		6,168		5,343		—
Government Bonds	10,500		85,306		42,725		—

	$	78,987	$	118,905	$	52,852	$	—

	December 31, 2001
	CASH AND CASH		SHORT-TERM		LONG-TERM		RESTRICTED
	EQUIVALENTS		INVESTMENTS		INVESTMENTS		INVESTMENTS
Cash	$	18,785	$	—	$	—	$	—
Commercial Paper	10,005		498		—		5,744
Certificates of deposit	—		10,351		—		—
US Treasury bills	33,184		60,988		36,476		—

	$	61,974	$	71,837	$	36,476	$	5,744

ACCOUNTS RECEIVABLE

The allowance for doubtful account activity for the periods indicated is as follows (in thousands):

			ADDITIONS
	BALANCE AT		CHARGED TO				BALANCE AT
	BEGINNING OF		COSTS AND				END OF
	PERIOD		EXPENSES		WRITE-OFFS		PERIOD
Allowance for doubtful accounts:
December 31, 2000	$	250	$	1,041	$	291	$	1,000
December 31, 2001	$	1,000	$	1,735	$	635	$	2,100
December 31, 2002	$	2,100	$	500	$	250	$	2,350

Accounts receivable are typically unsecured and are due from customers primarily located in the United States. Many of Overture’s customers are in the Internet industry. Credit losses have generally been within management’s expectations. At December 31, 2002 and 2001, no customer represented more than 10 percent of total accounts receivable.

F-9

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and other liabilities are carried at cost, which approximates their fair values because of the short-term maturity of these instruments.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Property and equipment consists of computer hardware, computer software and furniture and fixtures. Depreciation is provided using the straight-line method based upon estimated useful lives of the assets, which range from 18 months to five years. Equipment under capital leases and leasehold improvements are recorded at cost. Amortization is provided using the straight-line method over the shorter of the term of the related lease or estimated useful lives of the assets.

ACQUIRED PATENTS AND LICENSES

Patents and licenses are recorded at cost and are amortized using the straight-line method over their estimated useful life.

LONG-LIVED ASSETS

The Company evaluates the recoverability of its long-lived assets in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets” (SFAS 144) which supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” (SFAS 121), and the accounting and reporting provisions of APB 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and was adopted by the Company for the year ended December 31, 2002. The Company assesses the impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Accordingly, in 2000, Overture recorded an impairment charge on the goodwill and intangible assets from the acquisitions of Cadabra and AuctionRover of approximately $309.3 million in accordance with SFAS 121.

DEFERRED REVENUE

Deferred revenue represents all payments received from customers in excess of revenue earned based on line-item click-through activity and will be recognized as actual click-throughs occur.

LOSS CONTINGENCY

The Company is a defendant in several litigation matters. SFAS No. 5, “Accounting for Contingencies” requires an estimated loss to be accrued when a loss is both probable and can be reasonably estimated. Overture analyzes its litigation for probability and estimation of loss based on an analysis of potential results, considering a combination of litigation and settlement strategies in consultation with outside counsel.

INCOME TAXES

Income taxes are accounted for under SFAS No. 109, “Accounting for Income Taxes” (SFAS 109). Under SFAS 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

F-10

ACCOUNTING FOR STOCK-BASED COMPENSATION

At December 31, the Company had one stock-based employee compensation plans, which are described more fully in Note 4. The company accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25 “Accounting for Stock Issued to Employees” (APB 25). The following table sets forth the effect on net income and earnings per share if the Company had applied the fair value provisions of SFAS No. 123, “Accounting for Stock Based Compensation” (SFAS 123), to stock-based employee compensation. For purposes of pro forma disclosures, the fair value of the options is amortized to expense on a graded methodology basis over the vesting period of the options.

	2002		2001		2000
	(IN THOUSANDS)
Net income (loss), as reported	$73,147		$20,163		$(458,621	)
Additional stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(28,352	)	(6,474	)	(22,760	)

Pro forma net income (loss)	44,795		13,689		(481,381	)
Earnings per share:
Basic — as reported	1.27		0.38		(9.54	)
Basic — pro forma	0.78		0.26		(10.02	)
Earnings per share:
Diluted — as reported	1.23		0.36		(9.54	)
Diluted — pro forma	$0.75		$0.25		$(10.02	)

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

	YEAR ENDED DECEMBER 31,
	2002		2001		2000
Risk free interest rate	1.75	%	3.75	%	5.0	%
Expected lives (in years)	3.0		3.0		3.0
Dividend yield	—		—		—
Expected volatility	0.80		0.80		0.80

Under SFAS 123, the Company would have incurred an additional compensation expense of approximately $47.3 million, $6.5 million and $22.8 million for the years ended December 31, 2002, 2001 and 2000, respectively.

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

INCOME (LOSS) PER SHARE COMPUTATION

Historical basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding. Historical diluted net income (loss) per share is computed using the weighted average number of shares of common stock outstanding and the effects of outstanding stock options and unvested portion of stock issued in connection with the exercise of such options subject to repurchase.

Pro forma basic net income (loss) per share is computed using the historical weighted average number of shares of common stock outstanding plus the weighted average number of shares resulting from the assumed conversion of all outstanding convertible preferred stock as though such conversion occurred at the beginning of the period or original date of issuance, if later.

F-11

Options to purchase approximately 8.9 million and 7.6 million shares of common stock were outstanding as of December 31, 2002 and 2001, respectively. In addition, as of December 31, 2002, there were approximately 36,000 shares of unvested common stock outstanding that were issued in connection with the exercise of options and restricted stock and are subject to repurchase.

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

	YEAR ENDED DECEMBER 31
	2002		2001		2000
Numerator:
Net loss	$	73,147	$	20,163	$	(458,621	)
Denominator:
Denominator for historical basic calculation — weighted average shares	57,674		53,363		48,065
Common stock equivalents	1,929		2,170		—

Denominator for historical diluted calculation — weighted average shares	59,603		55,533		48,065
Net income (loss) per share:
Historical basic net income (loss) per share	$	1.27	$	0.38	$	(9.54	)
Historical diluted net income (loss) per share	$	1.23	$	0.36	$	(9.54	)

2. INCOME TAXES

The components of income (loss) before income taxes are as follows (in thousands):

	Year Ended December 31,
	2002			2001			2000
United States	$	111,848		$	29,462		$	(454,796	)
Foreign	(17,200		)	(8,399		)	(3,824		)

	$	94,648		$	21,063		$	(458,620	)

Overture generated taxable income during the year ended December 31, 2002, however a tax provision was recorded that was less than the statutory rate due to the benefit from the release of the valuation allowance relating to deferred tax assets. As of December 31, 2001, Overture had net operating loss (“NOL”) carryforwards available to reduce future federal and state taxable income. These NOLs and temporary differences (difference between timing of the recognition on a Generally Accepted Accounting Principle basis versus a tax basis) were carried on the balance sheet as deferred tax assets. SFAS 109 requires that a valuation allowance be set up to reduce a deferred tax asset to the extent it is more likely than not that the related tax benefits will not be realized. Due to the uncertainty regarding if and when these NOLs would be utilized and temporary differences would reverse, a full valuation allowance was set up against the related deferred tax asset, resulting in a net zero balance for deferred tax assets as of December 31, 2001. The valuation allowance was released during fiscal 2002 based on the expectation of future income from our ordinary and recurring operations and our assessment that the utilization of available tax deductions was more likely than not.

The Company has deductions that resulted from the exercise of certain stock options and sale of certain related stock by employees. Because no book charge is recorded upon the generation of these deductions, the corresponding tax benefits are recorded directly to stockholders’ equity. However, these deductions will offset taxable income, to the extent available, upon filing the Company’s corporate income tax returns resulting in a cash benefit.

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

	Year Ended December 31,
	2002		2001		2000
Statutory federal rate	35	%	35	%	(34	%)
State income taxes (net of federal benefit)	2		6		(1	)
Valuation allowance	(17	)	(47	)	3
Effect of foreign losses benefited at varying rates	4		8		0
Other	(1	)	2		32

	23%		4	%	0	%

F-12

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

	Year Ended December 30,
	2002			2001		2000
Current:
Federal	$	18,455		$	725	$	—
State	8,591			175		1
Foreign	390			—		—

Total current	27,436			900		1
Deferred:
Federal	2,576			—		—
State	(5,524		)	—		—
Foreign	(2,987		)	—		—

Total deferred	(5,935		)	—		—

	$	21,501		$	900	$	1

The components of the deferred tax assets and related allowance at December 31, 2002 and 2001 are as follows (in thousands):

	Year Ended December 31,
	2002		2001
Deferred tax assets:
Net operating loss & credit carryforwards	$	8,498	$	31,120
Deferred revenue	6,618		3,520
Other assets	6,655		2,102

Total deferred tax assets	21,771		36,742
Valuation Allowance	—		(36,742		)

	$	21,771	$	—

In September 2002, the state of California passed legislation suspending the use of the operating loss carryforwards for the 2002 and 2003 tax years. The legislation added two years to the carryforward period for these losses. As a result, Overture will not be able to utilize its California net operating loss carryforwards during 2002 and 2003 against its expected current tax liabilities.

As of December 31, 2002, the Company had net operating loss carry forwards of approximately $54.1 million, $23.9 million and $2.7 million available to reduce future state, foreign and federal taxable income, respectively. The state net operating loss carryforwards expire beginning in the years 2007 to 2017, whereas the foreign net operating loss carryforwards have an indefinite life and have no expiration. Under Section 382 of the Internal Revenue Code, the utilization of the federal and state net operating loss carryforwards can be limited based on changes in the percentage of ownership of the Company.

Overture has not provided for U.S. deferred income taxes or foreign withholding taxes on the undistributed earnings of its non-U.S. subsidiaries as of December 31, 2001, since these earnings are intended to be reinvested indefinitely.

3. STOCKHOLDER’S EQUITY

SHAREHOLDERS’ RIGHTS PLAN

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

F-13

DEFERRED STOCK OPTION COMPENSATION

Subsequent to our initial public offering in June 1999, the deemed fair value of the common stock was determined by closing stock price on the date the options were issued as quoted on the Nasdaq National Market. The typical vesting period of the options is 20%, 10% or zero immediately upon grant with the remaining balance vesting evenly either annually or quarterly over the following four years. The amortization of deferred compensation is charged to operations on a graded methodology basis over the vesting period of the options. During the year ended December 31, 2002, 2001, and 2000, deferred compensation amortization of approximately $553,000, $849,000 and $1.4 million, respectively, was recorded. At December 31, 2002 and 2001, deferred compensation was approximately $210,000 and $763,000, respectively. The deferred compensation amortization relates only to stock options awarded to employees and directors; the salaries and related benefits of these employees are included in the applicable search serving or operating expense line items.

4. STOCK PLAN AND STOCK PURCHASE PLAN

The Company’s 1998 Stock Plan provides for the granting of options for the purchase of shares of the Company’s common stock, plus an annual increase to be added on the first day of the Company’s fiscal year beginning equal to the lesser of (i) 7.50 million shares, (ii) 5% of the outstanding shares on such date or (iii) a lesser amount determined by the Board. As of December 31, 2002, there were 20.8 million shares authorized under the plan. Options available for future grant totaled approximately 4.0 million at December 31, 2002 and 2001. Under the terms of the plan, options may be granted to employees, non-employee directors or consultants at prices not less than the fair value at the date of grant. Options granted to non-employees are recorded at the value of negotiated services received. Options typically vest ratably on a quarterly basis over four years.

Information relating to the outstanding stock options is as follows:

	SHARES		WEIGHTED AVERAGE EXERCISE PRICE
	(IN THOUSANDS)
Outstanding at December 31, 1999	2,830		$	19.87
Granted	5,161		25.87
Exercised	(720	)	2.11
Cancelled	(789	)	36.27

Outstanding at December 31, 2000	6,482		24.66
Granted	3,451		14.33
Exercised	(1,136	)	8.18
Cancelled	(1,194	)	19.44

Outstanding at December 31, 2001	7,603		23.04
Granted	3,950		26.82
Exercised	(1,683	)	11.28
Cancelled	(983	)	27.10

Outstanding at December 31, 2002	8,887		$	26.41

The following table summarizes information regarding options outstanding and exercisable at December 31, 2002 (in thousands except per share data):

	OPTIONS OUTSTANDING				OPTIONS EXERCISABLE
		WEIGHTED
		AVERAGE	WEIGHTED			WEIGHTED
	NUMBER	REMAINING	AVERAGE		NUMBER	AVERAGE
	OF	CONTRACTUAL	EXERCISE		OF	EXERCISE
RANGE OF EXERCISE PRICES	SHARES	LIFE	PRICE		SHARES	PRICE
$0.01 —$11.00	1,697	7.88	$	9.00	523	$	5.95
$11.38—$21.29	1,605	6.91	15.65		431	14.46
$21.53—$23.43	1,716	6.34	22.62		185	23.01
$23.44—$34.50	2,087	6.68	29.47		549	32.60
$34.56—68.31	1,599	6.54	46.48		697	53.49
$108.25 — $108.25	183	6.88	108.25		140	108.25

	8,887	6.86	$26.41		2,525	$36.32

In April 1999, the Board of Directors also approved the establishment, upon the closing of the Company’s initial public offering, of the 1999 Employee Stock Purchase Plan (1999 Purchase Plan). The 1999 Purchase Plan initially reserved 2,000,000 shares of common stock for future issuance, which increases annually by the lesser of 1,000,000 shares, 3% of the outstanding shares on such date, or a lesser amount determined by the Board. The 1999 Purchase Plan provides for successive six month offering periods and allows eligible employees to participate in the plan through payroll deductions that will be used to purchase common stock at the end

F-14

of each six month period for the lesser of 85% of the price of the common stock at the beginning or the end of the six month offering period. As of December 31, 2002, 506,000 shares were issued under the plan and 2.9 million shares are available for future grant.

5. RELATED PARTY TRANSACTIONS

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

In January 2000, Overture entered into an arrangement to lease approximately 58,000 square feet of office space from Idealab, which terminates on October 31, 2004. In March 2002, Overture entered into an arrangement with Parfinco EWA, LLC and Idealab whereby Idealab assigned its lease with Parfinco to Overture for the 58,000 square feet of office space and Overture entered into an amendment with Parfinco for an additional 29,000 square feet of office space, which expires at the same time as its existing 58,000 square feet of office space in October 2004. As a result of the assignment by Idealab to Overture in March 2002, Overture no longer has any obligation to make lease payments to Idealab. Overture also subleased office space in the U.K. from Idealab, which ended June 30, 2002. Total payments for the lease for both the U.S. and U.K. office space to Idealab were $509,000 and $2.1 million for the year ended December 31, 2002 and 2001, respectively. Management believes these amounts were materially representative of the fair value of the lease.

During the year ended December 31, 2002 and 2001, Overture recorded approximately $1.1 million and $501,000 respectively, of search listing advertising revenue from companies affiliated with Idealab. Management believes these amounts are materially representative of the fair value of advertising services provided. During the year ended December 31, 2002, Overture recorded approximately $186,000 of traffic acquisition costs to Idealab. Management believes these amounts are materially representative of fair value.

6 COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases office space under operating lease agreements expiring through December 2007. The future minimum lease payments under non-cancelable operating leases are as follows (in thousands):

	OPERATING LEASES
2003	$	4,386
2004	3,663
2005	1,279
2006	1,262
2007	1,073
Thereafter	—

Total minimum lease payments	$	11,663

Total rent expense was approximately $3.2 million, $2.0 million and $2.0 million during the years ended December 31, 2002, 2001 and 2000, respectively.

AFFILIATE COMMITMENTS

The Company is obligated to make guaranteed payments totaling approximately $190.5 million, $199.3 million, $25.0 million and $0.4 million in 2003, 2004, 2005 and 2006, respectively under contracts to provide search services to its affiliates.

LITIGATION

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

F-15

2002, FindWhat served the Company with an amended complaint filed in the United States District Court for the Southern District of New York for declaratory judgment of invalidity, unenforceability and non-infringement relating to the Company’s ‘361 patent. On February 13, 2003, the New York Court ordered FindWhat’s declaratory judgment be transferred to the Central District of California.

The complaint against Google was filed on April 23, 2002 in the United States District Court for the Northern District of California. The lawsuit charges Google with willful infringement of the ‘361 Patent. The Company also seeks a permanent injunction against Google, an award of increased damages, and an award of attorney’s fees, costs and expenses. On June 7, 2002, Google filed its answer to the Overture complaint, denying that it infringes the ‘361 Patent and alleging counterclaims of non-infringement, invalidity and unenforceability relating to the ‘361 Patent. The parties continue to move through the discovery process. A hearing regarding the interpretation of the claims contained in the ‘361 Patent (commonly referred to as a “Markman” hearing) currently is scheduled for early August.

