ASK JEEVES INC, 10-Q, 2000-11-14

ASK JEEVES INC
10-Q, 2000-11-14
BUSINESS SERVICES, NEC

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-Q

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

<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 000-26521

ASK JEEVES, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 94-3334199
(State or other jurisdiction (IRS Employer
of Identification No.)
Incorporation or organization)
</TABLE>

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.

[X] Yes [ ] No

The number of shares outstanding of the registrant's Common Stock as of
October 31, 2000 was 36,175,710.

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<PAGE>
ASK JEEVES, INC.
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999.................................. 3
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2000 and 1999..... 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999.................... 5
Notes to the Unaudited Condensed Consolidated Financial
Statements.................................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 30

PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 31
Item 2. Change in Securities........................................ 31
Item 3. Defaults Upon Senior Securities............................. 31
Item 4. Submission of Matters to a Vote of Securities Holders....... 31
Item 5. Other Information........................................... 31
Item 6. Exhibits and Reports on Form 8-K............................ 31
Signatures........................................................... 32
</TABLE>

2
<PAGE>
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)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 99,340 $ 17,420
Short-term investments.................................... 33,848 34,110
Accounts receivable, net.................................. 23,795 8,459
Prepaid expenses and other current assets................. 6,999 6,015
--------- --------
Total current assets.................................... 163,982 66,004
Property and equipment, net................................. 16,682 7,416
Intangible assets, net...................................... 409,450 1,984
Other long-term assets...................................... 7,201 360
--------- --------
Total assets............................................ $ 597,315 $ 75,764
========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,017 $ 4,717
Accrued compensation and related expenses................. 12,286 5,049
Accrued marketing expenses................................ 2,759 2,983
Accrued merger costs...................................... 1,442 5,280
Other accrued liabilities................................. 11,954 4,453
Deferred revenue.......................................... 34,884 7,347
Current portion of capital lease obligations.............. 868 818
--------- --------
Total current liabilities............................... 69,210 30,647
Capital lease obligations, less current portion........... 1,693 2,351
Other liabilities......................................... 1,315 1,315
--------- --------
Total liabilities....................................... 72,218 34,313

Commitments

Stockholders' equity:
Common stock, $.001 par value; 150,000,000 shares
authorized; 36,154,088 and 28,472,883 shares issued and
outstanding at September 30, 2000 and December 31, 1999,
respectively.............................................. 714,279 107,236
Deferred stock compensation................................. (993) (5,175)
Accumulated deficit......................................... (188,213) (60,568)
Accumulated other comprehensive income...................... 24 (42)
--------- --------
Total stockholders' equity.............................. 525,097 41,451
--------- --------
Total liabilities and stockholders' equity.............. $ 597,315 $ 75,764
========= ========
</TABLE>

See accompanying notes to the unaudited condensed consolidated financial
statements.

3
<PAGE>
ASK JEEVES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Web Properties.......................... $ 15,862 $ 4,118 $ 42,483 $ 6,826
Business Solutions (1) ................. 13,167 2,684 30,172 4,299
----------- ----------- ----------- -----------
Total revenues.......................... 29,029 6,802 72,655 11,125
Cost of revenues:
Web Properties.......................... 4,551 1,804 14,193 3,665
Business Solutions...................... 5,772 2,087 15,197 4,653
----------- ----------- ----------- -----------
Total cost of revenues.................. 10,323 3,891 29,390 8,318

Gross profit/(loss)....................... 18,706 2,911 43,265 2,807

Operating expenses:
Product development..................... 6,343 2,347 18,591 5,313
Sales and marketing..................... 20,896 10,390 62,370 21,335
General and administrative.............. 7,481 2,077 19,592 4,681
Amortization of deferred stock
compensation.......................... 306 696 1,535 1,605
Amortization of goodwill................ 22,533 -- 60,091 --
Write-off of acquired in-process
technology............................ -- -- 11,652 361
----------- ----------- ----------- -----------
Total operating expenses.................. 57,559 15,510 173,831 33,295
----------- ----------- ----------- -----------
Operating loss............................ (38,853) (12,599) (130,566) (30,488)
Other income, net......................... 2,203 777 4,731 1,302
----------- ----------- ----------- -----------
Net loss before taxes..................... (36,650) (11,822) (125,835) (29,186)
----------- ----------- ----------- -----------
Provision for income taxes................ 1,810 -- 1,810 --
----------- ----------- ----------- -----------
Net loss.................................. $ (38,460) $ (11,822) $ (127,645) $ (29,186)
=========== =========== =========== ===========
Basic and diluted net loss per share...... $ (1.08) $ (0.44) $ (3.74) $ (1.65)
=========== =========== =========== ===========
Weighted average shares outstanding used
in computing basic and diluted net loss
per share............................... 35,479,976 26,859,523 34,161,975 17,659,947
=========== =========== =========== ===========
(1) Revenues from related parties......... $ 4,206 $ -- $ 7,504 $ --
=========== =========== =========== ===========
</TABLE>

See accompanying notes to the unaudited condensed consolidated financial
statements.

4
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ASK JEEVES, INC.

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(127,645) $(29,186)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 3,809 700
Loss on disposal of assets................................ 3 11
Issuance of common stock to consultants................... -- 28
Compensation charge related to grants of stock options.... -- 175
Amortization of deferred stock compensation............... 1,535 1,605
Amortization of intangible assets......................... 64,030 199
Write-off of in-process technology........................ 11,652 361
Changes in operating assets and liabilities:
Accounts receivable..................................... (14,255) (6,602)
Prepaid expenses and other current assets............... 261 (1,943)
Other long-term assets.................................. (220) 98
Accounts payable........................................ (1,846) 1,436
Accrued compensation and related expenses............... 6,958 3,685
Accrued marketing expenses.............................. (1,405) 855
Accrued merger costs.................................... (14,492) --
Other accrued liabilities............................... 6,749 3,169
Deferred revenue........................................ 27,154 2,595
--------- --------
Net cash used in operating activities....................... (37,712) (22,815)

