<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                                 ---------------

                                    FORM 10-Q

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

                 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2002

            [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                 OF THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE TRANSITION PERIOD FROM ___ TO ____

              ----------------------------------------------------
                        COMMISSION FILE NUMBER 000-26671

                                  ENGAGE, INC.
             (Exact Name of Registrant as Specified in Its Charter)

               DELAWARE                                       04-3281378
    (State or Other Jurisdiction of                       (I.R.S. Employer
    Incorporation or Organization)                        Identification No.)

100 BRICKSTONE SQUARE, ANDOVER, MASSACHUSETTS                   01810
   (Address of Principal Executive Offices)                   (Zip Code)

                                 (978) 684-3884
              (Registrant's Telephone Number, Including Area Code)

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

Yes [X]  No [ ]

The number of shares outstanding of the registrant's Common Stock as of December
8, 2002 was 48,237,119.
<PAGE>
                                  ENGAGE, INC.

                                    FORM 10-Q

                     FOR THE QUARTER ENDED OCTOBER 31, 2002

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                                               PAGE
                                                                                                                               ----
<S>                                                                                                                         <C>
PART I.   FINANCIAL INFORMATION
Item 1.   Consolidated Financial Statements
a)        Consolidated Balance Sheets as of July 31, 2002 and October 31, 2002 (unaudited) .................................     3
b)        Consolidated Statements of Operations (unaudited) for the three months ended October 31, 2001 and 2002 ...........     4
c)        Consolidated Statements of Cash Flows (unaudited) for the three months ended October 31, 2001 and 2002 ...........     5
d)        Notes to Interim Consolidated Financial Statements ...............................................................     6
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations ............................    13
Item 3.   Quantitative and Qualitative Disclosures About Market Risk .......................................................    20
Item 4.   Controls and Procedures ..........................................................................................    20
PART II.  OTHER INFORMATION
Item 2.   Changes in Securities and use of Proceeds ........................................................................    21
Item 6.   Exhibits and Reports on Form 8-K .................................................................................    21
SIGNATURES
CERTIFICATIONS
</TABLE>

                                       2
<PAGE>
                                  ENGAGE, INC.
                           CONSOLIDATED BALANCE SHEETS

                        (IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>                                                                                              JULY 31,        OCTOBER 31,
                                                                                                         2002             2002
                                                                                                     -----------      -----------
                                                                                                                      (UNAUDITED)
<S>                                                                                                  <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents ...................................................................     $    17,719      $     8,203
   Accounts receivable, less allowance for doubtful accounts of $1,068 and $869 at
     July 31, 2002 and October 31, 2002, respectively ..........................................           3,006            2,444
   Unbilled accounts receivable ................................................................             690              918
   Prepaid expenses and other current assets ...................................................           1,615            2,324
   Current assets of discontinued operations ...................................................              30               30
                                                                                                     -----------      -----------
        Total current assets ...................................................................          23,060           13,919

Property and equipment, net ....................................................................           3,919            2,960
Other assets ...................................................................................              60               23
Non-current assets of discontinued operations ..................................................             108               67
                                                                                                     -----------      -----------
      Total assets .............................................................................     $    27,147      $    16,969
                                                                                                     ===========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Current portion of obligation under capital lease ...........................................     $       295      $       295
   Debt to CMGI ................................................................................          61,691               --
   Accounts payable ............................................................................           3,357            1,872
   Due to CMGI affiliates ......................................................................           2,710               --
   Accrued expenses ............................................................................          12,364            9,030
   Deferred revenue ............................................................................           2,335            2,010
                                                                                                     -----------      -----------
      Total current liabilities ................................................................          82,752           13,207

Deferred revenue ...............................................................................              29               --
Long-term debt to CMGI, net of discount ........................................................              --            1,321
Other long-term liabilities ....................................................................             388               88
                                                                                                     -----------      -----------
      Total liabilities ........................................................................          83,169           14,616
                                                                                                     -----------      -----------

Commitments and contingencies

Stockholders' equity (deficit):
   Preferred stock, $.01 par value, 5,000 shares authorized, 0 shares issued and
        outstanding at July 31, 2002 and October 31, 2002, respectively ........................              --               --
   Common stock, $.01 par value, 350,000 shares authorized, 196,062 and 48,237 shares issued and
        outstanding at July 31, 2002 and October 31, 2002, respectively ........................           1,961              482
   Additional paid-in capital ..................................................................       3,684,066        3,748,574
   Deferred compensation .......................................................................          (1,062)            (806)
   Accumulated other comprehensive loss ........................................................            (646)            (584)
   Accumulated deficit .........................................................................      (3,740,341)      (3,745,313)
                                                                                                     -----------      -----------
      Total stockholders' equity (deficit) .....................................................         (56,022)           2,353
                                                                                                     -----------      -----------
      Total liabilities and stockholders' equity (deficit) .....................................     $    27,147      $    16,969
                                                                                                     ===========      ===========
</TABLE>


      See accompanying notes to interim consolidated financial statements.


                                       3
<PAGE>
                                  ENGAGE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE THREE MONTHS ENDED OCTOBER 31, 2001 AND 2002
                                   (UNAUDITED)

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                      2001           2002
                                                                    ---------      ---------
<S>                                                                <C>            <C>
Revenue:
   Product revenue ............................................     $     986      $   1,110
   Product revenue, related parties ...........................            26             --
   Services and support revenue ...............................         5,380          2,620
   Services and support revenue, related parties ..............           266             --
                                                                    ---------      ---------
      Total revenue ...........................................         6,658          3,730
                                                                    ---------      ---------
Cost of revenue:
   Cost of product revenue ....................................          (142)           172
   Cost of services and support revenue .......................         4,821          2,504
   Amortization of developed technology .......................         1,458             --
                                                                    ---------      ---------
      Total cost of revenue ...................................         6,137          2,676
                                                                    ---------      ---------
         Gross profit .........................................           521          1,054
                                                                    ---------      ---------

Operating expenses:
   Research and development ...................................         2,419          1,282
   Selling and marketing ......................................         3,264          2,689
   General and administrative .................................         2,636          1,752
   Amortization of goodwill and other intangibles .............         5,866             --
   Restructuring costs, net ...................................           975            241
   Stock compensation .........................................           362            234
                                                                    ---------      ---------
      Total operating expenses ................................        15,522          6,198
                                                                    ---------      ---------
         Operating loss .......................................       (15,001)        (5,144)

Other income (expense):
   Interest income ............................................           243             48
   Interest expense ...........................................          (406)          (523)
   Minority interest ..........................................            93             --
   Other income (expense), net ................................           161            (90)
                                                                    ---------      ---------

      Loss from continuing operations .........................       (14,910)        (5,709)

Income from discontinued operations ...........................            --            737
                                                                    ---------      ---------

Net loss ......................................................     $ (14,910)     $  (4,972)
                                                                    =========      =========

Basic and diluted net income (loss) per share data:

Continuing operations .........................................     $   (0.08)     $   (0.05)
Discontinued operations .......................................            --           0.01
                                                                    ---------      ---------
Basic and diluted net loss per share ..........................     $   (0.08)     $   (0.04)
                                                                    =========      =========

Weighted average number of basic and diluted shares outstanding       196,615        112,507
                                                                    =========      =========
</TABLE>


      See accompanying notes to interim consolidated financial statements.



