<PAGE>

================================================================================

                                  UNITED STATES
                       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 JANUARY 31, 2003

         [ ]    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)

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

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

                                 (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 [ ]

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [ ]    No [X]

The number of shares outstanding of the registrant's Common Stock as of March 9,
2003 was 52,088,774.

================================================================================
<PAGE>
                                  ENGAGE, INC.

                                    FORM 10-Q

                     FOR THE QUARTER ENDED JANUARY 31, 2003

                                      INDEX
<TABLE>
<CAPTION>
                                                                                       PAGE
                                                                                       ----
<S>      <C>                                                                           <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

a)       Consolidated Balance Sheets as of July 31, 2002 and January 31, 2003
           (unaudited) ..............................................................     3

b)       Consolidated Statements of Operations for the three and six months ended
           January 31, 2002 and 2003 (unaudited) ....................................     4

c)       Consolidated Statements of Cash Flows for the six months ended January 31,
           2002 and 2003 (unaudited) ................................................     5

d)       Notes to Interim Consolidated Financial Statements (unaudited) .............     6

Item 2.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations ....................................................    14

Item 3.  Quantitative and Qualitative Disclosures About Market Risk .................    23

Item 4.  Controls and Procedures ....................................................    23

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings ..........................................................    24

Item 4.  Submission of Matters to a Vote of Security Holders ........................    24

Item 6.  Exhibits and Reports on Form 8-K ...........................................    25

SIGNATURES

CERTIFICATIONS

EXHIBIT INDEX
</TABLE>


                                       2
<PAGE>
                                  ENGAGE, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                        (IN THOUSANDS, EXCEPT PAR VALUE)

<TABLE>
<CAPTION>
                                                                  JULY 31,         JANUARY 31,
                                                                    2002              2003
                                                                    ----              ----
<S>                                                              <C>               <C>
ASSETS
Current assets:
  Cash and cash equivalents ..................................   $    17,719       $     4,973
  Accounts receivable, less allowance for doubtful
    accounts of $1,068 and $870 at July 31, 2002 and
    January 31, 2003, respectively ...........................         3,006             1,723
  Unbilled accounts receivable ...............................           690               173
  Prepaid expenses and other current assets ..................         1,615             1,771
  Current assets of discontinued operations ..................            30                30
                                                                 -----------       -----------
   Total current assets ......................................        23,060             8,670

Property and equipment, net ..................................         3,919             2,325
Other assets .................................................            60                24
Non-current assets of discontinued operations ................           108                67
                                                                 -----------       -----------
   Total assets ..............................................   $    27,147       $    11,086
                                                                 ===========       ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Current portion of obligation under capital lease ..........   $       295       $       295
  Debt to CMGI ...............................................        61,691                --
  Accounts payable ...........................................         3,357             1,644
  Due to CMGI affiliates .....................................         2,710                --
  Accrued expenses ...........................................        12,364             8,121
  Deferred revenue ...........................................         2,335             1,894
                                                                 -----------       -----------
   Total current liabilities .................................        82,752            11,954
Deferred revenue .............................................            29                --
Long-term debt to CMGI, net of discount ......................            --             1,360
Other long-term liabilities ..................................           388                82
                                                                 -----------       -----------
   Total liabilities .........................................        83,169            13,396
Commitments and contingencies
Stockholders' deficit:
  Preferred stock, $.01 par value, 5,000 shares authorized,
    shares issued and outstanding at July 31, 2002 and
    January 31, 2003, respectively ...........................            --                --
  Common stock, $.01 par value, 350,000 shares authorized,
    196,062 and 48,527 shares issued and outstanding at
    July 31, 2002 and January 31, 2003, respectively .........         1,961               485
  Additional paid-in capital .................................     3,684,066         3,748,384
  Deferred compensation ......................................        (1,062)             (413)
  Accumulated other comprehensive loss .......................          (646)             (579)
  Accumulated deficit ........................................    (3,740,341)       (3,750,187)
                                                                 -----------       -----------
   Total stockholders' deficit ...............................       (56,022)           (2,310)
                                                                 -----------       -----------
   Total liabilities and stockholders' deficit ...............   $    27,147       $    11,086
                                                                 ===========       ===========
</TABLE>

     See accompanying notes to interim consolidated financial statements.