INVESTING ACTIVITIES
Purchases of property and equipment......................... (10,487) (4,717)
Purchases of investments.................................... (42,131) (25,315)
Proceeds from redemption of investments..................... 35,139 --
Acquisition of businesses, net of cash and cash
equivalents............................................... 12,646 --
--------- --------

Net cash provided by (used in) by investing activities...... (4,833) (30,031)

FINANCING ACTIVITIES
Issuance of common stock.................................... 129,347 47,578
Repurchase of common stock.................................. (2,254) --
Issuance (repayment) of notes receivable to stockholders.... (2,021) (400)
Issuance of preferred stock................................. -- 34,178
Proceeds from capital lease financings...................... -- 1,809
Repayment of capital lease obligations...................... (607) (184)
--------- --------
Net cash provided by financing activities................... 124,465 82,981
--------- --------
Increase in cash and cash equivalents....................... 81,920 30,134
Cash and cash equivalents at beginning of period............ 17,420 8,511
--------- --------
Cash and cash equivalents at end of period.................. $ 99,340 $ 38,645
========= ========
</TABLE>

5
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ASK JEEVES, INC.

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Capital lease obligations incurred........................ $ -- $ 928
========= ========
Common stock warrants issued in connection with lease
financings.............................................. $ -- $ 158
========= ========
Deferred stock compensation in connection with common
stock options issued to stockholders in exchange for
services................................................ $ -- $ 245
Foreign taxes paid........................................ $ 310 $ --
========= ========
Interest paid............................................. $ 300 $ 31
========= ========
</TABLE>

See accompanying notes to the unaudited condensed consolidated financial
statements.

6
<PAGE>
ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Ask Jeeves, Inc. ("Ask Jeeves" or the "Company") provides natural language
question answering technologies and services to deliver a humanized online
experience. Ask Jeeves' solutions enable companies to convert online shoppers to
buyers, reduce support costs, understand customer preferences and improve
customer retention. The Company was incorporated in the State of California in
June 1996, then subsequently reincorporated in the State of Delaware in June
1999.

BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. Investments in
affiliates in which the Company does not have a controlling interest are
accounted for under the equity method and investments in which the Company does
not exert significant influence are accounted for at cost. The accompanying
condensed consolidated financial statements at September 30, 2000 and for the
three and nine months ended September 30, 2000 and 1999 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 periods ended September 30, 2000 and September 30, 1999 are not
necessarily indicative of results for the entire fiscal year or future periods.
The condensed consolidated balance sheet at December 31, 1999 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, 1999.

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.

RECLASSIFICATIONS

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

COMPUTATION OF NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss applicable to
common shareholders by the weighted average number of shares of the Company's
common stock, excluding shares subject to repurchase, outstanding during the
period. Diluted earnings per share is determined in the same manner as basic
earnings per share except that the number of shares is increased assuming
exercise of dilutive stock options and warrants using the treasury stock method.
The diluted earnings per share

7
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ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts are equivalent to the basic net loss per share amounts because the
Company has a net loss and the impact of the assumed exercise of the stock
options and warrants is not dilutive.

The following table sets forth the computation of net loss per share (in
thousands, except share and per share data):

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic and diluted net loss per share
Numerator: Net loss..................... $ (38,460) $ (11,822) $ (127,645) $ (29,186)
Denominator: Weighted-average shares
outstanding basic and diluted......... 35,479,976 26,859,523 34,161,975 17,659,947
----------- ----------- ----------- -----------
Basic and diluted net loss per share.... $ (1.08) $ (0.44) $ (3.74) $ (1.65)
=========== =========== =========== ===========
</TABLE>

COMMITMENTS AND CONTINGENCIES

Capital lease obligations for equipment represent the present value of
future lease payments under the agreements. The Company has options to purchase
the leased assets at the end of the lease terms.

In July 1999, IP Learn LLC filed a complaint against us in the United States
District Court for the Northern District of California, which was amended by the
plaintiff, which alleges that aspects of the Ask Jeeves technology infringe one
or more patents alleged to be held by the plaintiff. We have answered the
complaint and discovery has begun. Additionally, in December 1999, Patrick H.
Winston and Boris Katz filed a complaint against us in the United States
District Court for the District of Massachusetts. The complaint alleges that our
technology infringes two patents alleged to be held by the plaintiffs. We have
answered the complaint and discovery has begun. We intend to vigorously defend
against the allegations asserted in these complaints and we believe we have
meritorious defenses to the claims. The results of any litigation matter are
inherently uncertain. In the event of an adverse result in either of these
lawsuits, or in any other litigation with third parties that could arise in the
future with respect to intellectual property rights relevant to our products or
services, we could be required to pay substantial damages, including treble
damages if we are held to have willfully infringed, to cease the use of
infringing products or services, to expend significant resources to develop
non-infringing technology or to attempt to obtain licenses to the infringing
technology on commercially reasonable terms, if at all. In addition, litigation
frequently involves substantial expenditures and can require significant
management attention, even if we ultimately prevail. Accordingly, we cannot
assure you that these lawsuits will not materially and adversely affect our
business.

The Company is also subject to various legal proceedings, claims, and
litigation arising in the ordinary course of business. The Company's management
does not expect that the ultimate costs to resolve these matters, including the
matters discussed in the following paragraph, will have a material adverse
effect on the Company's consolidated financial position, results of operations,
or cash flows.

