ASK JEEVES INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly period ended June 30, 2002

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

For the transition period from to

Commission File Number 000-26521

ASK JEEVES, INC.
(Exact name of registrant as specified in its charter)

Delaware		94-3334199
(State or other jurisdiction of Incorporation or organization)		(IRS Employer Identification No.)

5858 Horton St., Suite 350, Emeryville, CA 94608
(Address of principal executive offices, including zip code)

(510) 985-7400
(Registrant's telephone number, including area code)

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

ý Yes o No

The number of shares outstanding of the registrant's Common Stock as of July 26, 2002 was 41,299,558.

ASK JEEVES, INC.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001	5
	Notes to the Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	38
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 2.	Change in Securities	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Submission of Matters to a Vote of Securities Holders	39
Item 5.	Other Information	40
Item 6.	Exhibits and Reports on Form 8-K	40
	Signatures	43

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

ASK JEEVES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

			June 30, 2002			December 31, 2001
			(Unaudited)			(Note 1)
ASSETS
Current assets:
	Cash and cash equivalents		$	20,962		$	33,125
	Short-term marketable securities			10,082			18,671
	Restricted cash and marketable securities			11,000			15,489

		Total cash, cash equivalents and marketable securities		42,044			67,285
	Accounts receivable, net			10,456			8,482
	Prepaid expenses and other current assets			3,565			2,453

		Total current assets		56,065			78,220
Restricted marketable securities				106			9,317
Property and equipment, net				12,913			17,098
Intangible assets, net				4,007			5,384
Other assets				1,666			1,319

		Total assets	$	74,757		$	111,338

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and other accrued liabilities		$	8,731		$	11,547
	Accrued compensation and related expenses			4,626			5,282
	Accrued restructuring costs			1,685			18,429
	Deferred revenue			11,454			16,069
	Deferred gain			5,579			—
	Borrowings under line of credit			11,000			11,000

		Total current liabilities		43,075			62,327
Other liabilities				428			1,797

		Total liabilities		43,503			64,124
Commitments and contingencies
Stockholders' equity:
	Convertible preferred stock, $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding
	Common stock, $.001 par value; 150,000,000 shares authorized; 41,182,455 and 39,482,015 shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively			724,972			722,310
	Notes receivable from stockholders			(5	)		(57	)
	Deferred stock compensation			(27	)		(98	)
	Accumulated deficit			(694,370	)		(675,432	)
	Accumulated other comprehensive income			684			491

		Total stockholders' equity		31,254			47,214

		Total liabilities and stockholders' equity	$	74,757		$	111,338

See accompanying notes to condensed consolidated financial statements.

ASK JEEVES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share data)

		Three Months Ended						Six Months Ended
		June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001
Revenues:
	Web Properties	$	14,220		$	7,664		$	25,024		$	16,691
	Jeeves Solutions (1)		3,353			9,009			8,626			19,065

Total revenues			17,573			16,673			33,650			35,756
Cost of revenues:
	Web Properties		4,114			4,319			7,857			8,557
	Jeeves Solutions		1,613			4,244			3,656			8,553

Total cost of revenues			5,727			8,563			11,513			17,110
Gross profit			11,846			8,110			22,137			18,646
Operating expenses:
	Product development		3,256			5,412			7,845			11,013
	Sales and marketing		10,114			12,181			20,129			26,210
	General and administrative		5,847			4,757			11,114			12,625
	Stock-based compensation		28			93			69			478
	Amortization of goodwill and other intangible assets		—			218			—			22,587
	Impairment of long-lived assets		362			—			2,593			339,177
	Restructuring and other		860			7,394			860			8,062

Total operating expenses			20,467			30,055			42,610			420,152

Operating loss			(8,621	)		(21,945	)		(20,473	)		(401,506	)
Interest and other income, net			122			1,009			1,535			2,360

Net loss		$	(8,499	)	$	(20,936	)	$	(18,938	)	$	(399,146	)

Basic and diluted net loss per share		$	(0.21	)	$	(0.58	)	$	(0.47	)	$	(11.10	)

Weighted average shares outstanding used in computing basic and diluted net loss per share			40,943,979			36,067,925			40,234,643			35,955,976

(1) Revenues from related parties		$	1,131		$	5,051		$	3,904		$	9,865

See accompanying notes to condensed consolidated financial statements.

ASK JEEVES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

			Six Months Ended
			June 30, 2002			June 30, 2001
Operating activities
Net loss			$	(18,938	)	$	(399,146	)
Adjustment to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			4,451			4,298
	Compensation charge related to grants of stock options			—			1,968
	Stock-based compensation			69			478
	Amortization of goodwill and intangible assets			1,125			27,276
	Impairment charge for long-lived assets			2,593			339,177
	Changes in operating assets and liabilities:
		Accounts receivable		(1,974	)		10,318
		Prepaid expenses and other assets		(1,026	)		(823	)
		Accounts payable and other accrued liabilities		(7,791	)		(4,593	)
		Accrued compensation and related expenses		(920	)		790
		Accrued restructuring costs		(16,744	)		2,241
		Deferred revenue		(4,615	)		(1,445	)

Net cash used in operating activities				(43,770	)		(19,461	)
Investing activities
Purchases of property and equipment				(2,607	)		(2,177	)
Purchases of restricted marketable securities				—			(11,000	)
Proceeds from redemption of restricted marketable securities				13,700			—
Proceeds from redemption of marketable securities				8,747			22,843
Purchases of intangible assets				—			(4,750	)
Net cash acquired from business combinations				10,258			(1,475	)

Net cash provided by investing activities				30,098			3,441
Financing activities
Issuance of common stock				1,412			705
Issuance of notes receivable to stockholders				—			(200	)
Repayment of notes receivable to stockholders				52			—
Borrowings under line of credit				—			11,000
Repayment of capital lease obligations				(441	)		(434	)

Net cash provided by financing activities				1,023			11,071

Unrealized gain on foreign exchange translation				486			—

Decrease in cash and cash equivalents				(12,163	)		(4,949	)
Cash and cash equivalents at beginning of period				33,125			41,445

Cash and cash equivalents at end of period			$	20,962		$	36,496

Supplemental disclosure of noncash investing and financing activities
Common stock issued for acquisition of joint venture			$	1,250		$	—

Common stock warrants issued in connection with licenses			$	—		$	184

Interest paid			$	287		$	244

See accompanying notes to condensed consolidated financial statements.

ASK JEEVES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Ask Jeeves, Inc. ("Ask Jeeves" or "the Company") is a leading provider of search and self-service technologies. Our proprietary natural-language capabilities combined with patented search technology create an interaction centered on understanding users' specific needs and interests and connecting them to the most relevant information, products and services.

The Company delivers its natural language question answering technologies and services through its own Web sites at Ask.com, AJKids.com and Teoma.com. Through the Company's Web Properties Group, Ask Jeeves provides innovative, targeted and effective tools for reaching a broad base of highly valuable customers. The Company also syndicates services to portals, infomediaries, and content and destination sites to help companies increase e-commerce and advertising revenue.

Through its Jeeves Solutions Group, the Company offers software and services that allow corporations to establish connected self service solutions that supplement the activities of call centers, contact centers and marketing departments.

The Company was incorporated in California in June 1996 and reincorporated in Delaware in June 1999.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Investments in affiliates in which the Company has significant influence but does not have a controlling interest are accounted for under the equity method and investments in which the Company does not have the ability to exert significant influence are accounted for at cost. All significant intercompany transactions and balances have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements as of June 30, 2002 and 2001 and for the three and six months ended June 30, 2002 and 2001 are unaudited but include all adjustments (consisting of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair statement of the consolidated financial position, operating results and cash flows as of the interim date and for the periods presented. Results for the interim period ended June 30, 2002 are not necessarily indicative of results for the entire fiscal year or future periods. The condensed consolidated balance sheet at December 31, 2001 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of

revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Potentially dilutive securities have been excluded from the computation, as their effect is antidilutive. If the Company had reported net income, diluted net income per share would reflect the potential dilution of securities by adding other common stock equivalents, including stock options, warrants and convertible preferred stock, in the weighted average number of common shares outstanding for a period, if dilutive.

Reclassifications

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

2. ACQUISITION OF ASK JEEVES UK

In February 2002, the Company acquired the entire outstanding equity interests in Ask Jeeves UK. Previously, the Company held a fifty percent interest in Ask Jeeves UK, a joint venture partnership with Carlton Communications PLC and Granada Media Group Limited, that was formed to market the Company's search and self-service technologies and services in the United Kingdom. The Company acquired full ownership of Ask Jeeves UK to enhance the synergies that exist between the U.S. and U.K. operations.

The acquisition was accounted for as a purchase business combination and accordingly, the consolidated financial statements include the operating results of Ask Jeeves UK from the date of acquisition. Previously, the Company accounted for its investment in the joint venture under the equity method of accounting. The Company had recorded no value for its interest in the joint venture for accounting purposes. Therefore, the Company had not previously recognized any portion of the net losses of the joint venture. The unaudited pro forma information presented in the table below represents the combined revenue, net loss and net loss per share of the Company as if the acquisition had taken place on January 1, 2001.

	Six Months Ended
	June 30, 2002			June 30, 2001
(in thousands, except share and per share amounts)
Revenues	$	33,720		$	36,081
Net loss	$	(20,029	)	$	(407,361	)
Net loss per share basic and diluted	$	(0.49	)	$	(11.09	)
Weighted average shares outstanding used in computing basic and diluted net loss per share		40,598,496			36,730,768

3. COMMITMENTS AND CONTINGENCIES

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, and a variety of claims arising in connection with the services, such as claims alleging defamation or invasion of privacy.

Third parties may assert infringement claims against us. From time to time in the ordinary course of business we have been, and we expect to continue to be, subject to claims of alleged infringement of the trademarks and other intellectual property rights of third parties. These claims and any resultant litigation, should it occur, could subject us to significant liability for damages. In addition, even if we prevail, litigation could be time-consuming and expensive to defend, and could result in the diversion of our time and attention. Any claims from third parties may also result in limitations on our ability to use the intellectual property subject to these claims unless we are able to enter into agreements with the third parties making these claims.

On October 25, 2001, a putative class action lawsuit captioned Leonard Turroff, et al. vs Ask Jeeves, Inc., et al. was filed against the Company and two of our officers and directors (collectively the "Individual Defendants") in the United States District Court for the Southern District of New York. Also named as defendants were Morgan Stanley & Co., Inc., FleetBoston Robertson Stephens, Goldman Sachs & Co., U.S. Bancorp Piper Jaffray, and Dain Rauscher, Inc., the underwriters of the Company's initial public offering. The complaint alleges violations of Section 11 of the Securities Act of 1933 against all defendants, and violations of Section 15 of the Securities Act against the Individual Defendants in connection with the Company's initial public offering ("IPO"). An amended complaint was filed on December 6, 2001, which includes the same allegations in connection with Ask Jeeves' secondary offering in March 2000. The complaints seek unspecified damages on behalf of a purported class of purchasers of common stock between June 30, 1999 and December 6, 2000. We believe the claims are without merit and intend to defend the actions vigorously. However, an unfavorable outcome could have a material adverse effect on our operating results and financial position.

On May 2, 2002, we received notice of the pending filing of a purported shareholder derivative lawsuit in the Superior Court of California, County of Alameda, titled Brenner v. Strauch et al. The lawsuit purports to be filed on behalf of our Company, asserting claims against the officers and directors at the time of our initial public offering, or IPO. Also named as defendants were Morgan Stanley & Co., Inc., and FleetBoston Robertson Stephens, the underwriters of the Company's IPO. The complaint alleges breach of fiduciary duty, negligence an unjust enrichment of the named officers and directors, for acquiescing and/or conspiring with the underwriter defendants in underpricing the IPO. No specific amount of damages has been claimed. We are aware that similar allegations have been made in other derivative lawsuits involving issuers that have also been sued in the Southern District of New York securities class action cases, which is described above. Based upon our understanding of the facts, we believe that the complaint is deficient. However, an unfavorable outcome could have a material adverse effect on our operating results and financial position.