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

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

This matter was arbitrated in late December 2002 and early January 2003. On January 10, 2003, the arbitrator issued an interim award. Although the arbitrator found in Overture’s favor on InternetFuel’s claims for fraud and unfair business practices, the arbitrator found for InternetFuel on the breach of contract claim and awarded InternetFuel approximately $8.7 million. On January 16, 2003, InternetFuel filed an application with the arbitrator seeking approximately $840,000 in pre-judgment interest on the award. On January 28, 2003, Overture filed its opposition to InternetFuel’s request for pre-judgment interest. InternetFuel is also seeking to recover certain costs incurred during the litigation, none of which have been specified to date. Overture filed its statement of opposition recovery of those costs. Overture disagrees with the arbitrator’s breach of contract award and is currently considering all of its available legal options.

On July 12, 2001, the first of several purported securities class action lawsuits was filed in the United States District Court, Southern District of New York against certain underwriters involved in Overture’s initial public offering, Overture, and certain of Overture’s current and former officers and directors. The Court consolidated the cases against Overture into case number 01 Civ. 6339. Plaintiffs allege, among other things, violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 involving undisclosed compensation to the underwriters, and improper practices by the underwriters, and seek unspecified damages. Similar complaints were filed in the same court against numerous public companies that conducted initial public offerings of their common stock since the mid-1990s. All of these lawsuits were consolidated for pretrial purposes before Judge Shira Scheindlin. On April 19, 2002, plaintiffs filed an amended complaint, alleging Rule 10b-5 claims of fraud. On July 15, 2002, the issuers filed an omnibus motion to dismiss for failure to comply with applicable pleading standards. On October, 8, 2002, the Court entered an Order of Dismissal as to all of the individual defendants in the Overture IPO litigation, without prejudice. On February 19, 2003, the Court denied the motion to dismiss the Rule 10b-5 claims against Overture. Overture continues to deny the allegations against it, believes that it has meritorious defenses to the amended complaint, and intends to contest the allegations vigorously.

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

F-16

the allegations vigorously. The parties are in the early phase of the discovery process. The parties are in the early phase of the discovery process.

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

7. ACQUISTIONS

Cadabra

On January 31, 2000, Overture acquired Cadabra, an online comparison shopping service, which Overture called “GoTo Shopping.” Overture acquired all of the outstanding shares of capital stock and assumed all outstanding options to acquire shares of capital stock of Cadabra. The acquisition was accounted for as a purchase. The total purchase price of the acquisition was approximately $263.1 million and consisted of cash of $8.0 million; Overture common stock of $252.5 million valued at the closing price of Overture’s common stock on the date the exchange ratio was set. Of the purchase price, $7.6 million was assigned to in-process research and development which was expensed immediately following the consummation of the acquisition, $6.0 million was assigned to the value of purchased technology and other intangibles to be amortized on a straight-line basis over three years and $4.4 million was allocated to the net tangible assets.

On April 30, 2001, Overture closed the GoTo Shopping operations. The operations of Cadabra had been included in the Company’s results of operations from the date of the acquisition through the closing date. Upon disposition, the Company recorded a charge for restructuring and exit costs. The net charges were approximately $1.0 million, which included approximately $201,000 of cash termination benefits associated with the involuntary termination of 21 GoTo Shopping employees. The terminations of these positions, primarily in sales and service, and product development functions, were completed by June 30, 2001. The charge, also included approximately $59,000 for non-cash termination benefits, related to the acceleration of options; approximately $256,000 for fixed asset write-downs; approximately $485,000 for the remaining lease payments on a facility lease which Overture has not been able to sub-lease; and other exit costs of approximately $1,000. These costs were included in the Loss on Closure of GoTo Shopping in the statement of operations. Cash payments were funded from operations and did not have a significant impact on Overture’s liquidity.

AuctionRover

On May 3, 2000, Overture acquired AuctionRover, an online resource for auctions, which Overture called “GoTo Auctions.” Overture acquired all of the outstanding shares of capital stock and assumed all outstanding options to acquire shares of capital stock of AuctionRover. The acquisition was accounted for as a purchase. Based on the price of Overture common stock on the date the exchange ratio was set, the purchase price was valued at approximately $174.2 million, which consisted of Overture common stock of $173.7 million. Of the purchase price, $6.7 million was assigned to the value of purchased technology and other intangible assets and amortized on a straight-line basis over three years and $600,000 was allocated to the net tangible assets. The excess purchase price over the estimated fair value of the assets acquired and liabilities assumed has been allocated to goodwill in the amount of $167.0 million and was scheduled to be amortized on a straight-line basis over three years.

On June 29, 2001, Overture completed a management buyout of GoTo Auctions, whereby the operating management of GoTo Auctions purchased GoTo Auctions’ assets from Overture. The newly formed company is called ChannelAdvisor Corporation. Overture received a minority stake in this new corporation and as of December 31, 2001, Overture retained approximately 8% of ChannelAdvisor. ChannelAdvisor’s goal is to provide online and offline businesses with the ability to leverage online auctions as a channel of distribution. In connection with the management buyout, Overture incurred net charges for the disposition of certain assets and exit costs. The net charges were approximately $2.0 million, which included in the exit costs approximately $280,000 of cash termination benefits associated with the involuntary termination of 31 GoTo Auction employees. The terminations of these positions, primarily in sales and service, and product development functions, were completed by June 30, 2001. The charge also included approximately $1.6 million for fixed asset write-downs and approximately $102,000 for other exit costs. These costs were included in

F-17

Loss on Disposition of GoTo Auctions in the statement of operations. Cash payments were funded from operations and did not have a significantly impact on Overture ‘s liquidity.

During the fourth quarter of 2000 and in accordance with SFAS 121, management identified certain conditions as indicators of asset impairment related to the net assets resulting from the acquisitions of Cadabra and AuctionRover. Accordingly, Overture took a charge to operations during the fourth quarter of 2000 for approximately $309.3 million, to write down these assets.

SearchUP

On October 25, 2000, Overture acquired substantially all the assets of SearchUP, which did not have significant business operations. Pursuant to the Asset Purchase Agreement, Overture acquired SearchUP’s operational Web site, registered URLs, trademarks and patent on its URL Position Manager. The acquisition was accounted for as a purchase. The total purchase price was approximately $3.5 million and was determined by the closing price of Overture’s common stock on the purchase date. Overture allocated the purchase price to the intangible assets acquired based on their estimated fair values as determined by Overture.

8. GEOGRAPHICAL SEGMENT INFORMATION

The following table sets forth revenues and long-lived assets by geographic area.

	As of and for the Year Ended December 31, 2002				As of and for the Year Ended December 31, 2001
	Revenues		Long-Lived Assets		Revenues		Long-Lived Assets
	(IN THOUSANDS)
United States	$	635,107	$	82,339	$	282,575	$	32,390
International	32,623		13,857		5,558		2,023

Total	$	667,730	$	96,196	$	288,133	$	34,413

9. SUBSEQUENT EVENT (UNAUDITED)

On February 18, 2003, Overture signed an agreement subject to customary closing conditions with AltaVista, a provider of search services and technology, to acquire AltaVista’s business for $60.0 million in cash and approximately $80.0 million in stock.

On February 25, 2003, Overture announced its plan to acquire the Web search unit of Fast, a developer of search and real-time filtering technologies, for $70.0 million in cash, plus a potential performance-based cash incentive payment of up to $30 million over three years.

F-18

Exhibit 99.4

ALTAVISTA COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors’ Report

Consolidated Balance Sheets as of July 31, 2002 and July 31, 2001

Consolidated Statements of Operations for the years ended July 31, 2002 and July 31, 2001 and for the period from August 19, 1999 to July 31, 2000

Consolidated Statement of Changes in Owners’ Equity (Deficit) for the years ended July 31, 2002 and July 31, 2001 and for the period from August 19, 1999 to July 31, 2000

Consolidated Statements of Cash Flows for the years ended July 31, 2002 and July 31, 2001 and for the period from August 19, 1999 to July 31, 2000

Notes to Consolidated Financial Statements

Unaudited Condensed Consolidated Balance Sheet as of January 31, 2003

Unaudited Condensed Consolidated Statements of Operations for the six months ended January 31, 2003 and January 31, 2002

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 2003 and January 31, 2002

Notes to Condensed Consolidated Financial Statements

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders of AltaVista Company:

We have audited the accompanying consolidated balance sheets of AltaVista Company and subsidiaries as of July 31, 2002 and July 31, 2001, and the related consolidated statements of operations, changes in owners’ equity (deficit), and cash flows for the years ended July 31, 2002 and July 31, 2001 and for the period from August 19, 1999 to July 31, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AltaVista Company and subsidiaries as of July 31, 2002 and July 31, 2001, and the results of their consolidated operations and cash flows for the years ended July 31, 2002 and July 31, 2001 and for the period from August 19, 1999 to July 31, 2000, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the AltaVista Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ KPMG LLP
Mountain View, California
April 16, 2003

ALTAVISTA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

	JULY 31, 2002			JULY 31, 2001

ASSETS
Current assets:
Cash and cash equivalents	$	8,080		$	13,451
Accounts receivable, net of allowances of $7,372 and $9,911 at July 31, 2002 and July 31, 2001, respectively	10,509			29,109
Accounts receivable from HP	175			993
Prepaid expenses and other current assets	3,182			4,385
Total current assets	21,946			47,938
Property, plant and equipment, net	18,097			40,964
Goodwill and other intangible assets, net	—			65,900
Investments	—			1,056
Restricted cash	956			4,759
Other assets	701			227
Total assets	$	41,700		$	160,844

LIABILITIES AND OWNERS’ EQUITY (DEFICIT)
Current liabilities:
Capital lease obligations, current portion	$	54		$	5,554
Notes payable to CMGI	111,661			66,167
Notes payable to HP	—			3,004
Accounts payable	2,309			2,974
Accounts payable to CMGI and affiliates	2,946			594
Accounts payable to HP	866			219
Accrued restructuring	3,490			1,676
Other liabilities	11,994			19,288
Deferred revenue	5,328			5,495
Total current liabilities	138,648			104,971
Capital lease obligations, net of current portion	41			8,681
Total liabilities	138,689			113,652

Commitments and contingencies
Owners’ equity (deficit):
Preferred stock $0.01 par value, 100,000 and 5,000 shares authorized at July 31, 2002 and July 31, 2001, 3,550 shares issued and outstanding at July 31, 2002 and July 31, 2001	36			36
Common stock $0.01 par value, 1,400,000 and 1,495,000 shares authorized at July 31, 2002 and July 31, 2001, 139,352 and 139,136 shares issued and outstanding at July 31, 2002 and July 31, 2001	1,394			1,391
Capital in excess of par	3,393,887			3,390,767
Accumulated other comprehensive income	676			193
Accumulated deficit	(3,492,982		)	(3,345,195		)
Owners’ equity (deficit)	(96,989		)	47,192
Total liabilities and owners’ equity	$	41,700		$	160,844

See accompanying notes to consolidated financial statements.

ALTAVISTA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

	YEAR ENDED JULY 31, 2002			YEAR ENDED JULY 31, 2001			PERIOD FROM AUGUST 19, 1999 TO JULY 31, 2000

Net Revenue:
Advertising, service and other (includes revenue from related party transactions of $530, $7,144 and $12,102)	$	57,429		$	148,620		$	193,998
Software (includes revenue from related party transactions of $712, $2,536 and $955)	12,637			21,729			11,063
Total net revenue	70,066			170,349			205,061
Operating expenses:
Cost of revenue	26,850			90,979			130,445
Product development	28,909			59,106			58,034
Sales and marketing	45,292			123,552			218,122
General and administrative	19,834			20,692			26,642
Stock-based compensation	—			1,211			4,692
Restructuring charges	15,494			60,627			2,864
Gain on sale of real estate holding	—			(19,738		)	—
Impairment of long-lived assets	6,716			1,216,533			—
Amortization of intangible assets	65,900			533,721			819,311
Operating loss	(138,929		)	(1,916,334		)	(1,055,049		)
Interest income	(191		)	(873		)	(777		)
Interest expense	6,979			8,198			5,430
Loss on sale of Raging Bull	—			95,896			—
Impairment losses on investments	704			17,725			—
Other (income)/expense, net	1,312			3,753			(9,673		)
Loss before income taxes	(147,733		)	(2,041,033		)	(1,050,029		)
Provision for income taxes	54			665			—
Net loss	$	(147,787	)	$	(2,041,698	)	$	(1,050,029	)

Stock-based compensation is attributable to operating expense line items as follows:
Cost of revenue	$	—		$	18		$	—
Product development	—			506			1,013
Sales and marketing	—			399			556
General and administrative	—			288			3,123
	$	—		$	1,211		$	4,692

See accompanying notes to consolidated financial statements.

ALTAVISTA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY (DEFICIT)
(IN THOUSANDS)

	PREFERRED STOCK			COMMON STOCK					TREASURY STOCK
	SHARES	AMOUNT		SHARES		AMOUNT			SHARES		AMOUNT

Consolidated balance, August 19, 1999	—	$	—	130,000		$	1,300		—		$	—
Net loss	—	—		—		—			—		—
Unrealized gain on investments	—	—		—		—			—		—
Currency translation adjustment	—	—		—		—			—		—
Total comprehensive loss Dividend of Zip2	—	—		—		—			—		—
Deferred stock-based compensation	—	—		—		—			—		—
Amortization of deferred compensation	—	—		—		—			—		—
Issuance of common stock to CMGI for iAtlas merger	—	—		1,556		16			—		—
Issuance of common stock for RagingBull acquisition	—	—		6,610		66			—		—
Issuance of common stock for Transium acquisition	—	—		190		2			—		—
Issuance of common stock under stock option plans	—	—		790		8			—		—
Issuance of common stock as a charitable contribution	—	—		32		—			—		—
Conversion of CMGI debt into preferred stock	468	5		—		—			—		—
Conversion of HP debt into preferred stock	98	1		—		—			—		—
Stock option modification	—	—		—		—			—		—
Treasury stock acquisitions	—	—		—		—			82		(876		)

Consolidated balance, July 31, 2000	566	6		139,178		1,392			82		(876		)
Net loss	—	—		—		—			—		—
Change in unrealized gain (loss) on investments	—	—		—		—			—		—
Currency translation adjustment	—	—		—		—			—		—
Total comprehensive loss
Amortization of deferred compensation	—	—		—		—			—		—
Issuance of common stock under stock option plans	—	—		40		—			—		—
Conversion of CMGI debt into preferred stock	2,984	30		—		—			—		—
Capital contribution from CMGI Stock option modification	—	—		—		—			—		—
Treasury stock retirement	—	—		(82	)	(1		)	(82	)	876

Consolidated balance, July 31, 2001	3,550	36		139,136		1,391			—		—
Net loss	—	—		—		—			—		—
Currency translation adjustment	—	—		—		—			—		—
Total comprehensive loss
Issuance of common stock	—	—		1		1			—		—
Conversion of HP debt into common stock	—	—		215		2			—		—
Issuance of warrants	—	—		—		—			—		—

Consolidated balance, July 31, 2002	3,550	$	36	139,352		$	1,394		—		$	—

	CAPITAL IN EXCESS OF PAR			DEFERRED COMPENSATION			ACCUMULATED OTHER COMPREHENSIVE INCOME			ACCUMULATED DEFICIT			TOTAL OWNERS’ EQUITY (DEFICIT)

Consolidated balance, August 19, 1999	$	2,926,231		$	—		$	—		$	—		$	2,927,531
Net loss	—			—			—			(1,050,029		)	(1,050,029		)
Unrealized gain on investments	—			—			6,624			—			6,624
Currency translation adjustment	—			—			24			—			24
Total comprehensive loss													(1,043,381		)

Dividend of Zip2	—			—			—			(253,468		)	(253,468		)
Deferred stock-based compensation	—			(4,692		)	—			—			(4,692		)
Amortization of deferred compensation	—			3,667			—			—			3,667
Issuance of common stock to CMGI for iAtlas merger	28,018			—			—			—			28,034
Issuance of common stock for RagingBull acquisition	162,444			—			—			—			162,510
Issuance of common stock for Transium acquisition	4,013			—			—			—			4,015
Issuance of common stock under stock option plans	4,399			—			—			—			4,407
Issuance of common stock as a charitable contribution	739			—			—			—			739
Conversion of CMGI debt into preferred stock	121,747			—			—			—			121,752
Conversion of HP debt into preferred stock	25,520			—			—			—			25,521
Stock option modification	531			—			—			—			531
Treasury stock acquisitions	—			—			—			—			(876		)

Consolidated balance, July 31, 2000	3,273,642			(1,025		)	6,648			(1,303,497		)	1,976,290
Net loss	—			—			—			(2,041,698		)	(2,041,698		)
Change in unrealized gain (loss) on investments	—			—			(6,624		)	—			(6,624		)
Currency translation adjustment	—			—			169			—			169
Total comprehensive loss													(2,048,153		)

Amortization of deferred compensation	—			1,025			—			—			1,025
Issuance of common stock under stock option plans	208			—			—			—			208
Conversion of CMGI debt into preferred stock	102,790			—			—			—			102,820
Capital contribution from CMGI	14,816			—									14,816
Stock option modification	186			—			—			—			186
Treasury stock retirement	(875		)	—			—			—			—

Consolidated balance, July 31, 2001	3,390,767			—			193			(3,345,195		)	47,192
Net loss	—			—			—			(147,787		)	(147,787		)
Currency translation adjustment	—			—			483			—			483
Total comprehensive loss													(147,304		)
Issuance of common stock	15			—			—			—			16
Conversion of HP debt into common stock	3,055			—			—			—			3,057
Issuance of warrants	50			—			—			—			50

Consolidated balance, July 31, 2002	$	3,393,887		$	—		$	676		$	(3,492,982	)	$	(96,989	)

See accompanying notes to consolidated financial statements.