8
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ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

2. BUSINESS SEGMENTS

For management reporting purposes, the Company is divided into two business
groups, the Web Properties Group and the Business Solutions Group. Results of
operations for these business groups include revenues, cost of revenues and
gross profit (loss) information as provided to the Company's President, who is
the Chief Operating Decision Maker. Summarized financial information by segment
for the three and nine month periods ended September 30, 2000 and 1999, as
reported to the President is as follows (in thousands):

BUSINESS SOLUTIONS:
Revenues................................ $13,167 $2,684 $30,172 $4,299
Cost of revenues........................ 5,772 2,087 15,197 4,653
------- ------ ------- ------
Gross profit (loss)..................... 7,395 597 14,975 (354)
======= ====== ======= ======
</TABLE>

The Company provides its natural language question answering technologies
and services internationally through joint venture partnerships. Geographic
information on revenue is as follows (in thousands):

3. COMPREHENSIVE INCOME (LOSS)

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss.................................. $(38,460) $(11,822) $(127,645) $(29,186)
Other comprehensive income:
Change in unrealized loss on
investments........................... 11 -- 66 --
-------- -------- --------- --------
Total comprehensive loss.............. $(38,449) $(11,822) $(127,579) $(29,186)
======== ======== ========= ========
</TABLE>

9
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ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

4. RECENT ACCOUNTING PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements," (SAB
101). SAB 101, as amended, summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition and
classification in financial statements. The company is adopting SAB 101 in the
fourth quarter of 2000 and does not expect its adoption to have a material
impact on its revenues or results of operations.

10
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ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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

Except for the historical information contained herein, this overview and
the following discussion contain forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in our Registration Statement
on Form S-3 filed August 11, 2000 and our Annual Report on Form 10-K filed
March 30, 2000. The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto included
elsewhere herein.

OVERVIEW

Ask Jeeves is a leading provider of natural language question answering
technologies and services. We deliver our services through our Web Properties
Group and our Business Solutions Group.

Revenues associated with our Web Properties Group include all revenue
streams generated from the Web sites we own and operate. This includes Ask.com,
DirectHit.com and AJKids.com. These revenues consist primarily of three
components:

- advertising revenues;

- eCommerce lead generation revenues; and

- targeting and acquisition solution revenues.

We earn advertising revenues from advertising contracts by delivering
impressions to users over a specified period of time for a fixed fee.
Advertising rates, measured on a cost per thousand impressions, or CPM basis,
are dependent on whether the impressions are displayed in general rotation
throughout our Web sites or are directed to targeted visitors to Ask.com and
DirectHit.com in the various channels available, such as the computer,
entertainment, family, health, money, shopping and travel channels. Revenues are
based upon actual impressions delivered as measured by our third-party
advertising delivery provider, DoubleClick, Inc. We also generate revenues from
the facilitation of electronic commerce. Revenues from electronic commerce are
generated when a user clicks on the answer that links to an electronic commerce
merchant's Web site on a cost per click, or CPC basis. Electronic commerce
transaction fees are derived from short-term electronic commerce merchant
contracts, generally over a three-to-six month period. Targeting and acquisition
solution revenues are generated from targeting programs designed to maximize the
effectiveness of the Ask Jeeves' question answering and search technologies by
creating dynamic, customized environments based on user behavior.

Revenues from our Business Solutions Group include all revenue streams that
are derived from companies licensing our technology. These revenues consist of
two components:

- professional services;

- maintenance and usage fees.

Since their introduction in October 1998, our Business Solutions have been
adopted by more than 125 corporate customers. We are targeting accounts in the
vertical markets of technology, financial services, telecommunications, retail,
travel and government. We recognize professional services, maintenance and usage
fees ratably over the contractual term, generally twelve months, commencing from
the implementation of service. Payments received prior to service implementation
or providing

11
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ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

maintenance and usage are recorded as deferred revenue and recognized ratably
over the contractual term.

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 distribution
relationships. Cost of revenues for our Business Solutions Group consists
primarily of salaries and related personnel costs and other direct costs to
provide professional services, information and maintenance services to our
corporate customers. Cost of revenues also includes amortization charges related
to certain technology assumed as part of our acquisitions. We believe that
ongoing content development is required to remain competitive, and we expect
that our production and content expenses will continue to increase in the
future.

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. We believe that
continued investment in product development is critical to attaining our
strategic product objectives and, as a result, we expect these expenses to
increase in the future.

Sales and marketing expenses consist primarily of salaries, commissions and
related personnel expenses as well as advertising and promotional expenditures.
We have a direct sales force dedicated to selling our services, which is
supplemented by a number of strategic relationships with sales and
implementation companies. We plan to increase our investments in sales,
marketing, infrastructure and product management in an effort to capture market
share faster.

General and administrative expenses consist primarily of salaries and
related personnel costs and other related costs for general corporate functions,
including executive management, business development, finance, facilities
administration, legal, recruiting and fees for other professional services. We
expect general and administrative expenses to increase in the future as we add
personnel and incur additional costs related to the growth of our business.

Other income includes income on our cash and short-term investments,
partially offset by interest due on our financing obligations.

For the three months ended September 30, 2000, we recorded amortization of
deferred stock compensation expense of $306,000. At September 30, 2000, we had a
total of approximately $993,000 remaining to be amortized over the corresponding
vesting periods of the options, generally four years. Due to the graded vesting
method of amortization, most of the deferred compensation charge will be
incurred over the first two years of the vesting of the options.

Amortization of goodwill relates to various purchase acquisitions, which is
amortized ratably over the estimated economic lives of the respective assets,
generally five years.

We have incurred significant net losses and negative cash flows from
operations since our inception, and at September 30, 2000, we had an accumulated
deficit of approximately $188.2 million. These losses have been funded primarily
through the issuance of preferred and common equity securities, including our
initial public offering in July 1999 and our follow-on offering in March 2000.
We believe that we will continue to incur operating and net losses and negative
cash flows from operations for the foreseeable future.

12
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ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

RESULTS OF OPERATIONS

REVENUES

Revenues were $29.0 million for the three months ended September 30, 2000,
and $6.8 million for the three months ended September 30, 1999. Web Properties
revenues were $15.8 million or 54.5% of total revenues for the three months
ended September 30, 2000 and $4.1 million or 60.3% of total revenues for the
three months ended September 30, 1999. These revenues consisted of $8.0 million
in advertising revenues for the three months ended September 30, 2000, and
$3.9 million for the three months ended September 30, 1999. Electronic commerce
revenues were $2.2 million for the three months ended September 30, 2000, and
$149,000 for the three months ended September 30, 1999. Targeting and
acquisition revenues were $5.6 million for the three months ended September 30,
2000 and $81,000 for the three months ended September 30, 1999. Our reach
extended to 10.9 million unique users in September 2000, as compared with
11.8 million unique users for June 2000. We believe that the difference is due
to normal seasonal factors that we experience during the summer months that
adversely impact traffic. Ask.com ranked as the 19th most visited Web site in
the September 2000 Media Metrix Internet Web properties listing.