4. STOCK-BASED COMPENSATION

The following table shows the amount of stock-based compensation that would have been classified under the following categories had stock-based compensation not been separately stated on the consolidated statements of operations:

		Three Months Ended				Six Months Ended
		June 30, 2002		June 30, 2001		June 30, 2002		June 30, 2001
(in thousands)
Cost of revenues:
	Web Properties	$	2	$	6	$	4	$	13
	Jeeves Solutions		2		6		4		13
Product development			4		13		10		301
Sales and marketing			13		43		32		95
General and administrative			7		25		19		56

	Total	$	28	$	93	$	69	$	478

5. IMPAIRMENT OF LONG-LIVED ASSETS

During the first quarter of 2001, the Company identified indicators of possible impairment of its long-lived assets, consisting principally of acquired intangible assets and goodwill. These indicators included deterioration in the business climate for Internet advertising and other web-related companies, reduced levels of venture capital funding activity for Internet-based consumer businesses, significant declines in the market values of the Company's competitors in the Internet advertising industry and changes in its 2001 operating and cash flow forecasts.

With the assistance of independent valuation experts, the Company performed asset impairment tests at the enterprise level, the lowest level for which there are identifiable cash flows related to its acquired intangible assets and goodwill. The tests were performed by comparing the expected undiscounted cash flows for a four-year period, plus a terminal value for future cash flows, to the carrying amount of the long-lived assets resulting from purchase business combinations. Based on the results of these tests, the Company determined that the long-lived assets initially recorded in connection with its business combinations were impaired.

With the assistance of independent valuation experts, the Company determined the fair value of the impaired long-lived assets. Fair value was determined using the discounted cash flow method. A write-down of long-lived assets totaling $339.2 million, allocated entirely to goodwill, was recorded during the first quarter of 2001 reflecting the amount by which the carrying amount of the assets exceed their respective fair values.

During the three months ended June 30, 2002, the Company recorded impairment charges totaling $362,000 primarily related to acquired intangible assets of the discontinued E-tours product.

6. RESTRUCTURING

In December 2000, the Company's Board of Directors approved a restructuring program aimed at streamlining its underlying cost structure to better position the Company for growth and improved

operating results. During the three months ended June 30, 2002, the Company reported charges of approximately $860,000, which included severance pay and medical and other benefits. The following table sets forth the restructuring activity during the three and six months ended June 30, 2002 and 2001, respectively (in thousands).

		Accrued Restructuring Costs, Beginning of Period		Restructuring Charges		Cash Paid			Accrued Restructuring Costs, End of Period
Three months ended June 30, 2002
Facility exit costs		$	1,421	$	—	$	(239	)	$	1,182
Severance and professional fees			92		860		(449	)		503

	Total	$	1,513	$	860	$	(688	)	$	1,685

Six months ended June 30, 2002
Facility exit costs		$	18,119	$	—	$	(16,937	)	$	1,182
Severance and professional fees			310		860		(667	)		503

	Total	$	18,429	$	860	$	(17,604	)	$	1,685

		Accrued Restructuring Costs, Beginning of Period		Restructuring Charges		Cash Paid			Asset Write-offs			Accrued Restructuring Costs, End of Period
Three months ended June 30, 2001
Facility exit costs		$	6,861	$	5,034	$	(727	)	$	—		$	11,168
Asset write-offs			—		100		—			(100	)		—
Contract terminations			—		518		(518	)		—			—
Severance and professional fees			125		1,742		(1,763	)		—			104

	Total	$	6,986	$	7,394	$	(3,008	)	$	(100	)	$	11,272

Six months ended June 30, 2001
Facility exit costs		$	7,984	$	5,314	$	(2,130	)	$	—		$	11,168
Asset write-offs			—		100		—			(100	)		—
Contract terminations			—		518		(518	)		—			—
Severance and professional fees			1,148		2,130		(3,174	)		—			104

	Total	$	9,132	$	8,062	$	(5,822	)	$	(100	)	$	11,272

7. LINE OF CREDIT

The Company has a revolving line of credit with a bank in the amount of $15 million. On July 1, 2002, the Company renewed the line of credit for an additional one-year term. Borrowings under the line of credit bear fixed rate interest from the date of borrowing at LIBOR plus 0.5% (2.6% at June 30, 2002). All borrowings are collateralized by the Company's marketable securities. Borrowings under the line are subject to various covenants. As of June 30, 2002, $11.0 million was outstanding under the line of credit. Additionally, standby letters of credit of approximately $106,000 were issued and outstanding under the line of credit, which are being maintained as security for performance under various obligations.

8. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

For management reporting purposes, the Company is divided into two business segments, Web Properties and Jeeves Solutions. Results of operations for these business divisions include revenues, cost of revenues, gross profit (loss) and operating loss information as provided to the Company's Chief Executive Officer (CEO), who is the Chief Operating Decision Maker. Summarized financial information by segment as reported to the CEO is as follows (in thousands):

Three months ended:	Web Properties			Jeeves Solutions			Other			Total
	(unaudited)
June 30, 2002
Revenues	$	14,220		$	3,353		$	—		$	17,573
Cost of revenues		4,114			1,613			—			5,727

Gross profit	$	10,106		$	1,740		$	—		$	11,846
Segment loss from operations	$	(1,536	)	$	(5,273	)	$	—		$	(6,809	)
Unallocated corporate operating expense		—			—			(1,812	)		(1,812	)

Total operating loss										$	(8,621	)

Three months ended:	Web Properties			Jeeves Solutions			Other			Total
	(unaudited)
June 30, 2001
Revenues	$	7,664		$	9,009		$	—		$	16,673
Cost of revenues		4,319			4,244			—			8,563

Gross profit	$	3,345		$	4,765		$	—		$	8,110
Segment loss from operations	$	(9,139	)	$	(1,237	)	$	—		$	(10,376	)
Unallocated corporate operating expense		—			—			(11,569	)		(11,569	)

Total operating loss										$	(21,945	)

Six months ended:	Web Properties			Jeeves Solutions			Other			Total
	(unaudited)
June 30, 2002
Revenues	$	25,024		$	8,626		$	—		$	33,650
Cost of revenues		7,857			3,656			—			11,513

Gross profit	$	17,167		$	4,970		$	—		$	22,137
Segment loss from operations	$	(5,698	)	$	(10,128	)	$	—		$	(15,826	)
Unallocated corporate operating expense		—			—			(4,647	)		(4,647	)

Total operating loss										$	(20,473	)

Six months ended:	Web Properties			Jeeves Solutions			Other			Total
	(unaudited)
June 30, 2001
Revenues	$	16,691		$	19,065		$	—		$	35,756
Cost of revenues		8,557			8,553			—			17,110

Gross profit	$	8,134		$	10,512		$	—		$	18,646
Segment loss from operations	$	(18,955	)	$	(7,065	)	$	—		$	(26,020	)
Unallocated corporate operating expense		—			—			(375,486	)		(375,486	)

Total operating loss										$	(401,506	)

The Company provides its search and self-service technologies services internationally directly and through its joint ventures. Attribution of revenues by geographic region is based on the country in which the customer is domiciled. Geographic information on revenue is as follows (in thousands):

			Three Months Ended				Six Months Ended
			June 30, 2002		June 30, 2001		June 30, 2002		June 30, 2001
			(unaudited)				(unaudited)
Revenues:
	North America		$	11,833	$	12,639	$	22,951	$	27,470
	United Kingdom			4,579		2,885		8,327		6,007
	Other International			1,161		1,149		2,372		2,279

		Total	$	17,573	$	16,673	$	33,650	$	35,756

Included in United Kingdom and Other International revenues are amounts from related parties of $1,131,000 and $3,949,000 for the three months and $3,904,000 and $7,931,000 for the six months ended June 30, 2002 and 2001, respectively.

9. COMPREHENSIVE LOSS

The components of comprehensive loss are as follows (in thousands):

			Three Months Ended						Six Months Ended
			June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001
			(unaudited)						(unaudited)
Net loss			$	(8,499	)	$	(20,936	)	$	(18,938	)	$	(399,146	)
Other comprehensive income:
	Change in unrealized gain on investments			(50	)		(11	)		(293	)		193
	Foreign currency translation adjustment			471			—			486			—

		Comprehensive loss	$	(8,078	)	$	(20,947	)	$	(18,745	)	$	(398,953	)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

In addition to historical information, this Quarterly Report contains forward-looking statements. All statements, other than statements of historical facts included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. As contained herein, the words "expects," "anticipates," "believes," "intends," "will," and similar types of expressions identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based on information that is currently available to the Company, speak only as of the date hereof, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or to reflect any change in events, conditions, or circumstances on which any such forward-looking statement is based, in whole or in part. Readers should carefully review the risk factors described in other documents the Company files from time to time with the SEC, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2001. The following discussion should be read in conjunction with our financial statements and the related notes contained elsewhere in this Quarterly Report.

OVERVIEW

Ask Jeeves is a leading provider of search and self-service technologies. Our proprietary natural-language capabilities combined with patented search technology create an interaction centered on understanding users' specific needs and interests and connecting them to the most relevant information, products and services.

Through our Web Properties Group, Ask Jeeves provides innovative, targeted and effective tools for reaching a broad base of highly valuable customers. The Company also syndicates services to portals, infomediaries, and content and destination sites to help companies increase e-commerce and advertising revenue through powerful search. These services enable companies to convert online shoppers to buyers, reduce support costs, understand customer preferences and improve customer retention.

Through our Jeeves Solutions Group, the Company offers software and services that allow corporations to establish connected self service solutions that supplement the activities of call center, contact centers and marketing departments. Jeeves Solutions core software application, JeevesOne, allows customers to get answers to their questions, and with the use of additional modules, place orders and request status through a variety of connected enterprise transaction systems. In turn, through Jeeves Analytics, companies learn about user behavior, interests and trends, allowing them to better serve customer needs. Our technology and services increase user satisfaction while enabling corporations to profit from the interactions and retaining customers.

Critical Accounting Policies

Revenue

Revenues associated with our Web Properties Group include all revenue streams generated from the Web sites we own and operate, as well as from the syndication of services offered on our sites to other companies' sites. They consist primarily of advertising revenues and paid placement revenues.

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. A significant portion of the Company's revenues from its Web Properties Group is derived from the sale of advertising on the Company's online Internet properties. Advertising offered ranges from "run-of-site" banner advertisements and sponsorships to keyword targeting and branded content. 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 times that an advertisement appears in pages viewed by users of the Company's online properties. 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. Syndication services offered range from the sale of promotional material on behalf of partners to the syndication of our web-wide search technology to portals, infomediaries, and content and destination sites. Syndication fees primarily consist of revenue-sharing arrangements, fixed or fee-per-use arrangements, and revenues are recognized as the service is delivered. Revenues from revenue-sharing arrangements are recorded net of amounts paid to syndication partners, 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, in accordance with Emerging Issues Task Force Issue No. 99-19, in which case expense is recognized as a cost of revenue and revenue is recorded on a gross basis. Revenues from paid placements are generated when a user clicks on the answer that links to a merchant's Web site on a cost per click, or "CPC" basis.

Revenues from our Jeeves Solutions Group are derived from two sources: 1) software license revenues and; 2) services revenue. Software license revenues are generated from companies licensing the rights to use our natural language and customer intelligence technologies for use on corporate websites. Services revenue is generated from sales of maintenance agreements, consulting services and training services.

License Revenue

We recognize software license revenue in accordance with AICPA Statement of Position 97-2, "Software Revenue Recognition," (SOP 97-2) as amended by Statement of Position 98-9. SOP 97-2 provides specific industry guidance and stipulates that revenue recognized from software arrangements is to be allocated to each element of the arrangement based on the relative fair value of the elements. Under SOP 97-2, the determination of fair value of each element is based on the objective evidence that is specific to the vendor. If such evidence of fair value for each element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value does exist or until all elements of the arrangement have been delivered or are being delivered.