                                       4
<PAGE>
                                  ENGAGE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS\
              FOR THE THREE MONTHS ENDED OCTOBER 31, 2001 AND 2002
                                   (UNAUDITED)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       2001          2002
                                                                                     --------      --------
<S>                                                                                  <C>           <C>
Cash flows from operating activities:
   Net loss ....................................................................     $(14,910)     $ (4,972)
   Income from discontinued operations .........................................           --           737
                                                                                     --------      --------
   Loss from continuing operations .............................................      (14,910)       (5,709)
   Adjustments to reconcile net loss to net cash used for operating activities:
      Depreciation and amortization ............................................        8,220           790
      Provision for bad debts ..................................................           89            --
      Stock compensation .......................................................          362           234
      Amortization of discount on long-term debt to CMGI .......................           --            16
      Loss on disposal of business .............................................           --            81
      Loss on disposal of property and equipment ...............................          277             8
      Minority interest ........................................................           93            --
      Changes in operating assets and liabilities:
         Accounts receivable and unbilled accounts receivable ..................        1,032           334
         Prepaid expenses and other current assets and other assets ............        4,357          (676)
         Due to CMGI and affiliates ............................................        3,923            65
         Accounts payable ......................................................       (1,454)       (1,485)
         Accrued expenses ......................................................      (17,640)       (1,303)
         Deferred revenue ......................................................       (2,406)           88
                                                                                     --------      --------
            Net cash used for continuing operations ............................      (18,057)       (7,557)
            Net cash provided by discontinued operations .......................        7,430           778
                                                                                     --------      --------
            Net cash used for operating activities .............................      (10,627)       (6,779)
                                                                                     --------      --------

Cash flows from investing activities:

   Purchases of property and equipment .........................................         (282)          (57)
                                                                                     --------      --------
      Net cash used for investing activities ...................................         (282)          (57)
                                                                                     --------      --------

Cash flows from financing activities:

   Net change in debt to CMGI ..................................................        8,000            --
   Proceeds from issuance of common stock, net of issuance costs and repurchases           25             1
   Payments in settlement of CMGI transaction ..................................           --        (2,711)
   Repayment of capital lease obligations ......................................         (146)           --
                                                                                     --------      --------
      Net cash provided by (used for) financing activities .....................        7,879        (2,710)
                                                                                     --------      --------

Effect of exchange rate changes on cash and cash equivalents ...................         (218)           30
                                                                                     --------      --------

Net decrease in cash and cash equivalents ......................................       (3,248)       (9,516)

Cash and cash equivalents, beginning of period .................................       33,261        17,719
                                                                                     --------      --------

Cash and cash equivalents, end of period .......................................     $ 30,013      $  8,203
                                                                                     ========      ========

Supplemental disclosures of cash flow information:

        Cash paid for interest .................................................     $     28      $     --
                                                                                     ========      ========
</TABLE>


      See accompanying notes to interim consolidated financial statements.



                                       5
<PAGE>
                                  ENGAGE, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

A. BASIS OF PRESENTATION

      The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, these unaudited consolidated financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of our management, the accompanying consolidated financial
statements contain all adjustments, consisting only of those of a normal
recurring nature, necessary for a fair presentation of our financial position,
results of operations and cash flows at the dates and for the periods indicated.
While we believe that the disclosures presented are adequate to make the
information not misleading, these consolidated financial statements should be
read in conjunction with the audited financial statements and related notes for
the year ended July 31, 2002 which are contained in our Annual Report on Form
10-K filed with the Securities and Exchange Commission (the "SEC") on November
13, 2002. The results for the three month period ended October 31, 2002 are not
necessarily indicative of the results to be expected for the full fiscal year.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Revenue Recognition

      Effective August 1, 1998, we adopted the provisions of SOP 97-2, Software
Revenue Recognition. Revenue from software product licenses is generally
recognized when (i) a signed noncancelable software license or purchase order
exists, (ii) delivery has occurred, (iii) our fee is fixed or determinable, and
(iv) collectibility is probable.

      For multiple element arrangements involving our software, services and
support elements, we recognize revenue in accordance with SOP 98-9, Software
Revenue Recognition with Respect to Certain Arrangements, when vendor-specific
objective evidence of fair value does not exist for the delivered element. As
required by SOP 98-9, under the residual method, the fair value of the
undelivered elements are deferred and subsequently recognized. Revenue from
agreements that require significant customizations and modifications to the
software product is deferred and recognized using the percentage of completion
method with labor hours used as a measure of progress towards completion. For
license arrangements involving significant customizations for which the amount
of customization effort cannot be reasonably estimated or when license
arrangements provide for customer acceptance, we recognize revenue under the
completed contract method of accounting.

      We recognize revenue from periodic subscriptions ratably over the
subscription term, typically twelve months. We recognize revenue from
usage-based subscriptions monthly based on actual usage.

      Our service and support revenue includes revenue from software maintenance
and other professional services, primarily from consulting, implementation and
training. We defer revenue from software maintenance and recognize it ratably
over the term of each maintenance agreement, which is typically twelve months.
We recognize revenue from professional services as the services are performed.

      Revenue recognized on transactions whereby we exchange products and/or
services in return for equity instruments is valued when a contract is signed,
signaling a mutual understanding of the terms of the equity based compensation
and a commitment of performance on our behalf to earn the equity instruments.
Revenue under such arrangements is recognized in accordance with the revenue
recognition policies stated above.

      Amounts collected prior to satisfying the above revenue recognition
criteria are classified as deferred revenue.

     Discontinued Operations

      In April 2001, we announced the sale of certain assets of our wholly-owned
subsidiary, Internet Profiles Corporation ("I/PRO"). In September 2001, we
announced the sale of certain assets of our AdKnowledge media service and the
shutdown of our media network, both of which, combined with I/PRO, comprised our
Media segment. Our media operations ceased in October 2001. Income from
discontinued operations for the three months ended October 31, 2002 is the
result of accounts receivable collections in excess of original estimates made
at the time we discontinued the operations of our Media segment. The Media
segment has been accounted for as a discontinued operation. Accordingly, the
Media segment's current and non-current assets have been segregated from
continuing operations in the accompanying consolidated balance sheet, and its
operating results have been segregated and reported as discontinued operations
in the accompanying consolidated statements of operations and cash flows, and
related notes. No


                                       6
<PAGE>

                                  ENGAGE, INC.
         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


material liabilities associated with discontinued operations were assumed by a
third party.

      Current assets of discontinued operations consists of the following:

<TABLE>
<CAPTION>
                                                                                                  JULY 31,    OCTOBER 31,
                                                                                                    2002         2002
                                                                                                 ----------   -----------
                                                                                                      (IN THOUSANDS)
<S>                                                                                              <C>          <C>
Other current assets.........................................................................         $30           $30
                                                                                                      ===           ===
</TABLE>


     Non-current assets of discontinued operations consists of the following:

<TABLE>
<CAPTION>
                                                                                                     JULY 31,    OCTOBER 31,
                                                                                                       2002          2002
                                                                                                    ----------   -----------
                                                                                                         (IN THOUSANDS)
<S>                                                                                                 <C>          <C>
Property and equipment, net of accumulated depreciation and amortization.....................         $ 60            $19
Other assets.................................................................................           48             48
                                                                                                      ----            ---
         Total non-current assets of discontinued operations.................................         $108            $67
                                                                                                      ====            ===
</TABLE>



      Net Loss per Share

      We calculate earnings per share in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share." Basic earnings per
share is computed based on the weighted average number of common shares
outstanding during the period. The dilutive effect of common stock equivalents
are included in the calculation of diluted earnings per share only when the
effect of their inclusion would be dilutive.

      The following tables presents pro forma earnings per share had the
transaction with CMGI been completed as of the date of the beginning of each
period presented and the shares held by CMGI had been retired:


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                       -------------------------------------
                                                       OCTOBER 31, 2001     OCTOBER 31, 2002
                                                       ----------------     ----------------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                    <C>                   <C>
NUMERATOR:
Net loss...........................................        $(14,910)             $ (4,972)
DENOMINATOR:
Weighted average shares outstanding................          46,852                48,227
                                                           --------              --------
Basic and diluted net loss per share...............        $  (0.32)             $  (0.10)
                                                           ========              ========
</TABLE>


      At October 31, 2002, we had outstanding stock options to purchase
5,187,174 shares of common stock at a weighted average exercise price of $2.93
that could potentially dilute earnings per share, including 250,000 stock
options at a weighted average exercise price of $0.06 that were in-the-money.
The dilutive effect of the exercise of these options has been excluded from the
computation of diluted net loss per share, as the effect would have been
antidilutive for the periods presented.

      New Accounting Pronouncement

      In November 2002, the Financial Accounting Standards Board Released FASB
Interpretation No. 45 Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45").
FIN 45 elaborates on the disclosure requirements by a guarantor about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. FIN 45 is effective on a prospective basis to guarantees issued or
modified after December 31, 2002, with the disclosure requirements effective for
financial statements of interim or annual periods ending after December 15,
2002. We do not believe that the adoption of FIN 45 will have a material impact
on our financial position, results of operations and cash flow.