Business Solutions revenues were $13.2 million or 45.5% of total revenues
for the three months ended September 30, 2000, and $2.7 million or 39.7% of
total revenues for the three months ended September 30, 1999. These revenues
consisted of $3.7 million in professional services fees for the three months
ended September 30, 2000, and $1.2 million in professional services fees for the
three months ended September 30, 1999. Maintenance and information services
revenues were $9.5 million for the three months ended September 30, 2000 and
$1.5 million for the three months ended September 30, 1999.

For the nine months ended September 30, 2000, revenues were $72.7 million as
compared with $11.1 million for the nine months ended September 30, 1999. Web
Properties revenues were $42.5 million or 58.5% of total revenues for the nine
months ended September 30, 2000 and $6.8 million or 61.3% of total revenues for
the nine months ended September 30, 1999. These revenues consisted of
$26.0 million in advertising revenues for the nine months ended September 30,
2000, and $6.5 million for the nine months ended September 30, 1999. Electronic
commerce revenues were $6.1 million for the nine months ended September 30, 2000
and $150,000 for the nine months ended September 30, 1999. Targeting and
acquisition revenues were $10.4 million for the nine months ended September 30,
2000 and $136,000 for the nine months ended September 30, 1999.

Business Solutions revenues were $30.2 million or 41.5% of total revenues
for the nine months ended September 30, 2000, and $4.3 million or 38.7% of total
revenues for the nine months ended September 30, 1999. These revenues consisted
of $10.8 million in professional services fees for the nine months ended
September 30, 2000, and $1.6 million in professional services fees for the nine
months ended September 30, 1999. Maintenance and information services revenues
were $19.3 million for the nine months ended September 30, 2000 and
$2.7 million for the nine months ended September 30, 1999.

COST OF REVENUES

Cost of revenues for Web Properties was $4.5 million for the three months
ended September 30, 2000 and $1.8 million for the three months ended
September 30, 1999. The increase in cost of revenues is attributed to increased
third-party advertising management fees, revenue sharing costs, hosting costs,

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ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

and additional personnel and related personnel costs associated with developing,
maintaining, analyzing and testing of Ask.com to support the growth in traffic
and the resulting revenues. Cost of revenues for Business Solutions was
$5.8 million for the three months ended September 30, 2000 and $2.1 million for
the three months ended September 30, 1999. The increase in cost of revenues is
attributed to personnel and related personnel costs associated with providing
professional services, information and maintenance services to our customers.
Cost of revenues also includes amortization charges related to assets acquired.
We expect our hosting, third party advertising management fees, content
development and Web site costs will continue to increase to meet the demands for
Web services and to provide additional services to users of our services.

For the nine months ended September 30, 2000, cost of revenues for Web
Properties was $14.2 million as compared with $3.7 million for the nine months
ended September 30, 1999. The increase in cost of revenues is attributable to
increased third-party advertising management fees, revenue sharing costs,
hosting costs, and additional personnel and related personnel costs associated
with developing, maintaining, analyzing and testing of Ask.com to support the
growth in traffic and the resulting revenues. Cost of revenues for Business
Solutions was $15.2 million for the nine months ended September 30, 2000 and
$4.6 million for the nine months ended September 30, 1999. The increase in cost
of revenues is attributable to personnel and related personnel costs associated
with providing professional services, information and maintenance services to
our customers. Cost of revenues also includes amortization charges related to
assets acquired. We expect our hosting, third party advertising management fees,
content development and Web site costs will continue to increase to meet the
demands for Web services and to provide additional services to users of our
services.

PRODUCT DEVELOPMENT EXPENSES

Product development expenses were $6.3 million and $18.6 million for the
three and nine months ended September 30, 2000, respectively, and $2.3 million
and $5.3 million for the three and nine months ended September 30, 1999,
respectively. The increase in expenses resulted from the hiring of additional
personnel and related personnel costs, consultant fees, expenses related to the
design, development, testing and enhancement of our technology and services. We
believe the development of additional features and tools are vital for us to
remain competitive in our industry. We anticipate that we will continue to
devote substantial resources to product development. As a result, these costs
are expected to continue to increase in future periods.

SALES AND MARKETING EXPENSE

Sales and marketing expenses were $20.9 million and $62.4 million for the
three and nine months ended September 30, 2000, respectively, and $10.4 million
and $21.3 million for the three and nine months ended September 30, 1999,
respectively. The increase in expenses is attributable to advertising expenses
related to our branding campaign, the hiring of additional direct sales and
marketing personnel and sales commissions associated with the increase in
revenues. We intend to continue pursuing an aggressive brand-enhancement
strategy, which will include mass market and multimedia advertising, promotional
programs and public relations activities. These costs are expected to continue
to increase in future periods.

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ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $7.5 million and $19.6 million for
the three and nine months ended September 30, 2000, respectively, and
$2.1 million and $4.7 for the three and nine months ended September 30, 1999,
respectively. The increase in expenses is attributable to hiring of additional
personnel and related personnel costs for finance, legal, business development
and internal information systems development and support that has accompanied
the growth of our business, recruiting costs associated with filling key
executive positions and depreciation expense associated with adding property and
equipment. Costs associated with launching our international operations are also
included.