ALTAVISTA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

	YEAR ENDED JULY 31, 2002			YEAR ENDED JULY 31, 2001			AUGUST 19, 1999 TO JULY 31, 2000

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(147,787	)	$	(2,041,698	)	$	(1,050,029	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	84,370			582,914			901,003
Restructuring charges	15,494			60,627			2,864
Impairment of long-lived assets	6,716			1,216,533			—
Imparment losses on investments	704			17,725			—
Loss on facility lease renegotiation	7,190			—			—
(Gain) loss on disposal of fixed assets	8,636			(15,905		)	2,657
Realized (gain) loss on sale of available-for-sale securities	—			568			(11,882		)
Loss on sale of Raging Bull	—			95,896			—
Provision for accounts receivable allowances	8,123			5,743			6,622
Stock-based compensation	—			1,211			4,692
Stock issued as a charitable contribution	—			—			739
Changes in operating assets and liabilities, excluding effects from acquisitions and divestitures:
Accounts receivable	11,295			(2,631		)	(28,132		)
Prepaid expenses	(176		)	4,962			(5,850		)
Accounts payable	1,515			(1,092		)	(14,641		)
Deferred revenue	(167		)	(7,143		)	21,044
Accrued restructuring	(5,291		)	(28,706		)	(557		)
Allocations from CMGI and HP	12,614			18,173			14,698
Other current liabilities	(5,992		)	(14,608		)	(15,966		)
Net cash used in operating activities	(2,756		)	(107,431		)	(172,738		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments	—			—			(478		)
Purchases of property and equipment	(11,535		)	(23,521		)	(25,231		)
Proceeds from dispositions of property and equipment	—			35,779			—
Proceeds from sale of available-for-sale securities	—			5,954			—
Proceeds from sale of Raging Bull	845			7,604			—
Acquisitions, net of cash acquired	—			—			11,501
Zip2 dividend, cash disposed	—			—			(2,629		)
Increase in restricted cash	(197		)	(759		)	—
Increase (decrease) in other assets	(474		)	90			(267		)
Net cash provided by (used in) investing activities	(11,361		)	25,147			(17,104		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations	(1,415		)	(7,878		)	(6,469		)
Proceeds from notes payable to CMGI	32,933			83,620			185,540
Proceeds from notes payable to HP	—			—			28,049
Proceeds from issuance of common stock	16			208			4,407
Purchase of treasury stock	—			—			(1,900		)
Payments for HP lease terminations	(20,000		)	—			—
Payments for facility lease renegotiation	(2,788		)	—			—
Net cash provided by financing activities	8,746			75,950			209,627
Net increase (decrease) in cash and cash equivalents	(5,371		)	(6,334		)	19,785
Cash and cash equivalents at beginning of period	13,451			19,785			—
Cash and cash equivalents at end of period	$	8,080		$	13,451		$	19,785
Cash paid for interest	$	304		$	1,576		$	531
Cash paid for income taxes	$	54		$	665		$	—

See accompanying notes to consolidated financial statements.

ALTAVISTA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DESCRIPTION OF BUSINESS

AltaVista Company (“AltaVista” or “the Company”), an Internet search pioneer, is a global provider of search services and technology. The Company provides integrated search results to give users immediate access to relevant information including Web pages, multimedia files and current news reports. The Company is a majority-owned operating company of CMGI, Inc. (“CMGI”), and operates in two reportable segments, (i) Advertising, Service and Other and (ii) Software.

BASIS OF PRESENTATION

On August 18, 1999 (the “Acquisition Date”), CMGI consummated a transaction with Compaq Computer Corporation (“Compaq”), now Hewlett-Packard Company (“HP”), pursuant to which CMGI acquired a majority interest (81.5%) in AltaVista, and HP retained an 18.5% minority interest in AltaVista. As a result of the transaction, the Company’s consolidated financial statements as of and after August 18, 1999 reflect the pushdown of CMGI’s and HP’s new basis in the AltaVista assets acquired and liabilities assumed. The acquired assets of AltaVista consisted primarily of goodwill and other intangible assets of $2.9 billion that were to be amortized over a three-year useful life.

Since the Acquisition Date, certain services have been provided to the Company by CMGI. The cost of these services has been included in the Company’s results of operations in the periods in which the services were provided. Costs of services provided to the Company by CMGI include charges for facilities, dedicated personnel and other services specifically used by the Company plus an allocation for costs of shared services. Shared services costs include certain selling and marketing expenses and certain general and administrative expenses (see Note 9). Shared service costs are based on either a direct cost pass-through or a percentage of total costs for the services provided based on factors such as headcount, number of software license seats used or the specific level of activity directly related to such costs (i.e., direct spending). Management believes that these allocations are based on assumptions that are consistently applied. However, these allocations and estimates may not be indicative of the costs and expenses that would have resulted if the Company had been operated as a separate entity.

As of July 31, 2002, the Company had an accumulated deficit of $3.5 billion, negative working capital of $116.7 million and has incurred negative cash flow from operations during the years ended July 31, 2002 and 2001, and the period from August 19, 1999 to July 31, 2000 (hereafter referred to as the “period ended July 31, 2000”). CMGI and HP have financed the Company’s operating losses since CMGI’s acquisition of a majority interest in the Company in August 1999, but have no obligation to continue to provide additional funding. As discussed in Note 16, the Company has entered into an agreement with Overture Services, Inc. (“Overture”), under which Overture agreed to acquire substantially all of the Company’s assets. In the event that the transaction is not consummated, the Company will be required to seek alternative sources of financing. Given the Company’s history of operating losses, there can be no assurance that financing will be available on commercially reasonable terms, or at all.

PRINCIPLES OF CONSOLIDATION

The Company’s consolidated financial statements include the accounts of AltaVista and its wholly-owned subsidiaries. Investments in which the Company does not have the ability to exert significant influence or which there is not a readily determinable market value are accounted for using the cost method of accounting. All significant intercompany balances and transactions have been eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

CONCENTRATIONS, CREDIT RISK AND CREDIT RISK EVALUATIONS

CONCENTRATIONS

The Company relies on third-party advertising services, provided primarily by a small number of suppliers, to deliver advertisements to its users. The Company is dependent on the ability of its suppliers to deliver the advertisements as contracted for and on favorable pricing terms. The inability of these suppliers to do so could have a material impact on the consolidated results of operations of the Company.

During the year ended July 31, 2002, one customer accounted for approximately 18% of total net revenue. During the year ended July 31, 2001, no customer accounted for more than 10% of total net revenue. During the period ended July 31, 2000, one customer accounted for approximately 46% of total net revenue. At July 31, 2002, one customer accounted for 18% of the Company’s accounts receivable balance. No customer represented more than 10% of the Company’s accounts receivable balance at July 31, 2001.

CREDIT RISK AND CREDIT EVALUATIONS

Financial instruments potentially subjecting the Company to a concentration of credit risk consist of accounts receivable. The Company’s accounts receivable are derived primarily from advertising, software sales, service and other revenue earned from customers located in the United States and Europe. The Company makes judgments as to its ability to collect outstanding receivables and provides allowances for receivables when collection becomes doubtful. Provisions are made based upon a specific review of significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable in accordance with the Company’s bad debt policy. In determining these percentages, the Company has analyzed its historical collection experience and current economic trends.

The Company also records a provision for revenue allowances in the same period as the related revenues are recorded. These estimates are based on historical analysis of credit memo data and other known factors and are recorded in accordance with the Company’s bad debt and revenue allowance policies.

REVENUE RECOGNITION

The Company generally recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. In cases where collectibility is not probable, revenue is deferred until cash has been received. The Company’s revenue streams are derived from different sources in its two business segments.

ADVERTISING, SERVICE AND OTHER REVENUE — ALTAVISTA INTERNET

Net revenue associated with the Company’s Internet (AVI) operations is included in its Advertising, Service and Other segment, and is generated from sales of branded advertising products, fixed text links, sponsored matches and other paid placement products, integrated search services and sales of paid inclusion products.

The Company’s branded advertising ranges from traditional Internet advertising units such as banners, skyscrapers and interstitials (pop-up/pop-under ads) to highly targeted interactive advertisements that, for instance, allow the user to search for flight/travel information directly in the ad. Branded advertising is generally sold on a cost per thousand impressions (CPM basis), cost per click (CPC basis), or cost per acquisition (CPA basis). Revenue derived from such arrangements is recognized during the period that the service is provided, provided that no significant obligations remain at the end of the period. Such obligations typically include the guarantee of a minimum number of impressions, or the number of times that an advertisement appears in pages viewed by users of our services. To the extent the minimum guaranteed impressions are not delivered, the Company defers recognition of the corresponding revenue until the remaining guaranteed impressions levels are achieved.

The Company’s fixed text links are text-based advertisements on the home and search pages. These links redirect users to partner sites for popular search topics such as travel, shopping and yellow pages. Fixed text link deals are sold on a CPC, CPM and CPA basis. Revenue derived from such arrangements is recognized during the period that the service is provided, provided that no significant obligations remain at the end of the period. Such obligations typically include the guarantee of a minimum number of impressions or clicks. To the extent the minimum guaranteed impressions or clicks are not delivered, the Company defers recognition of the corresponding revenue until the remaining guaranteed impressions or clicks levels are achieved.

The Company’s sponsor matches and other paid placement products are text messages that are designed to connect users interested in a particular product or service with an advertiser offering that product or service. These products are sold on a CPC or CPM basis when a user clicks on links to a merchant’s Web site. Alternatively, the Company may recognize revenue on a revenue-sharing basis when the paid placement service is offered through one of its customers.

The Company’s integrated search services include the syndication of its Web-wide search technology to portals, infomediaries, and content and destination websites. Integrated search service fees primarily consist of revenue-sharing arrangements, fixed or fee-per-use arrangements, and revenue is recognized as the service is delivered. Revenue from revenue-sharing arrangements and certain other transactions is recorded net of amounts paid to integrated search service partners and certain other customers, except when the Company acts as the primary obligor in the arrangement and bears risk with respect to the inventory of promotional space and credit risk. When the Company bears these risks, the expense is recognized as a cost of sale and revenue is recorded on a gross basis in accordance with Emerging Issues Task Force Issue No. (EITF) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent.

The Company’s paid inclusion products allow Web site owners to include their Universal Resource Locators (“URL’s”) in the Company’s search index. Paid inclusion products are further categorized either as Trusted Feed or Express Inclusion. The Trusted Feed product is sold to partners who have a large number of URL’s (typically greater than 500). The Trusted Feed product is sold on a CPC basis. The Express Inclusion product is for advertisers with a small number of URL’s (typically less than 500). Express Inclusion is priced on a per URL basis and must be renewed every six months. Revenue is collected in advance and recognized ratably over the appropriate service period.

The Company engages in barter transactions for the exchange of advertising space on its web site for a reciprocal advertising space, traffic on other web sites or receipt of marketing services. In January 2000, the Company adopted EITF No. 99-17, Accounting for Advertising Barter Transactions, which requires advertising barter transactions to be valued based on similar cash transactions that have occurred within six months prior to the barter transaction. Barter transactions are recorded as revenue and an offsetting amount is recorded as sales and marketing expense, with no net impact on the Company’s reported operating loss. Barter revenue represented 3.4%, 9.5% and 6.7% of total revenue for the years ended July 31, 2002 and 2001, and for the period ended July 31, 2000, respectively. Prior to the adoption of EITF 99-17, the Company accounted for barter transactions based on the fair value of the services delivered and received.

SOFTWARE REVENUE — ALTAVISTA SOFTWARE

Net revenue from the Company’s Software (“AVS”) operations is included in its Software segment, and is derived from software license revenue and support services revenue. Software license revenue is generated from customers licensing the rights to use the Company’s proprietary technology for use on their corporate and/or consumer-facing Web sites. Support services revenue is generated from sales of maintenance agreements, and to a lesser extent, consulting services and training services associated with the Company’s licensed software.

The Company recognizes software license revenue in accordance with AICPA Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions.

The Company licenses software in multiple element arrangements in which a customer purchases a combination of software, post-contract customer support (“PCS”), and/or professional services. PCS, or maintenance, includes rights to upgrades, when and if available, telephone support, updates, and enhancements. Professional services relate to consulting services and training. Vendor specific objective evidence (“VSOE”) of fair value is established by the price charged when the same element is sold separately. The Company determines VSOE of fair value of PCS based on renewal rates for the same term PCS. In a multiple element arrangement whereby VSOE of fair value of all undelivered elements exists but VSOE of fair value does not exist for one or more delivered elements, revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue, assuming delivery has occurred and collectibility is probable. Revenue allocated to PCS is recognized ratably over the contractual term (typically one year).

The Company recognizes license revenue upon delivery of the software for license agreements when the Company has no implementation responsibility, or where implementation is not considered essential to the functionality of the software. In software license arrangements where a service element is bundled with the software, license and service fees are recognized ratably over the life of the service period, commencing upon service implementation. Amounts invoiced prior to earning revenue are recorded as deferred revenue and are subsequently recognized when earned. Revenue from license contracts with significant amounts due beyond normal payment terms is recognized when due.

PRODUCT DEVELOPMENT COSTS

Expenditures that are related to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. Costs for the development of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has been established, at which time any additional development costs would be capitalized. The Company’s process for developing software is essentially completed concurrently with the establishment of technological feasibility; accordingly, no costs have been capitalized to date.

ADVERTISING EXPENSE

The Company expenses advertising costs as incurred. Advertising costs included in sales and marketing expense were approximately $1.9 million, $15.0 million and $105.3 million for the years ended July 31, 2002 and 2001, and for the period ended July 31, 2000, respectively.

STOCK-BASED COMPENSATION PLANS

The Company accounts for its stock compensation plans under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation. As permitted by SFAS No. 123, the Company measures compensation cost in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees and related interpretations. Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. For options granted below fair market value, compensation expense is measured at the grant date as the difference between the fair market value and exercise price. Upon the exercise of stock options, net proceeds, including any realized tax benefits, are credited to equity. For options granted below fair market value and options assumed in business combinations with intrinsic value, the Company amortizes stock compensation expense using the graded vesting method as outlined in FASB Interpretation (FIN) No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.

INCOME TAXES

The Company was not a separate taxable entity for federal, state or local income tax purposes and its operations were included in the consolidated HP tax returns for periods prior to August 18, 1999, and were included in the CMGI consolidated return for the tax period from August 18, 1999 to February 1, 2000. As a result of the Company’s acquisition of Raging Bull, AltaVista was deconsolidated from the CMGI federal consolidated group on February 1, 2000. On April 2, 2001, AltaVista became eligible to be included in CMGI’s federal consolidated group again and continued to be included as a subsidiary of the federal consolidated tax return of CMGI thereafter. For state income tax purposes, AltaVista was included with the California unitary tax returns of CMGI since August 18, 1999, and for the tax periods that were included with the CMGI federal consolidated tax returns, AltaVista was also included with CMGI’s Massachusetts combined tax returns. AltaVista filed separate stand-alone state tax returns for other states where it had income tax nexus.

For periods where AltaVista is included in the consolidated tax return of CMGI and does not have its own tax attributes, the Company accounts for income taxes under the separate return method. Under this method, taxes are provided based on the separate current and deferred tax consequences of AltaVista. No formal tax sharing agreement has been entered between the Company and CMGI; however, it has been CMGI’s policy not to reimburse its subsidiaries for tax attributes utilized in the consolidated group’s tax returns and the subsidiaries are responsible to pay their separate tax liabilities. Deferred tax assets generated from operating losses require a full valuation allowance because, given the history of operating losses, realizability of such tax benefits is not considered more likely than not.