We recognize license revenue over the core implementation period if implementation services are included in the original license arrangement and are considered to be essential to the functionality of the software. As a result, even where we have a signed license agreement for the purchase of our software and have delivered the software, license revenue recognition depends on whether we have begun core implementation. For license agreements under which we have no implementation responsibility, or where implementation is not considered to be essential to the functionality of the software, we recognize revenue upon delivery of the software. Examples of situations under which we have no implementation responsibility include additional license sales to existing customers or

customers who elect to use internal or third party resources to implement the software. Software license arrangements where a service element is critical to the functionality of the software are recognized ratably over the life of the arrangement, commencing upon implementation.

We enter into distributor agreements that typically provide for sublicense fees based on a percentage of list price. Sublicense fees are generally recognized on the "sell through" method when persuasive evidence of an arrangement between the distributor and their customer exists, the software is delivered to their customer, collection is probable and the fee is fixed or determinable. Our agreements with our end customers and distributors do not contain product return rights.

Service Revenue

We generally provide consulting and training services on a time and materials basis. We provide maintenance and support services under renewable, term maintenance agreements, which we price as a percentage of our license fees. Maintenance and support fee revenue is recognized ratably over the contractual term, generally twelve months, commencing from the implementation of service. Amounts invoiced prior to service implementation are recorded as deferred revenue, with recognition commencing upon service implementation.

Impairment of Long-lived Assets

The Company's long-lived assets include intangible assets. At June 30, 2002, the Company had $4.0 million of other intangible assets. In assessing the recoverability of the Company's other intangibles the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets not previously recorded. Effective as of January 1, 2002 the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," (SFAS 142) and was required to analyze its goodwill for impairment issues during the first six months of fiscal 2002, and then on a periodic basis thereafter. The adoption of SFAS 142 did not have a material impact on the Company's consolidated financial statements. During the second quarter of 2002, the Company recorded impairment charges totaling $362,000 primarily related to acquired intangible assets of the discontinued E-tours product.

RESULTS OF OPERATIONS

Revenues

		Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)		Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)		2002		2001		Change		2002			2001		Change
Web Properties revenue		$	14,220	$	7,664	85.5	%	$	25,024		$	16,691	49.9	%
	Percentage of total revenues		80.9%		46.0%				74.4	%		46.7%
Jeeves Solutions revenue		$	3,353	$	9,009	(62.8	)%	$	8,626		$	19,065	(54.8	)%
	Percentage of total revenues		19.1%		54.0%				25.6	%		53.3%
Total revenue		$	17,573	$	16,673	5.4	%	$	33,650		$	35,756	(5.9	)%

Web Properties revenue

Web Properties revenues increased 85.5% to $14.2 million in the second quarter of 2002, as compared with $7.7 million for the corresponding period in 2001. Advertising revenues totaled $7.1 million and $5.0 million for the second quarter of 2002 and 2001, respectively. Paid placement revenues were $7.1 million and $2.7 million for the second quarter of 2002 and 2001, respectively. Compared with the second quarter of 2001, advertising revenues were down slightly in the U.S. market.

This decrease was more than offset by the addition of advertising revenues in the U.K., due to its acquisition in late February 2002. The significant growth in paid placement revenue is due to strong sales of Branded Responses and Paid Links products, as well as the early success of the Premier Listings product launched in the first quarter of 2002.

The launch of our Teoma.com site out of the beta stage during the second quarter contributed to strong growth in traffic to the Teoma website. Total page views on all our properties of 1.7 billion was flat compared with the prior quarter. Unique users decreased to 13.4 million in June 2002 as compared with 16.0 million in March 2002. The decrease in growth of total page views and unique users reflects the normal seasonality that our properties experience due to our strength in the educational market and to overall decreased web traffic during the summer months.

Historically, the third quarter has been our seasonally softest quarter due to the slowdown in web traffic and therefore we expect revenues in the third quarter of 2002 to decline slightly. Typically, web traffic increases in the fourth quarter, which also marks a seasonally stronger advertising market, and we expect these factors to combine to result in further growth in revenues. Additionally, we recently signed a paid listings agreement with Google, Inc. that will commence late in the third quarter. Based upon our current projections we expect this agreement, combined with our own proprietary paid listings product, will approximately double paid listings revenue over the term of the contract beginning in the fourth quarter of 2002. This growth in paid listings, combined with the introduction of our paid inclusion product, should contribute to overall growth in paid placement revenues of approximately 50 percent for the fourth quarter.

Jeeves Solutions revenue

Jeeves Solutions revenues decreased 62.8% to $3.4 million as compared with $9.0 million for the three months ended June 30, 2002 and 2001, respectively. These revenues consisted of license fee revenues of $1.4 million and $5.5 million for the three months ended June 30, 2002 and 2001, respectively. In late 2001 and early 2002, we discontinued our Spanish language joint venture and acquired full ownership of our United Kingdom operations, resulting in the termination of those related license arrangements. Accordingly, license revenue decreased in the second quarter of 2002 as compared with 2001 due primarily to the termination of these licensing arrangements. Services revenue was $2.0 million and $3.5 million for the three months ended June 30, 2002 and 2001, respectively. Service revenue in the second quarter of 2002 was impacted by the decrease in new customer bookings in the latter half of 2001. A significant portion of services revenues result from the provision of consulting and training services. Such services frequently are associated with new customer bookings. When customers renew subscription-based contracts, such renewals may not result in additional consulting service revenue. The termination of the license revenues from the Spanish language and UK licenses will be more than offset by media revenues from the consolidation of the Ask Jeeves UK web property. However, we anticipate that these factors will continue to negatively impact quarter over quarter revenue comparisons for Jeeves Solutions for the second half of 2002.

During the second quarter of 2002, we launched the JeevesOne Enterprise product. This version of the JeevesOne product offering provides customers the ability to connect to a company's underlying transactional systems and databases. Additionally, we released the JeevesOne product line on the Solaris operating platform. While we expect the challenging information technology market to continue into the near future, we believe that these milestones will contribute to growth in sales of JeevesOne products throughout the second half of 2002.

Gross Margin

		Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)		Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)		2002		2001		Change		2002		2001		Change
Web Properties gross profit		$	10,106	$	3,345	202.1	%	$	17,167	$	8,134	111.1	%
	Web Properties gross margin		71.1%		43.6%				68.6%		48.7%
Jeeves Solutions gross profit		$	1,740	$	4,765	(63.5	)%	$	4,970	$	10,512	(52.7	)%
	Jeeves Solutions gross margin		51.9%		52.9%				57.6%		55.1%
Total gross profit		$	11,846	$	8,110	46.1	%	$	22,137	$	18,646	18.7	%
	Total gross margin		67.4%		48.6%				65.8%		52.1%

Web Properties gross margin

Cost of revenues for our Web Properties Group consists primarily of salaries and related personnel costs associated with the content development, data analysis, testing and maintenance of our Web sites. Additionally, cost of revenues includes revenue sharing expenses associated with our distribution relationships and amortization charges related to technology from certain of our acquisitions and licenses. Gross profit for Web Properties increased 202.1% in the second quarter of 2002 to $10.1 million, as compared with $3.3 million in 2001. The increase is due both to the increase in Web Properties revenues of 85.5% and to decreases in cost of revenues. On a dollar basis, cost of revenues decreased $205,000 to $4.1 million in the second quarter of 2002 as compared with 2001, reflecting a significant decrease in amortization charges due to impairment write-downs on acquired technology recorded during 2001 as well as decreased compensation and compensation-related costs and facilities charges as a result of our restructuring activities during 2001.

We expect Web Properties gross margin in the third quarter of 2002 to be approximately flat with the second quarter of 2002, then increase in the fourth quarter of 2002, as we realize scale benefits from increases in revenue and the cost savings from our restructuring activities.

Jeeves Solutions gross margin

Cost of revenues for our Jeeves Solutions Group consists primarily of salaries and related personnel costs and other direct costs to provide consulting, and licensing to our corporate customers. Cost of revenues for Jeeves Solutions also includes amortization charges related to certain technology assumed as part of our acquisitions and through licenses. Gross profit for Jeeves Solutions decreased 63.5% in the second quarter of 2002 to $1.7 million, as compared with $4.8 million for 2001. The decrease in gross margin is due primarily to the decrease in Jeeves Solutions revenues, partially offset by decreases in cost of revenues. On a dollar basis, cost of revenues decreased $2.6 million to $1.6 million for the second quarter of 2002 as compared with 2001, reflecting significant decreases in compensation and compensation-related costs and facilities charges relating to our restructuring activities during the year. This decrease in costs was offset by the decrease in Jeeves Solutions revenue during the period.

We expect Jeeves Solutions gross margin as a percentage of revenue to improve slightly in the third quarter with more significant improvement in the fourth quarter of 2002 as the JeevesOne product increases market penetration, with full year 2002 margins expected to be higher than 2001.

Operating Expenses

		Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)		Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)		2002		2001		Change		2002		2001		Change
Product development		$	3,256	$	5,412	(39.8	)%	$	7,845	$	11,013	(28.8	)%
	Percentage of total revenues		18.5%		32.5%				23.3%		30.8%
Sales and marketing		$	10,114	$	12,181	(17.0	)%	$	20,129	$	26,210	(23.2	)%
	Percentage of total revenues		57.6%		73.1%				59.8%		73.3%
General and administrative		$	5,847	$	4,757	22.9	%	$	11,114	$	12,625	(12.0	)%
	Percentage of total revenues		33.3%		28.5%				33.0%		35.3%
Stock-based compensation		$	28	$	93	(69.9	)%	$	69	$	478	(85.6	)%
	Percentage of total revenues		0.2%		0.6%				0.2%		1.3%
Amortization of goodwill and other intangible assets		$	—	$	218	(100	)%	$	—	$	22,587	(100.0	)%
	Percentage of total revenues		—%		1.3%				—%		63.2%

Product Development Expenses

Product development expenses consist primarily of salaries and related personnel costs, consultant fees and expenses related to the design, development, testing and enhancement of our technology and services. To date, all software development costs have been expensed as incurred. Product development expenses, as a percentage of total revenues, decreased to 18.5% for the second quarter of 2002 from 32.5% in 2001. On a dollar basis, product development expenses decreased by $2.2 million in the second quarter of 2002 as compared with the same period in 2001. This cost reduction for both the three and six month periods reflects the results of our restructuring activities during the year. Decreased compensation and compensation-related costs comprise the majority of the dollar decrease in 2002 over 2001, and resulted from our focus on key, strategic areas of product development to support our business plan and reduction in the number of product development initiatives that are not essential to delivering future financial results.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries, commissions and related personnel expenses as well as advertising and promotional expenditures. We primarily rely on a direct sales force dedicated to selling our services. Sales and marketing expenses, as a percentage of total revenues, decreased to 57.6% for the second quarter of 2002, as compared with 73.1% in 2001. On a dollar basis, sales and marketing expenses decreased 17.0% to $10.1 million in the second quarter of 2002 as compared with $12.2 million in the corresponding period of 2001. The decrease in such expenses reflects cost-cutting measures in variable spending areas such as advertising, promotional programs and public relations, as well as lower variable compensation such as commissions and bonuses. During 2001, we replaced mass-market promotion with targeted marketing initiatives, resulting in an a decrease in the total amount of spending.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for general corporate functions, recruiting and fees for other professional services, provision for doubtful accounts as well as various accounting and legal costs associated with operating our business. General and administrative expenses, as a percentage of revenues, increased to 33.3% for the second quarter of 2002 from 28.5% in 2001. On a dollar basis, general and administrative expenses increased 22.9% to $5.8 million in the second quarter of 2002 as compared with $4.8 million in 2001. Expenses in the quarter were higher primarily due to increased litigation costs associated with outstanding legal proceedings.

Stock-based Compensation

Stock-based compensation reflects the amortization of stock compensation charges from employee stock options. Deferred compensation charges arise from the difference between the exercise price and the deemed fair value of specific stock options granted to our employees and is amortized over the vesting period. For the three and six months ended June 30, 2002 and 2001, we recorded $28,000 and $93,000, and $69,000 and $478,000, respectively, in amortization of deferred stock-based compensation in connection with the grant of stock options to employees and consultants. The decrease in amortization is due to our graded vesting method of amortization resulting in larger deferred compensation charges being incurred in earlier periods.