AMORTIZATION OF DEFERRED STOCK COMPENSATION

For the three and nine months ended September 30, 2000, we recorded $306,000
and $1.5 million respectively, in amortization of deferred stock compensation in
connection with the grant of stock options to employees and consultants. This
compares with $696,000 and $1.6 million for the three and nine months ended
September 30, 1999, respectively. 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

For the three and nine months ended September 30, 2000, we recorded
$22.5 million and $60.1 million respectively, in amortization of goodwill,
compared with no amortization for the three and nine months ended September 30,
1999. The increase is due to various acquisitions that took place in the fourth
quarter of 1999 and the first quarter of 2000.

IN-PROCESS RESEARCH AND DEVELOPMENT

For the nine months ended September 30, 1999, we recorded a write-off of
purchased in-process research and development costs of $361,000 in connection
with the acquisition of certain technology that took place in 1999. For the nine
months ended September 30, 2000, we recorded purchased in-process research and
development costs of $11.7 million as a result of acquisitions that took place
in the fourth quarter of 1999 and first quarter of 2000.

OTHER INCOME

Other income was $2.2 million and $4.7 million, respectively, for the three
and nine months ended September 30, 2000 as compared with $777,000 and
$1.3 million, respectively, for the three and nine months ended September 30,
1999. Other income consists primarily of interest income offset partially by
interest expense. Interest income was $2.2 million and $5.2 million for the
three and nine months ended September 30, 2000, respectively, and $841,000 and
$1.4 million for the three and nine months ended September 30, 1999,
respectively. The increase in interest income is attributable to the interest on
proceeds from our equity financings.

RECENT EVENTS

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements," (SAB
101). SAB 101, as amended,

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ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

summarizes certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition and classification in financial statements.
The company is adopting SAB 101 in the fourth quarter of 2000 and does not
expect its adoption to have a material impact on its revenues or results of
operations.

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 Ask.com and DirectHit.com
and on the Web sites of our corporate customers;

- our ability to attract and retain advertisers and our ability to link our
electronic commerce partners to potential customers;

- seasonal and other fluctuations in demand for our electronic commerce
services and for advertising space on Ask.com and DirectHit.com;

- our ability to develop and introduce new technology;

- announcements and new technology introductions by our competitors;

- our ability to attract and retain key personnel;

- costs relating to possible acquisitions and integration of technologies or
businesses;

- rate changes for advertising on Ask.com and DirectHit.com; and

- marketing expenses and technology infrastructure costs as well as other
costs that we may incur as we expand our operations.

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 to make the transition from an emerging
market to a more developed market, seasonal and cyclical patterns are developing
in our industry that may also affect our revenues. For instance, during 2000,
1999 and 1998 traffic levels on Ask Jeeves fluctuated during the summer and
year-end vacation and holiday periods. Similar to traditional media, this may
result in our advertising sales being lower during these periods. In addition,
we believe that sales from electronic commerce will increase during the fourth
quarter as a result of the holiday season and will fluctuate during other
periods. 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.

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ASK JEEVES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations primarily through the
private placement of equity securities and our initial public offering and our
follow-on offering. As of September 30, 2000, we had $133.2 million in cash and
cash equivalents and short-term investments. Net cash used in operating
activities was $37.7 million for the nine months ended September 30, 2000, and
$22.8 million for the nine months ended September 30, 1999. Net cash used in
operating activities for the nine months ended September 30, 2000 resulted
primarily from net losses adjusted for non-cash operating activities and
increases in accounts receivable and accrued merger costs, partially offset by
the timing of accrued compensation and related expenses, deferred revenue and
other accrued liabilities. Net cash used in investing activities was
$4.8 million for the nine months ended September 30, 2000, compared to
$30.0 million for the same period a year ago. Net cash used in investing
activities related to the purchase of investments of $42.1 million and property
and equipment for $10.5 million partially offset by cash acquired by
subsidiaries of $12.6 million and redemptions of investments of $35.1 million
for the nine months ended September 30, 2000. Net cash provided by financing
activities was $124.5 million for the nine months ended September 30, 2000, and
related primarily to net proceeds of $129.3 million from the sale of common
equity securities. Net cash provided by financing activities for the nine months
ended September 30, 1999 was $82.9 million.

We have no material commitments or obligations other than those under
capital and operating leases.

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 services, and our brand
promotions. We have experienced a substantial increase in our expenditures since
our inception consistent with growth in our operations and staffing, and we
anticipate that these expenses will continue for the foreseeable future.
Additionally, we will continue to evaluate possible investments in businesses
and technologies, and we plan to expand our sales and marketing programs and
conduct more aggressive brand promotions.

We currently believe that our available cash resources will be sufficient to
meet our anticipated needs for working capital and capital expenditures for at
least the next twelve months. If 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 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 services, respond to competitive pressures or take
advantage of acquisition opportunities, any of which could have an adverse
impact on 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.

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BUSINESS RISKS

OUR BUSINESS IS EXTREMELY DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS
LIMITED

We were incorporated in June 1996 and launched Ask Jeeves, at Ask.com, our
public Web site, in April 1997. Our business model is constantly evolving.
Because the Internet is constantly evolving, we may need to change our business
model to adapt to those changes.

Any investment in our company must be considered in light of the problems
frequently encountered by companies in new and rapidly evolving markets. To
address the risks we face, we must, among other things:

- maintain and enhance our brand;

- expand our product and service offerings;

- increase the amount of traffic to Ask.com and DirectHit.com;

- increase the number and types of businesses that use our natural language
question answer technologies and services;

- increase the value of our natural language question answer technologies
and services to our users, customers, electronic commerce merchants and
advertisers; and

- attract, integrate, retain and motivate qualified personnel.

We cannot be certain that our business strategy will be successful or that
we will successfully address these risks.

WE HAVE A HISTORY OF NET LOSSES AND EXPECT TO CONTINUE TO INCUR NET LOSSES

We expect to have net losses and negative cash flows for the foreseeable
future. The size of these net losses will depend, in part, on the rate of growth
of our revenues from our advertisers, corporate customers and electronic
commerce merchants 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, enhancement of our natural language
question answer technologies and services and expansion of our other services.
As a result, we expect that our operating expenses will increase significantly
for the foreseeable future. With increased expenses, we will need to generate
significant additional revenues to achieve profitability. Consequently, it is
possible that we may never achieve profitability, and even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future. If we do not achieve or sustain profitability in the
future, then we will be unable to continue our operations.