                                       3
<PAGE>
                                  ENGAGE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
          FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2002 AND 2003
                                   (UNAUDITED)

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED               SIX MONTHS ENDED
                                                                            JANUARY 31,                     JANUARY 31,
                                                                        --------------------            --------------------
                                                                        2002            2003            2002            2003
                                                                     ---------      ---------        ---------      ----------
<S>                                                                  <C>             <C>             <C>             <C>
Revenue:
  Product revenue ...............................................    $   2,340       $     615       $   3,326       $   1,725
  Product revenue, related parties ..............................           --              --              26              --
  Services and support revenue ..................................        3,570           1,680           8,950           4,300
  Services and support revenue, related parties .................          165              --             431              --
                                                                     ---------       ---------       ---------       ---------
    Total revenue ...............................................        6,075           2,295          12,733           6,025
                                                                     ---------       ---------       ---------       ---------
Cost of revenue:
  Cost of product revenue .......................................           60              17             (82)            189
  Cost of services and support revenue ..........................        3,509           1,555           8,330           4,059
  Amortization of developed technology ..........................        1,459              --           2,917              --
                                                                     ---------       ---------       ---------       ---------
    Total cost of revenue .......................................        5,028           1,572          11,165           4,248
                                                                     ---------       ---------       ---------       ---------

      Gross profit ..............................................        1,047             723           1,568           1,777
                                                                     ---------       ---------       ---------       ---------

Operating expenses:
  Research and development ......................................        1,883           1,482           4,302           2,764
  Selling and marketing .........................................        2,890           2,362           6,154           5,051
  General and administrative ....................................        2,137           2,005           4,773           3,757
  Amortization of goodwill and other intangibles ................        5,866              --          11,732              --
  Restructuring costs, net ......................................           --              --             975             241
  Stock compensation ............................................          294             212             656             446
                                                                     ---------       ---------       ---------       ---------
    Total operating expenses ....................................       13,070           6,061          28,592          12,259
                                                                     ---------       ---------       ---------       ---------
      Operating loss ............................................      (12,023)         (5,338)        (27,024)        (10,482)

Other income (expense):
  Interest income ...............................................          137              22             380              70
  Interest expense ..............................................       (1,042)            (39)         (1,448)           (562)
  Minority interest .............................................           16              --             109              --
  Other income (expense), net ...................................         (289)            148            (128)             58
                                                                     ---------       ---------       ---------       ---------
      Loss from continuing operations ...........................      (13,201)         (5,207)        (28,111)        (10,916)

Income from discontinued operations .............................           --             333              --           1,070
                                                                     ---------       ---------       ---------       ---------
Net loss ........................................................    $ (13,201)      $  (4,874)      $ (28,111)      $  (9,846)
                                                                     =========       =========       =========       =========
Basic and diluted loss per share data:
Continuing operations ...........................................    $   (0.07)      $   (0.11)      $   (0.14)      $   (0.14)
Discontinued operations .........................................           --            0.01              --            0.02
                                                                     ---------       ---------       ---------       ---------
Basic and diluted net loss per share ............................    $   (0.07)      $   (0.10)      $   (0.14)      $   (0.12)
                                                                     =========       =========       =========       =========
Weighted average number of basic and diluted shares outstanding .      196,574          48,391         196,595          80,449
                                                                     =========       =========       =========       =========
</TABLE>

      See accompanying notes to interim consolidated financial statements.


                                       4
<PAGE>
                                  ENGAGE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE SIX MONTHS ENDED JANUARY 31, 2002 AND 2003
                                   (UNAUDITED)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                        2002           2003
                                                                                        ----           ----
<S>                                                                                   <C>            <C>
Cash flows from operating activities:
  Net loss ........................................................................   $(28,111)      $ (9,846)
  Income from discontinued operations .............................................         --          1,070
                                                                                      --------       --------
  Loss from continuing operations .................................................    (28,111)       (10,916)
  Adjustments to reconcile net loss to net cash used for operating activities:
    Depreciation and amortization .................................................     16,405          1,510
    Provision for bad debts .......................................................         13              6
    Stock compensation ............................................................        656            446
    Amortization of discount on long-term debt to CMGI ............................         --             55
    Loss on disposal of business ..................................................         --            (62)
    Loss on disposal of property and equipment ....................................        311             16
    Minority interest .............................................................       (109)            --
    Changes in operating assets and liabilities:
      Accounts receivable and unbilled accounts receivable ........................      3,716          1,794
      Prepaid expenses and other current assets and other assets ..................      5,934           (125)
      Due to CMGI and affiliates ..................................................      7,253             65
      Accounts payable ............................................................     (4,752)        (1,713)
      Accrued expenses ............................................................    (22,720)        (2,217)
      Deferred revenue ............................................................     (3,499)           115
                                                                                      --------       --------
        Net cash used for continuing operations ...................................    (24,903)       (11,026)
        Net cash provided by discontinued operations ..............................     11,351          1,101
                                                                                      --------       --------
        Net cash used for operating activities ....................................    (13,552)        (9,925)
                                                                                      --------       --------
Cash flows from investing activity:
  Purchases of property and equipment .............................................       (352)          (137)
                                                                                      --------       --------
    Net cash used for investing activity ..........................................       (352)          (137)
                                                                                      --------       --------
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 ...         47             16
  Payment in settlement of CMGI transaction .......................................         --         (2,732)
  Repayment of capital lease obligations ..........................................     (2,401)            --
  Repayment of long-term debt .....................................................     (1,046)            --
                                                                                      --------       --------
    Net cash provided by (used for) financing activities ..........................      4,600         (2,716)
                                                                                      --------       --------
Effect of exchange rate changes on cash and cash equivalents ......................        344             32
                                                                                      --------       --------
Net decrease in cash and cash equivalents .........................................     (8,960)       (12,746)
Cash and cash equivalents, beginning of period ....................................     33,261         17,719
                                                                                      --------       --------
Cash and cash equivalents, end of period ..........................................   $ 24,301       $  4,973
                                                                                      ========       ========
Supplemental disclosures of cash flow information:
  Cash paid for interest ..........................................................   $     64       $     --
                                                                                      ========       ========
</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 consolidated 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 and six month periods
ended January 31, 2003 are not necessarily indicative of the results to be
expected for the full fiscal year.