Amortization of Goodwill and Other Intangible Assets

The Company has recorded goodwill and other intangible assets as a result of various purchase acquisitions made. For the three months ended June 30, 2001, we recorded $218,000 in amortization of goodwill and other intangible assets, compared with no amortization for the three months ended June 30, 2002. During the fiscal year 2001, we recorded an impairment loss of $355.3 million on goodwill and other intangibles relating to certain of our acquisitions. This impairment loss reduced our recorded basis in goodwill and other intangibles and had the effect of reducing amortization expense during 2002.

		Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)		Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)		2002		2001		Change		2002		2001		Change
Impairment of long-lived assets		$	362	$	—	—		$	2,593	$	339,177	(99.2	)%
	Percentage of total revenues		2.1%		—%				7.7%		948.6%
Restructuring and other		$	860	$	7,394	(88.4	)%	$	860	$	8,062	(89.3	)%
	Percentage of total revenues		4.9%		44.3%				2.6%		22.5%

Impairment of Long-lived Assets

During the second quarter of 2002, the Company recorded impairment charges totaling $362,000 primarily related to acquired intangible assets of the discontinued E-tours product.

During the six months ended June 30, 2002, we recorded impairment charges totaling $2.6 million related to the impairment of intangible assets noted above as well as relating to $2.3 million of computer equipment and software, furniture and fixtures that we disposed of or were no longer in use. During the six months ended June 30, 2001, we identified indicators of possible impairment of our long-lived assets, consisting principally of acquired intangible assets and goodwill. These indicators included deterioration in the business climate for Internet advertising, decreases in average advertising rates, reduced levels of venture capital funding activity for Internet-based consumer businesses, significant declines in the market values of our competitors in the Internet advertising industry and changes in our 2001 operating and cash flow forecasts.

With the assistance of independent valuation experts, we performed asset impairment tests at the enterprise level, the lowest level for which there are identifiable cash flows related to our acquired intangible assets and goodwill. The tests were performed by comparing the expected undiscounted cash flows for a four-year period, plus a terminal value for future cash flows, to the carrying amount of the long-lived assets resulting from purchase business combinations. Based on the results of these tests, we determined that long-lived assets initially recorded in connection with our business combinations were impaired.

We measured the impairment loss related to long-lived assets based on the amount by which the carrying amount of such assets exceeded its fair value. Measurement of fair value was based on an analysis by us, with assistance from independent valuation experts, of the future discounted cash flows

at the enterprise level. In performing this analysis, we used the best information available in the circumstances including reasonable and supportable assumptions and projections. The discounted cash flow analysis considered the likelihood of possible outcomes and was based on our best estimate of projected future cash flows, including terminal value cash flows expected to result from the disposition of the asset at the end of its useful life, discounted at a rate of 26 percent. The discount rate was based on historical risk premiums required by investors for companies of our size, industry and capital structure and included risk factors specific to us. The analysis indicated that our long-lived assets were impaired by an amount totaling $339.2 million. Accordingly, we recorded an impairment write-down, allocated to goodwill, of this amount during the first quarter of 2001.

Restructuring Costs

In December 2000, the Company's Board of Directors approved a restructuring program aimed at streamlining its underlying cost structure to better position the Company for growth and improved operating results. During the second quarter of 2002, the Company reported charges of approximately $860,000, which included severance pay and medical and other benefits. Total headcount decreased from 450 at the end of last quarter to approximately 390 at June 30, 2002.

Interest and other income, net

		Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)		Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)		2002		2001		Change		2002		2001		Change
Interest and other income, net		$	122	$	1,009	(87.9	)%	$	1,535	$	2,360	(35.0	)%
	Percentage of total revenues		0.7%		6.1%				4.6%		6.6%

Interest income was $122,000 as compared with $1.0 million for the three months ended June 30, 2002 and 2001, respectively. Interest income relates primarily to interest earned on fixed income securities and correlates with the average balance of those investments and prevailing interest rates. The decrease in interest income in the second quarter of 2002 compared with 2001 relates to decreases in both average balances and prevailing interest rates during the year. Interest expense was $105,000 and $190,000 for the three months ended June 30, 2002 and 2001, respectively. The decrease in interest expense is attributable to decreases in the amounts due under capital leases.

During the six months ended June 30, 2002, we recorded a gain of $974,000 representing the remaining balance of deferred license fees paid to the Company by Ask Jeeves UK, for a licensing arrangement that was terminated when we acquired the remaining outstanding equity interest of Ask Jeeves UK.

Seasonality and Quarterly Fluctuations In Operating Results

Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond our control. Factors that may adversely affect our results of operations include:

•: our ability to obtain new corporate customers, the length of the development cycle for corporate customers and the timing of revenue recognition with respect to contracts with corporate customers;
•: our ability to obtain new advertising contracts, maintain existing ones, and effectively manage our advertising inventory;
•: the number of questions asked and answered on our websites and on the Web sites of our corporate customers;

•: our ability to attract and retain advertisers and our ability to link our partners to potential customers;
•: rate changes for advertising on our Web sites;
•: marketing expenses and technology infrastructure costs as well as other costs that we may incur as we expand our operations.
•: seasonal and other fluctuations in demand for our services and for advertising space on our Web sites;
•: our ability to develop and introduce new technology;
•: announcements and new technology introductions by our competitors;
•: our ability to attract and retain key personnel; and
•: costs relating to possible acquisitions and integration of technologies or businesses;

Because of the foregoing factors, we believe that period-to-period comparisons of our operating results should not be relied upon as an indicator of our future performance.

As Internet advertising continues the transition from an emerging to a more developed market, seasonal and cyclical patterns may develop in our industry that may also affect our revenues. For example, we have historically experienced stronger periods of growth in the second and fourth quarters of the year. Similar to traditional media, this may result in our advertising sales being lower during the summer vacation period. Seasonality in the retail industry and in Internet service usage is likely to cause quarterly fluctuations in our results of operations and could harm our business.

LIQUIDITY AND CAPITAL RESOURCES

(dollars in thousands)		June 30, 2002			December 31, 2001
Unrestricted cash, cash equivalents and marketable securities		$	31,044		$	51,796
Restricted cash, cash equivalents and marketable securities		$	11,106		$	24,806
Total cash, cash equivalents and marketable securities		$	42,150		$	76,602
	Percentage of total assets		56.4	%		68.8	%
Current ratio*			2.15			1.69
Days sales outstanding			54			51
*Calculated excluding deferred revenue and gain

	Six Months Ended June 30,
(dollars in thousands)	Six Months Ended June 30,
(dollars in thousands)	2002			2001
Cash used in operating activities	$	(43,770	)	$	(19,461	)
Cash provided by investing activities	$	30,098		$	3,441
Cash provided by financing activities	$	1,023		$	11,071

Our principal source of liquidity is our cash, cash equivalents and investments in marketable securities. Since our inception, we have financed our operations primarily through the private placement of equity securities, our initial public offering in June 1999 and our follow-on offering in March 2000. As of June 30, 2002, we had $42.2 million in cash and cash equivalents, and marketable securities, of which $11.1 million was restricted. Marketable securities consist of highly liquid instruments (primarily U.S., state and municipal government securities and corporate debt securities) with short maturities. Of this amount, $20.9 million was categorized as cash and cash equivalents at June 30, 2002, representing a decrease of $12.2 million from December 31, 2001. The Company

considers all cash and highly liquid investments with an original maturity of less than three months at the date of purchase to be cash equivalents. The decrease resulted primarily from cash used in operations of $43.8 million, partially offset by cash flows from investing activities and financing activities of $30.1 million and $1.0 million, respectively.

Net cash used in operating activities of $43.8 million resulted primarily from net losses of $18.9 million adjusted for non-cash items, changes in working capital and other items and from the payment of restructuring liabilities. Significant non-cash items included asset write-offs of $2.6 million and depreciation and amortization of $4.5 million. Changes in working capital used $33.1 million. Cash used by working capital largely resulted from decreases in accrued restructuring of $16.7 million and a decrease in deferred revenue of $4.6 million. The decrease in deferred revenue was due to the acquisition of the outstanding interest in Ask Jeeves UK and related termination of the license agreement, resulting in the recognition of a one-time gain relating to license fees which had been paid in advance and deferred, as well as to the decrease in advance bookings of Jeeves Solutions licensing arrangements during 2001.

Net cash provided by investing activities was $30.1 million for the six months ended June 30, 2002. Cash from investing activities resulted primarily from the net redemption of marketable securities of $22.4 million, partially offset by capital expenditures and business acquisitions.

Net cash provided by financing activities was $1.0 million for the six months ended June 30, 2002. Cash from financing relates primarily to cash proceeds from exercises of stock options of $1.4 million.

We have a revolving line of credit with a bank in the amount of $15 million. The line of credit was renewed on July 1, 2002 for an additional one-year term and expires on July 1, 2003, unless extended. Borrowings under the line of credit bear interest at LIBOR plus 0.5% (2.6% at June 30, 2002). All borrowings are collateralized by our marketable securities. Borrowings under the line are subject to various covenants. As of June 30, 2002, $11.0 million was outstanding under the line of credit.

The following summarizes the Company's contractual obligations at June 30, 2002, and the effect such obligations are expected to have on its liquidity and cash flows in future periods:

(in thousands)		Total		Less than 1 year		1-3 years		4-5 years
Borrowings under line of credit		$	11,000	$	11,000	$	—	$	—
Capital lease obligations			1,075		972		103		—
Non-cancelable operating leases			13,866		3,566		7,483		2,817

	Total	$	25,941	$	15,538	$	7,586	$	2,817

We have no material commitments or obligations other than those under leases and our line of credit. As of June 30, 2002, we have one unconsolidated subsidiary in the form of a joint venture in Japan, which generally provides Ask Jeeves' services within a defined geographic region. We did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.

Our capital requirements depend on numerous factors, including market acceptance of our services and the amount of resources we invest in site and content development, marketing and selling our products and services, our brand promotions and any future acquisitions or divestitures.

We anticipate that our existing unrestricted cash and marketable securities will be sufficient to fund our anticipated needs for working capital and capital expenditures for at least the next twelve months. At the end of such period, we will need to generate sufficient cash flow from operations to meet our anticipated needs for working capital and capital expenditures, or we will need to raise additional capital. However, if after twelve-months we are not successful in generating sufficient cash flow from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to us, we will eventually be unable to continue our operations. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders will be reduced.

RISK FACTORS

We Have a History of Net Losses and Expect to Continue to Incur Net Losses

We incurred net losses in each year since inception and, as of June 30, 2002, we had an accumulated deficit of approximately $694.4 million. We expect to have net losses and negative cash flows, as determined under accounting principles generally accepted in the United States, for at least the next quarter. The size of these net losses will depend, in part, on the rate of growth of our revenues from our advertisers and corporate customers and on our expenses. It is critical to our success that we continue to expend financial and management resources to develop our brand loyalty through marketing and promotion, enhance our search technologies and services and expand our other services.

As our operating expenses are likely to continue to exceed our revenues in the near term, we will need to generate significant additional revenues to achieve operating profitability. Even if we do achieve operating profitability, we may not be able to maintain or increase our operating profitability on a quarterly or annual basis. If we do not achieve or sustain profitability in the future and are unable to obtain additional financing, then we will eventually be unable to continue our operations.

We Rely on Revenues Derived from Internet Advertising and Licensing of our Products and Services, Which are Subject to Uncertain Demand and are Difficult to Forecast Accurately

Internet Advertising. We expect that revenues from advertising will continue to represent a significant portion of our total revenues for the foreseeable future. We have experienced a decrease in our advertising revenues in the United States that may continue for the foreseeable future due to the prevailing conditions in the online advertising market and to downward pressure on advertising rates industry-wide.

We compete with traditional media such as television, radio and print, as well as online advertisers and high-traffic Web sites, for a share of advertisers' total advertising expenditures. We have experienced, and may continue to experience, downward pressure on advertising prices in the industry due to the increasing amount of advertising inventory becoming available on the Internet and to fluctuations of spending on advertising in general. Advertisers may find Internet advertising to be a less effective means of promoting their products or services relative to traditional advertising media and may reduce or eliminate their expenditures on Internet advertising. Many potential advertisers and advertising agencies have only limited experience advertising on the Internet and have not devoted a significant portion of their advertising expenditures to Internet advertising. Acceptance of the Internet among advertisers will depend, to a large extent, on the perceived effectiveness of Internet advertising and the continued growth of commercial usage of the Internet.