OUR NATURAL LANGUAGE QUESTION ANSWER TECHNOLOGIES AND SERVICES ARE NOVEL AND
UNPROVEN

We will be successful only if Internet users adopt our natural-language
services and popularity-based searches as their primary method of navigating the
Internet. Internet users have a variety of search techniques, such as search
engines, 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. It is difficult to predict the extent and rate of user adoption of our
natural language question answer technologies and services. We cannot assure you
that widespread acceptance of our services has occurred or will occur. Visitors
to our natural language question answer services may use it once or twice and
then revert to traditional search techniques to navigate the Internet or choose
new search techniques.

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OUR METHODS OF GENERATING REVENUE ARE RELATIVELY NEW AND LARGELY UNTESTED

We generated approximately 27.6%, 32.7%, and 7.6% of our revenues for the
three months ended September 30, 2000 through Internet advertising, licensing to
corporate customers and electronic commerce transaction fees, respectively.
Revenues from Internet advertising will make up a significant amount of our
revenues for the foreseeable future. Since the Internet advertising market is
new and rapidly evolving, we cannot yet gauge its effectiveness as compared to
traditional advertising media. Advertisers that have traditionally relied on
other advertising media may be reluctant to advertise on the Internet believing
that Internet advertising is less effective than traditional advertising media
for promoting their products and services. Consequently, they may allocate only
limited portions of their advertising budgets to Internet advertising. Our
business could be seriously harmed if Internet advertising does not continue to
grow or if we are unsuccessful in increasing our advertising revenues.
Furthermore, we rely on a third-party advertising service, provided by
DoubleClick, Inc., to deliver advertisements to our users. 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.

Furthermore, we expect Business Solutions to constitute a growing percentage
of our revenues. As of September 30, 2000, we had provided question answering
technologies and services to more than 125 companies worldwide. If we cannot
demonstrate to Business Solutions customers that our services increase the rate
at which browsers become purchasers, improve customer satisfaction on their Web
sites and reduce expensive support costs, such as those associated with call
centers, our ability to attract and retain corporate customers may be impaired.

In addition, a portion of our revenues are derived from the facilitation of
electronic commerce transactions. The market for Internet products and services
continues to develop and is rapidly changing. Therefore, the success of our
business depends upon the adoption of the Internet as a medium for commerce by a
broad base of customers. If this market fails to develop or develops more slowly
than expected, or if our electronic commerce services do not achieve market
acceptance, our business may suffer.

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 and are continuing to integrate the
products, services, technologies and personnel from each company into Ask
Jeeves. We may encounter problems associated with the assimilation of these
companies including:

- difficulties in assimilation of acquired personnel, operations,
technologies or products;

- unanticipated costs associated with the acquisitions;

- diversion of management's attention from other business concerns;

- adverse effects on our existing business relationships with our customers;
and

- inability to retain employees of acquired companies.

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 any significant number of employees fails to remain
employed with us, we may experience difficulties in achieving the expected
benefits of the acquisitions.

As part of our business strategy, 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,

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augment our market coverage, enhance our technical capabilities or that may
otherwise offer growth opportunities. These future acquisitions could pose the
same risks to our business posed by our prior acquisitions. In addition, with
future acquisitions, we could use substantial portions of our available cash as
all or a portion of the purchase price. We could also issue additional
securities as consideration for these acquisitions, which could cause our
stockholders to suffer significant dilution.

OUR GROWTH WILL DEPEND ON OUR ABILITY TO DEVELOP OUR BRAND

We believe that broader brand recognition and a favorable consumer
perception of the Ask Jeeves brand are essential to our future success.
Accordingly, we intend to continue pursuing an aggressive brand-enhancement
strategy, which will 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 may not increase. Further, even if the number of new users increases, the
amount of traffic on Ask Jeeves and the number of corporate customers may not
increase sufficiently to justify the expenditures.

TO MANAGE OUR GROWTH, WE NEED TO IMPROVE OUR SYSTEMS, CONTROLS AND PROCEDURES

We have experienced and may continue to experience rapid growth, which has
placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. We expect that the number of our employees,
including management-level employees, will continue to increase for the
foreseeable future. We must continue to improve our operational and financial
systems and managerial controls and procedures, and we will need to continue to
expand, as well as train and manage, our workforce. 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.

WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE AGAINST OUR CURRENT AND POTENTIAL
COMPETITORS

We have a number of competitors for our natural language question answering
technologies and services.

BUSINESS SOLUTIONS GROUP

We compete with a number of companies that are addressing the same need to
improve automated or online customer service for corporate customers. For
example, we compete with companies that provide shopping advisors, such as
Active Research Inc.; automated e-mail response and live interaction, such as
Kana Communications, Inc.; search technology, such as Inktomi Corporation; and
customer relationship management, such as Siebel Systems, Inc.

WEB PROPERTIES GROUP

We face direct competition from companies that provide Internet-wide search
and directory services. For example, we compete with search engines, including
Excite@Home Corporation, Inktomi Corporation, Google Inc. and AltaVista Company,
for the traffic generated by Internet users seeking links to third-party content
to address their online information needs. We also compete with directory
services, such as Yahoo! Inc., Goto.com, Inc. and LookSmart, Ltd. because they
provide alternative ways for users to obtain the desired information.

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.

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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, syndicators and electronic commerce
merchants. 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 INTERNATIONAL SUBSIDIARIES MAY NOT BE SUCCESSFUL

Our wholly owned subsidiary, Ask Jeeves International, Inc., or AJI, was
formed for the purpose of marketing our natural language question answering
technologies and services outside of the United States. AJI has entered into
joint ventures to provide our services in the United Kingdom and Japan and to
the Spanish-speaking market worldwide. This expansion into international markets
will require substantial management attention and financial resources. We cannot
be certain that our investment in AJI and in establishing operations in other
countries will produce the desired levels of revenue. In addition, AJI is
subject to other inherent risks and problems, including:

- the impact of recessions in economies outside the United States;

- 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; and

- difficulty in maintaining effective communications due to distance,
language and cultural barriers.