B.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Revenue Recognition

      We recognize revenue in accordance with 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.

      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 and six months ended January 31, 2003
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 material liabilities associated with discontinued operations
were assumed by a third party.

      Current assets of discontinued operations consists of the following:


                                       6
<PAGE>
                                  ENGAGE, INC.
        NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                     JULY 31,    JANUARY 31,
                                                       2002         2003
                                                       ----         ----
                                                       (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,    JANUARY 31,
                                                              2002         2003
                                                              ----          ----
                                                                (IN THOUSANDS)
<S>                                                          <C>         <C>
Property and equipment held for disposal ................    $    60       $    18
Other assets ............................................         48            49
                                                             -------       -------
    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 table presents pro forma earnings per share had the
transaction with CMGI (see Note C) 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 JANUARY 31,  SIX MONTHS ENDED JANUARY 31,
                                          ------------------------------  ----------------------------
                                               2002           2003            2002           2003
                                               ----           ----            ----           ----
                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>            <C>             <C>            <C>
NUMERATOR:
Net loss ..............................      $(13,201)      $ (4,874)       $(28,111)      $ (9,846)

DENOMINATOR:
Weighted average shares outstanding ...        47,944         48,391          47,398         80,449
                                             --------       --------        --------       --------

Basic and diluted net loss per share ..      $  (0.28)      $  (0.10)       $  (0.59)      $  (0.12)
                                             ========       ========        ========       ========
</TABLE>

      At January 31, 2003, we had outstanding stock options to purchase
4,386,660 shares of common stock at a weighted average exercise price of $2.73
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 (see Note O).

      New Accounting Pronouncement

      In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated With Exit or Disposal Activities ("SFAS 146"). This statement
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. We have adopted the provisions of SFAS No. 146 effective
August 1, 2002.

      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.


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


      In January 2003, the Financial Accounting Standards Board Released FASB
Interpretation No. 46 Consolidation of Variable Interest Entities - an
interpretation of ARB No. 51 ("FIN 46"). The objective of FIN 46 is to improve
financial reporting by enterprises involved with variable interest entities by
providing additional guidance on identifying variable interest entities and how
an enterprise assesses its interest in a variable interest entity to decide
whether to consolidate that entity. We do not believe that the adoption of FIN
46 will have a material impact on our financial position, results of operations
and cash flow.

      In January 2003, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 148 Accounting for Stock-Based
Compensation - Transition and Disclosure ("SFAS 148"). SFAS 148 amends Statement
of Financial Accounting Standards No. 123 ("SFAS 123") to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the method used on reported results. The
transition provisions of SFAS 148 are effective for financial statements for
fiscal years ending after December 15, 2002, while the disclosure provisions are
effective for financial reports containing condensed financial statements for
interim periods beginning after December 15, 2002. We do not believe that the
adoption of SFAS 148 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
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 2004. We may
extend this arrangement until June 30, 2007 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.


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


      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 (included within accumulated deficit). 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.

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

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED             SIX MONTHS ENDED
                                               JANUARY 31,                   JANUARY 31,
                                               -----------                   -----------
                                           2002           2003           2002           2003
                                           ----           ----           ----           ----
                                                          (IN THOUSANDS)
<S>                                      <C>            <C>            <C>            <C>
Net loss ..............................  $(13,201)      $ (4,874)      $(28,111)      $ (9,846)
Foreign currency adjustments ..........       513             15            399             41
Net unrealized holding gain arising
  during the period ...................        35            (10)           (10)            26
                                         --------       --------       --------       --------
     Comprehensive loss ...............  $(12,653)      $ (4,869)      $(27,722)      $ (9,779)
                                         ========       ========       ========       ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                           ACCUMULATED
                                                             UNREALIZED       OTHER
                                               FOREIGN         GAINS      COMPREHENSIVE
                                               CURRENCY     (LOSSES) ON       INCOME
                                             ADJUSTMENTS     SECURITIES       (LOSS)
                                             -----------     ----------       ------
                                                          (IN THOUSANDS)
<S>                                          <C>            <C>           <C>
Balance, July 31, 2002 ....................     $(651)         $   5          $(646)
Activity, first six months of fiscal 2003 .        41             26             67
                                                -----          -----          -----
Balance, January 31, 2003 .................     $(610)         $  31          $(579)
                                                =====          =====          =====
</TABLE>

F.    NON-CASH TRANSACTIONS

      During both the six months ended January 31, 2002 and 2003, 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 $507,000 and $203,000 in both
deferred compensation and additional paid-in capital in the six months ended
January 31, 2002 and 2003, respectively.