In addition, our advertising revenues will depend on our ability to achieve, measure and demonstrate to advertisers the breadth of the traffic base using our search service and the value of our targeted advertising. Filter software programs that limit or prevent advertising from being displayed on a user's computer are available. It is unclear whether this type of software will become widely accepted, but if it does, it would negatively affect Internet-based advertising. Our business could be seriously harmed if the market for Internet advertising does not continue to grow or if we are unsuccessful in increasing our advertising revenues.

Paid Listings. We recently signed a paid listings agreement with Google, Inc. that we anticipate will contribute to significant growth in paid placement revenues beginning in the fourth quarter of 2002. However, the revenue growth projected in paid listings is subject to numerous risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to variations in revenue derived from paid listings include, but are not limited to, the number and type of user queries on our web site, the number and type of user queries during specific periods, the presentation of featured links on our web site pages, the number of user clicks on featured links, the

rate of user clicks on featured links and the rates paid by advertisers, all of which may in turn be affected by general economic conditions, acceptance of the Internet as a medium for advertising and other factors (identified elsewhere in this report) that may affect the Company's business, operations and results of operations generally.

Software License. In prior periods, a significant portion of our revenues was generated from licensing our services to corporate customers and to our joint ventures through our Jeeves Solutions Group. In October 2001 and February 2002, we acquired full ownership of Ask Jeeves en Espanol and Ask Jeeves UK, respectively. Consequently, these intellectual property licenses have terminated and will result in a decline in quarter over quarter licensing revenue comparisons in Jeeves Solutions. If, in the future, we are unable to generate sufficient licensing revenue from our corporate customers and/or our remaining joint venture, our results of operations could be substantially impaired.

JeevesOne. In September 2001, we launched JeevesOne, the Company's first productized software product. While we believe that the product responds to market need for this type of enterprise software, there is no assurance that JeevesOne will achieve market acceptance. If we are unable to generate significant sales of software licenses, our business could be seriously harmed. Additionally, software license revenues may be more volatile than revenues from subscription-based services. The addition of software licenses to our product offering may result in greater period to period fluctuations in our revenues.

We May Not Be Able to Secure Additional Financing to Meet Our Future Capital Needs

We currently anticipate that our cash, cash equivalents and marketable securities will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next twelve months. If, after twelve months, we are unable to generate sufficient cash flows from operations to meet our anticipated needs for working capital and capital expenditures, we will need to raise additional funds to fund brand promotion, develop new or enhanced products and services, respond to competitive pressures or make acquisitions. We may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund our expansion, successfully promote our brand, develop or enhance products and services, respond to competitive pressures or take advantage of acquisition opportunities, any of which could seriously harm our business.

If we raise additional funds through the issuance of equity securities, our stockholders may experience dilution of their ownership interest, and the newly issued securities may have rights superior to those of the common stock. If we raise additional funds by issuing debt, we may be subject to limitations on our operations, including limitations on the payment of dividends. If we do not achieve or sustain profitability in the future and are unable to obtain additional financing, then we will eventually be unable to continue our operations.

We Rely on Third-Party Advertising Delivery Which Could Effect Our Ability to Deliver Advertisements On Our Web Sites

We rely on third-party advertising services, provided by DoubleClick, Inc. to deliver advertisements to our users. DoubleClick is currently the only provider available in the market that meets our delivery needs. If DoubleClick fails to deliver the advertisements as contracted for, due to reliability or performance problems, or if advertisements cannot be targeted as promised to advertisers, our revenues may decrease.

Some of Our Web Properties Customers are Emerging Internet Companies that Represent Credit Risks

We expect to continue to derive a significant portion of our revenues from sales to Internet companies. Many of these companies have limited operating histories and are operating at a loss. Moreover, many of these companies have limited cash reserves and limited access to additional capital. We have in some cases experienced difficulties collecting outstanding accounts receivable and we may continue to have these difficulties in the future. These difficulties may increase as a result of a recent downturn in economic activity and reductions in funding for Internet companies from public capital markets and private venture capital and equity sources. If any significant part of our customer base experiences commercial difficulties or is unable or unwilling to pay for any reason, our business will suffer.

Our Search Technologies and Services are Unproven

We will be successful only if Internet users adopt our search technologies and services as a primary method of navigating the Internet. Internet users have a variety of other search techniques, such as directory searches, available to them to navigate the Internet. Users can also rely on methods, such as call centers, chat rooms and e-mail, rather than difficult-to-navigate corporate Web sites, to obtain information on products and services. Our search technologies are novel and unproven. It is difficult to predict the extent and rate of user adoption of our search technologies and services. Users of our services may try our Web sites and then revert to other search techniques to navigate the Internet or choose new search techniques. It is uncertain whether widespread acceptance of our search technologies and services will occur.

We Will Only Be Able to Execute Our Business Plan if Internet Usage Grows

Our business would be adversely affected if Internet usage does not continue to grow or grows at significantly lower rates compared to current trends. The continued growth of the Internet depends on various factors, many of which are outside our control. These factors include:

•: the Internet infrastructure may not be able to support the demands placed on it;
•: performance and reliability of the Internet may decline as usage grows;
•: growth in utility and accessibility to desired information may slow, decreasing the number of new Internet users;
•: security and performance concerns due to hackers and authentication concerns with respect to the transmission over the Internet of confidential information, such as credit card numbers, and attempts by unauthorized computer users, so-called hackers, to penetrate online security systems may impact use of the Internet; and
•: privacy concerns, including those related to the ability of Web sites to gather user information without the user's knowledge or consent may limit the Internet's use.

We Depend on Third Party Content to Provide the Answers to Questions Asked on Our Web Sites

Visitors to our Web sites use the sites to obtain direct access to the information, products and services they need through the display of a third-party Web page containing the answer to the user's question. We have little control over the content of these third-party Web sites. If these third-party Web sites do not contain high-quality, up-to-date and useful information to the user, the utility of our service to the user will be reduced, which could seriously harm our business.

Our Web sites are designed to directly link users to a page within a third-party Web site that contains the answer to a question asked. However, when our Web sites attempt to direct the user to a

page within the Web site, some companies have automatically redirected users to their home page. If companies prevent us from directly linking our users to a page within a third-party Web site, and if there are no comparable alternative Web sites to which we can direct our users, the utility and attractiveness of our services to consumers may be reduced. If this occurs, traffic on our Web sites could significantly decrease, which would seriously harm our business.

We May Not Be Able to Effectively Compete Against Our Current and Potential Competitors

Web Properties. We face direct competition from companies that provide Internet search and directory services. For example, Web Properties competes with search engines, including AltaVista Company, Google Inc., Fast Search & Transfer ASA, and Inktomi Corporation, for the traffic generated by Internet users seeking links to third-party content to address their online information needs. Web Properties also competes with directory services, such as Overture Services, Inc., Inc. LookSmart, Ltd., and Yahoo! Inc., because they provide alternative ways for users to obtain the desired information.

Jeeves Solutions. We compete with a number of companies that provide customer self-service solutions for corporate customers. For example, Jeeves Solutions competes with other companies that provide advanced natural language solutions, such as iPhrase Technologies, Inc. and Kanisa Inc.; search technology companies, such as Inktomi Corporation and Verity, Inc.; knowledge management companies such as Primus Knowledge Systems, and eGain Communications Company; and customer relationship management companies, such as Siebel Systems, Inc. and Kana Communications, Inc.

Our ability to compete depends on many factors, many of which are outside of our control. These factors include: the quality of content, the ease of use of online services, the timing and market acceptance of new and enhanced online services and sales and marketing efforts by our competitors and by us.

Many of our existing competitors, as well as potential new competitors, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. This may allow them to devote greater resources than we can to the development and promotion of their services. Many of these competitors offer a wider range of services than we do. These services may attract users to our competitors' sites and, consequently, result in a decrease in traffic to our site. These competitors may also engage in more extensive research and development, adopt more aggressive pricing policies and make more attractive offers to existing and potential corporate customers, advertisers and syndicators. Our competitors may develop products and services that are equal to, or superior to, our products and services, or achieve greater market acceptance. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to better address the needs of advertisers and businesses engaged in electronic commerce. As a result, it is possible that new competitors may emerge and rapidly acquire significant market share.

Our Growth Will Depend on Our Ability to Develop and Maintain Our Brands

We believe that favorable consumer and business community perceptions of the Ask Jeeves brands are essential to our future success. Accordingly, we intend to continue pursuing brand-enhancement strategies, which may include mass market and multimedia advertising, promotional programs and public relations activities. These expenditures may not result in a sufficient increase in revenues to cover such advertising and promotional expenses. In addition, even if brand recognition increases, the number of new users and corporate customers may not increase. Further, even if the number of new users increases, the amount of traffic on our Web sites and the number of corporate customers may not increase sufficiently to justify the expenditures.

If We Are Unable to Rapidly and Successfully Develop New Products, New Product Enhancements and Integrate Acquired Technologies, We May Be Unable to Meet Customer Demand

We operate in a highly competitive, rapidly changing environment and our future success depends on our ability to develop and introduce new products that meet the needs of our customers. If we are unable to develop new and enhanced products, our business and operating results may be adversely affected. Also, many of our products must be available on a variety of operating system platforms. We must ensure that such products are available on the platforms that our customers require.

Additionally, we have acquired technology to accelerate our ability to meet new product requirements and enhancements. For example, in September 2001 the Company acquired Teoma Technologies, Inc. and in January 2002, we announced the acquisition of certain technology from Octopus Software, Inc. We must continue to scale and integrate these technologies into our existing and new products. If we are unable to successfully and rapidly integrate these and other technologies into our products, our business may be harmed.

If We Are Unable to Continue to Improve Operations Efficiencies, We May Be Unable to Meet Customer Demand

Our past and planned growth in traffic may continue to place strain on our current and planned systems. We must continue to develop new technologies to improve our ability to serve and manage the growth on our sites as well as the sites of our syndication partners. Additionally, we may not have adequate capacity to meet demand for new products. If any of this were to occur, it could damage our reputation and limit our future growth.

Failure to Add or Retain Corporate Customers May Have an Adverse Effect On Our Revenues

In the coming year we expect that revenues associated with corporate customers will be comprised primarily of corporations with large, difficult-to-navigate Web sites. If we do not complete sales to a sufficient number of customers, our future revenues will be adversely affected.

Most of our existing corporate customer contracts have a term of one year following the implementation of our services. As a result, if we are unable to offer value to our customers during the term of these contracts, or if our customers choose a competitor's service over our service, or if our customers decide to use their own proprietary technology to develop services similar to ours, those customers may not renew their contracts. If we do not obtain a sufficient number of contract renewals or cross sales of other products, or if such renewals are obtained on terms less favorable than the original contract, our business could be adversely affected.

Implementing Our Services for Some of Our Corporate Customers is Labor Intensive

Because the implementation of some of our services is labor intensive, it is difficult to predict the length of the development cycle in Jeeves Solutions. Factors that affect the length of the development cycle include the overall size and complexity of the Web site, the interaction with the customer and the dynamic nature of the content. Launching a customized version of some of our services may take a month or longer. The long development cycle makes it difficult to predict the delivery time to the customer, realize our revenue goals and manage our internal hiring needs to meet new projects. In addition, in order to meet increased demand by corporate customers, we may have to hire additional people and train them in advance of orders. When we outsource development of custom knowledge bases, we will have little control over the speed and quality of the development. Any decline in the speed or quality of the implementation of our services could seriously harm our business.

If Accounting Interpretations Relating to Revenue Recognition Change, our Reported Revenues Could Decline

Over the last several years, the American Institute of Certified Public Accountants issued Statement of Position or SOP 97-2, "Software Revenue Recognition," and SOP 98-9 "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." These standards address software revenue recognition matters primarily from a conceptual level and do not include specific implementation guidance. In addition, in December 1999, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", or SAB 101, which explains how the SEC staff believes existing revenue recognition rules should be applied. We believe that our revenue recognition policies are currently in compliance with SOP 97-2, SOP 98-9 and SAB 101.