C. TRANSACTION WITH CMGI

      In September 2002, we completed a transaction with CMGI Inc., ("CMGI")
pursuant to which all outstanding debt to CMGI ($64.5 million) was cancelled and
all of CMGI's equity holdings in Engage (148,417,801 shares of common stock)
were transferred back to Engage and cancelled. In exchange, we paid $2.5 million
in cash to CMGI, signed a $2.0 million non-interest bearing secured promissory
note due in September 2006 that is secured by the assets of the Company, and
issued a warrant to CMGI to purchase up to 9.9% of our outstanding common stock
at the time of exercise at an exercise price of $.048 per share. The warrant
expires the earlier of the date of a sale of Engage, or September 2009.
Additionally, we agreed to pay CMGI up to an additional $6.0 million in future
earn-out payments based upon our quarterly operating income (defined as Engage's
operating income/loss plus the sum of (i) amortization expense and impairment
charges and (ii) amortization of stock-based compensation, as reported in our
consolidated financial statements for the fiscal quarter in question included in
the applicable quarterly or annual (as applicable) report filed with the


                                       7
<PAGE>
                                  ENGAGE, INC.
         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


Securities and Exchange Commission for such quarter) starting with the first
quarter of fiscal 2004 (the quarter ending October 31, 2003). Under the terms of
the earn-out payment and promissory note, if earn-out payments exceed $4.0
million, amounts due under the $2.0 million promissory note will be cancelled
for each dollar of earn-out over the $4.0 million, such that if total earn-out
payments reach $6.0 million, the promissory note will be cancelled in full.

      Additionally, under the agreement, the parties have amended the Company's
sublease of office space from CMGI. Under the original sublease, we were
obligated through October 2007 for approximately 103,000 square feet in our
Andover, Massachusetts headquarters. Under the terms of the amended sublease, we
rent approximately 36,000 square feet from CMGI through December 2002. We may
extend this arrangement with written notification to CMGI. During the year ended
July 31, 2002, we had accrued estimated net future lease and occupancy costs for
certain facilities within the 103,000 square foot sublease that were no longer
occupied by us. The accrual was based upon total future lease costs under the
facility lease, less estimated proceeds from possible subleasing arrangements
that we may have been able to enter into during future periods. As a result of
the transaction entered into with CMGI, the future costs associated with this
accrual will not be paid, and as such, we have reversed approximately $2.3
million of the remaining unused portion of this accrual to additional paid-in
capital. In addition, we had amounts recorded in other long-term liabilities
related to an adjustment to recognize rent expense under this sublease on a
straight-line basis over the term of the lease as compared to recognizing the
amount paid in each period as per the lease agreement. This transaction also
eliminated the requirement for this accrual. As such have recorded an increase
in additional paid-in capital of approximately $308,000.

      The warrants issued in this transaction have been valued using a
Black-Scholes option pricing model, with the fair value of the warrants
calculated at approximately $0.028 per share. Assumptions used in this valuation
are as follows: volatility of 160%; risk-free interest rate of 3.5%; expected
life of 7.0 years; and 0% dividend yield.

      In accordance with Accounting Principles Board Opinion No. 26, Early
Extinguishment of Debt, the resulting gain from this transaction as been
recorded as a capital contribution, and as such, has been included in additional
paid-in capital. The total gain under this transaction, including amounts
discussed above, offset somewhat by costs associated with the transaction, was
approximately $71.4 million.

      As a result of the change in ownership, the utilization of the federal and
state tax net operating loss carryforwards of the Company will be severely
limited pursuant to Internal Revenue Code Section 382.

      In connection with the transaction we also entered into a Transition
Services Agreement with CMGI, in which CMGI will provide certain services and
technology during a defined transition period. All services and technology are
being offered to Engage at current market rates for similar services and
technology.

D. DIVIDEND TO CMGI

      In April 2000, we completed our acquisition of Adsmart Corporation
("Adsmart"), a majority-owned subsidiary of CMGI, and Flycast Communications
Corporation ("Flycast"), a wholly-owned subsidiary of CMGI, pursuant to an
Agreement and Plan of Merger and Contribution, dated as of January 19, 2000 (the
"Merger Agreement"). Under the terms of the Merger Agreement, upon the exercise
of CMGI options by former Flycast employees, CMGI was obligated to pay us the
exercise price of the related CMGI options issued to the former Flycast
employees as part of CMGI's acquisition of Flycast. Additionally, in the event
that former Flycast employees terminated their employment with us, their
unexercised CMGI options were cancelled and CMGI was obligated to return Engage
common shares to us based on the number of CMGI options cancelled multiplied by
the exchange ratio as defined in the Merger Agreement. Engage common shares
returned to us were valued based upon the per share value originally used to
record the non-cash dividend to CMGI. Any cash or Engage common shares returned
to us were treated as a reduction to the previously recorded dividend to CMGI.
In connection with our transaction with CMGI in September 2002 (see Note C), all
Engage shares held by CMGI were returned to us; accordingly, no additional
shares will be due from CMGI under the Merger Agreement.

E. COMPREHENSIVE LOSS

      The components of comprehensive loss include net loss, the net change in
foreign currency translation adjustments and unrealized holding gains and losses
on available-for-sale securities.


                                       8
<PAGE>
                                  ENGAGE, INC.
         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


      The components of comprehensive loss, net of income taxes, are as follows:


<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED
                                                                      OCTOBER 31,
                                                                -----------------------
                                                                  2001           2002
                                                                ---------      --------
                                                                     (IN THOUSANDS)
<S>                                                              <C>           <C>
Net loss ...................................................     $(14,910)     $ (4,972)
Foreign currency adjustments ...............................         (114)           26
Net unrealized holding gain (loss) arising during the period          (45)           36
                                                                 --------      --------
     Comprehensive loss ....................................     $(15,069)     $ (4,910)
                                                                 ========      ========
</TABLE>


F. NON-CASH TRANSACTIONS

      During both the three months ended October 31, 2001 and 2002, as the
result of the termination of employment of certain employees prior to the
vesting of their stock options, unvested stock options for which deferred
compensation costs had been recorded in a prior period were cancelled. As a
result of these cancellations, we have recorded a reduction of $35,000 and
$22,000 in both deferred compensation and additional paid-in capital in the
three months ended October 31, 2001 and 2002, respectively.

      During the three months ended October 31, 2001, as a result of the
termination of employment of former Flycast employees, non-cash financing
activities included the return of shares of Engage common stock previously
issued to CMGI as part of our acquisition of Flycast Communications Corporation.
As a result, we have recorded a reduction of additional paid-in capital and
dividend to CMGI (included within accumulated deficit) of approximately $56.8
million in the three months ended October 31, 2001

      During the three months ended October 31, 2001, approximately $44.1
million in amounts payable to CMGI were formally converted to secured debt to
CMGI (see Note H).

G. STOCK COMPENSATION

      Had we recorded stock compensation expense within the functional
departments of the employee or director, stock compensation would have been
allocated as follows:


<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED
                                                   OCTOBER 31,
                                                -----------------
                                                2001         2002
                                                ----         ----
                                                 (IN THOUSANDS)
<S>                                            <C>          <C>
             Cost of revenue ...............    $111         $ 83
             Research and development.......     103           82
             Selling and marketing..........     130           67
             General and administrative.....      18            2
                                                ----         ----
                Total ......................    $362         $234
                                                ====         ====
</TABLE>

H. DEBT TO CMGI

      In October 2001, CMGI agreed to loan us $8.0 million under a secured
convertible demand note payable bearing interest at 7.5%. Under the terms of the
note payable, principal was to become due and payable on demand any time on or
after August 1, 2002. Interest was compounded and payable quarterly in arrears
on October 31, January 31, April 30 and July 31 of each year until the note was
paid in full. Interest payments for the quarters ending October 31, 2001,
January 31, 2002, April 30, 2002 and July 31, 2002 were deferred and became
payable on August 1, 2002. The note plus accrued interest was convertible, at
CMGI's election, into our common stock at a conversion price of $0.25 per share.
In addition, the note contained an anti-dilution provision whereby the
conversion price was to be adjusted downward if we were to issue any shares of
common stock at a price per share less than the then current market price.
Pursuant to Nasdaq requirements, by written consent dated February 28, 2002,
CMGI, our majority stockholder, approved the issuance of our common stock that
may have been issued upon the conversion of this note. The note was
collateralized by substantially all of our assets. This note was cancelled in
connection with the transaction with CMGI completed in September 2002 (see Note
C).