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


      During the six months ended January 31, 2002, 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 $67.4
million in the six months ended January 31, 2002

      During the six months ended January 31, 2002, approximately $48.3 million
in amounts payable to CMGI were formally converted to secured debt to CMGI (see
Note H).

G.    STOCK COMPENSATION

      If we had 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   SIX MONTHS ENDED
                                  JANUARY 31,         JANUARY 31,
                                  -----------         -----------
                                2002      2003      2002      2003
                                ----      ----      ----      ----
                                         (IN THOUSANDS)
<S>                           <C>       <C>        <C>       <C>
Cost of revenue ............    $ 94      $ 79      $205      $162
Research and development ...      91        65       194       147
Selling and marketing ......      97        66       227       133
General and administrative .      12         2        30         4
                                ----      ----      ----      ----
  Total ....................    $294      $212      $656      $446
                                ====      ====      ====      ====
</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 January 31, 2002,
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).

      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 January 31, 2002, 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 January 31, 2002, 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).


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


I.    LEASES

   We have entered into noncancelable operating leases covering certain of our
office facilities and equipment which expire through 2005.

   Minimum annual rental commitments, including amounts due to CMGI under
subleasing arrangements, are as follows at January 31, 2003:

<TABLE>
<CAPTION>
                                                                       OPERATING
                                                                        LEASES
                                                                        ------
                                                                     (IN THOUSANDS)
<S>                                                                  <C>
2003 (remaining six months)........................................   $     718
2004...............................................................       1,265
2005...............................................................         258
                                                                       --------
                                                                      $   2,241
                                                                      =========
</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 and six months ended January 31, 2002 was approximately
$(143,000) and $507,000, respectively. No costs from outsourced data center
operations from related parties were incurred in the three and six months ended
January 31, 2003.

      In March 2002, we settled all outstanding liabilities (including future
lease costs that were included in our restructuring accrual and accrual for
discontinued operations) with a CMGI subsidiary. As a result of the settlement
we recognized a gain of approximately $1.1 million, of which approximately
$98,000 is included as a reduction of cost of revenue in the three months ended
January 31, 2002, and the remaining $1.0 million is included as a reduction in
losses of discontinued operations that were accrued in July 2001.

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 January 31, 2002 related to the severance and applicable
payroll taxes for employees terminated under the restructuring plan.

      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 January 31, 2003 (in thousands):


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


<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..................................      (1,160)        (15)      (1,175)
                                                 ---------   ---------   ----------
Reserve balance at January 31, 2003...........   $      --   $      40   $       40
                                                 =========   =========   ==========
</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 and six
months ended January 31, 2003.

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 gain of approximately $143,000 and $62,000 during the three and six
months ended January 31, 2003, respectively. 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 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. Pursuant to an omnibus agreement negotiated with
representatives of the plaintiffs' counsel, the individual officer and director
defendants were dismissed from the litigation without prejudice on or about
October 14, 2002. By opinion and order dated February 19, 2003, the District
Court denied in part and granted in part the various issuer and underwriter
defendants' motions to dismiss the Consolidated Amended Class Action Complaint.
The claims against Engage remain.


                                       12
<PAGE>
                                  ENGAGE, INC.
        NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


      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.

O.    TENDER OFFER

      In January 2003, we announced a tender offer whereby we offered to
exchange certain outstanding stock options for restricted shares of our common
stock. In February 2003, in connection with the tender offer, options to
purchase 3,561,442 shares of our common stock were exchanged for shares of
restricted common stock on a one-for-one basis. The shares of restricted stock
will be subject to forfeiture upon termination of employment with Engage and
other restrictions until they vest under the terms of a restricted stock award.
The restricted stock was issued in February 2003 and the risk of forfeiture
lapses in six approximately equal installments on March 1st and September 1st of
2003, 2004 and 2005. In connection with the offer, we will record deferred
compensation charges of approximately $413,000 in February 2003. This charge
will be amortized to stock compensation expense ratably over the 31 month
vesting period of the restricted stock.


                                       13
<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 gain of approximately $143,000 and $62,000 during the three and six
months ended January 31, 2003, respectively. 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 filed with the SEC on November
13, 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.

      COLLECTIBILITY OF ACCOUNTS RECEIVABLE

      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.


                                       14
<PAGE>
      IMPAIRMENT OF LONG-LIVED ASSETS

      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:

      -     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.

      ACCOUNTING FOR LOSS CONTINGENCIES

      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.

      ACCRUALS FOR RESTRUCTURING COSTS

      The accrual of restructuring costs is based on our assessment of costs
that will be incurred to complete planned restructuring activities. For
restructuring activities initiated prior to August 1, 2002, 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.
For restructuring activities initiated on or after August 1, 2002, accruals are
made in accordance with Statement of Financial Accounting Standard No. 146,
Accounting for Costs Associated With Exit or Disposal Activities. Under SFAS
146, restructuring costs are accrued as they are incurred rather that upon the
approval of a restructuring plan. Any adjustments to restructuring accruals are
made when facts indicate that costs will be either more or less than previously
estimated.