The accounting profession continues to discuss certain provisions of SOP 97-2 and SAB 101 with the objective of providing guidance on potential interpretations. These discussions and the issuance of interpretations, once finalized, could lead to unanticipated changes in our current revenue accounting practices, which could cause us to recognize lower revenues. These changes may extend sales cycles, increase administrative costs and otherwise adversely affect our business.

If Requirements Relating to Accounting Treatment for Employee Stock Options are Changed, We May Be Forced to Change our Business Practices.

We currently account for the issuance of stock options under APB Opinion No. 25, "Accounting for Stock Issued to Employees." If proposals currently under consideration by administrative and governmental authorities are adopted, we may be required to treat the value of the stock options granted to employees as a compensation expense. As a result, we could decide to decrease the number of employee stock options which the Company would grant. This could affect our ability to retain existing employees and attract qualified candidates, and increase the cash compensation we would have to pay to them. In addition, such a change could have a negative effect on Company's earnings.

It May Become Increasingly Expensive to Obtain and Maintain Liability Insurance.

The Company contracts for insurance to cover a variety of potential risks and liabilities. In the current market, it is becoming more expensive for companies to obtain insurance coverage, and when insurance coverage is provided, larger deductibles may be required. In light of these circumstances, it may become more difficult to maintain insurance coverage at historical levels, or if such coverage is available, the cost to obtain or maintain it may increase substantially. This may result in the Company's having to bear the burden of an increased portion of risks for which it has traditionally been covered by insurance, which could negatively impact the Company's results of operations.

Our Business Will Suffer in a Variety of Ways Unless Overall Economic Conditions Improve

Many of our customers have made and will continue to make significant cutbacks in their sales and marketing efforts and capital expenditures, which will in turn adversely affect our financial results.

Current economic conditions pose a variety of additional challenges to our business. The financial condition of many of our customers has deteriorated and continues to deteriorate because of their inability to raise additional funds for their businesses. The ability of these customers to generate additional revenue for us has been reduced dramatically, if not eliminated. Our inability to rapidly replace this portion of our customer base will have a material adverse impact on our business.

Recent Terrorist Activities and Resulting Military and Other Actions Could Adversely Affect Our Business

Terrorist attacks in New York and Washington, D.C. in September of 2001 disrupted commerce throughout the world. The continued threat of terrorism and the potential for military action and heightened security measures in response to this threat may cause significant disruption to commerce throughout the world. To the extent that disruptions result in a general decrease in corporate spending on information technology or advertising, our business and results of operations could be materially and adversely affected. We also may experience delays in receiving payments from customers that have been affected by the attacks, which, in turn, would harm our cash flow. We are unable to predict whether the threat of terrorism or the responses thereto will result in any long-term commercial disruptions or if such activities or responses will have a long-term adverse effect on our business, results of operations or financial condition. These and other developments arising out of the attacks may make the occurrence of one or more of the factors discussed under "Risk Factors" likely to occur.

Our Business Realignments May Not Result in the Intended Benefits

In the fourth quarter of 2000, we announced a realignment of our business organization in an effort to streamline operations, increase revenues, reduce costs and bring staffing in line with our then current and anticipated requirements. During 2001 we took additional steps to rationalize the resources required to operate efficiently in the prevailing market. In 2001 and early 2002, our business realignments resulted in reduced operating costs, however we cannot assure that we will be able to continue to reduce operating costs, or that operating costs will not increase in the future. For example, we incurred additional operating costs as a result of our acquisition of Ask Jeeves UK. If we are not successful in increasing revenues and decreasing costs, we may never achieve profitability.

Our Workforce Reductions and Financial Performance May Adversely Affect the Morale and Performance of our Personnel and Our Ability to Hire New Personnel

Our business realignment included reductions in our workforce in order to reduce costs and bring staffing in line with our anticipated requirements. There were costs associated with the workforce reductions related to severance and other employee-related costs, and our realignment plan may yield unanticipated costs and consequences, such as attrition beyond our planned reduction in staff. In addition, our common stock has declined in value below the exercise price of many options granted to employees pursuant to our stock option plans. Thus, the intended benefits of the stock options granted to our employees, the creation of performance and retention incentives, may not be realized. In addition, workforce reductions and management changes create anxiety and uncertainty and may adversely affect employee morale. As a result, we may lose employees whom we would prefer to retain. As a result of these factors, our remaining personnel may seek employment with larger, more established companies or companies they perceive as having less volatile stock prices.

Our Past and Future Acquisitions May Be Difficult to Integrate, Disrupt Our Business, Dilute Stockholder Value or Divert Management Attention

We have acquired a number of companies, including Teoma Technologies, Inc. in September 2001 and Ask Jeeves UK in February 2002. We may in the future seek to acquire or invest in additional businesses, products or technologies that we believe could complement or expand our business, augment our market coverage, enhance our technical capabilities or that may otherwise offer growth opportunities. We may encounter problems with the assimilation of acquired businesses, products or technologies including:

•: difficulties in assimilation of acquired personnel, operations, technologies or products;
•: unanticipated costs associated with acquisitions;

•: diversion of management's attention from other business concerns and potential disruption of our ongoing business;
•: adverse effects on our existing business relationships with our customers;
•: potential patent or trademark infringement from acquired technologies.
•: adverse effects on our current employees and the inability to retain employees of acquired companies;
•: use of substantial portions of our available cash as all or a portion of the purchase price; and
•: dilution of our current stockholders due to issuances of additional securities as consideration for acquisitions.

If we are unable to successfully integrate our acquired companies or to create new or enhanced services, we may not achieve the anticipated benefits from our acquisitions. If we fail to achieve the anticipated benefits from the acquisitions, we may incur increased expenses and experience a shortfall in our anticipated revenues and we may not obtain a satisfactory return on our investment. In addition, if a significant number of employees of acquired companies fail to remain employed with us, we may experience difficulties in achieving the expected benefits of the acquisitions

We Must Continually Improve Our Systems, Controls and Procedures

We have a limited operating history, and we initially experienced rapid growth, which placed a significant strain on our managerial, financial and operational resources. We must continue to improve our operational and financial systems and managerial controls and procedures, train and manage our workforce with reduced resources. We cannot be assured that our systems, procedures or controls will be adequate to support our operations or that we will be able to manage any growth effectively. If we do not manage growth effectively, our business would be seriously harmed.

The Operating Performance of Our Systems and Servers is Critical to Our Business and Reputation

Any system failure, including network, software or hardware failure, that causes an interruption in our service or a decrease in responsiveness of Ask Jeeves could result in reduced user traffic on our Web sites and reduced revenues. We have network and server equipment located at MFN, Exodus, Qwest and Hosting.com in various locations in California and Massachusetts and in London, England. Although we believe that our current back-up methods are adequate, we cannot be assured that the back-up servers will not fail or cause an interruption in our service.

We have experienced slower response times and interruptions in service due to malfunction at our hosting facilities and on the Internet backbone networks, major software upgrades on our Web sites and undetected software defects. Our Web sites have had partial interruptions for periods ranging from a few minutes to three hours. In addition, our Web sites could also be affected by computer viruses, electronic break-ins or other similar disruptions. If we experience outages, frequent or persistent system failures or degraded response times, our reputation and brand could be permanently harmed. In addition, we could lose advertising revenues during these interruptions and user satisfaction could be negatively impacted if the service is slow or unavailable.

Our users and customers depend on Internet service providers, online service providers and other Web site operators for access to our Web sites. Each of these types of providers has experienced significant outages in the past and could experience outages, delays and other operating difficulties due to system failures unrelated to our systems.

The occurrence of an earthquake or other natural disaster or unanticipated problems at our principal facilities or at the servers that host or back-up our systems could cause interruptions or delays

in our interactive network or a loss of data. Our systems are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, break-ins, earthquake and similar events. We have not developed a comprehensive disaster recovery plan to respond to system failures. Our general liability insurance policies may not adequately compensate us for losses that may occur due to interruptions in our service.

Our Security Could Be Breached, Which Could Damage Our Reputation and Deter Customers From Using Our Services

We must protect our computer systems and network from physical break-ins, security breaches and other disruptive problems caused by the Internet or other users. Computer break-ins could jeopardize the security of information stored in and transmitted through our computer systems and network, which could adversely affect our ability to retain or attract customers, damage our reputation or subject us to litigation. We could be subject to denial of service, vandalism and other attacks on our systems by Internet hackers. Although we intend to continue to implement security technology and establish operational procedures to prevent break-ins, damage and failures, these security measures may fail. Our insurance coverage in certain circumstances may be insufficient to cover issues that may result from such events.

More Individuals are Utilizing Non-PC Devices to Access the Internet and We May Not Be Successful in Developing a Version of Our Service that Will Gain Widespread Adoption by Users of Such Devices

In the coming years, the number of individuals who access the Internet through devices other than a personal computer such as personal digital assistants, cellular telephones and television and television set-top devices is expected to increase. Our services are designed for rich, graphical environments such as those available on personal and laptop computers. The lower resolution, functionality and memory associated with alternative devices may make the use of our services through such devices difficult and we may be unsuccessful in our efforts to modify our online properties to provide a compelling service for users of alternative devices.

As we have limited experience to date in operating versions of our service developed or optimized for users of alternative devices, it is difficult to predict the problems we may encounter in doing so and we may need to devote significant resources to the creation, support and maintenance of such versions. If we are unable to attract and retain a substantial number of alternative device users to our online services, we will fail to capture a sufficient share of an increasingly important portion of the market for online services. Further, as a significant portion of our revenues are derived through the sale of banner and other advertising optimized for a personal computer screen, we may not be successful at developing a viable strategy for deriving substantial revenues from online properties that are directed at the users of alternative devices. Any failure to develop revenue-generating online properties that are adopted by a significant number of handheld device users could severely hurt our business.

Our International Properties May Not Be Successful

In addition to our activities in the United States, we market our search technologies and services in markets outside of the United States. We provide our services in the United Kingdom and Japan either directly or through joint ventures. In October 2001 we dissolved our Spanish language venture, Ask Jeeves en Espanol. In February 2002, we acquired full ownership of our UK joint venture, Ask Jeeves UK.

Our expansion into international markets requires substantial management attention and financial resources. We cannot be certain that our investment in establishing operations in other countries will produce the desired levels of revenue. We may not realize planned operational efficiencies from our

international properties, or they may compete for resources. In addition, our foreign operations are subject to other inherent risks and problems, including:

•: the impact of business cycles and downturns in economies outside the United States;
•: longer payment cycles and greater difficulty in accounts receivable collections;
•: unexpected changes in regulatory requirements;
•: difficulties and costs of staffing and managing foreign operations;
•: reduced protection for intellectual property rights in some countries;
•: unanticipated tax costs associated with the cross-border use of intangible assets;
•: political and economic instability;
•: fluctuations in currency exchange rates;
•: difficulty in maintaining effective communications with employees and customers due to distance, language and cultural barriers;
•: lower brand recognition for Ask Jeeves and the Jeeves character in non-English speaking counties;
•: lower per capita Internet usage in many foreign countries, for a variety of reasons such as lower disposable incomes, lack of adequate telecommunications and computer infrastructure and concerns regarding online security for e-commerce transactions; and
•: competition in international markets from a broad range of competitors, including AltaVista, Google, Overture Services, Inc., LookSmart, Yahoo! and other United States and foreign portals, search engines and service providers.

Some or all of the above factors could seriously harm the results of our operations.