                                       9
<PAGE>
                                  ENGAGE, INC.
         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


      In October 2001, we also restructured our outstanding amounts payable to
CMGI into a secured promissory note payable in the amount of $42.7 million
bearing interest at 7.5%. Under the terms of the note payable, principal became
due and payable on demand any time on or after August 1, 2002. The note was
collateralized by substantially all of our assets. Interest was compounded and
payable quarterly in arrears on October 31, January 31, April 30 and July 31 of
each year until the note was paid in full. Interest payments for the quarters
ending October 31, 2001, January 31, 2002, April 30, 2002 and July 31, 2002 were
deferred and became payable on August 1, 2002. This note was cancelled in
connection with the transaction with CMGI completed in September 2002 (see Note
C).

      In October 2001, CMGI and Engage agreed to structure any intercompany debt
incurred by us subsequent to October 1, 2001 through July 31, 2002 under a
secured convertible promissory note bearing interest at 7.5%. This note was
amended in February 2002. Under the terms of the promissory note, principal
became due and payable on demand any time on or after August 1, 2002. Interest
was compounded monthly and payable quarterly in arrears on October 31, January
31, April 30 and July 31 of each year until the note is paid in full. Interest
payments for the quarters ending October 31, 2001, January 31, 2002, April 30,
2002 and July 31, 2002 were deferred and became payable on August 1, 2002. The
principal and/or interest of the intercompany debt incurred each calendar month
under the note was convertible, at CMGI's election, into our common stock at a
conversion price equal to the closing price of our common stock on the last
trading day of such calendar month. The note was collateralized by substantially
all of our assets. This note was cancelled in connection with the transaction
with CMGI completed in September 2002 (see Note C).

I. LEASES

      We have entered into noncancelable operating leases covering certain of
our office facilities and equipment which expire through 2005. We also sublease
office facilities used as our headquarters from CMGI for which we are charged
based upon a fixed rent (see Note C).

      Minimum annual rental commitments, including amounts due to CMGI under
subleasing arrangements, are as follows at October 31, 2002:

<TABLE>
<CAPTION>
                                                                      OPERATING
                                                                       LEASES
                                                                       ------
                                                                    (IN THOUSANDS)
<S>                                                                <C>
2003 (remaining nine months).......................................     $  773
2004...............................................................        801
2005...............................................................        150
                                                                        ------
                                                                        $1,724
                                                                        ======
</TABLE>


J. RELATED PARTY TRANSACTIONS

      We outsourced data center operations from companies in which CMGI has a
significant ownership interest. Total cost of revenue, included within both
continuing and discontinued operations, related to outsourcing from related
parties for the three months ended October 31, 2001 was approximately $650,000.
No costs from outsourced data center operations from related parties were
incurred in the three months ended October 31, 2002.

K. RESTRUCTURING

      In the first quarter of fiscal 2002, we implemented a restructuring plan
designed to reduce corporate overhead costs by reducing the size of the
company's finance and marketing staffs, as well as several senior management
positions. In addition, the plan included a reduction in the Company's research
and development, operations and professional services groups. As a result, our
total workforce was reduced by approximately 60 persons or approximately 22% of
our worldwide headcount. The reduction in corporate overhead costs and research
and development staffs reflected a decrease in staffing needs due to the closing
of our Media segment during the first quarter of fiscal 2002. The reduction in
our operations and professional services groups reflected a downsizing due to
expectations about the continued weakness in demand for our products and
services in the immediate future. The total restructuring charge of $975,000 for
the three months ended October 31, 2001 related to the severance and applicable
payroll taxes for employees terminated under the restructuring plan.


                                       10
<PAGE>
                                  ENGAGE, INC.
         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


     In the first quarter of fiscal 2003, we recorded an adjustment of
approximately $241,000 to the restructuring charge we recorded in the fourth
quarter of fiscal 2002. The adjustment was the result of severance payments to
terminated employees exceeding original estimates. Additionally, as the result
of the sale of our Internet advertising business, we reduced the accrual for our
restructuring charge recorded in the fourth quarter of fiscal 2002 by $188,000
for severance costs that we are no longer required to pay due to continuing
employment within the acquiring company. The resulting reduction in costs has
been recorded within the loss on disposal of the related business.

     The following table sets forth a summary of the balance of our
restructuring reserve as of October 31, 2002 (in thousands):


<TABLE>
<CAPTION>
                                                             FUTURE
                                              SEVERANCE   LEASE COSTS     TOTAL
                                              ---------   -----------     -----
<S>                                           <C>          <C>          <C>
       Reserve balance at July 31, 2002 ..     $ 1,107      $    55     $ 1,162
       Adjustment to Q4 2002 Restructuring          53           --          53
       Cash charges ......................      (1,110)          --      (1,110)
                                               -------      -------     -------
       Reserve balance at October 31, 2002     $    50      $    55     $   105
                                               =======      =======     =======
</TABLE>

      All restructuring charges incurred in the first quarter of fiscal 2002 and
2003 were cash charges.

L. CONSOLIDATION OF ENGAGE JAPAN

      In November 2001, we increased our ownership percentage in Engage Japan,
Inc. from 66.6% to 94.0% through the issuance of 1,000,000 shares of common
stock valued at $250,000 to Sumitomo Corporation, a minority stockholder in
Engage Japan, Inc. In conjunction with this transaction, we recorded a
reclassification of $6.8 million from minority interest to additional paid-in
capital to reflect the incremental change in ownership interest.

      As of April 2002, we had ceased the operations of Engage Japan, Inc. We
intend to service the Japanese market through both our US and foreign
subsidiaries. As part of the transaction, we have entered into an arrangement
with Sumitomo Corporation through April 2003 whereby we will pay them a 50%
royalty on qualifying software sales made by Engage in Japan until an aggregate
of $350,000 has been paid to Sumitomo, at which point a 25% royalty will be
paid. Such payments will be recorded as a component of cost of product revenue.
No royalty costs were incurred under this arrangement during the three months
ended October 31, 2002.

M. SALE OF INTERNET ADVERTISING BUSINESS

      In October 2002, we consummated a transaction whereby we sold
substantially all of the assets (excluding accounts receivable) of our Internet
advertising business to Accipiter Solutions, Inc. ("Accipiter Solutions"), a
company formed by certain former employees of our Internet advertising business
unit. As part of the transaction, Accipiter Solutions issued us a warrant to
purchase up to 10% of the shares of Accipiter Solutions' common stock
outstanding at the time of exercise, assumed certain liabilities of ours and
agreed to pay us up to $500,000 in the form of future earn-out payments.
Additionally, in exchange for the assumption of certain of our liabilities, we
paid $500,000 to Accipiter Solutions. As a result of this transaction, we
recognized a loss of approximately $81,000 during the three months ended October
31, 2002. No value has been assigned to the warrants or the future earn-out
payments in determining the loss from this transaction, our estimate of their
fair value is zero.

N. LEGAL PROCEEDINGS

      On or about September 6, 2001, the first of several putative class action
complaints was filed in the United States District Court for the Southern
District of New York naming us, several of our present and former officers and
directors and the underwriters for our July 20, 1999 initial public offering as
defendants. Purportedly filed on behalf of those persons who purchased our
common stock between July 19, 1999 and December 6, 2000, the complaints allege
violations of the Securities Act of 1933 and the Securities Exchange Act of
1934.

      Specifically, the complaints each allege that the defendants failed to
disclose "excessive commissions" purportedly solicited by and paid to the
underwriter defendants in exchange for allocating shares of our stock to
preferred customers and alleged agreements among the underwriter defendants and
preferred customers tying the allocation of IPO shares to agreements to make
additional aftermarket purchases at pre-determined prices. Plaintiffs claim that
the failure to disclose these alleged arrangements made our


                                       11
<PAGE>
                                  ENGAGE, INC.
         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


prospectus incorporated in our registration statement on Form S-1 filed with the
SEC in July 1999 materially false and misleading. Plaintiffs seek unspecified
damages.

      By order dated January 15, 2002, the District Court consolidated the
foregoing actions. On April 19, 2002, the plaintiffs filed a Consolidated
Amended Class Action Complaint.

      Motions to dismiss the Consolidated Class Action Complaint have been filed
on behalf of the underwriter defendants and the issuer defendants.