      REVENUE RECOGNITION

      We recognize revenue in accordance with 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.


                                       15
<PAGE>
      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.

COMPARISON OF THE THREE MONTHS ENDED JANUARY 31, 2002 AND JANUARY 31, 2003

      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 decreased from $2.3 million in the three months ended
January 31, 2002 to $615,000 in the three months ended January 31, 2003, a 74%
decrease. The decrease in product revenue was due to a $1.4 million decrease in
revenue generated from our Internet advertising products (which we discontinued
selling upon the sale of our Internet advertising business unit), as well as a
$326,000 decrease in license revenue related to our ContentServer products.
Services and support revenue decreased from $3.7 million in the three months
ended January 31, 2002 to $1.7 million in the three months ended January 31,
2003, a 55% decrease. The decline in services and support revenue is the result
of a decrease in product sales, and as such, a decline in new product
installation and implementation services. Product revenue generated from sales
of our Internet advertising products amounted to $1.5 million and $138,000 for
the three months ended January 31, 2002 and 2003, respectively. Services and
support revenue generated from sales of our Internet advertising products
amounted to $1.6 million and $15,000 for the three months ended January 31, 2002
and 2003, 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 have decreased significantly during
the three months ended January 31, 2003, with the expectation that revenue will
cease during the third quarter of fiscal 2003.

      Product gross margin increased from 35% in the three months ended January
31, 2002 to 97% in the three months ended January 31, 2003. 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 January
31, 2003, compared to amortization of $1.5 million during the three months ended
January 31, 2002. Product revenue represented $2.3 million or 39% of total
revenue in the three months ended January 31, 2002 as compared to $615,000 or
27% of total revenue in the three months ended January 31, 2003.

      Services and support gross margin increased from 6% in the three months
ended January 31, 2002 to 8% in the three months ended January 31, 2003. The
improvement in services and support gross margin is due to better utilization of
our professional services staff during the three months ended January 31, 2003,
the result of prior reductions in services and support staffing levels, as well
as a reduction in facility and overhead costs resulting from lower headcounts.

      Sales to one customer accounted for 27% of our total revenue for the three
months ended January 31, 2003. 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


                                       16
<PAGE>
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 $1.9
million in the three months ended January 31, 2002 to $1.5 million in the three
months ended January 31, 2003, a 21% decrease. This decrease was primarily due
to savings related to restructuring activities in fiscal 2002 and the resulting
savings in payroll and related costs, as well as decreased facility and related
charges due to declining rent charges during the three months ended January 31,
2003. Our average research and development staff decreased 46% for the three
months ended January 31, 2003 as compared to the three months ended January 31,
2002. Research and development expenses were 31% of revenue for the three months
ended January 31, 2002 compared to 65% of revenue for the three months ended
January 31, 2003. We anticipate our research and development costs will increase
over the next three quarters as we develop versions of our software to work on
several platforms that are not currently supported by our existing product
architecture. The increase in research and development costs as a percentage of
revenue is the result of declining revenue during the three months ended January
31, 2003, the impact of which was not fully offset by reductions in our staffing
levels.

      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 $2.9 million in the three
months ended January 31, 2002 to $2.4 million in the three months ended January
31, 2003, a 18% decrease. The decrease was primarily due to a decrease in
payroll and related costs and a reduction in facility and 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 49% for the three
months ended January 31, 2003 compared to the three months ended January 31,
2002. Sales and marketing expenses were 48% of revenue for the three months
ended January 31, 2002 compared to 103% of revenue for the three months ended
January 31, 2003. The increase in sales and marketing costs as a percentage of
revenue is the result of declining revenue during the three months ended January
31, 2003, 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 $2.1 million in the three months
ended January 31, 2002 to $2.0 million in the three months ended January 31,
2003, a 6% decrease. The decrease was primarily due to decreases in facility
costs due to decreased staffing levels. Overall, our average general and
administrative staff decreased 38% for the three months ended January 31, 2003
as compared to the three months ended January 31, 2002. General and
administrative costs were 35% of revenue for the three months ended January 31,
2002 compared to 87% of revenue for the three months ended January 31, 2003. The
increase in general and administrative costs as a percentage of revenue is the
result of declining revenue during the three months ended January 31, 2003, the
impact of which was not fully offset by reductions in our staffing levels.

      Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles was $5.9 million in the three months ended January 31,
2002. 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 Engage, 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 January 31, 2003.

      Stock Compensation. Stock compensation expense decreased from $294,000 in
the three months ended January 31, 2002 to $212,000 in the three months ended
January 31, 2003, a 28% 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.


                                       17
<PAGE>
      OTHER INCOME (EXPENSE)

      Interest Income. Interest income decreased from $137,000 in the three
months ended January 31, 2002 to $22,000 in the three months ended January 31,
2003, an 84% decrease. The decrease in interest income was primarily due to
lower cash equivalent balances during the three months ended January 31, 2003
compared to the three months ended January 31, 2002. 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 decreased from $1.0 million in the
three months ended January 31, 2002 to $39,000 in the three months ended January
31, 2003, a 96% decrease. The decrease was a result of our transaction with CMGI
in September 2002 that eliminated the related debt for which we were being
charged interest. 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 $16,000 for the three months
ended January 31, 2002. Minority interest reflects the minority shareholders'
share of the losses of our subsidiary Engage Japan, Inc. This subsidiary was
closed during the second quarter of fiscal 2002, resulting in the elimination of
minority interest for the three months ended January 31, 2003.

      Other Income (Expense), net. Other income (expense), net improved from
$(289,000) for the three months ended January 31, 2002 to $148,000 for the three
months ended January 31, 2003. Other expense for the three months ended January
31, 2002 was primarily related to foreign currency losses related to several of
our European subsidiaries. Other income for the three months ended January 31,
2003 was primarily related to gains realized on the sale of our Internet
advertising business.

      As prescribed by Statement of Financial Accounting Standards No. 52,
Foreign Currency Translation, during the fiscal year ended July 31, 2002, gains
and losses on the translation of dollar denominated intercompany debt were
recognized within other income, as all amounts loaned to foreign subsidiaries
were deemed to be of a short-term nature. Effective August 1, 2002, we have
determined that dollar denominated intercompany debt should be properly
classified as a long-term investment rather than as debt with repayment expected
in the foreseeable future. Accordingly, in the three months ended January 31,
2003, we did not record a foreign currency gain within other income. Instead, we
recorded the effect of exchange rate fluctuations as a currency translation
adjustment included in accumulated other comprehensive loss within stockholders'
deficit.

      Income From Discontinued Operations. Income from discontinued operations
was $333,000 for the three months ended January 31, 2003, the result of accounts
receivable collections in excess of original estimates made at the time we
discontinued the operations of our Media segment.

COMPARISON OF THE SIX MONTHS ENDED JANUARY 31, 2002 AND JANUARY 31, 2003

      Revenue, Cost of Revenue and Gross Margin

      Product revenue decreased from $3.4 million in the six months ended
January 31, 2002 to $1.7 million in the six months ended January 31, 2003, a 49%
decrease. The decrease in product revenue was due to a $2.1 million decrease in
revenue generated from our internet advertising products (which we discontinued
selling upon the sale of our Internet advertising business unit), offset by a
$391,000 increase in license revenue related to our ContentServer products.
Services and support revenue decreased from $9.4 million in the six months ended
January 31, 2002 to $4.3 million in the six months ended January 31, 2003, a 54%
decrease. Product revenue generated from sales of our Internet advertising
products amounted to $2.3 and $238,000 for the six months ended January 31, 2002
and 2003, respectively. Services and support revenue generated from sales of our
Internet advertising products amounted to $4.0 million and $891,000 for the six
months ended January 31, 2002 and 2003, 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 15% in the six months ended January
31, 2002 to 89% in the six months ended January 31, 2003. 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 six months ended January
31, 2003, compared to amortization of $2.9 million during the six months ended
January 31, 2002. Product revenue represented $3.4 million or 26% of total
revenue in the six months ended January 31, 2002 as compared to $1.7 million or
29% of total revenue in the six months ended January 31, 2003.


                                       18
<PAGE>
      Services and support gross margin decreased from 11% in the six months
ended January 31, 2002 to 6% in the six months ended January 31, 2003. The
decline in services and support gross margin is due to a decline in services and
support revenue during the six months ended January 31, 2003, which was not
fully offset by our reduction in payroll and related costs within our services
and support department.

      Sales to two customers accounted for 13% and 10% of our total revenue for
the six months ended January 31, 2003. Our customer base consists of
geographically diverse customers concentrated primarily in the newspaper and
retail industries.

      Operating Expenses

      Research and Development. Our research and development expenses decreased
from $4.3 million in the six months ended January 31, 2002 to $2.8 million in
the six months ended January 31, 2003, a 36% decrease. This decrease was
primarily due to savings related to restructuring activities in fiscal 2002 and
the resulting savings in payroll and related costs, as well as lower facility
costs associated with reduced staff size. Our average research and development
staff decreased 42% for the six months ended January 31, 2003 as compared to the
six months ended January 31, 2002. Research and development expenses were 34% of
revenue for the six months ended January 31, 2002 compared to 46% of revenue for
the six months ended January 31, 2003. The increase in research and development
costs as a percentage of revenue is the result of declining revenue during the
six months ended January 31, 2003, the impact of which was not fully offset by
reductions in our staffing levels.