Our Operating Results are Volatile and Difficult to Predict

You should not rely on our results of operations during any particular quarter as an indication of our future results for a full year or any other quarter. Our quarterly revenues and operating results have varied significantly in the past and may vary significantly in the future due to a number of factors, including:

•: our ability to obtain new corporate customers, the length of time needed to implement our search technologies and services for corporate customers and the timing of revenue recognition with respect to contracts with corporate customers;
•: our ability to obtain new advertising contracts, maintain existing ones and effectively manage our advertising inventory;
•: the number of users of our Web sites, Web sites syndicating our services and the Web sites of our corporate customers;
•: seasonal and other fluctuations in demand for our services and for advertising space on our Web sites;
•: our ability to develop and introduce new technology;
•: announcements and new technology introductions by our competitors;
•: our ability to attract, retain and motivate key personnel;
•: credit risk of Internet companies within our customer base;

•: rate changes for advertising on our Web sites;
•: marketing expenses and technology infrastructure costs as well as other costs that we may incur as we expand our operations;
•: costs relating to possible acquisitions of technologies and businesses including the timing of charges related to the acquisitions and any amortization of expenses related to the acquisitions;
•: terminations of significant license arrangements or large numbers of license arrangements resulting in the discontinuation of licensing revenues for those contracts; and
•: the other factors discussed in this section on "Risk Factors."

We have experienced seasonality in user traffic to our Web sites, including lower traffic during the year-end holiday season and during the summer months. Given our limited operating history, user traffic on our Web sites is extremely difficult to forecast accurately. Moreover, obtaining new corporate customers depends on many factors that we are not able to control, such as the allocation of budgetary resources by potential customers. The sales cycle for obtaining new corporate customers has averaged four months. Therefore, it is difficult to predict the number of corporate customers that we will have in the future. We may be unable to adjust spending to compensate for an unexpected shortfall in our revenues. As a result, if we experience an unexpected shortfall in revenues, or if our revenues do not grow faster than the increase in these expenses, we could experience significant variations in the operating results from quarter to quarter.

Our Stock Price may Fluctuate Significantly Regardless of Our Actual Operating Performance

Our common stock is listed for trading on the NASDAQ National Market. The trading price of our common stock has been and may continue to be highly volatile. Our stock price may be subject to wide fluctuations in response to a variety of factors, including:

•: actual or anticipated variations in quarterly operating results and announcements of technological innovations;

•: new products or services offered by Ask Jeeves or its competitors;
•: changes in financial estimates by securities analysts;
•: changes in research coverage by securities analysts;
•: conditions or trends in the Internet services industry and the online customer service segment in particular;
•: Ask Jeeves' announcement of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
•: additions or departures of key personnel;
•: sales by current holders of our common stock and general financial conditions and investor sentiment regarding Internet companies generally; and
•: other events that may be beyond Ask Jeeves' control.

In addition, the NASDAQ National Market, where most publicly held Internet companies are traded, has periodically experienced extreme price and volume fluctuations. These fluctuations may be unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors may materially adversely affect the market price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the market price of an individual company's securities, securities class action litigation often has been instituted against that company. On October 25, 2001, a putative class action lawsuit captioned Leonard Turroff, et al. vs Ask Jeeves, Inc., et al. was filed against the Company and two of our officers and directors in the United States District Court for the Southern District of New York, alleging violation of Federal securities laws. This type of litigation could result in substantial costs and a diversion of management's attention and resources.

If We Fail to Meet the Expectations of the Public Market Analysts and Investors, the Market Price of Our Common Stock May Decrease Significantly

Public market analysts and investors have not been able to develop consistent financial models for the Internet market because of the unpredictable rate of growth of Internet use, the rapidly changing models of doing business on the Internet and the Internet's relatively low barriers to entry. As a result, and because of the other risks noted in this discussion, it may be that our actual results will not meet the expectations of public market analysts and investors in future periods. If this occurs, the price of our common stock will likely fall.

Future Sales of Stock Could Affect Our Stock Price

If our stockholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options and in connection with acquisitions, the market price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

Failure to Comply With NASDAQ's Listing Standards Could Result in Our Delisting By NASDAQ From the NASDAQ National Market and Severely Limit the Ability to Sell Any of Our Common Stock

Our stock is currently traded on the NASDAQ National Market. Under NASDAQ's listing maintenance standards, if the closing bid price of our common stock is under $1.00 per share for 30 consecutive trading days, NASDAQ may choose to notify us that it may delist our common stock from the NASDAQ National Market. If the closing bid price of our common stock does not thereafter regain compliance for a minimum of 10 consecutive trading days during the 90 days following

notification by NASDAQ, NASDAQ may delist our common stock from trading on the NASDAQ National Market. There can be no assurance that our common stock will remain eligible for trading on the NASDAQ National Market. If our stock were delisted, the ability of our shareholders to sell any of our common stock at all would be severely, if not completely, limited.

We May Be Liable for Our Links to Third-Party Web Sites

We could be exposed to claims for liability with respect to the selection of third-party Web sites that may be accessible through our Web sites. These claims might include, among others, that by linking to Web sites operated by third parties, we may be liable for copyright or trademark infringement or other unauthorized actions by these third-party Web sites. Other claims may be based on errors or false or misleading information provided on our Web sites, including information deemed to constitute professional advice such as legal, medical, financial or investment advice. Other claims may be based on our links to sexually explicit Web sites and our provision of sexually explicit advertisements when this content is displayed. While no such claims are pending and we do not believe that any such claim would have legal merit, our business could be seriously harmed due to the cost of investigating and defending these claims, even to the extent these claims do not result in liability. Implementing measures to reduce our exposure to such claims may require us to spend substantial resources and limit the attractiveness of our service to users.

Our Future Success Depends on Our Ability to Attract, Retain Key Management and Skilled Technical Employees

Our future success depends on our ability to attract, retain and motivate highly skilled employees. Competition for employees in the San Francisco Bay Area, where our headquarters is located, is intense. This is due, in part, to the high concentration of high-tech companies vying for qualified employees, high housing costs and traffic congestion. We have experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. If we fail to attract, retain and motivate our employees, our business will be harmed.

We Need to Maintain Our Sales and Support Organizations

Competition for highly-qualified sales personnel is intense, and we may not be able to maintain the kind and number of sales personnel we need. Hiring highly qualified customer service and account management personnel is very competitive in our industry due to the limited number of people available with the necessary technical skills and understanding of the Internet. If we are unable to hire and retain qualified sales personnel our business may suffer.

We May Face Potential Liability, Loss of Users and Damage to our Reputation for Violation of Privacy Policies

We have a policy against using personally identifiable information obtained from users of our natural language question answering technologies and without the user's permission. In the past, the Federal Trade Commission has investigated companies that have used personally identifiable information without permission or in violation of a stated privacy policy. If we use this information without permission or in violation of our policy, we may face potential liability for invasion of privacy for compiling and providing information to our corporate customers and electronic commerce merchants.

Government Regulation and Legal Uncertainties Could Harm Our Business

Any new law or regulation pertaining to the Internet, or the application or interpretation of existing laws, could decrease the demand for our services, increase our cost of doing business or

otherwise seriously harm our business. There is, and will likely continue to be, an increasing number of laws and regulations pertaining to the Internet. These laws or regulations may relate to liability for information retrieved from or transmitted over the Internet, online content regulation, user privacy, taxation and the quality of products and services. Furthermore, the growth and development of electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on electronic commerce companies as well as companies like us that provide electronic commerce services.

In response to a complaint submitted to the Federal Trade Commission (FTC) by a consumer watchdog organization, the FTC recently issued a "no action letter" that provided guidance to various internet search engines, including Ask Jeeves, as to how search engines might address disclosures of paid inclusion and paid placement listings. While we believe that our web sites comply with the recommendations set forth by the FTC, any new ruling, regulation or law that imposes restrictions on the way we operate and manage our web sites could impact our revenue models, our business dealings and our profitability.

We file tax returns in such states as required by law based on principles applicable to traditional businesses. However, one or more states could seek to impose additional income tax obligations or sales tax collection obligations on out-of-state companies, such as ours, which engage in or facilitate electronic commerce. A number of proposals have been made at state and local levels that could impose such taxes on the sale of products and services through the Internet or the income derived from such sales. Such proposals, if adopted, could substantially impair the growth of electronic commerce and seriously harm our profitability.

Legislation limiting the ability of the states to impose taxes on Internet-based transactions recently has been enacted by the United States Congress. However, this legislation, known as the Internet Tax Freedom Act, imposed only a three-year moratorium on state and local taxes on electronic commerce, where such taxes are discriminatory and Internet access, unless such taxes were generally imposed and actually enforced prior to October 1, 1998. The legislation, which commenced October 1, 1998 and was to have expired on October 21, 2001, has since been given a five-year extension by the House of Representatives. It is unclear which steps the legislature will take next, and failure to continue to renew this legislation would allow various states to impose taxes on Internet-based commerce. The imposition of such taxes could impair the growth of the e-commerce marketplace and impair our ability to become profitable.

In addition, we are not certain how our business may be affected by the application of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property issues, taxation, libel, obscenity and export or import matters. The vast majority of such laws were adopted prior to the advent of the Internet. As a result, they do not contemplate or address the unique issues of the Internet and related technologies. Changes in laws intended to address such issues could create uncertainty in the Internet market. Such uncertainty could reduce demand for our services or increase the cost of doing business as a result of litigation costs or increased service delivery costs.

We May Be Unable to Protect Our Intellectual Property Rights and Other Proprietary Rights and We May Be Liable for Infringing Upon the Intellectual Property Rights of Others

Third parties may assert infringement claims against us. From time to time in the ordinary course of business we have been subject to claims of alleged infringement of the trademarks and other intellectual property rights of third parties. Any such claims, if made, and any resulting litigation, should it occur, could subject us to significant liability for damages. In addition, even if we prevail, litigation could be time-consuming and expensive to defend, and could result in the diversion of our time and attention. Any claims from third parties may also result in limitations on our ability to use the

intellectual property subject to these claims unless we are able to enter into agreements with the third parties making these claims.

Provisions in Delaware Law and our Charter, Stock Option Agreements and Offer Letters to Executive Officers may Prevent or Delay a Change Of Control

We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Delaware corporations from engaging in a merger or sale of more than 10% of its assets with any stockholder, including all affiliates and associates of the stockholder, who owns 15% or more of the corporation's outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation's assets unless:

•: the board of directors approved the transaction where the stockholder acquired 15% or more of the corporation's assets;
•: after the transaction where the stockholder acquired 15% or more of the corporation's assets, the stockholder owned at least 85% of the corporation's outstanding voting stock, excluding shares owned by directors, officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or
•: on or after this date, the merger or sale is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.

A Delaware corporation may opt out of the Delaware anti-takeover laws if its certificate of incorporation or bylaws so provide. We have not opted out of the provisions of the anti-takeover laws. As such, these laws could prohibit or delay mergers or other takeover or change of control of Ask Jeeves and may discourage attempts by other companies to acquire us.

Our certificate of incorporation and bylaws include a number of provisions that may deter or impede hostile takeovers or changes of control or management. These provisions include:

•: our board is classified into three classes of directors as nearly equal in size as possible with staggered three year-terms;
•: the authority of our board to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges of these shares, without stockholder approval;
•: all stockholder actions must be effected at a duly called meeting of stockholders and not by written consent;
•: except under limited circumstances, special meetings of the stockholders may be called only by the chairman of the board, the chief executive officer the board or by holders of shares entitled to cast not less than 50% of the votes of the meeting; and
•: except under limited circumstances, no cumulative voting.

These provisions may have the effect of delaying or preventing a change of control.

Furthermore, in April 2001, we adopted a stockholder rights plan and declared a dividend distribution of one right for each outstanding share of common stock to stockholders of record as of May 7, 2001. 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 $20 per unit. Under certain circumstances, if a person or group acquires 15% or more of our outstanding common stock, holders of the rights (other than the person or group triggering their exercise) will be able to purchase, in exchange for the $20 exercise price, shares of our common stock or of any company into which we are merged having a value of $40. The rights expire on May 7, 2011 unless extended by our board of

directors. Because the rights may substantially dilute the stock ownership of a person or group attempting to take us over without the approval of our board of directors, our rights plan could make it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our board of directors regarding such acquisition.

Our certificate of incorporation and bylaws provide that we will indemnify officers and directors against losses that may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures. These provisions may have the effect of preventing changes in our management.