      We believe that these allegations are without merit and we intend to
vigorously defend against the plaintiffs' claims. As the litigation is in an
initial stage, we are not able at this time to estimate the possibility of loss
or range of loss, if any, that might result.

      On February 26, 2002, a putative class action lawsuit was filed in the
Court of Chancery of the State of Delaware in New Castle County naming Engage,
each member of our Board of Directors, and CMGI, our majority stockholder, as
defendants. The suit alleges that CMGI manipulated Engage to enter into
transactions that unfairly favor CMGI and that CMGI and Engage's directors have
breached their respective fiduciary duties to Engage and Engage's minority
stockholders by: (i) approving and entering into certain secured convertible
notes that Engage issued to CMGI in October 2001 on terms that were unfair to
Engage and Engage's minority stockholders; (ii) approving and recommending to
Engage stockholders the approval of a proposal in our Proxy Statement dated
February 20, 2002 (the "Proxy Statement") relating to the potential issuance of
our common stock in connection with conversion of these notes; and (iii)
approving and soliciting the approval of Engage stockholders of the proposals in
the Proxy Statement relating to three proposed reverse stock splits of our
common stock in order to avoid delisting from Nasdaq. The suit also alleges that
certain disclosures in the Proxy Statement with respect to the foregoing
proposals were materially misleading and incomplete.

      Plaintiffs seek injunctive relief with respect to the notes and the
proposed reverse stock splits, rescission of the issuance of the notes and
proposed reverse stock splits, disgorgement of alleged profits and benefits
obtained by the defendants, rescissory and/or compensatory damages, reasonable
attorneys' fees and expenses, and other unspecified damages. In addition, the
plaintiffs also sought an injunction to prevent approval of the foregoing
proposals at our Annual Meeting of Stockholders originally scheduled for March
15, 2002 (and later postponed until March 29, 2002). On February 28, 2002, the
Delaware Court of Chancery denied plaintiffs' requests for a preliminary
injunction hearing and permission to allow expedited discovery in the lawsuit
prior to the Annual Meeting.

      On May 22, 2002, plaintiffs filed an Amended Complaint reiterating the
claims previously alleged and adding an additional allegation that a merger
proposal announced on May 21, 2002 whereby CMGI would acquire all outstanding
shares of Engage common stock not already owned by CMGI is a coercive
transaction that allegedly does not satisfy the entire fairness standard under
Delaware law.

      On May 21, 2002, two related putative class action lawsuits were filed in
the Court of Chancery for the State of Delaware, challenging the fairness of the
CMGI-Engage merger proposal announced on May 21, 2002. The suits seek injunctive
relief and/or rescission, disgorgement of any profits received by defendants,
attorneys' fees and other unspecified damages.

      The foregoing actions subsequently were consolidated. On or about October
18, 2002, the parties to the litigation filed a Stipulation and Order of
Dismissal, dismissing the consolidated action with prejudice. In connection with
the stipulation of dismissal, the parties are negotiating the reimbursement of a
portion of plaintiff's counsel's fees. We do not believe that the resolution of
this issue will have a material impact on our financial condition.

      We are currently party to various legal proceedings and claims which arise
in the ordinary course of business. While the outcome of these claims cannot be
predicted with certainty, we do not believe that the outcome of any of these
legal matters will have a material adverse effect on our consolidated financial
condition, results of operations or cash flows.


                                       12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

         Engage sells software that enables publishers, advertisers and
merchants to streamline the creation, approval, production and re-purposing of
advertising and other marketing material.

         In September 2001, we announced the sale of certain assets of our
AdKnowledge media service and the shutdown of our media network. As a result,
for all periods presented, the Media segment has been accounted for as a
discontinued operation. Accordingly, the Media segment's current and long term
assets have been segregated from continuing operations in the accompanying
consolidated balance sheets, and its operating results have been segregated and
reported as discontinued operations in the accompanying consolidated statements
of operations and cash flows, and related notes to consolidated financial
statements for all periods presented.

         In September 2002, we completed a transaction with CMGI pursuant to
which all outstanding debt to CMGI ($64.5 million) was cancelled and all of
CMGI's equity holdings in Engage (148,417,801 shares of common stock) were
transferred back to Engage and cancelled. In exchange, we paid $2.5 million in
cash to CMGI, signed a $2.0 million non-interest bearing secured promissory note
due in September 2006 that is secured by the assets of the Company, and issued a
warrant to CMGI to purchase up to 9.9% of our outstanding common stock at the
time of exercise at an exercise price of $.048 per share. The warrant expires
the earlier of the date of a sale of Engage, or September 2009. Additionally, we
agreed to pay CMGI up to an additional $6.0 million in future earn-out payments
based upon our quarterly operating income (defined as Engage's operating
income/loss plus the sum of (i) amortization expense and impairment charges and
(ii) amortization of stock-based compensation, as reported in our financial
statements for the fiscal quarter in question included in the applicable
quarterly or annual (as applicable) report filed with the Securities and
Exchange Commission for such quarter) starting with the first quarter of fiscal
2004 (the quarter ending October 31, 2003). Under the terms of the earn-out
payment and promissory note, if earn-out payments exceed $4.0 million, amounts
due under the $2.0 million promissory note will be cancelled for each dollar of
earn-out over the $4.0 million, such that if total earn-out payments reach $6.0
million, the promissory note will be cancelled in full.

         In October 2002, we consummated a transaction whereby we sold
substantially all of the assets (excluding accounts receivable) of our Internet
advertising business to Accipiter Solutions, Inc. ("Accipiter Solutions"), a
company formed by certain former employees of our Internet advertising business
unit. As part of the transaction, Accipiter Solutions issued us a warrant to
purchase up to 10% of the shares of Accipiter Solutions' common stock
outstanding at the time of exercise, assumed certain liabilities of ours and
agreed to pay us up to $500,000 in the form of future earn-out payments.
Additionally, in exchange for the assumption of certain of our liabilities, we
paid $500,000 to Accipiter Solutions. As a result of this transaction, we
recognized a loss of approximately $81,000 during the three months ended October
31, 2002. No value has been assigned to the warrants or the future earn-out
payments in determining the loss from this transaction, our estimate of their
fair value is zero.

CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires management to make judgments, assumptions and estimates that affect the
amounts reported in our consolidated financial statements and accompanying
notes. Note 2 to our consolidated financial statements in our Annual Report on
Form 10-K for the fiscal year ended July 31, 2002 describes the significant
accounting policies and methods used in the preparation of our consolidated
financial statements. Estimates are used for, but not limited to, the accounting
for the allowance for doubtful accounts, goodwill and long-lived asset
impairments, contingencies, restructuring costs and revenue recognition under
the percentage of completion method. Actual results could differ from these
estimates. The following critical accounting policies are impacted significantly
by judgments, assumptions and estimates used in the preparation of our
consolidated financial statements. Additionally, we consider revenue recognition
to be a critical accounting policy.

         The allowance for doubtful accounts is based on our assessment of the
collectibility of specific customer accounts and the aging of the accounts
receivable. If there is a deterioration of a significant customer's credit
worthiness or actual defaults are higher than our historical experience, our
estimates of the recoverability of amounts due us could be adversely affected.

         We assess the impairment of long-lived assets on an ongoing basis and
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable based upon an estimate of future undiscounted cash flows.
Factors we consider that could trigger an impairment review include the
following:


                                       13
<PAGE>
-        significant underperformance relative to expected historical or
         projected future operating results;

-        significant changes in the manner of our use of the acquired assets or
         the strategy for our overall business;

-        significant negative industry or economic trends;

-        significant decline in our stock price for a sustained period; and

-        our market capitalization relative to net book value

         When we determine that the carrying value of any long-lived asset may
not be recoverable based upon the existence of one or more of the above
indicators of impairment, we measure impairment based on the difference between
an asset's carrying value and an estimate of fair value, which may be determined
based upon quotes or a projected discounted cash flow, using a discount rate
determined by our management to be commensurate with our cost of capital and the
risk inherent in our current business model.

         We are subject to the possibility of various loss contingencies arising
in the ordinary course of business. We consider the likelihood of the loss or
impairment of an asset or the incurrence of a liability as well as our ability
to reasonably estimate the amount of loss in determining loss contingencies. An
estimated loss contingency is accrued when it is probable that a liability has
been incurred or an asset has been impaired and the amount of loss can be
reasonably estimated. We regularly evaluate current information available to us
to determine whether such accruals should be adjusted.