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 natural language question answering 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;

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- the number of users of our Web sites, Web sites syndicating our services
and the Web sites of our corporate customers;

- our ability to attract and retain advertisers;

- our ability to link our electronic commerce merchants to potential
customers;

- seasonal and other fluctuations in demand for our electronic commerce
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;

- costs relating to possible acquisitions and integration of technologies or
businesses;

- credit risk of Internet companies within our customer base could affect
future financial results;

- 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; and

- the timing of charges related to the acquisitions and any amortization of
expenses related to the acquisitions.

We have experienced lower traffic during the year-end holiday season and a
slower rate of growth 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 average sales cycle for obtaining new corporate
customers has typically ranged from two to 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. In addition we expect our operating expenses to
increase as we expand our engineering, sales and marketing operations, broaden
our customer support capabilities, develop new strategic alliances, fund
increased levels of research and development and build our operational
infrastructure. 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.

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 likely 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.

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 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

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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 if such renewal
contracts are obtained on terms less favorable than the original contract, our
business could be adversely affected.

IMPLEMENTING OUR SERVICES FOR OUR CORPORATE CUSTOMERS IS LABOR INTENSIVE.

Because the implementation of our services is labor intensive, it is
difficult to predict the length of the development cycle. 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. Generally, it takes three to four months to launch a customized version
of our services. 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.

WE DEPEND ON THIRD-PARTY CONTENT.

Ask.com is designed to directly link users to a page within a third-party
Web site that contains the answer to a question asked. However, when Ask.com
attempts 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 Ask.com could significantly decrease, which would seriously
harm our business.

Visitors to Ask.com use the site 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 contained on 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.

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 Ask.com and DirectHit.com.
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 Ask.com,
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.

WE FACE RISKS RELATED TO EXPANDING INTO RELATIVELY NEW SERVICES AND BUSINESS
AREAS.

To increase our revenues, we will need to expand our operations by promoting
new or complementary products and by expanding the breadth and depth of our
services. The expansion of our

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electronic commerce services may strain our management, financial and
operational resources. Our expansion into new product and service offerings may
not be timely or may not generate sufficient revenues to offset their cost. If
this occurs, our business, operating results and financial condition will be
seriously harmed.

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR CHIEF EXECUTIVE OFFICER.

Our future success depends, in part, on the continued service of Robert
Wrubel, our Chief Executive Officer. Mr. Wrubel is not bound by an employment
agreement for any specific term. Our relationship with Mr. Wrubel is at will.
Although we are the beneficiaries of a key person life insurance policy on
Mr. Wrubel's life, the loss of his services would seriously harm our business.

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT, RETAIN AND MOTIVATE HIGHLY
SKILLED EMPLOYEES.

Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in our industry is
intense. Additionally, it is often more difficult to attract employees once a
company's stock is publicly traded because the exercise price of equity awards
such as stock options are based on the public market, which is highly volatile.
We may be unable to attract, assimilate or retain other highly qualified
employees in the future. We have experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications.

THE INTEGRATION OF NEW MANAGEMENT PERSONNEL MAY INTERFERE WITH OUR OPERATIONS

We have recently hired new management personnel, including a new President.
To integrate into Ask Jeeves, these individuals must spend a significant amount
of time learning our business model and management system in addition to
performing their regular duties. Accordingly, the integration of new personnel
has resulted and will continue to result in some disruption to our ongoing
operations.

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;

- 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; and

- privacy concerns, including those related to the ability of Web sites to
gather user information without the user's knowledge or consent.

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 Ask Jeeves and reduced revenues.
We have network and server equipment located at AboveNet, Exodus, Frontier
Global Center and Qwest in various locations throughout California,
Massachusetts and 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.

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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 at Ask Jeeves and undetected software defects. Ask.com
and DirectHit.com have had partial interruptions for periods ranging from a few
minutes to three hours. In addition, Ask.com and DirectHit.com 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 Ask.com and DirectHit.com.
Each of these providers has experienced significant outages in the past and
could experience outages, delays and other 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. 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 and
subject us to litigation. We could be subject to denial of service, vandalism
and other attacks on its 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.

WE MAY NOT BE ABLE TO ADAPT EVOLVING INTERNET TECHNOLOGIES AND CUSTOMER DEMANDS.

To be successful, we must adapt to rapidly changing Internet technologies by
continually enhancing our products and services and introducing new services to
address our customers' changing needs. We could incur substantial development or
acquisition costs if we need to modify our services or infrastructure to adapt
to changes affecting providers of Internet services. Our business could be
seriously harmed if we incur significant costs to adapt to these changes. If we
cannot adapt to these changes, or do not sufficiently increase the features and
functionality of our products and services, our customers may switch to the
product and service offerings of our competitors. Furthermore, our competitors
or potential competitors may develop a novel method of Internet navigation that
is equal or superior to those we offer. As a result, demand for our natural
language question answering technologies and services may decrease.

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

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<PAGE>
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.

WE NEED TO EXPAND OUR SALES AND SUPPORT ORGANIZATIONS.

We will continue to expand our Web Properties sales and Business Solutions
sales operations and marketing efforts to increase market awareness and sales of
our products and services. We will need to increase our staff to support new
customers and the expanding needs of our existing customers. Competition for
highly-qualified sales personnel is intense, and we may not be able to hire the
kind and number of sales personnel we are targeting. 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.

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.

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,
imposes only a three-year moratorium, which commenced October 1, 1998 and ends
on October 21, 2001, 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. It is possible that the
tax moratorium could fail to be renewed prior to October 21, 2001. Failure to
renew this legislation would allow various states to impose taxes on
Internet-based commerce. The imposition of such taxes could seriously harm 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.

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WE MAY FACE POTENTIAL ELECTRONIC COMMERCE-RELATED LIABILITIES AND EXPENSES.