COMPREHENSIVE INCOME (LOSS)

SFAS No. 130, Reporting Comprehensive Income, requires certain financial statement components, such as unrealized holding gains or losses and cumulative translation adjustments to be included in accumulated other comprehensive income (loss). The Company reports accumulated other comprehensive income (loss) in the Consolidated Statements of Owners’ Equity. For all periods presented, the only differences between the reported net loss and total comprehensive loss consisted of unrealized gains and losses on available-for-sale investments and foreign currency translation adjustments. The functional currency of all of the Company’s foreign subsidiaries is the local currency of each subsidiary.

CASH AND CASH EQUIVALENTS AND STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION

The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents.

During the year ended July 31, 2002, significant non-cash activities included the conversion of $3.1 million of HP demand notes payable into 215,250 shares of the Company’s common stock. In addition, as part of a renegotiation and buyout of a facility lease, the Company transferred to its landlord $4.0 million of restricted cash and investments valued at $0.4 million and issued a warrant valued at $50,000 to purchase 1,000,000 shares of the Company’s common stock.

During the year ended July 31, 2001, significant non-cash activities included the conversion of $102.8 million of CMGI demand notes payable into 2,984,000 shares of the Company’s convertible preferred stock.

During the period ended July 31, 2000, significant non-cash activities included the following: the conversion of $121.8 million of CMGI and $25.5 million of HP demand notes payable into 467,771 and 98,695 shares, respectively, of the Company’s convertible preferred stock; the issuance of 6.6 million shares of the Company’s common stock for the acquisition of Raging Bull; the issuance of 0.2 million shares of the Company’s common stock for the acquisition of Transium; and the issuance of 1.6 million shares of the Company’s common stock to CMGI for the acquisition of iAtlas.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company’s financial instruments, which include accounts receivable, accounts payable, accrued expenses and demand notes payable approximate their fair values at July 31, 2002 and July 31, 2001.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation and amortization is provided on a straight-line basis over the estimated useful lives of the respective assets (typically three to ten years). Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life of the asset or the lease term. Maintenance and repairs are charged to operating expenses as incurred.

GOODWILL AND OTHER INTANGIBLE ASSETS

Through July 31, 2002, goodwill and other intangible assets were amortized on a straight-line basis over their estimated useful lives of three years. Upon the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, in the first quarter of the year ending July 31, 2003, goodwill and intangible assets with indefinite useful lives will no longer be amortized, but will be subject to annual impairment testing. At July 31, 2002, the Company’s goodwill and other intangible assets were fully amortized or written off. Amortization of developed technology intangibles totaling approximately $26.4 million and $63.3 million has been included in cost of revenue in the consolidated statements of operations for the year ended July 31, 2001 and the period ended July 31, 2000. There was no amortization of developed technology intangibles included in cost of revenue in the consolidated statement of operations for the year ended July 31, 2002, as the Company’s developed technology intangibles had been fully amortized or written off as of July 31, 2001.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company’s management performs ongoing business reviews and, based on quantitative and qualitative measures, assesses the need to record impairment losses on long-lived assets used in operations when impairment indicators are present. When indicators of impairment exist, the undiscounted projected cash flows are compared to the carrying value of the long-lived assets. If the undiscounted cash flows are less than the carrying value of the long-lived assets, management determines the amount of the impairment charge by comparing the carrying value of the long-lived assets to their fair value. Management determines fair value based on a combination of the discounted cash flow methodology, which is based upon converting expected future cash flows to present value, and the market approach, which includes analysis of market price multiples of companies engaged in lines of business similar to the company being evaluated. The market price multiples are selected and applied to the company based on the relative performance, future prospects and risk profile of the company in comparison to the guideline companies.

INVESTMENTS

Marketable equity securities are classified as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income within owners’ equity. Realized gains and losses are included in the Company’s results of operations.

Other investments in which the Company’s interest is less than 20% and which are not classified as available-for-sale securities are carried at cost unless it is determined that the Company exercises significant influence over the investee company. The Company assesses the need to record impairment losses on investments and records such losses when the impairment of an investment is determined to be other than temporary in nature. The Company recognized impairment losses on investments of $0.7 million and $17.7 million, respectively, during the years ended July 31, 2002 and 2001. No impairment losses were recognized during the period ended July 31, 2000.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 will apply to all business combinations that the Company enters into after June 30, 2001, and eliminates the pooling-of-interests method of accounting. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Under the new statements, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives.

The Company is required to adopt SFAS No. 142 for the fiscal year ending July 31, 2003. However, certain provisions of SFAS No. 142 must be applied to goodwill and other intangible assets acquired after June 30, 2001. The Company does not have any goodwill or other intangible assets relating to business combinations or any intangible assets acquired outside of a business combination that were acquired after June 30, 2001. For goodwill and other intangible assets relating to acquisitions made prior to June 30, 2001, the amounts were fully amortized or written off as of July 31, 2002. Accordingly, the adoption of SFAS No. 142 is not expected to have a material impact on the Company’s financial position or results of operations.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This statement addresses the accounting treatment for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The provisions of the statement apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, or normal operation of a long-lived asset. The statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company does not expect the adoption of SFAS No. 143 to have a material impact on its financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, the criteria required for classifying an asset as held-for-sale have been significantly changed. Assets held-for-sale are stated at the lower of their fair values or carrying amounts, and depreciation is no longer recognized. In addition, the expected future operating losses from discontinued operations will be displayed in discontinued operations in the period in which the losses are incurred rather than as of the measurement date. More dispositions will qualify for discontinued operations treatment in the statement of operations under the new rules. The Company does not expect the adoption of SFAS No. 144 to have a material impact on its financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement No’s. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections, effective for fiscal years beginning May 15, 2002 or later. It rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements and SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement also amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The adoption of this Statement did not have a material impact on the Company’s consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes EITF Issue 94-3. The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the statement include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activity. The provisions of this Statement are required to be applied to exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 is not expected to have a material impact on the Company’s financial position or results of operations.

In November 2002, the FASB issued FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for financial statement periods ending after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The application of the requirements of FIN 45 is not expected to have a material impact on the Company’s financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of SFAS No. 123, which requires additional disclosure and provides transition guidance for companies that elect to voluntarily adopt the accounting provisions of SFAS No. 123. SFAS No. 148 does not change the provisions of SFAS No. 123 that permit entities to continue to apply the intrinsic value method of APB 25. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. The adoption of SFAS No. 148 is not expected to have a material impact on the Company’s financial position or results of operations.

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities. FIN 46 requires that if an entity has a controlling financial interest in a variable interest entity, the assets, liabilities and results of activities of the variable interest entity should be included in the consolidated financial statements of the entity. The provisions of FIN 46 are effective immediately for all arrangements with variable interest entities created after January 31, 2003. For arrangements with variable interest entities created prior to February 1, 2003, FIN 46 is effective in the first interim period beginning after June 15, 2003. The Company does not have any financial interests in variable interest entities. Accordingly, the adoption of FIN 46 is not expected to have a material impact on the Company’s financial position or results of operations.

NOTE 2 — ACQUISITIONS AND DISPOSITIONS

iATLAS ACQUISITION

On October 22, 1999, the Company acquired iAtlas from CMGI for approximately $23.3 million of the Company’s common stock, plus the assumption of deferred compensation arrangements, for certain of the former iAtlas employees, with intrinsic value of $4.7 million. This transaction was accounted for as a merger of entities under common control. Upon completion of the transaction, the Company issued 1.6 million shares of AltaVista common stock to CMGI, and iAtlas became a wholly-owned subsidiary of AltaVista. Subsequent to the Company’s acquisition of iAtlas, iAtlas was merged with and into the Company and iAtlas’ separate legal existence ceased to exist. iAtlas has been included in the consolidated financial statements from the date of the acquisition of iAtlas by CMGI on September 28, 1999. The intrinsic value of any unearned portion of the deferred compensation arrangements has been recorded as unearned compensation in the consolidated statement of owners’ equity.

ZIP2 DISPOSITION

On October 20, 1999, the Company dividended all of its shares in Zip2 to CMGI and HP, the Company’s sole stockholders at such time, according to their respective ownership percentages. As part of the transaction, the Company and CMGI entered into a separation agreement concerning the Company’s utilization of certain technology and assets. This resulted in the transfer of assets from Zip2 to AltaVista totaling $4.6 million. The results of operations of Zip2 after October 20, 1999 have been excluded from the Company’s results of operations.

RAGING BULL ACQUISITION AND DISPOSITION

On February 1, 2000, the Company acquired Raging Bull, Inc. (“Raging Bull”), a finance-oriented community and content Internet company and an affiliate of CMGI. The aggregate acquisition cost of $165.8 million consisted of the issuance of the Company’s common stock with a fair value of $150.2 million for all of the issued and outstanding common and preferred stock of Raging Bull, the issuance of the Company’s stock options with a fair value of $12.3 million in exchange for all of the outstanding options of Raging Bull, and $3.3 million of acquisition related costs. This transaction was accounted for under the purchase method of accounting. The results of operations of the acquired entity and the estimated fair market values of the acquired assets and liabilities were included in the Company’s financial statements from the date of acquisition. The aggregate purchase price including liabilities assumed was allocated to the assets acquired, consisting primarily of goodwill and other intangibles.

On January 26, 2001, the Company sold Raging Bull to TerraLycos for $8.5 million in cash. Approximately $0.8 million of the cash received was held in escrow and subsequently received by the Company in the year ended July 31, 2002. As a result of the transaction, the Company recorded a loss on the disposition of $95.9 million. The results of operations of Raging Bull have been excluded from the Company’s financial statements from the date of disposition.

TRANSIUM ACQUISITION

On February 22, 2000, the Company acquired Transium Corporation, a provider of search services for enterprise customers. The aggregate acquisition cost of $9.6 million consisted of $5.0 million in cash, $4.0 million in the Company’s common stock and $0.6 million of acquisition related costs. This transaction was accounted for under the purchase method of accounting. The results of operations of the acquired entity and the estimated fair market values of the acquired assets and liabilities have been included in the Company’s financial statements from the date of acquisition. The aggregate purchase price including liabilities assumed was allocated to the assets acquired, consisting primarily of goodwill and other intangibles.

The purchase prices for the acquisitions of iAtlas, Raging Bull and Transium were allocated to the assets acquired and liabilities assumed as set forth below (in thousands):

	iAtlas		Raging Bull		Transium

Current assets (net of cash)	$	161	$	1,056	$	442
Fixed assets	747		656		183
Other assets	6		—		—
Goodwill and other intangibles	23,003		151,149		9,159
Deferred compensation	4,692		—		—
Liabilities	825		2,422		555

The following unaudited pro forma financial information presents the combined results of operations of the Company and Raging Bull as if the acquisition had occurred at the beginning of the period ended July 31, 2000 (in thousands). The results of operations for iAltas and Transium have not been included as the amounts are not material to the Company’s results of operations.

	UNAUDITED PRO FORMA COMBINED RESULTS OF OPERATIONS FOR THE PERIOD FROM AUGUST 19, 1999 TO JULY 31, 2000

Revenue	$	207,154
Net loss	$	(1,078,034	)

NOTE 3 — IMPAIRMENT OF LONG-LIVED ASSETS

During the year ended July 31, 2002, the Company recorded charges for the impairment of long-lived assets totaling $6.7 million. The impairment charges related to the purchase of certain equipment that was previously held under operating leases as discussed in Note 9, and leasehold improvements that were abandoned by the Company.

During the year ended July 31, 2001, the Company recorded charges for the impairment of long-lived assets totaling $1.22 billion. The impairment charges consisted primarily of reductions in the carrying value of goodwill and other intangible assets relating to the Company’s acquisition by CMGI and other acquisitions made by the Company. The Company determined that the carrying value of its goodwill and other intangible assets was required to be reviewed for impairment due to factors including a significant deterioration in the Company’s business environment, and its historical operating losses and negative cash flows. The Company then determined that an impairment had occurred by comparing the undiscounted cash flows to the carrying value of the goodwill and intangible assets. The Company performed a series of discounted cash flow analyses to determine the fair value of the goodwill and other intangible assets, using management’s estimates of revenues and operating expenses. The difference between the estimated fair value based on the discounted cash flow analyses and the carrying value of the goodwill and other intangible assets was recorded as an impairment charge.

NOTE 4 —INVESTMENTS

In December 1998, HP purchased on behalf of the Company 500,000 shares of Series B preferred stock of RealNames Corporation (“RealNames”) for $0.5 million, resulting in the Company owning less than 20% of RealNames. During the year ended July 31, 2002, RealNames ceased business operations and the Company recorded an impairment loss of $0.5 million, equal to the carrying value of its investment.

In January 1999, HP purchased on behalf of the Company 2,023,635 shares of Series D preferred stock of Virage, Inc. (“Virage”) for $3.5 million. In September 1999, the Company purchased 131,983 shares of Series E preferred stock of Virage for $0.4 million. The aggregate purchases resulted in the Company owning less than 20% of Virage. The Company’s investment in Virage was subsequently converted into 1,077,809 shares of Virage common stock, following the initial public offering of Virage and a 2 for 1 reverse stock split. During the year ended July 31, 2001, the Company sold its investment in Virage and recorded a realized gain of $1.1 million.

In March 1999, HP purchased on behalf of the Company 1,000,000 shares of Series B preferred stock of FreePC.com for $5.0 million resulting in the Company owning less than 20% of FreePC.com. In January 2000, FreePC.com was acquired and became a wholly owned subsidiary of eMachines, Inc. Pursuant to the transaction, the Company’s shares of Series B preferred stock of FreePC.com were converted into 1,100,055 shares of eMachines, Inc. Series C preferred stock and a warrant to purchase 471,452 shares of eMachines, Inc. common stock. The conversion resulted in the Company owning less than 20% of eMachines, Inc. During the year ended July 31, 2001, the Company recorded an impairment loss on its investment in eMachines of $3.9 million due to an impairment that was determined to be other than temporary and subsequently sold its eMachines shares and recorded a realized loss of $0.6 million.

In July 1999, HP purchased on behalf of the Company 2,171,809 shares of Series C preferred stock of 1stUp.com Corporation (“1stUp.com”) for $2.5 million, resulting in the Company owning less than 20% of 1stUp.com. On November 4, 1999, CMGI acquired all of the issued and outstanding stock of 1stUp.com. As a result, the Company received 137,706 shares of CMGI common stock (subsequently adjusted to 275,412 shares due to a CMGI stock split), in exchange for its original investment in 1stUp.com. Concurrent with the CMGI acquisition of 1stUp.com, the Company increased the carrying value of its investment to $14.4 million, based on the fair market value of the shares of CMGI common stock that the Company received on the date of CMGI’s acquisition of 1stUp.com. The increase in the carrying value of $11.9 million was recorded in other (income)/expense, net in the Company’s consolidated statement of operations for the period ended July 31, 2000. During the year ended July 31, 2001, the Company recorded an impairment loss of $13.8 million due to an impairment that was determined to be other than temporary, reducing the net carrying value of the investment to $0.6 million. During the year ended July 31, 2002, as part of a lease settlement related to its restructuring activities, the Company transferred the shares of CMGI common stock to the landlord and wrote off the remaining carrying value of the investment.

NOTE 5 — PROPERTY AND EQUIPMENT

Property and equipment are summarized below (in thousands):

	JULY 31, 2002		JULY 31, 2001

Leasehold improvements	$	4,867	$	8,730
Machinery and equipment	41,821		59,935
Construction in process	145		3,775
	46,833		72,440
Less: Accumulated depreciation	28,736		31,476
Property and equipment, net	$	18,097	$	40,964

Depreciation expense totaled $18.5 million, $22.7 million and $18.4 million for the years ended July 31, 2002 and 2001, and for the period ended July 31, 2000, respectively.

During the year ended July 31, 2001, the Company recorded a pre-tax gain of approximately $19.7 million on the sale of a real estate holding.