         The accrual of restructuring costs is based on our assessment of costs
that will be incurred to complete planned restructuring activities. Accruals are
made at the time the plan is approved, with additional assessments made on a
quarterly basis to determine if the accrual is properly stated based upon
current facts. Any adjustments to restructuring accruals are made when facts
indicate that costs will be either more or less than previously estimated.

         Effective August 1, 1998, we adopted the provisions of SOP 97-2,
Software Revenue Recognition. Revenue from software product licenses is
generally recognized when (i) a signed noncancelable software license or
purchase order exists, (ii) delivery has occurred, (iii) our fee is fixed or
determinable, and (iv) collectibility is probable.

         For multiple element arrangements involving our software, services and
support elements, we recognize revenue in accordance with SOP 98-9, Software
Revenue Recognition with Respect to Certain Arrangements, when vendor-specific
objective evidence of fair value does not exist for the delivered element. As
required by SOP 98-9, under the residual method, the fair value of the
undelivered elements are deferred and subsequently recognized. Revenue from
agreements that require significant customizations and modifications to the
software product is deferred and recognized using the percentage of completion
method with labor hours used as a measure of progress towards completion. For
license arrangements involving significant customizations for which the amount
of customization effort cannot be reasonably estimated or when license
arrangements provide for customer acceptance, we recognize revenue under the
completed contract method of accounting.

         We recognize revenue from periodic subscriptions ratably over the
subscription term, typically twelve months. We recognize revenue from
usage-based subscriptions monthly based on actual usage.

         Our service and support revenue includes revenue from software
maintenance and other professional services, primarily from consulting,
implementation and training. We defer revenue from software maintenance and
recognize it ratably over the term of each maintenance agreement, which is
typically twelve months. We recognize revenue from professional services as the
services are performed.

         Revenue recognized on transactions whereby we exchange products and/or
services in return for equity instruments is valued when a contract is signed,
signaling a mutual understanding of the terms of the equity based compensation
and a commitment of performance on our behalf to earn the equity instruments.
Revenue under such arrangements is recognized in accordance with the revenue
recognition policies stated above.

         Amounts collected prior to satisfying the above revenue recognition
criteria are classified as deferred revenue.


                                       14
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED OCTOBER 31, 2001 AND OCTOBER 31, 2002

         Revenue, Cost of Revenue and Gross Margin

         Revenue is derived primarily through the sale of software licenses and
related software and consulting services and support. Services and support
revenue includes fees charged for training, installation, software support and
maintenance and actual consulting for customer specific requirements. Cost of
revenue consists primarily of fees paid for outsourced data center operations
needed to support our AdBureau product as well as payroll, royalties,
amortization of developed technology intangible asset (during fiscal 2002),
benefits and allocated overhead of our support and consulting groups.

         Product revenue increased from $1.0 million in the three months ended
October 31, 2001 to $1.1 million in the three months ended October 31, 2002, a
10% increase. The increase in product revenue was due to a $718,000 increase in
license revenue related to our ContentServer products, offset by a $620,000
decrease in revenue generated from our internet advertising products, which
include our AdManager software. Services and support revenue decreased from $5.6
million in the three months ended October 31, 2001 to $2.6 million in the three
months ended October 31, 2002, a 54% decrease. During fiscal 2002, we recognized
services and support revenue on two significant consulting projects. These
projects were not fully replaced in fiscal 2003, resulting in the decline in
services and support revenue from the first quarter of fiscal 2002 to the first
quarter of fiscal 2003. Product revenue generated from sales of our Internet
advertising products amounted to $717,000 and $97,000 for the three months ended
October 31, 2001 and 2002, respectively. Services and support revenue generated
from sales of our Internet advertising products amounted to $2.5 million and
$369,000 for the three months ended October 31, 2001 and 2002, respectively. In
October 2002, we sold substantially all of the assets of our Internet
advertising business. Accordingly, revenue from these Internet advertising
products, services and support will cease beginning with the second quarter of
our fiscal 2003.

         Product gross margin increased from (30)% in the three months ended
October 31, 2001 to 85% in the three months ended October 31, 2002. The increase
in product gross margin is due to the impairment charge of $6.5 million on
developed technology recorded during the fourth quarter of the year ended July
31, 2002, leaving no additional amortization for the three months ended October
31, 2002, compared to amortization of $1.5 million during the three months ended
October 31, 2001. Product revenue represented $1.0 million or 15% of total
revenue in the three months ended October 31, 2001 as compared to $1.1 million
or 30% of total revenue in the three months ended October 31, 2002.

         Services and support gross margin decreased from 15% in the three
months ended October 31, 2001 to 4% in the three months ended October 31, 2002.
The decline in services and support gross margin is due to a decline in services
and support revenue during the three months ended October 31, 2002, which was
not fully offset by our reduction in payroll and related costs within our
services and support department. The impact of the decline in revenue was offset
somewhat by the reversal of $249,000 of hosting costs accrued in prior periods,
the accrual of which is no longer required.

         Sales to one customer accounted for 12% of our total revenue for the
three months ended October 31, 2001. Sales to one customer accounted for 19% of
our total revenue for the three months ended October 31, 2002. Our customer base
consists of geographically diverse customers concentrated primarily in the
newspaper and retail industries.

         We anticipate that our overall gross margin may increase through
moderate license sales and higher service margins achieved primarily through
better utilization of our professional services staff. In addition, we will no
longer recognize amortization of developed technology due to the impairment in
fiscal 2002. Overall, our business strategy is to concentrate our efforts more
on the licensing of our software products, which generally provide higher gross
margins, and to utilize partnership arrangements with various service
organizations that will be trained to provide both services and support on our
installed software base. While we do not anticipate a decline in our services
and support revenue, we would expect to see higher overall margins due to a
greater proportion of our total revenue being generated by license sales.

         Operating Expenses

         Research and Development. Research and development expenses consist
primarily of payroll and related costs, consulting and contractor fees,
facility-related costs, such as rent and computer and network services, and
depreciation expense. Our research and development expenses decreased from $2.4
million in the three months ended October 31, 2001 to $1.3 million in the three
months ended October 31, 2002, a 47% decrease. This decrease was primarily due
to savings related to restructuring activities in fiscal 2002 and the resulting
savings in payroll and related costs. Our average research and development staff
decreased 43% for the three months ended October 31, 2002 as compared to the
three months ended October 31, 2001. Research and development expenses were 36%
of


                                       15
<PAGE>
revenue for the three months ended October 31, 2001 compared to 34% of revenue
for the three months ended October 31, 2002. We anticipate our research and
development costs will increase over the next two quarters as we develop
versions of our software to work on several platforms that are not currently
supported by our existing product architecture.

         Selling and Marketing. Selling and marketing expenses consist primarily
of payroll and related costs, consulting and professional fees, advertising
expenses, costs of attending trade shows, employee travel and depreciation
expense. Selling and marketing expenses decreased from $3.3 million in the three
months ended October 31, 2001 to $2.7 million in the three months ended October
31, 2002, a 18% decrease. The decrease was primarily due to a decrease in
payroll and related costs and a reduction in overhead costs due to decreased
staffing levels, offset somewhat by an increase in spending on marketing and
advertising initiatives as well as higher average salaries. Overall, our average
sales and marketing staff decreased 39% for the three months ended October 31,
2002 compared to the three months ended October 31, 2001. Sales and marketing
expenses were 49% of revenue for the three months ended October 31, 2001
compared to 72% of revenue for the three months ended October 31, 2002. The
increase in sales and marketing costs as a percentage of revenue is the result
of declining revenue during the three months ended October 31, 2002, the impact
of which was not fully offset by reductions in our staffing levels.

         General and Administrative. General and administrative expenses consist
principally of payroll and related costs, consulting and professional fees,
facility and related costs, bad debt expense and depreciation expense. General
and administrative expenses decreased from $2.6 million in the three months
ended October 31, 2001 to $1.8 million in the three months ended October 31,
2002, a 34% decrease. The decrease was primarily due to decreases in payroll and
related costs and a reduction in overhead costs due to decreased staffing
levels. Overall, our average general and administrative staff decreased 46% for
the three months ended October 31, 2002 as compared to the three months ended
October 31, 2001. General and administrative costs were 40% of revenue for the
three months ended October 31, 2001 compared to 47% of revenue for the three
months ended October 31, 2002.