Arrangements with electronic commerce merchants may expose us to legal risks
and uncertainties, including potential claims for liabilities to consumers of
the products and services offered by these electronic commerce merchants.
Although we carry general liability insurance, our insurance may not cover
potential claims of this type or may not be adequate to indemnify us for all
liability that may be imposed.

Some of the risks that may result from these arrangements with businesses
engaged in electronic commerce include:

- potential claims for liabilities for illegal activities that may be
conducted by participating merchants;

- product liability or other tort claims relating to goods or services sold
through third-party commerce sites;

- claims for consumer fraud and false or deceptive advertising or sales
practices;

- breach of contract claims relating to merchant transactions;

- claims that materials included in merchant sites or sold by merchants
through these sites infringe third-party patents, copyrights, trademarks
or other intellectual property rights, or are libelous, defamatory or in
breach of third-party confidentiality or privacy rights; and

- claims relating to any failure of merchants to appropriately collect and
remit sales or other taxes arising from electronic commerce transactions.

Even to the extent that such claims do not result in material liability,
investigating and defending such claims could seriously harm our business. For
example, investigating and defending any such claims may require significant
financial and human resources, may result in negative publicity for our company
and injure our business reputation.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

Third parties may infringe or misappropriate our patents, trademarks or
other proprietary rights, which could have a material adverse effect on our
business. We have applied for a patent on our "Grammar Template Query System"
with the United States Patent and Trademark Office. We have obtained registered
trademark status for "Ask Jeeves" in the United States, Tunisia and Norway. We
have also applied for registered trademark status for "Ask.com," "Ask Jeeves for
Kids," and our logo and service marks in the United States and various foreign
countries. Additionally, in connection with our acquisition of Direct Hit, we
received an assignment of one United States patent issued to Gary Culliss,
Direct Hit's co-founder, Chief Technology Officer and Chairman, covering aspects
of Direct Hit's technology, and three U.S. patent applications covering other
aspects of Direct Hit's technology. We do not know whether we will be able to
defend our proprietary rights since the validity, enforceability and scope of
protection of proprietary rights in Internet-related industries are uncertain
and still evolving. Because we are devoting significant resources to building
our brands, primarily "Ask Jeeves" and "Ask.com," through media advertising
campaigns, if we are unable to register the trade and service marks for which we
have applied, or if we are unable to defend our intellectual property rights,
our business may be seriously harmed.

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<PAGE>
and Boris Katz filed a complaint against us in the United States District Court
for the District of Massachusetts. The complaint alleges that our technology
infringes two patents alleged to be held by the plaintiffs. We have answered the
complaint and discovery has begun. We intend to vigorously defend against the
allegations asserted in these complaints and we believe we have meritorious
defenses to the claims. The results of any litigation matter are inherently
uncertain. In the event of an adverse result in either of these lawsuits, or in
any other litigation with third parties that could arise in the future with
respect to intellectual property rights relevant to our products or services, we
could be required to pay substantial damages, including treble damages if we are
held to have willfully infringed, to cease the use of infringing products or
services, to expend significant resources to develop non-infringing technology
or to attempt to obtain licenses to the infringing technology on commercially
reasonable terms, if at all. In addition, litigation frequently involves
substantial expenditures and can require significant management attention, even
if we ultimately prevail. Accordingly, we cannot assure you that these lawsuits
will not materially and adversely affect our business.

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.

WE MAY NOT BE ABLE TO SECURE ADDITIONAL FINANCING TO MEET OUR FUTURE CAPITAL
NEEDS.

We currently anticipate that our available cash resources will be sufficient
to meet our anticipated needs for working capital and capital expenditures for
at least twelve months. If 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 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 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.

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, in the public market,
the market price of our common stock could fall. In particular, in July 2000,
the lockup agreement executed by several of our affiliates elapsed. Such
stockholders are eligible to sell all vested shares. 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.

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

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<PAGE>
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;

- special meetings of the stockholders may be called only by the chairman of
the board, the chief executive officer or the board; and

- no cumulative voting.

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

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. As of September 30,
2000, there were 3,216,496 shares of common stock reserved for unvested options
granted under this plan. 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.

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<PAGE>
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 Ask Jeeves' common stock may be highly volatile. Ask Jeeves'
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;

- 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 of common stock; 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 Ask Jeeves' common
stock, regardless of Ask Jeeves' 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. This type of litigation, if instituted, could result in
substantial costs and a diversion of management's attention and resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk for interest rate changes relates
primarily to its investment portfolio. The Company had no derivative financial
instruments as of September 30, 2000 or December 31, 1999. The Company places
its investment portfolio in high credit quality instruments and the amount of
credit exposure to any one issue, issuer and type of instrument is limited. The
Company does not expect any material loss with respect to its investment
portfolio.

The Company's investments are principally confined to our cash and cash
equivalents and available-for-sale securities, which have short maturities.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a) EXHIBIT

10.1 Lease Agreement between the Company and Oakland City Center LLC, dated
May 15, 2000 for the Company's site in Oakland, CA

27.1 Financial Data Schedule

b) REPORTS ON FORM 8-K.

We filed an amendment dated August 11, 2000 to our Amended Current Report on
8-K/A filed April 11, 2000 to include the Supplemental Consolidated Financial
Statements required under the report for our acquisition of Direct Hit
Technologies, Inc.

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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.

<S> <C>
ASK JEEVES, INC.

November 14, 2000 By: /s/ Robert W. Wrubel
-------------------------------------------
Robert W. Wrubel
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)

November 14, 2000 By: /s/ Adam P. Klein
-------------------------------------------
Adam P. Klein
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)

November 14, 2000 By: /s/ Christine M. Davis
-------------------------------------------
Christine M. Davis
VICE PRESIDENT AND CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>

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EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
10.1 Lease Agreement between the Company and Oakland City Center
LLC, dated May 15, 2000 for the Company's site in Oakland,
CA

27.1 Financial Data Schedule
</TABLE>