NOTE 6 — OTHER LIABILITIES

Other liabilities are summarized below (in thousands):

	JULY 31, 2002		JULY 31, 2001

Accrued compensation	$	3,731	$	6,319
Accrued expenses	3,335		8,455
Other	4,928		4,514
Total other liabilities	$	11,994	$	19,288

NOTE 7 — RESTRUCTURING CHARGES

The Company recorded restructuring charges during the years ended July 31, 2002 and 2001, and the period ended July 31, 2000, as discussed below. The following table summarizes the activity in the restructuring accrual for the periods presented (in thousands):

	EMPLOYEE RELATED EXPENSES			CONTRACTUAL OBLIGATIONS			ASSET IMPAIRMENTS			TOTAL

Restructuring charges	$	1,245		$	1,619		$	—		$	2,864
Non-cash charges	(531		)	—			—			(531		)
Cash payments	(557		)	—			—			(557		)

Accrued restructuring balance at July 31, 2000	157			1,619			—			1,776
Restructuring charges	6,051			39,870			14,706			60,627
Non-cash charges	—			(19,630		)	(12,391		)	(32,021		)
Cash payments	(5,718		)	(20,673		)	(2,315		)	(28,706		)

Accrued restructuring balance at July 31, 2001	490			1,186			—			1,676
Restructuring charges	2,964			4,355			8,175			15,494
Non-cash charges	—			(124		)	(8,265		)	(8,389		)
Cash payments, net	(2,968		)	(2,413		)	90			(5,291		)

Accrued restructuring balance at July 31, 2002	$	486		$	3,004		$	—		$	3,490

The Company anticipates that the remaining restructuring accruals will be paid by August 2005. Payments of employee-related expenses were substantially complete by October 31, 2002. The remaining contractual obligations primarily relate to facilities and equipment lease obligations.

The net restructuring charges for the years ended July 31, 2002 and 2001, and for the period ended July 31, 2000 would have been allocated as follows had the Company recorded the expense within the functional department of the restructured activities (in thousands):

	YEAR ENDED JULY 31, 2002		YEAR ENDED JULY 31, 2001		PERIOD FROM AUGUST 19, 1999 TO JULY 31, 2000

Cost of revenue	$	252	$	6,654	$	1,533
Product development	885		3,029		179
Sales and marketing	1,819		23,573		1,025
General and administrative	12,538		27,371		127
Total restructuring charges	$	15,494	$	60,627	$	2,864

The Company’s restructuring initiatives involved strategic decisions to exit certain business operations and to reposition certain service offerings of the Company. Restructuring charges consisted primarily of contract terminations, severance charges and equipment charges incurred as a result of actions taken to exit certain business operations, reduce expenses and increase operational efficiencies. Employee related expenses primarily consisted of severance payments and fringe benefits for affected employees. Contract terminations primarily consisted of costs to exit facility and equipment leases and to terminate certain vendor contracts. Asset impairment charges primarily related to the write-off of abandoned property and equipment.

During the year ended July 31, 2002, the Company recorded restructuring charges totaling $15.5 million, relating to the ongoing change in its business strategy towards an Internet and enterprise search business model, including the shut-down of its European data center, and the closing of its Irvine office location. The restructuring charges included a charge of $3.0 million related to workforce reductions of 226 employees, settlements of leases and other contractual obligations totaling $4.3 million, and asset impairments of $8.2 million.

During the year ended July 31, 2001, the Company recorded net restructuring charges totaling $60.6 million, primarily relating to the realignment of the Company’s cost structure given the change in the Company’s business strategy and changes in the overall business environment, including a significant decline in rates for online advertising. Specific actions taken by the Company included the decision to exit the comparison shopping portion of its business, the shut-down of its European data center, the termination of a contract with a significant service provider, and the closing of various facilities. The restructuring charges included a charge of $6.0 million related to workforce reductions of 280 employees, settlements of leases and other contractual obligations totaling $39.9 million, and asset impairments of $14.7 million. Non-cash charges for contractual obligations included $18.4 million related to the termination of a contract with a significant service provider, through a reduction of the receivables owed by the service provider.

During the period ended July 31, 2000, the Company recorded net restructuring charges totaling $2.9 million, relating to a change in its business strategy from a full service, destination website, or portal-based business model, to a website centered around its core algorithmic search technology and related comparison shopping functionality. The restructuring charges included a charge of $1.3 million related to workforce reductions of 36 employees and settlements of leases and other contractual obligations totaling $1.6 million.

NOTE 8 — DEBT

DEMAND NOTES PAYABLE

Concurrent with the CMGI acquisition of the Company, the Company issued a convertible demand note payable to CMGI pursuant to which the Company would pay to CMGI, upon demand, the lesser of (i) the principal sum of $100.0 million or (ii) the aggregate unpaid principal amount of all advances (and 7% interest, per annum) made from CMGI to the Company. CMGI will at any time have the option to require the Company to issue shares of the Company’s capital stock as follows: (a) prior to a qualified public offering (as defined), the Company will issue that number of shares of its Series A Convertible Preferred stock equal to one-tenth of the quotient of (i) the aggregate amount of principal and interest to be so converted for any particular date, divided by (ii) the applicable conversion price; (b) following a qualified public offering, the Company will issue that number of shares of its common stock equal to the quotient of (i) the aggregate amount of principal and interest to be so converted at any particular date divided by (ii) the applicable conversion price. The conversion price shall be determined as of a fiscal quarter end for that particular fiscal quarter by dividing (i) the

total enterprise valuation of the Company as of the fiscal quarter end by (ii) the number of shares of the Company’s common stock outstanding as of that date, determined on a fully-diluted, as-if converted basis and assuming the conversion of all convertible securities, all issued options, whether vested or unvested, all warrants and other rights to acquire equity interests in the Company of any nature whatsoever. During the first quarter in which a qualified public offering occurs, the conversion price applicable to that quarter will be the initial public offering price. On November 8, 2001 and February 11, 2002, the Company issued additional convertible demand notes payable to CMGI for $21.4 million and $4.0 million, respectively. These notes have substantially the same terms as the original note with the exception that they are converted at the valuations approved by the board of directors on October 31, 2001 and April 30, 2002, respectively. At July 31, 2002 and July 31, 2001, respectively, $111.7 million and $66.2 million was outstanding under the convertible demand notes to CMGI, which, if so elected by CMGI, could have been converted into approximately 71.4 million shares and 17.4 million shares, respectively, of the Company’s Series A Convertible Preferred stock.

On April 13, 2000 and April 2, 2001, respectively, CMGI converted demand notes payable of $121.8 million and 102.8 million, respectively, into 467,771 shares and 2.984 million shares, respectively, of the Company’s Series A Convertible Preferred stock.

HP has certain funding rights which allow it to purchase from the Company a proportionate amount of convertible debt or convertible preferred stock relative to the amount of any debt or convertible preferred stock issued to CMGI in connection with CMGI’s funding of the Company’s operations, based on the relative voting securities then held by CMGI and HP. On August 18, 1999 and March 14, 2000, the Company issued convertible demand notes payable to HP for $8.0 million and $17.5 million, respectively. These notes have substantially the same terms as the original CMGI notes described above. As of July 31, 2001, principal and interest due to HP under the demand notes payable totaled approximately $3.0 million. There were no amounts due to HP under the demand notes payable as of July 31, 2002. Since July 2000, HP has not provided funding to the Company. On April 13, 2000, HP converted demand notes payable of $25.5 million into 98,695 shares of Series A Convertible Preferred stock. In October 2001, HP converted demand notes payable of $3.1 million into 215,250 shares of common stock.

CMGI and HP’s total outstanding and issuable convertible debt could be converted into approximately 92.4 million shares of Series A Convertible Preferred Stock at July 31, 2002. The total Series A Convertible Preferred Stock outstanding and issuable to CMGI and HP at July 31, 2002 could be converted into approximately 925 million shares of the Company’s common stock.

NOTE 9 — RELATED PARTY TRANSACTIONS

RELATED PARTY REVENUE

During the years ended July 31, 2002 and 2001, and the period ended July 31, 2000, the Company recognized revenue from transactions with related parties of $1.2 million, $9.7 million and $13.1 million, respectively. Of these amounts, $1.2 million, $6.8 million and $4.2 million, respectively, related to transactions with CMGI and HP as described below. The remaining amount of related party transactions relate to companies in which the Company has made investments (see Note 4), or for which there were other relationships between the companies and affiliates of the Company and CMGI.

TRANSACTIONS WITH CMGI AND AFFILIATED COMPANIES

Since August 19, 1999, CMGI has advanced funds and provided services to the Company. From time to time, CMGI has elected to convert some portion or all of its then outstanding debt under its demand notes payable with the Company. The funds advanced to the Company by CMGI, as well as the cost of services provided to the Company by CMGI, are reflected in convertible demand notes payable to CMGI in the accompanying consolidated balance sheets, as described in detail in Note 8. In addition, the Company has entered into transactions with various entities that are majority-owned or otherwise affiliated with CMGI. Transactions with CMGI and affiliates included in the accompanying consolidated statements of operations are as follows (in thousands):

	YEAR ENDED JULY 31, 2002			YEAR ENDED JULY 31, 2001		PERIOD FROM AUGUST 19, 1999 TO JULY 31, 2000

Revenue	$	570		$	5,413	$	3,539
Cost of revenue	4,984			8,751		1,756
Product development	3,033			2,545		1,474
Sales and marketing	528			507		417
General and administrative	4,151			3,508		647
Interest expense	6,675			6,488		4,625
Other non-operating expense	(55		)	—		—

The Company has contractual obligations for hosting services with NaviSite, Inc. through July 31, 2003. NaviSite was a majority-owned CMGI subsidiary and an affiliate of the Company prior to its divestiture by CMGI in September 2002. Historical transactions with NaviSite are included in the amounts disclosed above for CMGI and affiliated companies. The Company had accounts payable to NaviSite of $2.9 million and $0.6 million at July 31, 2002 and 2001, respectively. Based on its current activity levels, the Company estimates that its remaining contractual obligation to NaviSite for the period August 1, 2002 through July 31, 2003 will be approximately $3.8 million.

TRANSACTIONS WITH HP

Since December 1999, HP has advanced funds to the Company under demand notes payable. From time to time, HP has elected to convert some portion or all of its then outstanding debt under its demand notes payable with the Company. Outstanding amounts due to HP are reflected in convertible demand notes payable to HP in the accompanying consolidated balance sheet, and bear interest at 7% per annum. Interest expense included in the consolidated statement of operations for the years ended July 31, 2002 and 2001, and for the period ended July 31, 2000 includes $0.2 million, $1.3 million and $0.6 million, respectively, related to the HP demand notes payable.

In June 1999, CMGI and HP entered into an agreement whereby HP agreed to preprogram Instant Internet Keyboard Buttons on its Consumer (Presario-branded) Products so that users would be directed to the AltaVista website. The Company agreed to pay HP a fee each time the keyboard button was used to direct Internet traffic to AltaVista. CMGI cross-charged the Company for the amount paid to HP on the Company’s behalf for these services. The HP keyboard amounts included in the accompanying consolidated statements of operations totaled $5.3 million and $8.2 million for the year ended July 31, 2001 and for the period ended July 31, 2000, respectively. No HP keyboard charges were incurred by the Company during the year ended July 31, 2002 due to the termination of the agreement.

The Company has also purchased capital equipment from HP, leased capital equipment from HP through capital and operating leases through October 2001, and recognized revenue for sales of software and related maintenance services to HP. Transactions with HP included in the accompanying consolidated statements of operations are as follows (in thousands):

	YEAR ENDED JULY 31, 2002		YEAR ENDED JULY 31, 2001		PERIOD FROM AUGUST 19, 1999 TO JULY 31, 2000

Revenue	$	615	$	1,380	$	619
Cost of revenue	2,663		13,141		7,837
Product development	888		4,644		2,693
Sales and marketing	—		5,312		8,173
Interest expense	231		1,313		632

lease obligations of $12.4 million that were recorded on the Company’s consolidated balance sheet. The Company financed the lease termination transaction through borrowings under a demand note payable with CMGI.

Following the transaction, the purchased equipment that had been previously leased under capital leases remained on the Company’s consolidated balance sheet at net book value. The purchased equipment that had been previously leased under operating leases was capitalized at its estimated fair value of $4.8 million. The purchased HP equipment is being depreciated over the remaining estimated useful lives of the equipment, ranging from two to three years. The Company recorded a $2.8 million loss relating to the settlement of its lease obligations with HP.

NOTE 10 — INCOME TAXES

For the tax period from August 18, 1999 to February 1, 2000, and for all tax periods beginning after April 1, 2001, a portion of the Company’s tax loss from operations was utilized by CMGI in its consolidated tax return. The Company has recorded a full valuation allowance against its net deferred tax assets in light of its recent history of operating losses. Presently management is unable to conclude that it is more likely than not that the deferred tax assets will be realized. No income tax benefit has been recorded for all periods presented because of the valuation allowance.

The components of income tax expense are as follows (in thousands):

	YEAR ENDED JULY 31, 2002		YEAR ENDED JULY 31, 2001		PERIOD FROM AUGUST 19, 1999 TO JULY 31, 2000

Current:
Federal	$	—	$	—	$	—
State	—		—		—
Foreign	54		665		—
Total current	54		665		—

Deferred:
Federal	—		—		—
State	—		—		—
Foreign	—		—		—
Total deferred	—		—		—
Total income tax expense	$	54	$	665	$	—

The following table summarizes the significant differences between the Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes:

	YEAR ENDED JULY 31, 2002		YEAR ENDED JULY 31, 2001		PERIOD FROM AUGUST 19, 1999 TO JULY 31, 2000

Statutory tax rate	35.0	%	35.0	%	35.0	%
Non-deductible goodwill amortization and impairment	(6.2	)	(14.0	)	(12.5	)
Losses not benefited, including losses utilized by CMGI	(28.7	)	(21.0	)	(22.5	)
Foreign taxes and other	(0.1	)	0.0		0.0
Effective tax rate	0.0	%	0.0	%	0.0	%

Deferred tax assets at July 31, 2002 and July 31, 2001, computed under the separate return method, are comprised as follows (in thousands):

	JULY 31, 2002			JULY 31, 2001

Deferred stock based compensation	$	27,985		$	46,755
Accruals and other reserves	17,447			22,191
Net operating loss and credit carryforwards	173,808			106,299
Depreciation and amortization	465,890			480,479
Gross deferred tax assets	685,130			655,724
Valuation allowance	(685,130		)	(655,724		)
Net deferred tax assets	$	—		$	—

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses are allowed to be carried forward or temporary differences become deductible. Due to the uncertainty of the Company’s ability to realize the benefit of the deferred tax assets, the deferred tax assets are fully offset by a valuation allowance. The net change in the valuation allowance during the year ended July 31, 2002 was an increase of approximately $29.4 million.

The Company has federal net operating loss carryforwards of approximately $472.2 million as of July 31, 2002, which will expire through 2022. The Company also has California net operating loss carryforwards of approximately $77.3 million, on a post-apportionment basis, which will expire through 2012. The utilization of these net operating losses may be limited pursuant to Internal Revenue Code Section 382 as a result of an ownership change. An ownership change occurs when the ownership percentage of 5% or greater stockholders changes by more than 50% over a three-year period. If the Company has an ownership change, its ability, if any, to utilize the net operating loss carryforwards in the future could be significantly reduced. Furthermore, a portion of the loss carryforwards may be limited pursuant to the separate return limitation year provisions, whereby such losses can only offset future taxable income of the Company.

NOTE 11 — RETIREMENT PLAN

401(K) INVESTMENT PLAN

The Company has a 401(k) investment plan (the “Investment Plan”) covering substantially all of its U.S. employees. Under the Investment Plan, employees may defer up to 20% of their eligible pre-tax earnings, subject to the Internal Revenue Service annual contribution limitation. The Company made matching contributions of $370,000, $729,000 and $724,000, for the years ended July 31, 2002 and 2001, and for the period ended July 31, 2000, respectively.

NOTE 12 — CAPITAL STOCK AND STOCK OPTION PLANS

PREFERRED STOCK

The Company’s Board of Directors has approved the authorization of 100 million and 5 million shares of Series A Convertible Preferred Stock, par value $0.01 at July 31, 2002 and July 31, 2001, respectively. As of July 31, 2002 and July 31, 2001, 3.55 million shares were issued and outstanding, all of which were held by CMGI and HP. Holders of the Series A Convertible Preferred Stock are entitled to certain rights including (i) dividends of 7% if declared by the Board of Directors, (ii) preferential rights relative to the common stockholders in the event of any liquidation, dissolution or winding up of the company, (iii) conversion rights, (iv) voting rights based on the number of shares of common stock into which the preferred stock could be converted, and (v) certain redemption rights, if elected by the majority of preferred stockholders prior to July 2, 2006.

WARRANT ISSUANCE

During the year ended July 31, 2002, as part of a lease settlement relating to its restructuring activities, the Company issued a fully vested and exercisable, five-year warrant to purchase 1,000,000 shares of common stock at $0.05 per share, equal to the fair market value of the Company’s common stock at issuance. The fair value of the warrant of $50,000 was determined using the Black-Scholes valuation model, and was charged to restructuring expense during the year ended July 31, 2002.

TREASURY STOCK

The Company has a right of first refusal agreement with certain shareholders, under which the shareholders are prohibited from selling their shares of common stock without the Company’s prior written approval. The Company has the option of repurchasing the shares from the shareholders or allowing the shares to be sold to a third party. During the period ended July 31, 2000, the Company repurchased 81,605 shares of common stock from certain shareholders for $1.9 million, and recorded stock-based compensation expense of $1.0 million for the excess of the repurchase price over the fair value of these transactions. The treasury shares were retired at their net carrying value of $0.9 million during the year ended July 31, 2001.

STOCK OPTION PLANS

The Company currently has two primary stock incentive plans: the 1999 Stock Option Plan (the “1999 Plan”) and the 1999 Equity Incentive Plan (the “1999 Equity Plan”). A total of 36.4 million shares of common stock have been reserved for issuance under the Company’s stock plans. The Company’s stock plans provide for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards and other stock-based awards to employees, directors and consultants of the Company. Options, other than incentive stock options, may be granted at an exercise price less than, equal to or greater than the fair market value on the date of grant. The Board of Directors of the Company determines the term of each option, the option exercise price and the vesting terms. Stock options generally expire five or ten years from the date of grant and vest over four years. In addition to the options granted under the Company’s stock plans, the Company has also assumed stock options relating to various acquired companies.

While options were generally granted at fair market value on the date of grant, certain options were granted below fair value. Accordingly, deferred compensation expense was amortized over the vesting period of the related options using the graded vesting method. In addition, during the year ended July 31, 2001, the Company modified certain provisions of certain option awards, and recorded a stock-based compensation expense charge of $0.2 million, equal to the intrinsic value of the awards on the date of modification. During the period ended July 31, 2000, the Company recorded a stock-based compensation expense charge of $1.0 million relating to certain stock repurchases. Stock-based compensation expense is included in a single line in the consolidated statements of operations and totaled $1.2 million and $4.7 million for the year ended July 31, 2001 and the period ended July 31, 2000, respectively. There was no stock-based compensation expense for the year ended July 31, 2002.

In addition to stock options granted under the Company’s stock plans, certain AltaVista employees have been granted options to purchase CMGI common stock under CMGI’s stock option plans. At July 31, 2002, AltaVista employees held options to purchase 4.4 million shares of CMGI common stock, of which options to purchase 0.1 million shares were vested and exercisable.

DIRECTOR STOCK OPTION PLANS

In September 1999, the Company instituted the 1999 Stock Option Plan for Non-Employee Directors (the “1999 Directors Plan”) in which non-qualified options were granted to non-employee directors. The Board reserved 325,000 shares of common stock for issuance under the 1999 Directors Plan. In September 1999, the 1999 Directors Plan was terminated; however, all then-outstanding options remained in effect. In October 1999, the Board of Directors adopted and the stockholders approved the 1999 Amended and Restated Directors Plan (the “1999 Amended Directors Plan”), pursuant to which 1,300,000 shares of the Company’s common stock are reserved for issuance. During the period ended July 31, 2000, 142,000 options were granted under the Company’s director stock plans. There were no options granted under the director stock plans during the years ended July 31, 2002 and 2001. As of July 31, 2002, 55,000 options were outstanding under the Company’s director stock option plans.

The following table summarizes stock option activity under all of the Company’s stock option plans:

	SHARES		PRICE PER SHARE	WEIGHTED AVERAGE PRICE PER SHARE

Options outstanding August 18, 1999	12,523,527		$0.05 to $9.23	$	6.35
Options granted	16,776,962		$14.20 to $22.73	$	16.58
Options granted in acquisitions	683,143		$0.48 to $23.77	$	6.93
Options lapsed or canceled	(4,297,824	)	$0.09 to $23.77	$	10.14
Options exercised	(789,760	)	$0.05 to $17.18	$	5.60
Options exchanged for CMGI options	(710,492	)	$6.73 to $9.23	$	6.94
Options outstanding July 31, 2000	24,185,556		$0.09 to $23.77	$	12.79
Options granted	14,689,870		$1.10 to $14.20	$	5.17
Options lapsed or canceled	(18,248,544	)	$0.09 to $23.77	$	11.17
Options exercised	(34,246	)	$0.12 to $22.73	$	2.14
Options outstanding July 31, 2001	20,592,636		$0.12 to $23.77	$	8.81
Options lapsed or canceled	(5,593,716	)	$0.45 to $22.73	$	8.78
Options exercised	(273	)	$ 5.66	$	5.66
Options outstanding July 31, 2002	14,998,647			$	8.82

The following table summarizes significant ranges of outstanding and exercisable options at July 31, 2002:

	OPTIONS OUTSTANDING
		WEIGHTED AVERAGE CONTRACTUAL REMAINING LIFE (YEARS)			OPTIONS EXERCISABLE
			WEIGHTED AVERAGE EXERCISE PRICE			WEIGHTED AVERAGE EXERCISE PRICE
RANGE OF EXERCISE PRICES

	SHARES				SHARES

$0.12 to $1.10	3,242,662	3.90	$	1.01	2,989,523	$	1.00
$1.65 to $5.66	2,340,092	3.25	$	3.55	1,843,120	$	3.54
$6.73	3,227,392	6.82	$	6.73	3,141,495	$	6.73
$9.23 to $12.45	366,849	6.90	$	9.35	348,234	$	9.34
$14.20 to $23.77	5,821,652	2.64	$	16.42	4,769,120	$	16.58
	14,998,647		$	8.82	13,091,492	$	8.63

At July 31, 2001 and 2000, 8.2 million and 4.2 million options were exercisable at weighted average exercise prices of $10.54 and $7.27, respectively.

The weighted average fair value per share of stock options granted during the year ended 2001, and for the period ended July 31, 2000 was $4.35 and $12.26, respectively. No options were granted during the year ended July 31, 2002. The fair value of these options was estimated using the Black-Scholes model with the following weighted average assumptions:

	YEAR ENDED JULY 31, 2001		PERIOD ENDED JULY 31, 2000

Expected option life (in years)	4.4		3.1
Risk-free interest rate	4.2	%	6.3	%
Volatility	126.9	%	103.4	%
Dividend yield	0.0	%	0.0	%

If the Company had recognized expense using the fair value method prescribed by SFAS No. 123, the Company’s net loss would have been $158.9 million, $2,095.9 million, and $1,146.0 million for the years ended July 31, 2002 and 2001 and for the period ended July 31, 2000, respectively. The pro forma effect on net loss for the periods presented is not necessarily representative of the pro forma effect on net loss in future years.

1999 EMPLOYEE STOCK PURCHASE PLAN

In December 1999, the Board of Directors adopted and in January 2000, the stockholders approved, the 1999 Employee Stock Purchase Plan (the “Purchase Plan”), which was designed to allow eligible employees to purchase common stock at a discount from fair market value. A total of 2.6 million shares of common stock have been reserved for issuance under the Purchase Plan. The Purchase Plan was intended to become effective upon the closing of the Company’s initial public offering. The Purchase Plan was designed to permit each employee to purchase stock through payroll deductions of up to 15% of the employee’s pay, subject to maximum amounts as defined by the Internal Revenue Code. Since the Company’s shares have never been publicly traded, no shares have been issued under the Purchase Plan.

NOTE 13 — COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

The Company leases office space and equipment under noncancelable operating and capital leases with various expiration dates through 2006. Rent expense for the years ended July 31, 2002 and 2001, and for the period ended July 31, 2000 was $4.1 million, $11.5 million and $6.8 million, respectively.

At July 31, 2002, future minimum lease payments under noncancelable operating and capital leases are as follows (in thousands):

YEAR ENDING JULY 31,	CAPITAL LEASES		OPERATING LEASES

2003	$	101	$	3,667
2004	—		2,971
2005	—		2,044
2006	—		153
Total minimum lease payments	101		$	8,835
Less: Amount representing interest	6
Present value of capital lease obligations	95
Less: Current portion	54
Long-term portion of capital lease obligations	$	41

Other contractual obligations include an agreement between the Company and DoubleClick, Inc. (“DoubleClick”). Under this agreement, the Company is contractually obligated to use a portion of DoubleClick’s ad-serving technology through December 31, 2004. Based on its current activity levels, the Company estimates its remaining contractual obligation to DoubleClick for the period August 1, 2002 through December 31, 2004 will be approximately $3.3 million.

The Company is contractually obligated to use a vendor’s hosting facilities in New York, New York through February 28, 2004. Based on its current activity levels, the Company estimates its remaining contractual obligation under this agreement will be approximately $1.9 million for the period August 1, 2002 through February 28, 2004.

The Company and its subsidiaries are subject to legal proceedings and claims, which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the Company.

In August 2001, Jeffrey Black, a former employee of the Company, filed a complaint in Superior Court of the State of California (Santa Clara County) against the Company, CMGI and certain individuals alleging certain claims arising out of the termination of Mr. Black’s employment with the Company. As set forth in the complaint, Mr. Black is seeking monetary damages in excess of $70 million. The Company believes that these claims are without merit and plans to vigorously defend against these claims. In March 2002, the court ordered the entire case to binding arbitration in California. In June 2002, Mr. Black petitioned the California Court of Appeal for a writ prohibiting enforcement of the order compelling arbitration of his cause of action for wrongful termination in violation of public policy. In July 2002, the Court of Appeal denied Mr. Black’s petition. In August 2002, Mr. Black submitted the matter before the American Arbitration Association. The parties are proceeding with discovery and have tentatively scheduled arbitration for August 2003.

On January 28, 2002, Mark Nutritionals, Inc. (“MNI”) filed suit against the Company in the United States District Court for the Western District of Texas, San Antonio Division. The claims against the Company include unfair competition and trademark infringement and dilution, under both federal law and the laws of the State of Texas. MNI is seeking compensatory damages in the amount of $10 million and punitive damages. The Company believes that these claims are without merit and plans to vigorously defend against these claims. The Company filed its answer on March 1, 2002, denying the allegations. In September 2002, MNI filed for protection under Chapter 11 of the bankruptcy code. Since its bankruptcy filing, MNI has not pursued this action. The court has ordered MNI to show cause why the action should not be dismissed for want of prosecution. The Company is entitled to indemnification by a third party with respect to this matter.

On March 11, 2002, Sean Barger, the principal shareholder of Equilibrium Technologies, Inc., filed suit against the Company, CMGI, officers of CMGI and certain other individuals in the Superior Court of the State of California. The claims against the Company allege 1) violations of state securities statutes, 2) fraudulent inducement, deceit and fraud, 3) negligent misrepresentation, 4) unfair competition, and 5) breach of fiduciary duty. Mr. Barger is seeking an unspecified amount of damages. The Company is currently answering interrogatories. The Company believes that these claims are without merit and is defending the case vigorously.

NOTE 14 — SEGMENT INFORMATION

Based on the information provided to the Company’s chief operating decision maker for purposes of making decisions about allocating resources and assessing performance, the Company’s operations have been classified in two operating segments: (i) Advertising, Service and Other and (ii) Software. The advertising, service and other segment provides advertising and sponsorships, search services, production and development and related support services. The software segment provides licensing of search product software and related support services.

Performance measurement and resource allocation for the reportable operating segments are based on many factors. The primary financial measures used are revenues from United States and international web sites and loss from operations before stock-based compensation, amortization of intangibles, restructuring charges and asset impairments. For the year ended July 31, 2001 and the period ended July 31, 2000, the Company was not able to allocate expenses to its operating segments. Beginning in the year ended July 31, 2002, all expenses are allocated to operating segments except for stock-based compensation, amortization of intangibles, restructuring charges and asset impairments.

Summarized financial information of the Company’s operations by business segment is as follows (in thousands):

	YEAR ENDED JULY 31, 2002			YEAR ENDED JULY 31, 2001		PERIOD FROM AUGUST 19, 1999 TO JULY 31, 2000

Net revenues:
Advertising, service and other	$	57,429		$	148,620	$	193,998
Software	12,637			21,729		11,063
Total revenue	$	70,066		$	170,349	$	205,061
Loss from operations:
Loss from operations before stock-based compensation, amortization of intangibles, restructuring charges and asset impairments
Advertising, service and other	$	(39,989	)
Software	(10,830		)
	(50,819		)
Unallocated operating expenses	88,110
Loss from operations	$	(138,929	)

Information regarding revenue by geographical region is as follows (in thousands):

	YEAR ENDED JULY 31, 2002		YEAR ENDED JULY 31, 2001		PERIOD FROM AUGUST 19, 1999 TO JULY 31, 2000

Net revenues:
United States	$	54,263	$	144,769	$	193,063
International	15,803		25,580		11,998
Total revenue	$	70,066	$	170,349	$	205,061

For all periods presented, substantially all of the Company’s long-lived assets were used in its United States operations.

NOTE 15 — TRANSACTIONS WITH OVERTURE

In May 2002, the Company entered into a one-year search services agreement with Overture, whereby Overture provides paid search results on the Company’s domestic web sites. Revenue is generated when a user clicks on a paid result. Under the agreement, the Company receives a portion of the gross proceeds from the user transactions. In addition, Overture pays the Company to host a web page that includes content describing Overture’s services and links to a web page on which potential advertisers may sign up for Overture’s services. The Company also has search services agreements with Overture in the United Kingdom and Germany. During the years ended July 31, 2002 and 2001, the Company recognized revenue of $11.7 million and $4.9 million, respectively, relating to transactions with Overture. The Company had accounts receivable from Overture of $1.9 million and $1.6 million at July 31, 2002 and 2001, respectively.

NOTE 16 — OVERTURE PURCHASE AGREEMENT

On February 18, 2003, the Company entered into a definitive asset purchase agreement with Overture. Under the agreement, AltaVista will receive $60 million in cash and Overture common stock valued at approximately $80 million as of the date of the agreement (provided that Overture will not be required to issue more than 4,274,670 shares or less than 3,001,364 shares), and Overture will assume certain AltaVista liabilities, which specifically exclude the demand notes payable to CMGI.

The purchase agreement is subject to a number of conditions including, among other things, regulatory approvals and clearances, including the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company currently expects the merger to be completed in the quarter ending April 30, 2003. There can be no assurance that the merger will be consummated within the time expected, or at all.

ALTAVISTA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

	JANUARY 31, 2003

ASSETS
Current assets:
Cash and cash equivalents	$	4,450
Accounts receivable, net of allowances of $2,374	5,820
Accounts receivable from HP	33
Prepaid expenses and other current assets	2,343
Total current assets	12,646
Property, plant and equipment, net	13,174
Restricted cash	898
Other assets	494
Total assets	$	27,212

LIABILITIES AND OWNERS’ EQUITY (DEFICIT)
Current liabilities:
Notes payable to CMGI	$	117,471
Accounts payable	3,885
Accounts payable to CMGI and affiliates	43
Accounts payable to HP	846
Accrued restructuring	2,914
Other liabilities	10,962
Deferred revenue	3,492
Total current liabilities	139,613

Commitments and contingencies
Owners’ equity (deficit):
Preferred stock $0.01 par value, 100,000 shares authorized and 3,550 shares issued and outstanding	36
Common stock $0.01 par value, 1,400,000 shares authorized and 139,352 shares issued and outstanding	1,394
Capital in excess of par	3,393,888
Accumulated other comprehensive income	384
Accumulated deficit	(3,508,103		)
Owners’ equity (deficit)	(112,401		)
Total liabilities and owners’ equity (deficit)	$	27,212

See accompanying notes to condensed consolidated financial statements.

ALTAVISTA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS)

	SIX MONTHS ENDED
	JANUARY 31, 2003			JANUARY 31, 2002

Net revenue:
Advertising, service and other (includes revenue from related party transactions of $26 and $441)	$	28,015		$	28,722
Software (includes revenue from related party transactions of $151 and $609)	3,200			8,697
Total net revenue	31,215			37,419
Operating expenses:
Cost of revenue	9,698			15,099
Product development	10,703			15,495
Sales and marketing	16,021			25,290
General and administrative	4,434			6,887
Restructuring charges	1,477			8,884
Impairment of long-lived assets	—			6,084
Amortization of intangible assets	—			31,465
Operating loss	(11,118		)	(71,785		)
Interest income	(23		)	(115		)
Interest expense	3,996			3,229
Other (income)/expense, net	20			1,097
Loss before income taxes	(15,111		)	(75,996		)
Provision for income taxes	10			68
Net loss	$	(15,121	)	$	(76,064	)

See accompanying notes to condensed consolidated financial statements.