      Selling and Marketing. Selling and marketing expenses decreased from $6.2
million in the six months ended January 31, 2002 to $5.1 million in the six
months ended January 31, 2003, 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 staff size, 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 41% for the six months ended January
31, 2003 compared to the six months ended January 31, 2002. Sales and marketing
expenses were 48% of revenue for the six months ended January 31, 2002 compared
to 84% of revenue for the six months ended January 31, 2003. The increase in
sales and marketing costs as a percentage of revenue is the result of declining
revenue during the six months ended January 31, 2003, the impact of which was
not fully offset by reductions in our staffing levels.

      General and Administrative. General and administrative expenses decreased
from $4.8 million in the six months ended January 31, 2002 to $3.8 million in
the six months ended January 31, 2003, a 21% decrease. The decrease was
primarily due to decreases in payroll and related costs and a reduction in
overhead costs due to decreased staff size. Overall, our average general and
administrative staff decreased 44% for the six months ended January 31, 2003 as
compared to the six months ended January 31, 2002. General and administrative
costs were 37% of revenue for the six months ended January 31, 2002 compared to
62% of revenue for the six months ended January 31, 2003. The increase in
general and administrative costs as a percentage of revenue is the result of
declining revenue during the six months ended January 31, 2003, the impact of
which was not fully offset by reductions in our staffing levels.

      Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles was $11.7 million in the six months ended January 31,
2002. The decrease is attributable to the reasons previously discussed in the
comparison of the three months ended January 31, 2002 and January 31, 2003.

      Restructuring Costs, net. Restructuring costs, net decreased from $975,000
for the six months ended January 31, 2002 to $241,000 for the six months ended
January 31, 2003. Restructuring costs during the six months ended January 31,
2002 consisted of severance costs related to a reduction in staffing levels.
Restructuring costs during the six months ended January 31, 2003 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 $656,000 in
the six months ended January 31, 2002 to $446,000 in the six months ended
January 31, 2003, a 32% 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 $380,000 in the six months
ended January 31, 2002 to $70,000 in the six months ended January 31, 2003, an
82% decrease. The decrease in interest income was primarily due to lower cash
equivalent balances during the six months ended January 31, 2003 compared to the
six months ended January 31, 2002.


                                       19
<PAGE>
      Interest Expense. Interest expense decreased from $1.4 million in the six
months ended January 31, 2002 to $562,000 in the six months ended January 31,
2003, a 61% decrease. The decrease was a result of our transaction with CMGI in
September 2002 that eliminated the related debt for which we were being charged
interest.

      Minority Interest. Minority interest was $109,000 for the six months ended
January 31, 2002. Minority interest reflects the minority shareholders' share of
the losses of our subsidiary Engage Japan, Inc.. This subsidiary was closed
during the second quarter of fiscal 2002, resulting in the elimination of
minority interest for the six months ended January 31, 2003.

      Other Income (Expense), net. Other income (expense), net improved from
$(128,000) for the six months ended January 31, 2002 to $58,000 for the six
months ended January 31, 2003. Other expense for the six months ended January
31, 2002 was primarily related to foreign currency losses related to several of
our European subsidiaries. Other income for the six months ended January 31,
2003 was primarily related to a gain realized on the sale of our Internet
advertising business.

      Income From Discontinued Operations. Income from discontinued operations
was $1.1 million for the six months ended January 31, 2003, 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 $5.0 million at January 31, 2003. Net cash used in operating activities
was $9.9 million for the six months ended January 31, 2003. 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, and a decrease in accounts receivable. Net cash used for investing
activities was $137,000 for the six months ended January 31, 2003, 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 $232,000 of
costs associated with the CMGI transaction, offset in part by $16,000 of
proceeds from this issuance of common stock through stock option exercise and
purchases within our employee stock purchase plan.

      During the six months ended January 31, 2003, 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.

      In connection with the transaction with CMGI that we completed in
September 2002, 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 and long-term debt to CMGI during each of the fiscal years
ended July 31:

<TABLE>
<CAPTION>
                                                             LONG TERM
                                               OPERATING      DEBT TO
                                                 LEASES        CMGI         TOTAL
                                                 ------       --------      -----
                                                         (IN THOUSANDS)
<S>                                            <C>          <C>           <C>
2003 (remaining six months)...............     $     718    $      --     $     718
2004......................................         1,265           --         1,265
2005......................................           258           --           258
2006......................................            --           --            --
2007......................................            --        2,000         2,000
                                               ---------     --------     ---------
                                               $   2,241     $  2,000     $   4,241
                                               =========     ========     =========
</TABLE>

      During our fiscal year 2002 and the first half 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


                                       20
<PAGE>
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.

      At January 31, 2003, we had a working capital deficit of $3.3 million, an
accumulated deficit of $3.8 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.