         Amortization of Goodwill and Other Intangibles. Amortization of
goodwill and other intangibles was $5.9 million in the three months ended
October 31, 2001. During the year ended July 31, 2002, we continued to
experience negative revenue growth due to a decrease in the size and quantity of
orders for both our ad serving and content management solutions. Additionally,
in the fourth quarter of the year ended July 31, 2002, CMGI rescinded their
offer to acquire all of the outstanding shares of the Company, leaving doubt
about our ability to raise additional financing to fund operations. As a result
of these factors, during management's quarterly and year end reviews of the
value and periods of amortization of both goodwill and other intangible assets,
it was determined that the carrying value of goodwill and certain other
intangible assets were fully impaired. Accordingly, in the quarter ended July
31, 2002, we recorded an additional impairment charge of $25.6 million, which
eliminated all goodwill and other intangibles recorded in prior acquisitions. As
a result, we had no amortization expenses for the three months ended October 31,
2002, and do not anticipate future amortization and impairment expenses.

         Restructuring Costs, net. Restructuring costs, net decreased from
$975,000 for the three months ended October 31, 2001 to $241,000 million for the
three months ended October 31, 2002. Restructuring costs during the three months
ended October 31, 2001 consisted of severance costs related to a reduction in
staffing levels. Restructuring costs during the three months ended October 31,
2002 consisted of an adjustment to severance costs recorded during the fourth
quarter of fiscal 2002 due to severance payments to terminated employees
exceeding original estimates.

         Stock Compensation. Stock compensation expense decreased from $362,000
in the three months ended October 31, 2001 to $234,000 in the three months ended
October 31, 2002, a 35% decrease. The decrease relates to the termination of
employment of certain individuals for whom stock compensation costs were being
recognized prior to the employees termination.

         OTHER INCOME (EXPENSE)

         Interest Income. Interest income decreased from $243,000 in the three
months ended October 31, 2001 to $48,000 in the three months ended October 31,
2002, an 80% decrease. The decrease in interest income was primarily due to
lower cash equivalent balances during the three months ended October 31, 2002
compared to the three months ended October 31, 2001. We anticipate that interest
income will continue to decrease in the year ended July 31, 2003 as compared to
July 31, 2002 as a result of both lower rates of return and a reduced balance in
cash and short-term investments.

         Interest Expense. Interest expense increased from $406,000 in the three
months ended October 31, 2001 to $523,000 in the three months ended October 31,
2002, a 29% increase. The increase was a result of converting amounts we owed to
CMGI into debt in October 2001 and the related interest on that debt in October
2001 as compared to the interest on the debt from August 2002 through September
9, 2002, the date of our transaction with CMGI that eliminated the related debt
for which we were being charged interest.


                                       16
<PAGE>
We anticipate that interest expense will decrease during the remainder of the
year ended July 31, 2003 as compared to the year ended July 31, 2002 as a result
of the settlement of the amounts owed to CMGI in September 2002.

         Minority Interest. Minority interest was $93,000 for the three months
ended October 31, 2001. Minority interest reflects the minority shareholders'
share of the losses of our subsidiary Engage Technologies Japan. This subsidiary
was closed during the second quarter of fiscal 2002, resulting in the
elimination of minority interest for the three months ended October 31, 2002.

         Other Income (Expense), net. Other income (expense), net decreased from
$161,000 for the three months ended October 31, 2001 to ($90,000) for the three
months ended October 31, 2002. Other income for the three months ended October
31, 2001 was primarily related to foreign currency gains related to several of
our European subsidiaries. Other expense for the three months ended October 31,
2002 was primarily related to a loss realized on the sale of our Internet
advertising business.

         Income From Discontinued Operations. Income from discontinued
operations was $737,000 for the three months ended October 31, 2002, the result
of accounts receivable collections in excess of original estimates made at the
time we discontinued the operations of our Media segment.

LIQUIDITY AND CAPITAL RESOURCES

         Our cash and cash equivalents decreased from $17.7 million at July 31,
2002 to $8.2 million at October 31, 2002. Net cash used in operating activities
was $6.8 million for the three months ended October 31, 2002. Cash used in
operating activities resulted primarily from net losses from continuing
operations and decreases in accounts payable and accrued expenses, which was
partially offset by the collection of accounts receivable from our Media
segment, a decrease in accounts receivable, and an increase in amounts due to
CMGI prior to the transaction with CMGI. We made payments of approximately $1.0
million related to the settlement of amounts owed to a CMGI affiliate,
approximately $1.0 million in the settlement of certain operating lease
obligations, and approximately $1.1 million for the payment of our annual
insurance for directors and officers. Net cash used for investing activities was
$57,000 for the three months ended October 31, 2002, all related to investments
in property and equipment. Net cash used for financing activities was $2.7
million, consisting of the $2.5 million payment to CMGI and $211,000 of costs
associated with the CMGI transaction.

         In connection with the transaction with CMGI that we completed in
September 2000, we are obligated to pay CMGI $6.0 million in the future. We
granted CMGI a $2.0 million non-interest bearing secured promissory note due in
September 2006 that is secured by the assets of the Company. In addition, we
agreed to pay CMGI up to an additional $6.0 million in future earn-out payments
based upon our quarterly operating results beginning with the first quarter of
fiscal 2004 (the quarter ending October 31, 2003). Under the terms of the
earn-out payment and promissory note, if earn-out payments exceed $4.0 million,
amounts due under the $2.0 million promissory note will be cancelled for each
dollar of earn-out over the $4.0 million paid prior to the date the note
matures, such that if total earn-out payments reach $6.0 million, the promissory
note will be cancelled in full.

         The following summarizes anticipated contractual obligations for
operating leases during each of the fiscal years ended July 31:

<TABLE>
<CAPTION>
                                                               OPERATING
                                                                 LEASES
                                                             (IN THOUSANDS)
<S>                                                          <C>
2003 (remaining nine months)............................        $    773
2004....................................................             801
2005....................................................             150
                                                                --------
                                                                $  1,724
                                                                ========
</TABLE>

         During our fiscal year 2002 and the first quarter of fiscal 2003 we
have undergone a significant transition, exiting the Media business, selling our
Internet advertising business and restructuring ourselves to be a leader in
providing software that enables publishers, advertisers and merchants to
streamline the creation, approval, production and re-purposing of advertising
and other marketing material. Included in this transition was a complete
turnover of our senior management team, as well as significant changes within
our Board of Directors. In conjunction with the Board of Directors, the new
management team has developed an operational plan that it believes will allow us
to strengthen existing and develop new sales channels. In addition, the
operational plan has brought our costs more in line with projected revenue
growth.


                                       17
<PAGE>
         At October 31, 2002, we had working capital of $712,000, an accumulated
deficit of $3.7 billion, and have reported losses from operations since
inception. We anticipate incurring additional losses throughout our current
fiscal year. Management has taken several actions to ensure that we continue as
a going concern through July 31, 2003, including reductions in operating
expenses through headcount reductions, the sale of our Internet advertising
business, and most importantly, the restructuring of amounts due to our former
parent company, CMGI, discussed above. Based upon our cash flow estimates, we
currently anticipate that our available cash resources will be sufficient to
meet our anticipated needs for working capital and capital expenditures through
our current fiscal year. Our cash flow estimates are based upon attaining
certain levels of sales, maintaining budgeted levels of operating expenses, and
collections of accounts receivable for both our continuing and discontinued
operations, among other assumptions, including the improvement in the overall
macroeconomic environment. Our sales estimates include revenue from new sales
channels for which we have no historical basis to make estimates and we may be
required to further reduce expenses if budgeted sales are not attained. We may
be unsuccessful in reducing costs in proportion to any shortfall in projected
sales. Our continued collection of accounts receivable from discontinued
operations may be hindered by the old age of the outstanding balances, the
financial status of the debtors, the fact that uncollected amounts are comprised
of a large number of small balances, and the ability to continue to devote
internal resources to the collection effort. During the first quarter of the
current fiscal year our operating results were in line with our cash flow
estimates for the quarter.