ALTAVISTA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)

	SIX MONTHS ENDED
	JANUARY 31, 2003			JANUARY 31, 2002

CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS	$	(15,121	)	$	(76,064	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	6,661			41,061
Restructuring charges	1,477			8,884
Impairment of long-lived assets	—			6,084
(Gain) loss on disposal of fixed assets	196			(135		)
Provision for accounts receivable allowances	877			4,361
Changes in operating assets and liabilities, excluding effects from acquisitions and divestitures:
Accounts receivable	3,954			5,366
Prepaid expenses	840			1,173
Accounts payable	93			(897		)
Deferred revenue	(1,836		)	(825		)
Accrued restructuring	(2,018		)	(3,325		)
Allocations from CMGI	5,810			6,232
Other current liabilities	(2,809		)	(5,172		)
Net cash used in operating activities	(1,876		)	(13,257		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(1,969		)	(1,934		)
Proceeds from escrow relating to sale of Raging Bull	—			845
Decrease (increase) in restricted cash	58			(18		)
Decrease in other assets	207			—
Net cash used in investing activities	(1,704		)	(1,107		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations	(53		)	(1,364		)
Proceeds from notes payable to CMGI	—			27,939
Proceeds from issuance of common stock	3			12
Payments for HP lease terminations	—			(20,000		)
Net cash provided by (used in) financing activities	(50		)	6,587
Net decrease in cash and cash equivalents	(3,630		)	(7,777		)
Cash and cash equivalents at beginning of period	8,080			13,451
Cash and cash equivalents at end of period	$	4,450		$	5,674
Cash paid for interest	$	4		$	243
Cash paid for income taxes	$	10		$	68

See accompanying notes to condensed consolidated financial statements.

ALTAVISTA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows at the dates and for the periods indicated. While the Company believes that the disclosures presented are adequate to make the information not misleading, these condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended July 31, 2002. The results for the six-month period ended January 31, 2003 are not necessarily indicative of the results to be expected for the full fiscal year.

On February 18, 2003, the Company entered into a definitive asset purchase agreement with Overture Services, Inc. (“Overture”). Under the agreement, AltaVista will receive $60 million in cash and Overture common stock valued at approximately $80 million as of the date of the agreement (provided that Overture will not be required to issue more than 4,274,670 shares or less than 3,001,364 shares), and Overture will assume certain AltaVista liabilities, which specifically exclude the demand notes payable to CMGI. The purchase agreement is subject to a number of conditions including, among other things, regulatory approvals and clearances, including the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company currently expects the merger to be completed in the quarter ending April 30, 2003. There can be no assurance that the merger will be consummated within the time expected, or at all.

As of January 31, 2003, the Company had an accumulated deficit of $3.5 billion and negative working capital of $127.0 million. CMGI and HP (formerly Compaq) have financed the Company’s operating losses since CMGI’s acquisition of a majority interest in the Company in August 1999, but have no obligation to continue to provide additional funding. In the event that the Overture asset purchase agreement is not consummated, the Company will be required to seek alternative sources of financing. Given the Company’s history of operating losses, there can be no assurance that financing will be available on commercially reasonable terms, or at all.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted SFAS No. 142 during the first quarter of the fiscal year ending July 31, 2003. Because all of the Company’s goodwill and other intangible assets were fully amortized or written of as of July 31, 2002, the adoption of SFAS No. 142 had no impact on the Company’s financial position or results of operations.

long-lived asset. The statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a material impact on the Company’s financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, the criteria required for classifying an asset as held-for-sale have been significantly changed. Assets held-for-sale are stated at the lower of their fair values or carrying amounts, and depreciation is no longer recognized. In addition, the expected future operating losses from discontinued operations will be displayed in discontinued operations in the period in which the losses are incurred rather than as of the measurement date. More dispositions will qualify for discontinued operations treatment in the statement of operations under the new rules. The adoption of SFAS No. 144 did not have a material impact on the Company’s financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes EITF Issue 94-3. The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the statement include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activity. The provisions of this Statement are required to be applied to exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material impact on the Company’s financial position or results of operations.

In November 2002, the FASB issued FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for financial statements issued after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions of FIN 45 effective December 31, 2002. The Company may from time to time indemnify its customers against certain claims relating to the infringement of a third party’s intellectual property rights. The Company has not been subject to any material infringement litigation by customers in the past and does not have any infringement litigation pending as of January 31, 2003.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of SFAS No. 123, which requires additional disclosure and provides transition guidance for companies that elect to voluntarily adopt the accounting provisions of SFAS No. 123. SFAS No. 148 does not change the provisions of SFAS No. 123 that permit entities to continue to apply the intrinsic value method of APB 25. SFAS No. 148 is effective for fiscal years ending after December 15, 2002 and for interim periods beginning after December 15, 2002. The adoption of SFAS No. 148 is not expected to have a material impact on the Company’s financial position or results of operations.

2003. For arrangements with variable interest entities created prior to February 1, 2003, FIN 46 is effective in the first interim period beginning after June 15, 2003. The Company does not have any financial interests in variable interest entities. Accordingly, the adoption of FIN 46 is not expected to have a material impact on the Company’s financial position or results of operations.

NOTE 3 — IMPAIRMENT OF LONG-LIVED ASSETS

Through July 31, 2002, the Company recorded impairment charges as a result of management’s ongoing business reviews and impairment analysis performed under its policy regarding impairment, utilizing the guidance in SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Assets to be Disposed of. Under that impairment policy, when indicators of impairment existed, the undiscounted projected cash flows were compared to the carrying value of the long-lived assets. If the undiscounted cash flows were less than the carrying value of the long-lived assets, management determined the amount of the impairment charge by comparing the carrying value of the long-lived assets to their fair value. Management determined fair value based on a combination of the discounted cash flow methodology, which is based upon converting expected future cash flows to present value, and the market approach, which includes analysis of market price multiples of companies engaged in lines of business similar to the company being evaluated. The market price multiples were selected and applied to the company based on the relative performance, future prospects and risk profile of the company in comparison to the guideline companies.

On August 1, 2002, the Company adopted SFAS No. 144, under which the Company is required to test certain long-lived assets or group of assets for recoverability whenever events or changes in circumstances indicate that the Company may not be able to recover the asset’s carrying amount. SFAS No. 144 defines impairment as the condition that exists when the carrying amount of a long-lived asset or group exceeds its fair value. When events or changes in circumstances dictate an impairment review of a long-lived asset or group, the Company will evaluate recoverability by determining whether the undiscounted cash flows expected to result from the use and eventual disposition of that asset or group cover the carrying value at the evaluation date. If the undiscounted cash flows are not sufficient to cover the carrying value, the Company will measure any impairment loss as the excess of the carrying amount of the long-lived asset or group over its fair value.

During the six months ended January 31, 2002, the Company recorded charges for the impairment of long-lived assets totaling $6.1 million. The impairment charges related to the purchase of certain equipment that was previously held under operating leases as discussed in Note 5, and leasehold improvements that were abandoned by the Company. The impairment charges were calculated in accordance with SFAS No. 121.

Effective August 1, 2002, the Company adopted SFAS No. 142. Because all of the Company’s goodwill and other intangible assets were fully amortized or written off as of July 31, 2002, the adoption of SFAS No. 142 had no impact on the Company’s financial position or results of operations.

Assuming that SFAS No. 142 had been effective for all periods presented, net loss for the six months ended January 31, 2003 and 2002, would have been as follows (in thousands):

	SIX MONTHS ENDED
	JANUARY 31, 2003		JANUARY 31, 2002

Net loss, as reported	$	15,121	$	76,064
Add back: Goodwill amortization expense	—		31,465
Adjusted net loss	$	15,121	$	44,599

NOTE 4 — RESTRUCTURING CHARGES

The Company recorded restructuring charges during the respective six-month periods ended January 31, 2003 and January 31, 2002, as discussed below. The following table summarizes the activity in the restructuring accrual from July 31, 2002 through January 31, 2003:

	EMPLOYEE RELATED EXPENSES			CONTRACTUAL OBLIGATIONS			ASSET IMPAIRMENTS			TOTAL



Accrued restructuring balance at July 31, 2002	$	486		$	3,004		$	—		$	3,490
Restructuring charges	551			891			35			1,477
Non-cash charges	—			—			(35		)	(35		)
Cash payments	(1,013		)	(1,005		)	—			(2,018		)
Accrued restructuring balance at January 31, 2003	$	24		$	2,890		$	—		$	2,914

The Company anticipates that the remaining restructuring accruals will be paid by August 2005. The remaining contractual obligations primarily relate to facilities and equipment lease obligations.

The restructuring charges for the six months ended January 31, 2003 and 2002, respectively, would have been allocated as follows, had the Company recorded the expense within the functional department of the restructured activities (in thousands):

	SIX MONTHS ENDED
	JANUARY 31, 2003		JANUARY 31, 2002

Cost of revenue	$	76	$	69
Product development	165		568
Sales and marketing	437		1,088
General and administrative	799		7,159
Total restructuring charges	$	1,477	$	8,884

During the six months ended January 31, 2003, the Company recorded restructuring charges of approximately $1.5 million, due primarily to workforce reductions and costs associated with facility consolidations in the San Francisco Bay Area, Canada and Europe. The restructuring charges included a charge of $551,000 related to workforce reductions of 57 employees, settlements of leases and other contractual obligations totaling $891,000, and asset impairments of $35,000.

During the six months ended January 31, 2002, the Company recorded restructuring charges of approximately $8.9 million, which were primarily related to the ongoing change in its business strategy towards an Internet and enterprise search business model, including costs associated with the closing of its Irvine office location. The

35

restructuring charges during the period also included a charge of $2.0 million related to workforce reductions of 175 employees, settlements of leases and other contractual obligations totaling $2.2 million, and asset impairments of $4.7 million.

NOTE 5 — RELATED PARTY TRANSACTIONS

RELATED PARTY REVENUE

During the six months ended January 31, 2003 and 2002, the Company recognized revenue from transactions with related parties of $0.2 million and $1.1 million, respectively. Substantially all of the revenue from related party transactions during these periods was attributable to transactions with CMGI and HP as described below.

TRANSACTIONS WITH CMGI AND AFFILIATED COMPANIES

Since August 19, 1999, CMGI has advanced funds and provided services to the Company under demand notes payable. From time to time, CMGI has elected to convert some portion or all of its then outstanding debt under its demand notes payable with the Company. The funds advanced to the Company by CMGI, as well as the cost of services provided to the Company by CMGI, are reflected in convertible demand notes payable to CMGI in the accompanying consolidated balance sheets. In addition, the Company has entered into transactions with various entities that are majority-owned or otherwise affiliated with CMGI. Transactions with CMGI and affiliates included in the accompanying condensed consolidated statements of operations are as follows (in thousands):

	SIX MONTHS ENDED
	JANUARY 31, 2003		JANUARY 31, 2002

Revenue	$	98	$	467
Cost of revenue	2,086		1,262
Product development	1,049		1,030
Sales and marketing	147		—
General and administrative	1,119		2,340
Interest expense	3,996		2,934
Other non-operating expense	—		(60		)

TRANSACTIONS WITH HP

The Company has purchased capital equipment from HP, leased capital equipment from HP through capital and operating leases through October 2001, and recognized revenue for sales of software and related maintenance services to HP. Transactions with HP included in the accompanying condensed consolidated statements of operations are as follows (in thousands):

	SIX MONTHS ENDED
	JANUARY 31, 2003		JANUARY 31, 2002

Revenue	$	77	$	541
Cost of revenue	308		2,344
Product development	103		781
Interest expense	—		231

In October 2001, the Company entered into an agreement with HP under which the Company paid to HP $20.0 million to purchase certain equipment that had previously been leased under capital and operating lease agreements with HP, and to settle the related lease obligations to HP. As a result of the transaction, the Company was relieved of all of its lease obligations to HP, including net capital lease obligations of $12.4 million that were recorded on the Company’s consolidated balance sheet. The Company financed the lease termination transaction through borrowings under a demand note payable with CMGI.

NOTE 6 — SEGMENT INFORMATION

	SIX MONTHS ENDED
	JANUARY 31, 2003			JANUARY 31, 2002

Net revenue:
Advertising, service and other	$	28,015		$	28,722
Software	3,200			8,697
Total net revenue	$	31,215		$	37,419
Loss from operations:
Loss from operations before amortization of intangibles, restructuring charges and asset impairments Advertising, service and other	$	(8,018	)	$	(20,424	)
Software	(1,623		)	(4,928		)
	(9,641		)	(25,352		)
Unallocated operating expenses	1,477			46,433
Loss from operations	$	(11,118	)	$	(71,785	)

Information regarding revenue by geographical region is as follows (in thousands):

	SIX MONTHS ENDED
	JANUARY 31, 2003		JANUARY 31, 2002

Net revenue:
United States	$	23,222	$	29,320
International	7,993		8,099
Total net revenue	$	31,215	$	37,419

For all periods presented, substantially all of the Company’s long-lived assets were used in its United States operations.

NOTE 7 — COMPREHENSIVE LOSS

Components of comprehensive loss are as follows (in thousands):

	SIX MONTHS ENDED
	JANUARY 31, 2003			JANUARY 31, 2002

Net loss	$	(15,121	)	$	(76,064	)
Net unrealized gain (loss) on foreign currency translation adjustment during the period	(292		)	202
Comprehensive loss	$	(15,413	)	$	(75,862	)

NOTE 8 — LITIGATION

Exhibit 99.5

COMBINED FINANCIAL STATEMENTS OF IBU

INDEX TO COMBINED FINANCIAL STATEMENTS

Report of Independent Accountants

Combined Statement of Operations for the year ended December 31, 2002

Combined Balance Sheet as of December 31, 2002

Combined Statement of Cash Flows for the year ended December 31, 2002

Notes to the Combined Financial Statements

Unaudited Combined Statement of Operations for the three months ended March 31, 2003 and 2002

Unaudited Combined Balance Sheet as of March 31, 2003 with comparative totals as of December 31, 2002

Unaudited Combined Statement of Cash Flows for the three months ended March 31, 2003 and 2002

Notes to the Unaudited Combined Financial Statements

1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Fast Search & Transfer ASA

We have audited the combined balance sheet of IBU as described in Note 1, as of December 31, 2002 and the related combined statements of operations and cash flows for the year then ended. These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these combined financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The accompanying combined financial statements have been prepared from the separate records maintained by IBU and may not necessarily be indicative of the conditions that would have existed or the results of operations if IBU had been operated as an unaffiliated company. Portions of certain expenses represent allocations made from accounts applicable to the Company as a whole.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of IBU as of December 31, 2002 and the results of operations, and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.

Deloitte & Touche AS

/s/ Deloitte & Touche
Oslo, Norway
March 25, 2003
except Note 10 which is as of April 21, 2003

2

INTERNET BUSINESS UNIT OF FAST SEARCH & TRANSFER

COMBINED STATEMENT OF OPERATIONS

(IN THOUSANDS OF USD)

	FOR THE YEAR ENDED DECEMBER 31, 2002

NET REVENUES
Search services	8,788
TOTAL NET REVENUES	8,788

OPERATING EXPENSES
Cost of revenues	3,445
Research and development (exclusive of share-based compensation expense of $883 thousand)	1,678
Sales and marketing	3,248
General and administrative	2,351
Depreciation and amortization	5,080
Share-based compensation	883
TOTAL OPERATING EXPENSES	16,685

OPERATING LOSS	(7,897	)
OTHER INCOME (EXPENSE)
Other income (expense), net	—
LOSS BEFORE TAXES	(7,897	)
Income taxes	—
NET LOSS	(7,897	)

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

INTERNET BUSINESS UNIT OF FAST SEARCH & TRANSFER

COMBINED BALANCE SHEET

(IN THOUSANDS OF USD)

		AS OF DECEMBER 31, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		—
Accounts receivable		1,516
Other current assets		263
TOTAL CURRENT ASSETS		1,779

NON-CURRENT ASSETS:
Property and equipment, net		4,020
Intangible assets, net		1,762
TOTAL NON-CURRENT ASSETS		5,782
TOTAL ASSETS		7,561

LIABILITIES AND NET INVESTMENT
CURRENT LIABILITIES:
Accounts payable		761
Accrued expenses and other liabilities		504
TOTAL CURRENT LIABILITIES		1,265
NON-CURRENT LIABILITIES:
Other long-term liabilities		—
TOTAL NON-CURRENT LIABILITIES		—
NET INVESTMENT		6,296
TOTAL LIABILITIES AND NET INVESTMENT		7,561

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

INTERNET BUSINESS UNIT OF FAST SEARCH & TRANSFER

COMBINED STATEMENT OF CASH FLOWS

(IN THOUSANDS OF USD)

	FOR THE YEAR ENDED DECEMBER 31, 2002

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	(7,897	)
Depreciation and amortization	5,080
Share-based compensation	883
Changes in assets and liabilities:
Accounts receivable	1,302
Accounts payable	116
Other assets and liabilities, net	(263	)
NET CASH USED IN OPERATING ACTIVITIES	(779	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed and intangible assets	(2,009	)
NET CASH USED IN INVESTING ACTIVITIES	(2,009	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net group contribution received	2,788
NET CASH PROVIDED BY FINANCING ACTIVITIES	2,788

Effect of foreign exchange rate changes	—
Net increase (decrease) in cash and cash equivalents	—
Cash and cash equivalents, beginning of period	—
CASH AND CASH EQUIVALENTS, END OF PERIOD	—

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

INTERNET BUSINESS UNIT OF FAST SEARCH & TRANSFER

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Purchase agreement

On February 25, 2003, Fast Search & Transfer ASA (“FAST”) and Overture Services, Inc. (“Overture”), announced that they had reached an agreement where Overture will purchase FAST’s Internet search business unit. Such agreement was consummated on April 21, 2003. FAST received $70 million in cash, and is eligible to receive performance-based cash incentive payments for up to $30 million over the next three years. Under the terms of the agreement, Overture will acquire FAST’s Internet business unit assets including FAST Web Search™, AlltheWeb.com™, and FAST PartnerSite™ products, related intellectual property rights, as well as data centers and equipment in Sacramento (USA) and London (UK). In addition, FAST’s Internet business unit personnel transferred to Overture.