      There is doubt about our ability to continue as a going concern after the
end of the current fiscal year. We do not have a commitment for additional
capital to fund our operations, as currently conducted, in Fiscal 2004. We are
currently pursuing sources of financing on terms favorable to us in order to
raise the capital necessary to continue operations past July 2003. However, we
cannot assure you that we will be successful in these efforts. Management may
take additional actions, including reductions in operating expenses and delaying
capital expenditures, in order to preserve cash. We were delisted in August
2002, and our common stock is currently 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. We can give no assurance that we will be able to raise any
additional capital, or if we do raise additional capital, that it will be raised
on terms acceptable to our stockholders or us. If additional amounts cannot be
raised, we would suffer material adverse consequences to our business, financial
condition and results of operations.

      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 will 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, 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 January 31, 2003, 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. During the past several months many
of the local currencies of our subsidiaries have experienced growing strength
against the dollar. Should the dollar continue to decline against these
currencies our financial condition could be affected.

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


                                       21
<PAGE>
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 expect revenue form Internet advertising products and
            services and support to cease during the third quarter of fiscal
            2003;

      -     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 three 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 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;

      -     the uncertainty that we will be able to raise additional capital to
            fund our operations as needed;

      -     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.


                                       22
<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 March 13, 2003 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.


                                       23
<PAGE>
PART II. OTHER INFORMATION

ITEM 1. 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 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. Pursuant to an omnibus agreement negotiated with
representatives of the plaintiffs' counsel, the individual officer and director
defendants were dismissed from the litigation without prejudice on or about
October 14, 2002. By opinion and order dated February 19, 2003, the District
Court denied in part and granted in part the various issuer and underwriter
defendants' motions to dismiss the Consolidated Amended Class Action Complaint.
The claims against Engage remain.

      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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      We held our Annual Meeting of Stockholders on December 30, 2002 and the
following matters were voted on at that meeting:

      1.    The election of John D. Barone, Edward A. Bennett and Peter J. Rice,
            each to serve until the next annual meeting of stockholders or until
            their successors are duly elected and qualified. The following chart
            shows the number of votes cast for or against each director, as well
            as the number of votes withheld:

<TABLE>
<CAPTION>
                                        For          Against        Withheld
                                        ---          -------        --------
<S>                                  <C>             <C>            <C>
            John D. Barone           31,805,877      134,339          N/A

            Edward A. Bennett        31,574,107      366,109          N/A

            Peter J. Rice            31,574,107      366,109          N/A
</TABLE>

      2.    The proposal to approve an amendment to our Amended and Restated
            1999 Employee Stock Purchase Plan to increase by 2,400,000 shares
            the number of shares of our Common Stock issuable under this plan.
            The following chart shows the number of votes cast for or against
            the proposal, as well as the number of abstentions and broker
            nonvotes:

<TABLE>
<CAPTION>
               For            Against        Abstain        Broker Non-Vote
               ---            -------        -------        ---------------
<S>                           <C>            <C>            <C>
            31,297,948        519,353        122,915             N/A
</TABLE>


                                       24
<PAGE>
      3.    The proposal to ratify the selection of KPMG LLP as our independent
            auditors for the fiscal year ended July 31, 2003. The following
            chart shows the number of votes cast for or against the proposal, as
            well as the number of abstentions and broker nonvotes:

<TABLE>
<CAPTION>
               For            Against        Abstain        Broker Non-Vote
               ---            -------        -------        ---------------
<S>                           <C>            <C>            <C>
            31,562,873        279,497         97,846             N/A
</TABLE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

      10.1  Second Amended and Restated 1999 Employee Stock Purchase Plan

      10.2  Third Amended and Restated 1995 Equity Incentive Plan

      10.3  First Amended and Restated 2000 Equity Incentive Plan

(b)   Reports on Form 8-K

            On November 13, 2002, the Company furnished a Report on Form 8-K
      setting forth the written statement of the Company's principal executive
      officer and principal financial officer required by Section 906 of the
      Sarbanes-Oxley Act of 2002.

            On December 16, 2002, the Company furnished a Report on Form 8-K
      furnishing the written statement of the Company's principal executive
      officer and principal financial officer required by Section 906 of the
      Sarbanes-Oxley Act of 2002.


                                       25
<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 March 14, 2003.

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



                                      By: /s/ LISA PAVELKA MCALISTER
                                          -------------------------------------
                                          Lisa Pavelka McAlister
                                          Chief Financial Officer and Treasurer
                                          (Principal Accounting and Financial
                                          Officer of the Registrant)
</TABLE>
<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 officer 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 officer 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 officer 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.

<TABLE>
<S>                                     <C>
Date: March 14, 2003

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

I, Lisa Pavelka 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 officer 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 officer 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 officer 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.

<TABLE>
<S>                                     <C>
Date: March 14, 2003


                                        /S/ LISA PAVELKA MCALISTER
                                        ---------------------------------------
                                        Lisa Pavelka McAlister, Chief Financial
                                          Officer and Treasurer
</TABLE>
<PAGE>
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                               EXHIBIT
-----------                               -------
<S>          <C>
   10.1      Second Amended and Restated 1999 Employee Stock Purchase Plan

   10.2      Third Amended and Restated 1995 Equity Incentive Plan

   10.3      First Amended and Restated 2000 Equity Incentive Plan
</TABLE>