         Additionally, we will attempt to raise funds through the issuance of
equity or convertible debt securities. However, our common stock was delisted
from the Nasdaq Stock Market effective with the open of business on August 15,
2002. Our common stock currently is now quoted on the NASD's OTC Bulletin Board.
The continued delisting of our common stock may make our stock less attractive
to third parties, which could adversely affect our ability to enter into future
equity financing transactions or to effect an acquisition or merger with other
businesses. In addition, we can no longer rely on financing from CMGI since we
completed our transaction with CMGI in September 2002. Accordingly, we cannot
assure you that we will be able to obtain equity financing on commercially
reasonable terms, or at all.

         If funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders will be reduced and our
stockholders may experience dilution of their interest in us. If adequate funds
are not available or are not available on acceptable terms, our ability to
continue as a going concern, to fund our expansion, take advantage of
unanticipated opportunities, develop or enhance services or products or
otherwise respond to competitive pressures may be significantly limited.

FOREIGN OPERATIONS

         The results of our international operations are subject to currency
fluctuations. As of October 31, 2002, we had subsidiaries in Europe and Asia. To
date, our financial condition and results of operations have not been materially
affected by exchange rate fluctuations. However, there can be no guarantee that
our financial condition and results of operations will not be adversely affected
by exchange rate fluctuations in the future.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Certain statements contained in this Quarterly Report on Form 10-Q
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. Statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"anticipates," "believes," "plans," "expects" and similar expressions are
intended to identify forward-looking statements. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties that could cause actual results or outcomes to differ materially
from those described or implied in such forward-looking statements. These
statements address or may address the following subjects:

-        that we anticipate that our overall gross margins may increase;

-        that we do not anticipate a decline in service and support revenue, but
         expect higher overall margins due to a greater proportion of license
         sales;

-        that we anticipate our research and development costs will increase
         over the next two quarters as we develop versions of our software to
         work on several platforms that are not currently supported by our
         existing product architecture;

-        that we anticipate that we will incur no future amortization and
         impairment expenses;


                                       18
<PAGE>
-        that we anticipate that interest income will decrease in the remainder
         or fiscal 2003 as compared to fiscal 2002;

-        that we anticipate that interest expense will decrease in the remainder
         of fiscal 2003 as compared to fiscal 2002;

-        that we believe that our operational plan will allow us to develop new
         and strengthen existing sales channels; and

-        that we anticipate that our available cash resources will be sufficient
         to meet our needs for working capital and capital expenditures through
         our current fiscal year.

         We caution investors that there are a number of important factors that
could cause our results to differ materially from those indicated by such
forward-looking statements. These factors include, among others:

-        the effect that our current financial condition will have on the
         willingness of customers to purchase products from us;

-        the uncertainty of our ability to continue as a going concern;

-        factors set forth in our Annual Report on Form 10-K filed with the SEC
         on November 13, 2002 in the section titled "Factors that May Affect
         Future Results and Market Price of Stock;" and

-        the risks discussed in our other filings with the SEC and elsewhere
         throughout this Quarterly Report on Form 10-Q.

         All information set forth in this Form 10-Q is as of the date of this
Form 10-Q, and we undertake no duty or obligation to update this information,
unless required by law.


                                       19
<PAGE>
         ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The carrying values of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and long-term debt, and
amounts due to CMGI and affiliates approximate fair value because of the short
maturity of these instruments and market rates of interest.

         We have historically had very low exposure to changes in foreign
currency exchange rates, and as such, have not used derivative financial
instruments to manage foreign currency fluctuation risk. If we choose to expand
globally, the risk of foreign currency exchange rate fluctuation may increase.
Therefore, in the future, we may consider utilizing derivative instruments to
mitigate such risks.

         ITEM 4. CONTROLS AND PROCEDURES

       (a) Evaluation of Disclosure Controls and Procedures. Our principal
executive officer and principal financial officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14(c) and 15d-14(c)) on December 13, 2002 have concluded that,
based on such evaluation, our disclosure controls and procedures were adequate
and effective to ensure that material information relating to the company,
including our consolidated subsidiaries, was made known to them by others within
those entities, particularly during the period in which this Quarterly Report on
Form 10-Q was being prepared.

         (b) Changes in Internal Controls. There were no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in our internal controls.
Accordingly, no corrective actions were required or undertaken.


                                       20
<PAGE>
PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

         In October 2002, our the Board of Directors adopted a stockholder
rights plan (also known as a "Poison Pill") and declared a dividend distribution
of one preferred share purchase right for each outstanding share of our common
stock. Each right will entitle registered holders of our common stock to
purchase one one-thousandth of a share of a new series of junior participating
preferred stock, designated as "Series A Junior Participating Preferred Stock".
The rights generally will be exercisable only if a person (which term includes
an entity or group) (i) acquires 15% or more of our common stock or (ii)
announces a tender offer, the consummation of which would result in ownership by
that person, entity or group of 15% or more of the common stock. Once
exercisable, the stockholder rights plan allows our stockholders (other than the
acquiror) to purchase common stock of Engage or of the acquiror at a substantial
discount.

         In September 2002, in connection with the transaction with CMGI in
which CMGI cancelled all debt we owed to CMGI and CMGI transferred all equity in
Engage owned by CMGI back to Engage, we issued to CMGI a warrant to purchase up
to 9.9% of our outstanding common stock as of the time of exercise. The warrant
is exercisable at an exercise price of $.048 per share. No person acted as an
underwriter with respect to this transaction. We relied on Section 4(2) of the
Securities Act of 1933, as amended, as no public offering was involved.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         None

(b)      Reports on Form 8-K

         We filed a Current Report on Form 8-K with the SEC on September 18,
2002 for the September 9, 2002 event reporting the completion of the transaction
with CMGI.

         We filed a Current Report on Form 8-K with the SEC on October 7, 2002
for the October 4, 2002 event reporting the adoption of the Poison Pill.


                                       21
<PAGE>
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Andover, Massachusetts
on December 16, 2002.

                                 By: /s/        JOHN D. BARONE
                                     -----------------------------------
                                     John D. Barone
                                     Chief Operating Officer and President
                                     (Principal Executive Officer)



                                 By:  /s/     LISA P. MCALISTER
                                      ---------------------------------
                                     Lisa P. McAlister
                                     Chief Financial Officer and Treasurer
                                     (Principal Accounting and Financial
                                     Officer of the Registrant)
<PAGE>
                                 CERTIFICATIONS

I, John D. Barone, certify that:

      1.    I have reviewed this quarterly report on Form 10-Q of Engage, Inc.;

      2.    Based on my knowledge, this quarterly report does not contain any
            untrue statements of a material fact or omit to state a material
            fact necessary to make the statements made, in light of the
            circumstances under which such statements were made, not misleading
            with respect to the period covered in this quarterly report; and

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this quarterly report, present in all
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this quarterly report.

      4.    The registrant's other certifying officers and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in exchange Act Rules 13a-14 and 15d-14) for the registrant
            and have:

            a)    designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

            b)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

            c)    presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date.

      5.    The registrant's other certifying officers and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent functions):

            a)    all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditor's any material weaknesses in internal controls; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls.

      6.    The registrant's other certifying officers and I have indicated in
            this quarterly report whether there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.

Date: December 16, 2002


                           /s/        JOHN D. BARONE
                           -----------------------------------------------------
                           John D. Barone, Chief Operating Officer and President
<PAGE>
                                 CERTIFICATIONS

I, Lisa P. McAlister, certify that:

      1.    I have reviewed this quarterly report on Form 10-Q of Engage, Inc.;

      2.    Based on my knowledge, this quarterly report does not contain any
            untrue statements of a material fact or omit to state a material
            fact necessary to make the statements made, in light of the
            circumstances under which such statements were made, not misleading
            with respect to the period covered in this quarterly report; and

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this quarterly report, present in all
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this quarterly report.

      4.    The registrant's other certifying officers and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in exchange Act Rules 13a-14 and 15d-14) for the registrant
            and have:

            a)    designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

            b)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

            c)    presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date.

      5.    The registrant's other certifying officers and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent functions):

            a)    all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditor's any material weaknesses in internal controls; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls.

      6.    The registrant's other certifying officers and I have indicated in
            this quarterly report whether there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.

Date: December 16, 2002


                        /s/              LISA P. MCALISTER
                        --------------------------------------------------------
                        Lisa P. McAlister, Chief Financial Officer and Treasurer