Basis of presentation

In these notes to the combined financial statements, references to “IBU”, or the “Company” are to the Internet Business Unit of Fast Search & Transfer ASA, and its combined businesses and assets, as described below. IBU provides software-based solutions, which enhance the delivery and retrieval of information over wired and wireless networks, such as the Internet. IBU’s solutions enable providers of all types of electronic data, including real-time data, to deliver timely and relevant information to corporations, institutions and other users. Users of IBU solutions can personalize the retrieval of information across a variety of all types of devices, such as desktop computers, mobile phones, personal digital assistants and other mobile computing devices.

At December 31, 2002, the Internet Business Unit was an integral part of Fast Search & Transfer ASA. Its assets primarily consisted of certain fixed assets, patents and other technology rights owned by FAST. Historically, financial statements have not been prepared for IBU, as it had no separate legal status or existence. The purpose of these financial statements is to present the Internet Business Unit of Fast Search & Transfer ASA, as if it had been a stand-alone entity for the year 2002.

The combined financial statements of the IBU have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The combined financial statements are presented in U.S. dollars (US$). The accounts of IBU are translated into the reporting currency, the U.S. dollar, using exchange rates in effect at period-end for assets and liabilities and at average exchange rates during the period for the results of operations. The related translation adjustments are recorded through net investment. Gains and losses resulting from foreign currency transactions, if any, are included in other income and expense.

Principles of combination

The combined financial statements have been prepared on the basis described above. The combined financial statements have been prepared using the historical basis in assets and liabilities and historical results of operations related to the IBU’s businesses. The combined financial statements generally reflect the financial position, results of operations and cash flows of the IBU as if it were a stand-alone entity for the period presented. Certain expenses that are indirectly attributable to IBU have been allocated using the methods set forth below. The assumptions and related adjustments included herein are, in the view of management, reasonable and necessary to present the financial position, results of operations and cash flows as if the IBU had operated on a stand-alone basis for the period presented. The combined financial statements are, however, not necessarily indicative of the financial position, results of operations and cash flows in the future or what they would have been had the IBU been a stand-alone entity during the periods presented. The effects of all significant transactions between components of IBU have been eliminated.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expense during the year. Actual results could differ from those estimates.

Accounts Receivable

The accounts receivable balances included in these financial statements are those specifically associated with the IBU. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. No allowance for doubtful accounts has been included as of December 31, 2002.

Property and equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows:

Office equipment and hardware		3-4 years
Furniture and fixtures		5 years

Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the determination of net income. Maintenance and repairs are generally charged to expense as incurred. Expenditures that substantially increase an asset’s useful life are capitalized.

The property and equipment balances included in the accompanying statements are assets specifically associated with the data centers, in addition to certain assets associated with IBU related personnel that will be transferred as part of the Agreement.

Intangible assets

Intangible assets are comprised of capitalized software development costs. Capitalization of such costs related to external-use software begins upon the establishment of technological feasibility, which for the Company, is established upon completion of a working model. For internal-use software under SOP 98-1, the Company capitalizes amounts incurred during the application development stage and expenses costs incurred during the preliminary project and post-implementation/operation stages. Capitalized software development costs directly related to IBU are being amortized over periods ranging from two to three years. At each balance sheet date, the unamortized capitalized costs of a software product is compared to the net realizable value of that product. The amount by which the unamortized capitalized costs of a computer software product exceed the net realizable value of that asset is written off. As of December 31, 2002, no write offs have been deemed necessary by IBU’s management.

Impairment of long-lived assets

Long-lived assets (including capitalized software development) are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. IBU evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. IBU uses an estimate of the future undiscounted net cash flows of the related asset or asset grouping over the remaining life in measuring whether the net book values of the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the net book value of the assets, the assets are written down to their estimated fair value. Fair value is determined based on current appraisal values, or discounted future cash flows.

7

Revenue Recognition

The Company generates search service revenues from licensing and hosting its software and from related maintenance and post-contract support (“PCS”) services. Fees for search services are charged based on a variety of contractual arrangements, on a per query basis or as a fixed amount of customer advertising revenue. Where an arrangement to deliver software does not require significant production, modification or customisation, FAST recognizes revenue when all of the following criteria are met:

• Persuasive evidence of an arrangement exists

• Delivery has occurred;

• Collection of a fixed or determinable fee is probable

Revenues included in the combined statements of operations are those specifically related to the IBU.

Cost of revenues

Cost of revenues consists of expenses related to the operation of search services. All costs of revenues are expensed in the period in which they are incurred, even when the cost relates to revenue that has been deferred.

Cost of revenues in the combined statements of operations includes those expenses directly attributable to the IBU. In addition, allocations have been made of expenses not directly attributable to the IBU. These allocations are based on a reasonable share of professional services being provided to IBU related customers.

Marketing and advertising expense

Marketing and advertising costs are expensed as incurred, and those directly attributable to the IBU were negligible for 2002. In addition, allocations have been made of expenses not directly attributable to the IBU. These allocations are based on a reasonable share of the IBU’s attributable expenses, relative to FAST’s total cost.

Research and development expense

These expenses include those expenses directly attributable to the IBU. In addition, allocations have been made of expenses not directly attributable to the IBU. These allocations are based on a reasonable share of development work related to IBU.

General and administrative expense

These expenses include those expenses directly attributable to the IBU. In addition, allocations have been made of expenses not directly attributable to the IBU. These allocations are based on the IBU’s proportion of revenues, relative to FAST’s total revenues.

Depreciation and amortization

Depreciation and amortization expense included in the combined statements of operations is related to the assets specifically associated with the IBU.

Share-based compensation

Allocations from FAST have been made of share-based compensation attributable to IBU personnel.

Income taxes

Income tax expense or benefit has not been recorded for the period being presented, as IBU does not include separate legal entities that are subject to tax under any jurisdiction.

Concentrations of risk

Financial instruments that potentially subject IBU to concentrations of credit risk consist primarily of accounts receivable. However, such risk is limited due to the large number of customers comprising the Company’s customer base and their dispersion across different geographic areas. Because of the proportion of international activity, the

Company’s income and expenses are exposed to exchange-rate fluctuations to a certain extent. Risks of two kinds arise as a result: a transaction risk, that is, the risk that currency fluctuations will have a negative effect on the value of the Company’s commercial cash flows in different currencies; and a translation risk, that is, the risk of adverse currency fluctuations in the translation of foreign operation and foreign assets and liabilities into U.S. dollars for the Company’s combined financial statements. The Company does not currently hedge against currency risks and fluctuations between local currencies and U.S. dollars, which may have an adverse effect on the Company’s combined financial condition and results of operations.

Fair value of financial instruments

IBU’s financial instruments including accounts receivable and accounts payable are carried at cost, which approximates fair value due to the relatively short maturity of those instruments.

NOTE 2 — OTHER CURRENT ASSETS

Other current assets consist of the following:

		AS OF DECEMBER 31, 2002

(IN THOUSANDS OF US$)
Prepaid expenses		235
Value added tax		13
Deposits		15
TOTAL		263

NOTE 3 — PROPERTY AND EQUIPMENT

Property and equipment, net consist of the following:

	AS OF DECEMBER 31, 2002

(IN THOUSANDS OF US$)
Computers, software and equipment	16,658
Furniture and fixtures	51
Less accumulated depreciation	(12,689	)
PROPERTY AND EQUIPMENT, NET	4,020

NOTE 4 — INTANGIBLE ASSETS

Intangibles assets, net consist of the following:

	AS OF DECEMBER 31, 2002

(IN THOUSANDS OF US$)
Capitalized software development	2,701
Accumulated amortization	(939	)
INTANGIBLE ASSETS, NET	1,762

Capitalized software development primarily relates to the development of FAST Web Search and FAST PartnerSite products.

NOTE 5 — ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

(IN THOUSANDS OF US$)		AS OF DECEMBER 31, 2002

Due to employees		204
Government taxes		147
Other		153
TOTAL		504

Government taxes consist primarily of social security taxes.

NOTE 6 — NET INVESTMENT

(IN THOUSANDS OF US$)	AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2002

COMPREHENSIVE LOSS:
Net loss	(7,897	)
Translation adjustment	313
TOTAL COMPREHENSIVE LOSS	(7,584	)
Net investment, beginning of year	10,209
Group contribution — cash received	2,788
Group contribution — share-based compensation	883
NET INVESTMENT, END OF YEAR	6,296

IBU’s primary requirements for cash have been to fund operating losses and capital expenditures associated with running the data centers. Capital expenditures in the IBU in 2002 were approximately $2 million

NOTE 7 — RELATED PARTY TRANSACTIONS

In 2002, Lycos Inc., a shareholder and board member of FAST, and its related affiliates accounted for 45% and 9%, respectively, of the Company’s revenues.

The combined financial statements include certain transactions with affiliated business units of FAST. Operating expenses that primarily relate to sales and marketing, research and development and general and administrative expenses have been charged to IBU from FAST’s other business units. These related parties have provided the company with certain services including cash management, legal, accounting, tax, employee benefits, data services, insurance services, research resources and other corporate services during the financial statement period presented herein. The costs of such services were based primarily on actual costs directly chargeable to IBU for expenses such as employee salaries. Expenses such as rent and general and administrative expenses were in certain cases based on ratios by headcount or other relevant measures. Management believes that the costs of such services were allocated

on a reasonable basis and would not have differed significantly from the fees charged by other business units if IBU had been operating on a stand-alone basis. Indirect costs have been allocated to certain line items in the statement of operations as follows:

(IN THOUSANDS OF US$)		FOR THE YEAR ENDED DECEMBER 31, 2002

Cost of revenues		581
Research and development		885
Sales and marketing		135
General and administrative		2,351
Share-based compensation		883

NOTE 8 — SEGMENT INFORMATION

The following geographic information presents revenue based on origin of sale and long-lived assets based on physical location as of and for the year ended December 31, 2002:

	UNITED STATES	NORWAY	U.K.	TOTAL

Revenue	—	8,788	—	8,788
Long-lived assets	3,446	1,975	361	5,782

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Leases

The IBU has historically entered into non-cancelable operating leases for office space and equipment with original terms extending up to 10 years. The future minimum lease payments under these leases at December 31, 2002 are as follows:

YEARS ENDED DECEMBER 31,		(IN THOUSANDS OF US$)

2003		4,452
2004		3,470
2005		3,470
2006		272
Thereafter		—
TOTAL MINIMUM LEASE PAYMENTS		11,664

Rent expenses were approximately $3.6 million for the year ended December 31, 2002.

NOTE 10 — SUBSEQUENT EVENTS

On February 25, 2003, Overture Services, Inc., a provider of Pay-For-Performance search, announced that they would purchase IBU, including the products FAST Web Search™, AlltheWeb.com™, and FAST PartnerSite™. Such agreement was consummated on April 21, 2003. FAST received $70 million in cash, and is eligible to receive performance-based cash incentive payments for up to $30 million over the next three years.

11

INTERNET BUSINESS UNIT OF FAST SEARCH & TRANSFER

Combined Statement of Operations

(In thousands of USD)

	For the three months ended
	31-Mar-03		31-Mar-02
	(unaudited)		(unaudited)
NET REVENUES
Search services	2,315		2,115
TOTAL NET REVENUES	2,315		2,115

OPERATING EXPENSES
Cost of revenues	832		864
Research and development	325		468
Sales and marketing	679		802
General and administrative	607		618
Depreciation and amortization	678		1,354
Share-based compensation	136		241
TOTAL OPERATING EXPENSES	3,257		4,347

OPERATING INCOME	(942	)	(2,232	)
OTHER INCOME (EXPENSE)
Other income (expense), net	—		—
LOSS BEFORE TAXES	(942	)	(2,232	)
Income taxes	—		—
NET LOSS	(942	)	(2,232	)

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

INTERNET BUSINESS UNIT OF FAST SEARCH & TRANSFER

Combined Balance Sheet

(In thousands of USD)

	As of
	31-Mar-03	31-Dec-02
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	—	—
Accounts receivable	1,644	1,516
Other current assets	199	263
Total current assets	1,843	1,779
Non-current assets:
Property and equipment, net	3,483	4,020
Intangible assets, net	2,199	1,762
Total non-current assets	5,682	5,782
Total assets	7,525	7,561

LIABILITIES AND NET INVESTMENT
Current liabilities:
Accounts payable	449	761
Accrued expenses and other liabilities	392	504
Total current liabilities	841	1,265
Non-current liabilities:
Other long-term liabilities	—	—
Total non-current liabilities	—	—
Net investment	6,684	6,296
Total liabilities and net investment	7,525	7,561

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

INTERNET BUSINESS UNIT OF FAST SEARCH & TRANSFER

Combined Statement of Cash Flows

(In thousands of USD)

	For the three months ended
	31-Mar-03		31-Mar-02
	(unaudited)		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	(942	)	(2,232	)
Depreciation and amortization	678		1,354
Share-based compensation	136		241
Changes in assets and liabilities:
Accounts receivable	(128	)	756
Accounts payable	(312	)	(350	)
Other assets and liabilities, net	(33	)	267
Net cash used in operating activities	(601	)	36

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed and intangible assets	(662	)	(386	)
Net cash used in investing activities	(662	)	(386	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net group contribution received	1,263		350
Net cash provided by financing activities	1,263		350
Effect of foreign exchange rate changes	—		—
Net increase (decrease) in cash and cash equivalents	—		—
Cash and cash equivalents, beginning of period	—		—
Cash and cash equivalents, end of period	—		—

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

INTERNET BUSINESS UNIT OF FAST SEARCH & TRANSFER

Notes to Combined Financial Statements

Note 1 — Combined financial statements

The interim combined financial statements should be read in conjunction with the combined financial statements and Notes thereto as of and for the year ended December 31, 2002. The interim combined financial statements have been prepared using the same principles as described in Note 1 to the combined financial statements as of and for the year ended December 31, 2002.

Note 2 — Related party transactions

During the first quarter of 2003, Lycos Inc., a shareholder and board member of FAST, and its related affiliates accounted for 31% and 19%, respectively, of the Company’s revenues. During the first quarter of 2002, such customers accounted for 43% and 10%, respectively, of the Company’s revenues.

(In thousands of US$)	For the three months ended March 31, 2003	For the three months ended March 31, 2002

Cost of revenues	148	122
Research and development	235	214
Sales and marketing	45	22
General and administrative	607	618
Share-based compensation	136	241

INTERNET BUSINESS UNIT OF FAST SEARCH & TRANSFER
Notes to Combined Financial Statements

Note 3 — Net Investment

(In thousands of US$)	As of March 31, 2003
Comprehensive loss:
Net loss	(942	)
Translation adjustment	(69	)
Total comprehensive loss	(1,011	)
Net investment, beginning of year	6,296
Group contribution – cash received	1,263
Group contribution — share-based compensation	136
Net investment, end of year	6,684

Note 4 — Subsequent Events

On February 25, 2003, FAST announced that Overture Services, Inc., a leading provider of Pay-For-Performance search, reached an agreement to purchase FAST’s Internet search unit, including FAST Web Search™, AlltheWeb.com™, and FAST PartnerSite™. Such agreement was consummated on April 21, 2003. FAST received $70 million in cash, and is eligible to receive performance-based cash incentive payments for up to $30 million over the next three years.