In addition, our option agreements under the 1996 Stock Option plan provide that if a change of control of Ask Jeeves occurs prior to the first anniversary of the vesting commencement date of an option, then the vesting which would have occurred by such anniversary shall occur. After the first anniversary of the date of grant, these option agreements provide that the vesting of each option shall accelerate by six months upon a change of control. Furthermore, offer letters with our executive officers provide for the payment of severance and acceleration of options upon the termination of these executive officers following a change of control of Ask Jeeves. These provisions in our stock option agreements and offer letters could have the effect of discouraging potential takeover attempts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate, market and credit risk and related change in the market values of its investment portfolio. We place our investment portfolio primarily in high credit quality corporate, asset-backed, agency and municipal debt instruments. Investments in both fixed and floating rate securities have some degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted by increases in interest rates. Floating rate securities may produce less income than anticipated if interest rates fall. As a result, changes in interest rates may cause us to incur losses in principal if we are forced to sell securities that have declined in market value or may result in lower than anticipated investment income. Our investment portfolio is categorized as available-for-sale and accordingly is presented at fair value on the balance sheet.

We manage our exposure to interest rate, market and credit risk in the investment portfolio with investment policies and procedures that limit such things as term, credit rating and the amount of credit exposure to any one issue, issuer and type of instrument. We have not used derivative financial instruments in our investment portfolio.

During the three months ended June 30, 2002, the effects of changes in interest rates on the fair market value of our marketable investment securities and our earnings were not material. Further, we believe that the impact on the fair market value of our securities and our earnings for the remainder of the year from a hypothetical 10% change in interest rates would not be significant.

The majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, since a portion of the operations consist of operations outside of the U.S., we enter into transactions in other currencies, primarily the British pound. We currently do not hedge our exposure to foreign exchange rate fluctuations. Our international business is subject to risks typical of an international business, including but not limited to differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility, particularly the exchange rate between the British pound and the U.S. dollar.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On October 25, 2001, a putative class action lawsuit captioned Leonard Turroff, et al. vs Ask Jeeves, Inc., et al. was filed against the Company and two of our officers and directors (collectively the "Individual Defendants") in the United States District Court for the Southern District of New York. Also named as defendants were Morgan Stanley & Co,, Inc., FleetBoston Robertson Stephens, Goldman Sachs & Co., U.S. Bancorp Piper Jaffray, and Dain Rauscher, Inc., the underwriters of the Company's initial public offering. The complaint alleges violations of Section 11 of the Securities Act of 1933 against all defendants, and violations of Section 15 of the Securities Act against the Individual Defendants in connection with the Company's initial public offering ("IPO"). An amended complaint was filed on December 6, 2001, which includes the same allegations in connection with Ask Jeeves' secondary offering in March 2000. The complaints seek unspecified damages on behalf of a purported class of purchasers of common stock between June 30, 1999 and December 6, 2000. We believe the claims are without merit and intend to defend the actions vigorously. However, an unfavorable outcome could have a material adverse effect on our operating results and financial position.

Item 2. Changes in Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Under Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

A.

The annual meeting of the stockholders was held on May 15, 2002.

B.

The following matters were voted upon at the annual meeting:

1.: To elect the following directors to hold office until the 2005 Annual Meeting of Stockholders, or until their successors are duly elected and qualified:

		Nominee		In Favor		Withheld
		James D. Kirsner		31,375,356		67,555
		David S. Carlick		31,374,950		67,961

2.: To ratify the selection of Ernst & Young LLP as independent auditors of the Company for its fiscal year ending December 31, 2002.

		For		Against		Abstain		Broker Non-Vote
		31,387,693		27,193		28,025		0

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

a) Exhibits

The following exhibits are filed herewith or incorporated by reference:

Exhibit		Description
3.1(1)		Certificate of Incorporation of the Registrant.
3.1.1(6)		Certificate of Designation of Series A Junior Participating Preferred Stock
3.2(1)		Bylaws of the Registrant.
4.1(1)		Reference is made to Exhibits 3.1 and 3.1.1.
4.2(1)		Specimen Certificate for Registrant's Common Stock.
4.3(1)		Warrant to purchase 15,000 shares of Common Stock granted by the Registrant to Antenna Group PR dated as of June 30, 1998.
4.4(1)		Warrant to purchase 20,000 shares of Common Stock granted by the Registrant to Antenna Group PR dated as of July 31, 1998.
4.5(1)		Warrant to purchase 8,000 shares of Common Stock granted by the Registrant to Antenna Group PR dated as of May 31, 1998.
4.6(6)		Rights Agreement, dated as of April 26, 2001, between the Registrant and Fleet National Bank, N.A., which includes the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Series A Preferred Stock as Exhibit C.
4.7(10)		Warrant to purchase 105,000 shares of Common Stock granted by Registrant to Boris Katz dated as of July 26, 2001.
4.8(10)		Warrant to purchase 70,000 shares of Common Stock granted by Registrant to Patrick Winston dated as of July 26, 2001.
10.1(1)		Amended and Restated 1996 Equity Incentive Plan.
10.2(1)		Form of Option Agreement for the Amended and Restated 1996 Equity Incentive Plan.
10.3.3(5)†		1999 Equity Incentive Plan, as Amended and Restated.
10.4.1(1)†		Form of Option Agreement for the 1999 Equity Incentive Plan.
10.4.2(5)†		Form of Option Agreement for the 1999 Equity Incentive Plan, as Amended and Restated.
10.5.1(1)†		1999 Employee Stock Purchase Plan.
10.5.2(1)†		1999 Employee Stock Purchase Plan, as Amended and Restated.
10.6(7)†		1999 Equity Incentive Plan, as Amended and Restated through May 25, 2000.
10.7(7)†		Form of Option Agreement for the 1999 Equity Incentive Plan, as Amended and Restated through May 25, 2000.
10.8(7)†		1999 Employee Stock Purchase Plan, as Amended and Restated through May 25, 2000.
10.12(1)		License Agreement dated as of October 2, 1998, by and between the Registrant and Compaq Computer Corporation.
10.18.1†(10)		Severance terms as of April 30, 2001, by and between the Registrant and Frank Vaculin.

10.19.3(5)†		Employment Agreement dated as of December 1, 2000, by and between the Registrant and Robert W. Wrubel.
10.26(1)		Form of Indemnity Agreement by and between the Registrant and each of its directors and executive officers.
10.28(1)		Office Lease dated as of April 29, 1999, by and between the Registrant and Emery Station Associates, L.L.C.
10.30(1)		Master Lease Agreement dated as of June 15, 1999, by and between the Registrant and Comdisco, Inc.
10.31(1)		Forms of Promissory Note and Stock Pledge Agreement for loans to executive officers.
10.33(2)		Agreement and Plan of Merger and Reorganization dated as of January 25, 2000, by and among the Registrant, Direct Hit Technologies, Inc. and Answer Acquisition Corp.
10.36(3)		Office Lease dated as of February 24, 2000, by and between the Registrant and Oakland City Center LLC.
10.37(4)		Lease Agreement dated as of May 15, 2000, by and between the Registrant and Oakland City Center, LLC.
10.39(5)†		Offer letter dated as of July 24, 2000, by and between the Registrant and Adam Klein.
10.39.1†(10)		Severance letter dated March 28, 2001, by and between the Registrant and Adam Klein.
10.40(5)†		Offer letter dated as of December 8, 2000, by and between the Registrant and A. George (Skip) Battle.
10.40.2(8)†		Offer letter of New Terms of Employment dated April 3, 2001, by and between the Registrant and A. George (Skip) Battle.
10.41(8)†		Promissory Note dated March 15, 2001 of Steven Sordello, as Maker, in favor of the Registrant.
10.42(8)†		Offer letter dated April 23, 2001, by and between the Registrant and Steve Berkowitz.
10.44.1†(10)		Promissory Note secured by Deed of Trust, dated February 29, 2000, of Enrique T. Salem and Marcela M. Salem, as Borrower, in favor of the Registrant.
10.44.2†(10)		Addendum to Promissory Note secured by Deed of Trust, dated February 29, 2000, of Enrique T. Salem and Marcela M. Salem, as Borrower, in favor of the Registrant.
10.45.1†(10)		Incentive Agreement, entered into as of January 2, 2001, by and between the Registrant and Claudio Pinkus.
10.45.2†(10)		Amendment to Incentive Agreement, dated June 18, 2001, by and between Registrant and Claudio Pinkus.
10.45.3†(10)		Second Amendment to Incentive Agreement, entered into as of August 29, 2001, by and between Registrant and Claudio Pinkus.
10.45.4†(10)		Third Amendment to Incentive Agreement, entered into as of November 27, 2001, by and between the Registrant and Claudio Pinkus.
10.46.1†(10)		Incentive Agreement, entered into as of January 2, 2001, by and between the Registrant and George Lichter.
10.46.2†(10)		Amendment to Incentive Agreement, dated June 18, 2001, by and between Registrant and George Lichter.
10.46.3†(10)		Second Amendment to Incentive Agreement, entered into as of August 30, 2001, by and between Registrant and George Lichter.
10.46.4†(10)		Separation Agreement, dated February 6, 2002, made by and between George Lichter and Registrant.
10.47.1(9)		Agreement and Plan of Merger and Reorganization, dated as of September 10, 2001, by and among the Registrant, Answer Acquisition Corp. No. 2, and Teoma Technologies, Inc., and, solely with respect to Article X, Hawk Holdings, LLC, as Stockholders' Agent, and Chase Manhattan Bank and Trust N.A., as Escrow Agent.
10.47.2(9)		Registration Rights Agreement, dated September 10, 2001, by and between the Registrant and the multiple parties listed therein.

10.48(10)		Lease Amendment and Termination Agreement, made February 4, 2002, by and between Registrant, as Tenant, and Oakland City Center LLC, as Landlord.
10.49(11)		Agreement relating to the Sale and Purchase of the Entire Issued Share Capital of Carlton & Granada Internet Limited, dated February 7, 2002, by and among Registrant, Carlton Communications, PLC, Granada Media Group Limited, Ask Jeeves International, Inc. and Ask Jeeves (Jersey) Limited.
10.50(11)		Further Supplemental Partnership Deed relating to Ask Jeeves UK, dated February 14, 2002, by and among Registrant, Carlton Communications PLC, Granada Media Group Limited, Carlton & Granada Internet Limited, Ask Jeeves (Jersey) Limited, and Ask Jeeves International, Inc.
10.51(11)		Tax Deed relating to the acquisition of the entire issued share capital of Carlton & Granada Internet Limited, dated March 6, 2002, by and among the Registrant, Carlton Communications PLC and Granada Media Group Limited.
10.52*		Advertising Services Agreement, dated July 17, 2002, by and between Registrant and Google, Inc.

(1): Previously filed with Registrant's S-1 Registration Statement, No. 333-77539.
(2): Previously filed with Registrant's Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 14, 2000.
(3): Previously filed with Registrant's S-1 Registration Statement, No. 333-30494.
(4): Previously filed with Registrant's Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 14, 2000.
(5): Previously filed with Registrant's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 2, 2001.
(6): Previously filed with Registrant's Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 10, 2001.
(7): Previously filed with Registrant's S-8 Registration Statement, No. 333-73400.
(8): Previously filed with Registrant's Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 14, 2001.
(9): Previously filed with Registrant's Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 17, 2001.
(10): Previously filed with Registrant's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 28, 2002.
(11): Previously filed with Registrant's Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on April 30, 2002.
*: Confidential treatment has been requested for certain portions thereof.
†: Management contract, compensatory plan or arrangement.

b) Reports on Form 8-K.

Not applicable.

SIGNATURES

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

	ASK JEEVES, INC.
August 14, 2002	By:	/s/ A. GEORGE (SKIP) BATTLE A. George (Skip) Battle Chief Executive Officer (Principal Executive Officer)
August 14, 2002	By:	/s/ STEVEN J. SORDELLO Steven J. Sordello Chief Financial Officer (Principal Financial Officer)
August 14, 2002	By:	/s/ SCOTT T. BAUER Scott T. Bauer Vice President and Corporate Controller (Principal Accounting Officer)

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ASK JEEVES, INC. TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

ASK JEEVES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
ASK JEEVES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except share and per share data)
ASK JEEVES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
ASK JEEVES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

RISK FACTORS

Item 3. Quantitative and Qualitative Disclosures About Market Risk

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Changes in Securities and Use of Proceeds

Item 3. Defaults Under Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES